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INSIGHT: The Forrester Focus
Over-Expansion In Middle East Satellite?

by Chris Forrester, Columnist

The Middle East’s two indigenous satellite operators are both building new satellites for their region. ArabSat is on a set of more aggressive expansion plans, which in essence sees Arabsat launching a new craft every year until 2012. Nilesat is also busy, and its 201 craft will launch early in 2010. “If new capacity were limited to just these pair, then there would not be a problem,” argues Nabil Kazan, a well-known name in Arab broadcasting.

Mr. Kazan, speaking at the recent MIPtv programming market conference, said that while the number of channels had grown from just 15 to more than 500 in the past 12 years or so, the end result of “channel overload” was causing damage to the local TV environment. We’ll return to this challenging problem in a moment — but there’s more than just Arabsat and Nilesat expanding their capacity (panel).

Two years from now there’s going to be an excess of supply over demand. This excess supply may be soaked up by the expansion of HDTV services. But this is by no means certain.

There is a huge legacy problem of MPEG-2 set-top boxes (STBs) in the Middle East/North Africa (MENA), and until someone launches MPEG-4-based HDTV, there is little or no reason to shift to advanced compression.

Indeed, most local observers see the growth of channels as being inevitable. Euroconsult suggests 1000+ digital channels covering the region by 2010, and around 1200 channels by 2015. Few see much risk to this level of expansion, nor is there much threat to this level of expansion from HDTV. Any investment in HDTV will need to include the mainstream commercial channels, and the local argument — expressed with some justification — is that there’s no financial incentive to launch HD.

Nevertheless, Nilesat says it will launch a showcase HD channel with help from some of the region’s major players. Gabriel Chahine, Vice President at Booz & Co’s Beirut office, argued at the MIPtv presentation in March that there’s growing signs of maturity amongst the region’s free-to-air broadcasters. “The industry structure in the region is unique. The ad-spend on TV is low by any international measure. Yet pan-regional broadcasters are spending a great deal of money on their [programming] grids in order to win audiences over. The major broadcasters show all the signs of growing stronger, while smaller players are struggling.”

However, the cost of programming — at least by ‘western’ standards — is miniscule. Chahine gave, as examples, the top four broadcasters, which had annual programming budgets of $63m, $51m, $40m, and $33m, or an average of much less than $1m per week on programming. There are European broadcasters spending more than this per hour of TV and winning smaller audiences!

Chahine explained that five broadcasting groups now controlled 70 to 80 percent of pan-Arab viewing, with MBC dominating the region with a 43 percent audience share from its bouquet of nine channels. There are some strong regional differences, with Egypt’s Nile TV cluster doing well in Egypt, and Saudi Arabia’s TV output winning a greater audience in its local market. “There are very few groups which have been able to increase their audience share during the last half-dozen years. MBC is the clear leader. Other channels which were leading the market back in 2002 (for example, LBC) have almost disappeared from the radar screen by 2007-8. The ‘one-size fits all’ model that used to work so well, now doesn’t work at all. Almost all of the major broadcasters are attempting to diversify their offerings, trying to come up with more targeted offerings. The larger groups now have 10 to 12 channels under their umbrellas, with the most recent restructuring taking place in Egypt, which has seen re-launches of all of their channels. However, right across the board it is fair to say that not all are succeeding effectively.”

Over the past four years, about 81 free-to-air channels have closed, 24 of which were best described as ‘general’ channels, plus another 17 in the variety/entertainment category, 10 music channels, 7 that covered news/current affairs, 4 sports channels and 3 movie channels.

Gabriel Chahine argues that there IS space for some channel expansion, but the over-riding need is to raise the quality of local productions, especially drama series. Currently dubbed Turkish melodrama outperforms locally produced (Arab) content. Nabil Kazan says that channel numbers should reduce, not expand. “Almost everyone in the region have dishes that can look at NileSat (98 percent penetration), ArabSat (94 percent penetration), and Eutelsat Hot Bird at 13 degrees East, with 70 percent coverage.” He praised local production, citing Egypt ($180m of local production last year), Syria ($50m in 2008), the Lebanon, Jordan, and the Gulf States ($25m), but says the cake is now spread much too thinly. The proliferation of channels has reduced the average audience per programme, reduced the ad-spend per channel per hour, and reduced profits on a per-channel basis.

Kazan says that last year’s total spend, by all channels, on local non-sport original programming (including variety shows and comedy as well as factual, kids and tele-novellas) was no more than $250m-$300m. “On sport it is a different story. Fierce buying rights for key events have sent the bidding amounts for soccer alone to more than $300m, and it might be $350m.”

“I’d like to strongly recommend to the channel owners to spend more on research, marketing and acquiring and producing content that’s relevant for the Arab world” stated Kazan. He added that the economic downturn had not affected Middle East broadcasting.

“Something like 50 percent of the channels on air don’t need advertising. They are either wholly subsidized by their governments, or religious backers. Out of the remaining 250 or so channels, then the top 10 or 20 are getting more than 85 percent of the total advertising spend in the region. The remaining channels, many of then owned by individuals who wished to brag about the fact that they own a TV station, they should not be able to go much further. And it isn’t just these 500 channels. There’s another 500-600 on Hot Bird.”

These experts, keen to protect the local industry, were unanimous in suggesting that the region doesn’t need new TV channels. However, if this is true then where does this leave the planned capacity expansion for the region?

About the author
Chris Forrester is a well-known entertainment and broadcasting journalist. He reports on all aspects of the TV industry with an emphasis on content, the business of film, television, and emerging technologies, including interactive multimedia, web-streamed and digitized content over cable, satellite and digital terrestrial TV, and cellular and 3G mobile. Chris has been investigating, researching and reporting on the ‘broadband explosion’ for 25 years.