A more challenging macro environment, softer TV advertising growth and disruptive competition in pay-TV is making life more challenging than usual for Indonesia’s leading media group, Global Mediacom (GMC).
GMC owns both MNC Group, owner of four free TV stations, and MNC Sky Vision (MSky), the market's largest pay-TV operator.
Highlights of an April 9 analyst briefing with group president and CEO, Hary Tanoesoedibjo, include:
The macro climate is uneven, and advertising is softer as a result.
Free TV ad spend will grow at high single-digit increases this year, garnering close to 70% of the total ad pie.
Online and mobile advertising will continue to grow at high levels from a relatively low base, at the expense of print.
A tight ad market means that costs need to tighten, as MNC leverages its 200,000-hour library (60% non-news) to keep programming costs flat.
Ebitda margin expansion was fairly solid at MNC's free TV stations but growth was limited by other businesses (content/channel units and ad agency business).
Leading free TV station RCTI generated a 54% Ebitda margin last year, followed by 40% for MNCTV and 30%-plus for Global TV.
"The challenge is how we manage costs, assuming ad spend is growing by, say, 8-9%. It's not as high compared to three years ago," Hary said.
"We need to maximize the utilization of our library… more than 50% is not used, and has good value, which we can rerun on our FTA channels.”
MNC’s fourth national TV network, previously called Sindo TV, has been rebranded iNews TV and has now officially launched.
iNews TV comprises 46 local stations that the group has been acquiring over the past six years.
According to Hary, about US$80 million has been invested to build the network, financed through convertible bonds which will be converted fully into equity this year.
The station will primarily focus on news and some sports. Costs will be very controlled as the addressable revenue pie is smaller than that of entertainment, equivalent to about US$100-150 million per year.
iNews TV is targeting Rp300 billion or ~US$25 million in revenues for FY 2015, with a 30% Ebitda margin.
Hary is keen that MNC reinforces its leadership in content production.
The company produces more than 40 hours of content every day, leveraging RCTI Production (makers of Indonesian Idol and X Factor amongst other shows), MNC Pictures (producer of this year's top grossing domestic film, Di Balik 98), and MNC Animation.
The last is a new unit that Hary is particularly excited about, headed up by ex-Disney and Cartoon Network executive Seung-Hyun Oh as chief creative officer.
"We have also added a new script-writing talent from Bollywood, and are working closely with a Japanese production company to develop new variety game shows,” Hary said.
"We strongly believe these new appointments and initiatives will significantly boost our in-house production content-creation capability, and set us further apart from our competition."
MNC also supplies content for 19 pay channels offered by MSky, and plans to increase this to 21 by the end of the year.
PAY-TV & BROADBAND
MSky ended 2014 with 2.58 million subs, having added 229,000, its lowest year of growth since 2011.
Price-based competition has proved disruptive but piracy has been even more damaging, Hary said.
“Competition is stabilizing but piracy really is the big issue,” he stated.
"Today, there are about 4 million or 5 million basically illegal subscribers in Indonesia. That's why we work very closely with the police and content providers to take firm action to combat this piracy.”
Hary says active bundling of pay-TV with broadband – together with the recent launch of authenticated TV Everywhere services, as well as plans for future offerings including VOD – will help boost Arpu and subscriber growth.
MNC Play Media, a bundled broadband and IPTV service, targets 700,000 fiber homes passed by end-2015 and 35% subscriber penetration by the middle of next year.
GMC has issued US$35 million in convertible bonds to fund MNC Play Media, which will eventually be structured into a new holding company under GMC along with MSky.
MSky is also investing in capital expenditure this year to complete its Mpeg-4 upgrade, with more than 300,000 subs still to swap out Mpeg-2.
Hary did not rule out buying pay-TV and broadband competitor LinkNet, which generated close to US$100 million in Ebitda last year and has almost 400,000 broadband customers along with 360,000-plus cable TV subs.
"It would be ideal, at the right price of course, if we can buy it out,” Hary said. "So we will become the biggest broadband company, and in turn reinforce our pay business. But I cannot comment much, because it's still in the early stages."
MNC Group’s gaming business in China continues to gain traction.
Its mobile games business LeTang generated US$40 million in revenue last year, and could triple this base in 2015.
"Last year alone, from our three games, we managed to have more than 230 million unique players and our revenue jumped fivefold with only three games, and we developed our own games application," Hary said.
"This year, I think the revenue may triple to four times. It's doing very well, because we produce more games and we also expanded from just single-player games now to multiple-player games, so the revenue stream is much bigger."
GMC has also signed a 50:50 JV with global outdoor giant JCDecaux to develop an out-of-home business in Indonesia.
“For us, this is not really a core business, but it's a nice to have, because advertisers like Unilever, they spend money on TV, digital and also on outdoor; cigarette companies, it's the same thing,” said Hary.
"The market is very big but it's very difficult to quantify because it's very fragmented. JCDecaux are unique… that's why we are keen to have a JV with them."