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Round-Up: Globe/Disney, 21CF + More

Globe, Disney Forge long-term consumer Deal

Philippines telco Globe Telecom has tied up with Disney for a multi-year alliance, taking in content, marketing and more as both companies look to capitalize on high levels of economic growth, as well as youth consumption and expenditure in the Southeast Asian growth market.

The pact contains three notable firsts: (1) The first major deal in Southeast Asia under the Disney umbrella for short-form online video network Maker Studios; (2) The first time Disney has offered its OTT Watch Disney Channel apps to a pure-play telco; and critically, (3) Disney is giving Globe exclusive rights to market and control merchandizing and retail activations for Disney, Marvel, Pixar and Star Wars theatrical releases.

According to industry analysts Media Partners Asia (MPA), the tie-up sets the stage for more integrated deals with telcos and other related entities, as Disney looks to get closer to the consumer and capitalize on youth-based media consumption across Southeast Asia.

“The deal probably has strong economic underpinnings in the near term but a lot of it is premised on how much both companies can deliver to the consumer and grow each others’ franchises across the board,” says MPA director Vivek Couto.

“Disney could use the same blueprint for deals with other telcos across Southeast Asia and even India, in a similar way that their continued engagement with Astro defines what they can do across linear, non-linear and other forms of media distribution in partnership with ambitious pay-TV groups."

Significantly, Globe has been ramping up its mobile market share in recent times, and could close 2015 with close to 40% market share on a base of 45-46 million mobile subs and a 45% share of mobile industry revenues (versus less than 40% in 2010). Contributions from mobile data and VAS (value-added services) will overtake those from SMS over the next two years.

The agreement also includes SVOD services Disney Movies On Demand, Disney on Demand and Maker on Demand, which will enable Globe customers to access Disney franchises (predominantly kids) across mobile devices.

In addition, Maker will work with Globe to create short-form content for mobile customers.

21CF: Fundamentals Remain Strong

Underlying fundamentals remain strong at global media major 21st Century Fox (21CF).

Revenues for 21CF’s March 2015 quarter (the company’s Q3 FYE June 2015) reached US$6.8 billion, up US$84 million compared to the year-on-year adjusted result. Ebitda reached US$1.68 billion, a 3% reduction versus the adjusted Ebitda from a year ago.

The numbers reflect strong contributions from 21CF’s cable networks and film divisions, which more than offset reduced TV segment results, including investments in new sports channels in India.

Affiliate fees for international pay channels were up 2%, on an underlying mid-teens local currency growth trajectory mostly offset by unfavorable exchange rates.

Total cable ad revenue growth, at 9% for the quarter, was led by international channels, where reported international advertising rose 24%, from 29% growth on a local currency basis. This was primarily driven by increases at Star India from this year's broadcast of the ICC Cricket World Cup.

Total cable networks Ebitda in the third quarter grew 5% Y/Y to US$1.23 billion, reflecting solid revenue growth which was partially offset by a planned 19% increase in expenses, primarily related to higher sports rights and entertainment content costs.

Almost 60% of the increase in expenses came from Star Sports, most notably the cost of the ICC Cricket World Cup rights.

Ebitda growth is under pressure across 21CF’s international pay channel business, despite local currency growth at Fox International Channels (FIC).

Total reported international channel Ebitda contributions declined 60%, driven by a sizable planned cricket investment for Star Sports, as well as the overall negative impact from foreign exchange rates, especially from Latin America.

In February 2015, 21CF’s Star India also announced plans to acquire the regional broadcast business of Maa TV Network, which operates Telugu language entertainment channels, for approximately US$375 million in cash.

Commenting on future cost and revenue growth exposure in Asia in particular, 21CF deputy COO James Murdoch said:

"Even though the investment in cricket, for example, has been heavy, the results have been tremendous, and we've seen record viewership. Also, that's a real platform to build new sports off of as well. In the last year, we have seen investment not just in cricket, but in kabaddi and domestic professional soccer in India.

"The investment in sports across Asia and Latin America has been very, very effective, with our affiliates but also with advertisers and most importantly for customers.

"I think as you look out over the next couple of years, you will see the ramp-up normalize. And we'll see – in particular where we have a real investment of loss on the sports business in India – as that normalizes, you really start to expose the underlying profitability of the entertainment business.

"That's what drives a double benefit, as that goes towards much greater profitability. The other regions are less pronounced with respect to that shift.”

President & COO Chase Carey added:

"Across Asia, in many ways the next generation of growth is coming through over-the-top digital platforms. In some places like Japan, pay-TV matured at 25% to 30% penetration and all the energy now is coming in various subscription digital platforms.

"A lot of the business models and rules and practices are still being developed but we are strong in these markets, and very much working with players as new paths evolve."

A Muted Peformance In Indonesia

Indonesia’s ad market is in slowdown mode, as underlined by industry analysts Media Partners Asia (MPA) in their recent ad update.

As a result, free TV-driven domestic media majors reported muted results for Q1 2015.

MNC Group saw revenues up only 1% Y/Y for the quarter, while core Ebitda grew 1% as margins were maintained at 38%.

Surya Citra Media (SCMA) saw revenues slide 1% and profits were dented, although free cash generation was strong as receivables significantly improved.

Both companies expect stronger growth in the second half of the year, and are guiding for 8-9% FY 2015 ad sales growth.

Ratings for both SCMA and MNC improved in April. SCMA had 31% audience share (led by Indosiar, which has seen its talent search show propel it to #1) while MNC had 34.6% share, driven by improvement at RCTI and Global TV.

Trans Group had 16% of the audience in April, slightly ahead of Viva with 15.1%.

ASIA GROWTH Flattened, Zaslav Says

Global pay-TV channels major Discovery Communications reported relatively positive results for its Q1 period, with total reported sales up 29% Y/Y to top US$1.5 billion and adjusted OIBDA up 8% to US$568 million.

Led by Europe, Discovery's international networks business grew top line by 11% to US$735 million, with subscription fees up 17% and ad sales down 1%.

Lack of momentum in Asia, especially outside India, is starting to hurt. All regions, except Asia and Russia, saw double-digit ad growth increases in Q1 and for all of 2014, led by the continued success of free-to-air businesses across Europe and pay channels across Latin America.

"We remain very optimistic about our international business,” said Discovery CEO David Zaslav on an earnings call.

"We have strong pay channels and free-to-air, as well as sports in Europe and leadership with kids in Latin America, a very strong hand," Zaslav added.

"We are seeing a slowdown in Asia. The overall market in Asia outside of India has slowed, so the double-digit growth we were seeing there over the years has really flattened now."

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