Pay TV penetration in the Middle East continues to be hindered by issues including rampant piracy and the proliferation of free-to-air channel operators.
In a bid to expand its revenue base and confront these challenges, Bahrain-based pay TV operator Orbit is developing new value-added services leveraging the latest convergence technologies.
The ongoing convergence of broadcast and telecommunications technologies has encouraged the development of new content delivery platforms ranging from video-on-demand (VOD) to mobile TV and IPTV services.
We face a major issue in confronting the spread of piracy in the Middle East. The influx of new free-to-air (FTA) TV operators also challenges our position in regards to advertising spend and convincing consumers to subscribe to pay TV services.
These platforms are opening up new markets for both broadcasters and telcos and creating new revenue streams in the process. Middle East pay TV operators are seeking to leverage these new technologies in a bid to gain greater traction in the marketplace and expand their subscription base.
Bahrain-based pan-Arab pay TV broadcaster Orbit is tying its long-term growth strategy to the development of innovative services that leverage the best of both sectors.
"We believe the key to attracting new subscribers is not simply adding new channels to our existing roster," says Orbit CEO Samir Abdulhadi. "We want to provide greater value for money via new services like VOD, which will be possible once we introduce our new set-top-boxes in the third quarter of this year."
"While it may seem a drawn-out process we believe in the long-term this strategy will generate results."
Orbit recently launched a VoIP service in Bahrain branded Orbitfone, which offers subscribers low-cost international calls over the internet.
The service is offered on a pay-by-the-second basis, which removes the expense and complication of contracts and billing.
Abdulhadi says the implementation of this business model eased the company's transition into a new sector, diminishing start-up costs and lowering the potential risk the company was exposed to.
"We took advantage of the deregulation of the Bahrain telecoms sector and launched a bouquet of VoIP services with a view to introducing the service later in KSA and other GCC countries," he explains. "Bahrain's relatively small size and wealthy consumer market makes it an ideal test-bed for these types of services".
Abdulhadi says Orbit's VoIP service was preceded by a calling card offering in Bahrain and later a 'webphone' VoIP service.
"Deregulation created increased competition in the calling cards business, which prompted our decision to focus on the development of VoIP services," he explains. "We are planning to launch Orbitfone in other markets across the Middle East and North Africa sometime this quarter."
Abdulhadi claims Orbit's programming strategy also stands in stark contrast to those adopted by its regional pay TV rivals Showtime and ART. He says Orbit is committed to providing the best mix of Arabic, Asian and Western content.
"We have forged a solid reputation for providing top quality Arabic programming, produced both in-house and by third-party production houses," he says. "We will continue to focus on this as it is paying dividends. This does not mean however that we will give up on our Western programming. We are acquiring new content and will continue to pursue this strategy."
Orbit's production wing, Media Gates, is also taking advantage of the commercial opportunities created by the launch of new media platforms. Media Gates has studios in Kuwait, Riyadh, Beirut and Cairo, and was formed through the consolidation of Orbit's production activities. It is now enjoying strong commercial gains tapping new sectors of the market.
"There is a huge demand from telco operators for content and Media Gates is well placed to satisfy that demand, given the Arabic content it has produced to date," he says. "I cannot name clients specifically, but there are several telcos in the Middle East, and particularly in KSA, that are putting together a slate right now."
Any collaboration would more than likely provide immediate benefits, but long-term success would largely depend on what exclusive programming rights each partner brought to the table.
In theory, broadcast rights to premium content such as the English Premier League (EPL), could be purchased collectively and offered on multiple platforms, reducing costs for each stakeholder.
Abdulhadi points out however that the exclusivity of these rights has been integral to the value and he is unsure that any deal would be profitable outside of an exclusive arrangement.
A full merger between two or more operators would offer significant cost savings by enabling the partners to centralise their customer support and service and billing enquiries.
A singular collective offering, that does not ask consumers to sacrifice one category of content for another, may also lead to increased subscriber uptake.
Abdulhadi believes that Middle East pay TV operators now face unprecedented challenges for market share.
"We face major issues confronting the spread of piracy in the Middle East," he says. "The influx of new free-to-air (FTA) TV operators also challenges our position in regards to advertising spend and convincing consumers to subscribe to pay TV services."
Pay TV penetration rates across the Middle East and North Africa remain startlingly low compared to international markets.
"There is far greater reluctance among consumers to pay for TV services in this region than elsewhere, mainly because of the hundreds of Arabic-language FTA channels that are available," claims Abdulhadi.
Ultimately, the Orbit CEO believes these issues are intertwined.
The glut of FTA satellite channels (370 and counting) offer a large variety of Arabic-language programming, while the largely unhindered spread of pirated pay TV services means that premium content, such as top European football, can be viewed for free alongside FTA programming in many countries across the region.
"It is our responsibility to ensure the public know that pay TV is superior to what is available on FTA offerings," argues Abdulhadi.
"It offers a broad spectrum of content that is not available on FTA. The onus is on the industry to educate potential customers and demonstrate the benefits of pay TV."
So what exactly are these benefits Abdulhadi refers to?
Between the exclusive rights deals with both the major film studios and US networks for the first screenings of Hollywood blockbusters and the first run of major American series such as Heroes, Lost and CSI, not to mention the sporting events, pay TV operators are investing heavily in first-rate local and international content.
Exclusive rights come at a premium and promoting this exclusivity to the public is vital if pay TV operators are to ultimately gain greater returns on their investments, as Abdulhadi points out.
The battle for subscription-generated revenues does not end there, however. Even once a would-be subscriber has selected one pay TV service provider over another, convincing them to actually pay for the service, as opposed to accessing it through illegal means for a fraction of the price, can prove an even greater challenge.
According to the Arab Advisors Group, pirated pay TV services are rife in the Levant and North Africa, with cases of illegal quasi-cable operations littering apartment blocks across the region.
A common practice it seems is for an individual to gather a selection of pay TV subscriptions, the FTA bouquet and foreign encrypted channels, and then re-transmit them to neighbouring houses, often for as little as US$10 a month.
Abdulhadi suggests a unified response involving, key stakeholders, industry bodies and governments across the region must be adopted to stamp out the practice.
"It is important to ensure the public is made aware of the dangers of piracy," he warns. "These operations are often a front for other illegal activities, such as money laundering."
"The distribution of pirated DVDs across the region also undermines our investment in first-run movies."
"Over the past year or so there has been some success in prompting the regulators, at a governmental level to take action. Not just to stop the pirates but to prosecute them once they are caught. Everybody needs to do more. We have only just started down this road," he adds.
The success of Orbit's expanded business strategy aims to increase its average revenue per subscriber. This tactic might just be the best approach for the broadcaster to prosper commercially in the face of growing commercial challenges, including piracy.
While Abdulhadi concedes that the regional pay TV industry requires greater stability for long-term success, he believes the situation could be improved by a process of "rationalisation" within the pay TV and FTA sectors.
"In addition to the threat of piracy we face the unique situation of competing with 400 FTA channels, all of whom are delivering the same language service to millions of viewers," he says. "Without these challenges three operators could healthily co-exist, but with them...three is probably too many."
1987: Abdulhadi is appointed managing director of the Arabian Company for Detergents. In 1991 he joins the Mawarid Group where he holds top management positions across a range of Mawarid companies.
2002: Is appointed president and CEO of Orbit Communications Company.
Abdulhadi is a chairman of the board of Noorsat satellite services and is also a board director of Integrated Telecom (ITC).