Lines in the sand

Rebecca Hawkes assesses the changing face of pay TV broadcasting in the MENA region at a time of transition as new OTT TV services enter the fray and political crises disrupt the market.

Pay TV operators in the Arabic-speaking world have long aimed to transcend both the dominance of free-to-air TV and the blight of content piracy. Now, being liberally added to the competitive mix is a dose of digital disruption.

New sources of online entertainment are being lapped up by the growing digital-savvy, youthful population of an increasingly internet-connected Middle East and North Africa. In the space of just a few years, the region’s video-on-demand market has gone from sparse to distinctly crowded.

The first regional over-the-top video players such as Icflix, Istikana and Starz Play Arabia were joined, in 2016, by US giants Netflix and Amazon Prime Video. Then, in April 2017, Asian subscription video-on-demand service Iflix, backed by western pay-TV giants Liberty Global and Sky, entered the fray – in partnership with Bahrain-based telco Zain.

By the end of this year, research analysts at IHS Markit forecast that MENA’s OTT video players will have a combined total of 1.33 million subscriptions, with the sector accounting for US$80 million (e68 million) in revenues. Yet, by the end of 2021, these figures will have escalated to 4.2 million subscribers and standalone revenues of US$360 million.

Indeed, the compound annual growth rate for MENA’s OTT sector will be 35% between 2016 and 2021, says IHS. The CAGR for the regional pay TV sector during the same period is forecast to be just 6%.

Gaining ground

Lionsgate-backed Starz Play Arabia, which launched its Hollywood-rich SVOD service in April 2015, announced in July it had attracted 700,000 paying subscribers – in large part through localising its offering and teaming up with local telecommunications companies for mobile and IPTV distribution and direct billing. In addition, it has priced its services according to the market, at US$7.99 in the Gulf, and US$4.99 in Maghreb countries such as Morocco.

Starz Play’s CEO, Maaz Sheikh says the MENA-wide platform is now aiming to finish the year with over a million paying subscribers. “We are holding the leadership position in the market now and are on course for this but it’s still a challenging, competitive market,” he says. “We have areas that are performing better than expected at this point [of service development] such as the number of paid subscriptions, consumption and user engagement. However churn is higher than predicted, which is challenging.”

Half of Starz Play’s UAE subscriber base also subscribes to Netflix, says Sheikh. “In the UAE Netflix’s premium western content is relevant to the large western expatriate population. However, when you go into North Africa, Netflix’s proposition is not so relevant to the local population,” he says. In North Africa Netflix is also priced more expensively than its competition, with its region-wide tiered price tag of between US$7.99 and US$11.99.

Constantinos Papavassilopoulos, senior analyst at IHS Markit, agrees that while the US streaming giant remains a threat to the regional players, Netflix is not the leading SVOD service across the whole of MENA. Netflix itself does not publish regional subscription figures.

“The price is high for most of the population living outside the Gulf, and the service is not yet localised, which is also hampering its growth,” explains Papavassilopoulos. “It also doesn’t have many direct billing agreements with local mobile telecommunications operators, like its competitors, and credit card penetration is low in MENA.”

Indeed, rival platforms Icflix, Starz Play and MBC’s paid streaming service Shahid Plus have been very effective in this area, securing more than 40 deals between them with regional telcos. Netflix currently has an arrangement with Batelco in Bahrain, and Amazon is yet to announce any local partnerships.

Shining Stars

Starz Play is hoping to maximise its early-mover advantage, particularly in North Africa. For example, a recently announced strategic partnership with Orange Egypt will see Starz Play now bundled with the mobile operator’s 4G service, in what remains a lucrative market for content providers.

CEO Sheikh also points to a growing subscriber base in Jordan, Morocco, and in Algeria where the launch of Starz Play bundled with Ooredoo Algeria has proved “very successful”. The platform is now offering 2,500 hours of Hollywood content in French, with prime content such as the latest Walking Dead shows airing on the same day as the US with French subtitles for Maghreb viewers.

Diversifying its content further, Starz Play has also recently tied-up with YuppFlix to provide subscribers with 1,500 hours of South Asian movies. Subtitled in Arabic, the films are proving popular with both the large Indian diaspora and Arab audiences. “Our Bollywood consumption is, as expected, highest in the Gulf but it is also performing well in North Africa,” says Sheikh.

Netflix, meanwhile, recently unveiled what is expected to be the start of its original Arabic content push. In October, it announced development of a stand-up comedy special with Lebanese comedian and actor Adel Karam. Produced by Creative Arab Talent and filmed in Beirut’s Casino du Liban, the show will stream to Netflix subscribers worldwide in 2018.

Given its stated aim ‘to become a leading producer of quality localised content from all over the world’, similar announcements from Netflix are expected to follow. Netflix’s director of technology and corporate communications EMEA, Yann Lafargue, says that “one of our desires in the region is to find a great scripted series for the Middle East and this remains the case”.

“With a US$6 billion budget for content production alone this year and US$7 billion for next year we are actively seeking to expand our Netflix audience base both in MENA and around the world through varied content offerings,” he says.

Lafargue adds that in order to do so the company would look to “experienced creators with great stories to tell from all over the world, including the Middle East”.

Adding locally produced content to predominantly western fare is a desire shared by Starz Play Arabia, which hopes to enter the local production market in 2018 with a strong Arabic drama series – both to attract subscribers and bring down the operator’s churn rate.

One regional SVOD operator with a head start on local co-productions is Icflix, whose Moroccan film Burn Out, directed by Noureddine Lakhmari, celebrated its theatrical release on October 11 2017.

CEO Carlos Tibi says that Arabic content has been the “key differentiator” for Icflix, over the past 18 months: “We [also] co-produced our first Tunisian feature Chbabek El-Jenna (Borders of Heaven) and launched our first animated TV series Dunia, introducing the first Arabian teen female superhero.”

In addition, Icflix has produced the original Arabic social comedy WOH! in Tunisia.

Since the Dubai-based MENA-wide SVOD service launched in 2013, it has registered 1.5 million users, says Tibi, to a service priced – like Starz Play – at US$7.99 in the Gulf and US$4.99 in the Maghreb.

Tibi adds: “We have taken on board the many lessons learnt during the last four years of operation and have renewed our focus on original Arabic content as opposed to the over priced Hollywood films and series. With this strategy, we expect the company to move to profitability within 18 months to two years.”

Asian influence

The most recent SVOD entrant in the MENA market, Iflix, is also looking to local and regional content to fuel its success as it expands, from its home base in South East Asia, into emerging markets around the globe.

Arriving in MENA this year, Iflix is now available in Kuwait, Saudi, Bahrain, Jordan, Iraq, Lebanon, Sudan and Egypt. In the territories where its telco partner Zain operates, Iflix is bundled for free with the mobile service. It is also seeking further telco partnerships in markets such as Egypt where Zain does not operate.

Iflix is also offered to consumers direct online or as an app, at a monthly price of US$4 in the Middle East or US$3 in North Africa.

“There is no lock-in period as we didn’t want people to be afraid to try Iflix,” says Nader Sobhan, head of Iflix MENA. “Pay TV is still expensive for the mass market. The complexity of receiving content also alienates a large number of people from trying it. We want to democratise content.”

The company, which was founded in 2015 by Malaysia’s Catcha Group and Evolution Media Capital, focuses on markets where, typically, pay TV penetration is low, data costs are high, there is little or no credit card penetration, and the need for ultra-compression and watching content offline is key. This makes MENA well suited to the service, which has already cut its teeth in Asia’s developing markets, says Sobhan.

“I respect the industry we are in, which provides an amazing choice for the consumer but we’re not just targeting the elite, we are working in a mobile-first environment. This is not what anyone else [in MENA] has focused on,” says Sobhan. “Our model works…we have a data driven approach to content.”

Rather than focusing on rival SVOD brands, the competition Iflix says it most fears in the region is piracy. Content theft is rife in MENA and although the quality and viewer experience is poor, pirates continue to attract viewers. “We need to design something that cannot be replicated. [To be successful] the experience must continue to be better and more engaging than that offered by pirates,” says Sobhan.

On top of that, Iflix is placing teams on the ground to absorb cultural preferences and acquire local and regional content that is relevant to each part of the wider region.

“We are a global player with local roots,” says Sobhan. “We can also apply our experience in Asia, knowing what content works, for example in the Philippines and Pakistan, and can apply that to the diaspora living in MENA.”

Enduring providers

Although the region’s OTT sector is moving at pace, it would be wrong to suggest that MENA’s established pay TV players are being pushed out of the picture.

Indeed, premium pay TV operator OSN, which was born of the Orbit/Showtime Arabia merger in 2009, has been very active this year. Through aggressive pricing, packaging, and a revamped and renamed OTT service, it has now, says IHS’s Papavassilopoulos, “stopped the bleed of subscribers” witnessed in recent years.

Long considered too expensive for much of the region’s population, OSN this year introduced flexible pricing, with a basic pack of 32 channels starting at US$20 in the Gulf and even less in North Africa. This has also enabled it to better compete with SVOD services offering slimmer packages of more affordable content.

OSN’s “transformational strategy… reflects the ground realities of a growing population of young, tech-savvy consumers, seeking relevant exclusive content across multiple platforms,” explains CEO Martin Stewart. “Our strategy has been to recalibrate key parts of our business to ensure we align with the digital era, to ensure we achieve our short and long-term goals.”

Doing this has meant becoming more “customer-centric” Stewart concedes. And by improving content delivery options and enlarging its subscriber base, OSN is also creating more value for the pay-TV platform’s stakeholders – a key factor in maintaining exclusivity deals with content studios.

“One of the greatest challenges to the success of MENA’s pay TV sector remains penetration, as broadcasters continue to seek to improve both their subscriber and revenue market share,” says Stewart. “At OSN we address this by offering quality content, across various platforms, which caters to the diverse demographics in our region.”

Other than Warner Bros, which is shifting its content to rival MENA pay TV platform beIN Media, OSN has retained regional content deals with the leading Hollywood studios, including Disney, Paramount, HBO, Universal and 21st Century Fox. Coupled with these western jewels, it has been amassing a treasure trove of Arabic, Pinoy and South Asian content.

With attractive content and new flexible ways of consuming it, IHS senior analyst Papavassilopoulos believes there are now “huge opportunities in North Africa and the Levant for OSN to grow their market share by offering these slimmer subscription packages with lower pricing”.

Stewart agrees these markets provide increased opportunities for pay TV operators, particularly as mobile penetration remains about 50% in North Africa and the Levant, compared to the 100% 4G penetration rate in Saudi Arabia and the UAE.

While refusing to disclose subscriber numbers, Stewart confirms both OSN’s linear and digital platforms have recorded “consistent growth” this year. Currently its major markets are Kuwait and Saudi Arabia (home to OSN’s two shareholders KIPCO and Mawarid Holding), along with the UAE, where it is based.

The implementation of the new pricing and packaging model has “significantly scaled up our subscriber base” and the August launch of the operator’s revamped OTT service WAVO has been “another big win for us this year”, says Stewart.

Political repercussions

More broadly, for MENA’s TV sector as a whole, 2017 has not been as buoyant a year as anticipated.

Regional advertising revenues were squeezed as a result of tumbling oil prices and fiscal consolidation. Then, in June 2017, Saudi Arabia, Bahrain, UAE and Egypt severed all diplomatic and economic ties with Arab neighbour Qatar.

As a result, the four countries involved have banned the reception of Qatar’s Al Jazeera Media network and sister pay TV platform beIN Media.

While beIN Media has since been reinstated in the UAE, new subscriptions to the pay TV platform remain forbidden and existing ones non-renewable in the huge TV markets of Saudi Arabia and Egypt, as well as in the smaller Gulf state of Bahrain.

As a result, IHS’s Papavassilopoulos forecasts that “this is the first year since 2010” where there will be a drop in subscribers to pay TV services in MENA.

“My estimate is that 2017 is a lost year, with a drop of 25% of subscribers because of political tensions in the region. We had estimated that there would be 5.6 million pay TV subscribers in MENA at the end of the year, but this figure is now revised to 4.2 million,” says the analyst.

If regional political tensions continue, beIN Media could experience a 40% drop in its subscription base, believes Papavassilopoulos.

“There has already been a significant commercial and financial impact on beIN and we could see a lasting affect on its image, particularly among Saudis and Egyptians,” he adds.

OSN may inadvertently benefit from the migration of ex-beIN subscribers. However, content pirates also look to gain from Qatar’s economic isolation.

Sports fans in countries affected by the beIN Media ban are now reliant on pirates to access hugely popular premium content such as English Premier League football, for which beIN holds the exclusive regional rights.

Without a resolution to the political turmoil in sight, IHS estimates there will be a 16% drop in the region’s overall pay TV revenues in 2017 from the US$2.5 billion it had forecast to a total of US$2.1 billion.

In spite of difficulties posed by the year’s events – both political and commercial – OSN CEO Stewart believes the future of pay TV in MENA remains bright.

“Although the mobile revolution in MENA may be among the fastest in the world, overall broadband infrastructure and digital readiness is disparate across the region,” says Stewart. “There is tremendous opportunity for digital content while demand for linear TV is growing as customers become more specific about their preferences.”

Ultimately, all those providing entertainment in MENA would agree with Stewart’s analysis: “The old formula of ‘one size fits all’ is not relevant anymore; operators have to provide content that is sought-after and relevant to the audience.”

In Focus

Producing the goods: content production in MENA

The Arabic production sector has, like many regional industries, faced diverse and often severe challenges lately. Syria’s production output has been crippled by war, while currency devaluation had a knock on-effect on operations in Egypt. Production in the Gulf is, however, on the increase, with state-of-the-art facilities and talent already present in the UAE. Saudi Arabia too plans to build a media city by 2023 and traditional media hub Lebanon has once again played host to key free-to-air TV productions in 2017.

Across the board, more investment is expected in Arabic content from a less traditional source, thanks to the entrance of SVOD players with deep pockets, such as Netflix, Amazon, and Iflix.

“The local content industry has been developing at a rapid pace over the past three to four years, especially in the Gulf. The free-to-air TV market is so strong in MENA that the whole industry has been conditioned by it and the type of content it requires. But this will change,” says Maaz Sheikh, CEO, Starz Play Arabia.

Another believer in change, Nader Sobhan, CEO of Iflix, says: “The creativity that was there in the Arabic production market has been stifled by the Ramadan model. Arabic production is locked into making drama and comedy series often for that particular period – though the fall in ad revenues has slimmed down some of the big Ramadan productions.”

He says Iflix is now looking at producing content in the ‘off-Ramadan’ season, as well as playing with different episode lengths, and with mini-series, and different genres – a break from what has been the regional norm. The SVOD platform, for example, has already acquired horror series Al Rahbus – not a common genre in the history of Arabic productions.

Ultimately, Sobhan says: “Local producers are actively embracing us. Producers are always happy when there’s another buyer in the market.”

Starz Play has aspirations to enter local content production market too “but the project has to be right; it has to different in the market and to wow our audience,” says CEO Sheikh.

Netflix is yet to reveal its full hand, however, it has staged events in the UAE “and got Arabic content providers excited,” says Sheikh. Commentators await to see the results of regional tie-ups, but none doubt the US streaming giant will produce local content before long.

OSN, meanwhile, remains committed to the local production industry. It has “both strategically and financially invested in the creation and facilitation of exclusive quality Arabic content for its customers across the region,” says CEO Martin Stewart.

This year OSN has developed an all-new localised Arabic show called WWE Wal3ooha for OSN Sports, and is now airing the locally produced Qalb Al Adala (Justice), the UAE’s first ever legal drama (below). “We also exclusively premiered the first Saudi weekly series, Bashar, which features Saudi actors,” adds Stewart.

Ultimately, investment from the region’s entertainment platforms gives, “the [local] content makers a platform and opportunity to express their art and creativity and allow them to grow and exist in the market,” says Iflix CEO Carlos Tibi.

 

In Focus

Flying free-to-air: broadcasters look to diversify in tough market

It has not been a smooth year for MENA’s free TV sector, with the erosion in advertising budgets to digital competition proving troublesome for the region’s free-to-air players.

“We entered 2017 cautiously optimistic but the year has proved more challenging than we were expecting, in terms of both revenues and content consumption,” says MBC’s official spokesman and group director commercial, PR and CSR, Mazen Hayek. “Home-grown turbulence linked to oil prices, government spending and consumer spending” have all made for a bumpy ride in 2017, he adds.

While the company “remains cash-flow positive and the most lucrative, profit-making media group in the Arab world,” Hayek says MBC is now vigorously exploring other commercial avenues to absorb the fall in advertising. Just over a decade ago, advertising provided 90-95% of MBC’s revenues. Now Hayek claims 80% of the broadcaster’s revenues come from advertising and 20% from other sources – including branded content, and increasingly deals with telcos to distribute MBC’s HD channels on various paid mobile, satellite and IPTV platforms.

Following the February launch of a dedicated channel for Ooredoo TV subscribers in Qatar, MBC announced a similar distribution partnership with Etisalat. MBC’s portfolio of 17 HD channels is now available exclusively in the UAE to subscribers of Etisalat’s E-Vision IPTV platform, and a new joint channel is under development. This is in addition to E-Vision carrying MBC’s subscription video-on-demand (SVOD) service Shahid Plus.

Shahid Plus has grown “big time” and is now “400 times bigger year-on-year”, says Hayek. MBC is working to improve the interface of this revenue-generating over-the-top product, which is also available to subscribers around the world.

In another effort to offset the drop in ad revenues, MBC has also cut production costs, for both its flagship shows and drama series, this year. However, the broadcaster continues to invest in major productions, with another season of Arab Idol aired in 2017. Among its other popular localised formats, production is underway on season 4 of The Voice and the second seasons of Project Runway and Top Chef.

Its key Ramadan drama this year, Black Crows, about women in the terrorist organisation Daesh, was shot in Lebanon and made by MBC’s production company O3. MBC claims it was the most-watched drama in the region during Ramadan and had global recognition. “Next year we will try to join forces with top networks around the world to produce compelling content to follow this,” says Hayek.

It is an initiative Hayek says is close to his heart. “It is time to be proactive, for media networks to produce content to show ‘enough is enough’. It is time to use the power of entertainment to change perceptions and to show the criminal reality of villains who portray themselves as heroes,” he says.

As well as generating strong content and a healthier ratio between ad and non-ad revenues, keeping on top of technology and of the competition posed by the global digital players is now key to MBC’s future success, says Hayek: “We are not thinking as a TV company anymore… The game is practically set vis-á-vis traditional TV players, but now digital competition is key – Netflix, Facebook, Google, social media. Whoever captures eyeballs and ad revenues is a threat. And Facebook and Google capture half of the digital ad market in MENA.”

There is a balance to be struck, nevertheless. “You want to play the business of the future [but ultimately] it is content that matters. As long as you have people who want to watch, to consume, then you are relevant,” he says.

MBC is hoping for improvement in the region’s advertising market in 2018. For example, its renewed partnership with Arabsat, which delivers MBC’s Pro Sports and HD channels via satellite exclusively from 26° East, now allows for more targeted content and advertising divided between the Gulf, the Levant and North Africa. This makes the channels a more attractive commercial proposition than when they were carried on just one beam covering the whole of the Arab world.

Another technological boost will come with the arrival of 5G, which will boost digital content delivery and help expand bandwidth capacity in the region. Yet, through lessons learned in 2017, MBC will budget cautiously for the coming year. “I wouldn’t say 2018 is going to be a period of growth but hopefully of stability,” says Hayek.