Astro ... Oct09

Dominant pay-TV provider AStro, in partnership with ESPN Star Sports (ESS) has won the exclusive broadcasting rights for the upcoming 2010/2013 English Premier League (EPL) for Malaysia from the FA Premier League.

In a joint-statement this morning, the companies said that as part of the arrangement, "for the first time, all 380 matches of EPL will be available to be shown live on ESPN, STAR Sports and Astro channels".

However, Astro had to pay "a higher price than anticipated" for the rights to the EPL, officially known as the Barclays Premier League (BPL), due to "the competitive environment".
Will Astro able to recoup its cost incurred – said to be US$250 million (RM855 million) – to keep its exclusive rights to broadcast the EPL for another three seasons through 2013?

Will the EM12 increase in the monthly subscription price of Astro’s sports package from Aug 1 2009 be enough to cover the cost increase, given that the company ended up paying more than it had anticipated for the EPL Rights?

Some say the recent price hike was actually a pre-emptive move ahead of the EPL rights bid and expects the cost increase to be passed on to customers via rates hikes.

But critics said that concern are that Astro’s margins could face undue pressure as the latter would not be able to fully pass on the cost increase so soon after a price hike only three months ago (Aug 2009). Expecting Astro to repackage its sports content as well as other package mixes with a subscription price hike in the medium term.

Without price hike, the RM285 million increase in content cost per year could potentially clip 8% off Asto ‘s FY2010/FY2013 bottom line.

By calculations show that the increase in Astro’s EPL cost per subscriber from the 2006/2009 to the 2010/2013 season is about half the 114% jump in the absolute amount paid for the rights, if few or none of its subscribers choose to drop the sports package.

Astro’s US$300 million EPL cost for the 2010/2013 season works out to about RM14 per subscriber per month, if one were to assume that 2.1 million subscribers continue to take up its sports package through 2013. This is about 55% more than the estimated cost of RM9 per subscriber per month on average for the 2006/2009 season.

Astro’s EPL cost for the 2010/2013 season would rise to some Rm19 per subscriber per month (from RM9) if only 50% of an estimated three million subscribers continue to take up the sports package following a price hike. In other words, Astro should be able to recoup most of its EPL cost increase by raising the subscription price of its sports package by another RM10 per month.

It may be worth nothing that while Astro’s content cost had seen on average a 19% increase over the past five years (2004-2008) to RM1 billion in FY2009, the company had hitherto managed to keep the average revenue per user from its subscribers relatively steady at RM79.00 for 1HFY1/2010 (with 2.78 million subscribers).

Going forward, Astro will have to contend with challenges in the wake of rapid technological advances that have created alternative services. In Sept 2009, Astro had warned that margins for the rest of FY2010 ending Jan 31 would be affected as it had brought forward an additional RM200 million investment to ready its network for high definition television (HD).

The benefits will only realise later years as it may generate no significant revenue during the early phase of the launch of this service.

Besides increasing prices via the repackaging of its channel offerings, there are also opportunities for Astro to replace its services when introducing HDTV by early 2010.

It is understood that HDTV will be introduce in 2010 EPL season in the middle of 2010. There is also an opportunity for Astro to push its HDTV service to footie fans.

Based on the experience abroad, there is the danger of a near term threat to margins due to the mismatch between expensed cost and the trickling in of revenue and profits in the initial stages.

It is likely that Astro will have to subsidise the HDTC set up boxes to encourage takeup, but the chances are that in return for the subsidy, customers will have to sign longer contract.