Pay TV (Cable TV) Industry in Indonesia

MARKET INTELLIGENCE REPORT ON

November 2008

DEVELOPMENT OF PAY TV (CABLE TV) SERVICE INDUSTRY AMID TIGHT COMPETITION

Backgrounds

Business in Pay TV (Cable TV), which began in Indonesia around 10 years ago, has added to entertainment business in the country. Earlier the people knew only free TV service. Now a number of large cities have operators of Pay TV competing to have subscribers offering various TV programs including news, education, music and film entertainments, etc.

In general business in pay TV in Indonesia has expanded steadily as indicated by the growing number of subscribers - from 204,000 subscribers in 2003 to 596 ,000 subscribers in 2007. The increase was largely attributable to the entry of new players in the business.

According to Asia Pacific Pay TV and Broadband Markets 2006, which is issued by Media Partners Asia (MPA), the penetration of pay TV in Indonesia is still low - or about 0.8% in 2005. In term of income pay TV service industry in Indonesia is the 13th among Pay TV operators in the Asia Pacific regions in 2005. In 2006, the penetration rose to 1.3% with 440,000 subscribers. Currently the market penetration is around 2% or remains low. Potential market has encouraged investors to venture in TV Pay business in the country. As a result his business became brisker, providing the people more entertainment alternatives

Indonesia had around 57 million households in 2005 with penetration of households of around 40 million TV sets used by the households. Meanwhile, potential Pay TV subscribers in the country are around 12 million or 30% of the total number of TV sets used in the country.

Business in Pay TV is capital intensive. Therefore, only financially strong investors are involved in the business competition. In 2003, the Bakrie Group came up with B Vision , which has conducted trial operation. This business is made in synergy with TV free to air it already has under TV broadcasting stations of ANTV and TVOne.

Meanwhile, Aora TV owned by former industry minister Rini M. Soemarno, has also conducted trail operation .. Aora TV came on line by buying the rights to broadcast the British Premier League football matches at a price of US$ 20 million from ESPN Sport in August 2008. The Premier League events became its main program to enter the market as English football matches are very popular in the country. Earlier in 2006 the right to broadcast the program was held by Astro from Malaysia .

Astro which entered the market with a big bang was forced to give up the right and stopped its entire operation in the country on Oct. 20, 2008 causing big disappointment to many former subscribers. The problem came with conflict between Astro and PT. Direct Vision , which was its local partner in the country. The conflict ended with the termination of business cooperation after only two years . Astro filed a law suit with an international arbitration court in Singapore against PT Ayunda, PT First Media, and PT Direct Vision demanding the return of an investment of RM 905 million (around Rp 2.5 trillion) used in the operation by Direct Vision.

Technology used

Pay TV is television service for which a subscriber has to pay regularly every month .Based on the Government regulation No. 52/2005 pay broadcasting services are services provided specially for subscribers such as through radio, television , multimedia or other information media services.

The license of pay TV operation is effective for 10 years. The license is issued by the Directorate general of post and telecommunications.

In the beginning Pay TV used the analog system and channeled television signal through coaxial cable that Pay TV is also known as Cable TV. Later Pay TV service uses two types of technology in distributing broadcasting package to subscribers Hybrid Fiber Coaxial (HFC) technology and Direct To Home (DTH) TV using satellite.

Development of Pay TV operators

The number of operators of Pay TV in Indonesia has grown fast from only one in 1994 that was Indovision as the first operator of satellite based Pay TV in Indonesia. In 1996 , cable based Pay TV operator Kabelvision followed. Starting by serving only Jakarta. Kabel Vision is a subsidiary of the Lippo Group which is owned by the Mochtar Riady family.

By 2007, the country had only five players in Pay TV business operating in Jakarta including Indovision, Astro, First Media, IM2 and TelkomVision.

Now the number company holding the license to operate Pay TV has more than doubled to include PT. Nusantara Vision (OK Vision), PT Media Commerce Indonesia (B-Vision), PT Cipta Skynindo (I-Sky-Net), PT Global Comm Nusantara (Safuan TV), PT Mentari Multimedia (M2TV) and PT Karya Megah Adijaya (Aora TV formerly the license was under the name of Citra TV).

New operators such as Aora TV, TOP TV and B Vision have gone through trial operation in 2008 and will start operation in 2009. A number of other operators have secured the license but have not started operation.

B Vision is owned by the Bakrie Group, which has subsidiary PT Media Commerce Indonesia as the operator of the new Pay TV. B Vision has concluded trial operation in the second quarter of 2008 starting from Jakarta and other large cities in Java. B-Vision will operate in synergy with ANTV and TV One , which are also owned by the group. B-Vision is to present 30% of program in local contents and 10% in educational program.

The MNV Group expands operation in Pay TV business through PT Nusantara Vision, which will operate OK Vision. The new TV station will compete with two sister companies Indovision and Top TV, which are already operational earlier. OK Vision will operate in different market segments than those of Indovision and Top TV.

A number of Pay TV channels like BBC, ESPN and HBO could be enjoyed not only through conventional television screens, but could also be accessed through cellular phones and car TV . PT Mentari Multimedia chooses to start business in car TV, which has not been entered by other investors. PT Mentari Multimedia operates M2V, the operator of Pay TV specially installed in cars. This new operator started operation in 2007 with coverage of only Jakarta and surrounding areas. Therefore, it has only a small number of subscribers.

Number of Subscribers

In 2006, the number of Pay TV subscribers grew the fastest in Asia Pacific, up by 30%-40%. In Japan, the growth rate was only 10% , Singapore 13% and Thailand 7%. The number of Pay TV subscribers is already much larger that the growth rate is slower.

In 2003-2007, the number of subscribers in Indonesia grew 32.2%, from 204,000 subscribers to 596,075 subscribers. The increase in the number of subscribers followed the growing number of operators and more interesting programs.

The highest increase in the number of subscribers was 63.2% recorded in 2006 up from 270,000 subscribers in 2005 to 440,550 subscribers . The surge in the number followed the operation of Astro from Malaysia. Astro entered the market with a bang with the flag of PT Direct Vision. After the launch in February 2006, Astro succeeded in listing 80,000 subscribers by the end of 2006. The enthusiasm shown by the subscribers was mainly because of its Premier League program.

Based on a report of the Pay TV association Asia Pacific Cable and Satellite Broadcasting Association of Asia (CASBAA), in 2007 Indovision recorded 305,372 subscribers. Indovision belongs to the MNC Group, a subsidiary of Bhakti Investama Group, which is owned by tycoon Harry Tanoesudibyo. MNC Group is a group of companies with core business in broadcasting and media industry . It operates a number of television stations RCTI, TPI and Global TV, Radio Trijaya, Radio Female, daily newspaper Sindo, tabloid Genie, etc.

Its closest rival is Astro with 147,000 subscribers, followed by KabelVision with 114,913 subscribers and Telkomvision 22,889 subscribers.

In the first half of 2008, Indovision reported an increase in the number of subscribers to 351,400 subscribers, KabelVision to 128,000 subscribers and Telkomvision to 34,700 subscribers.

On the contrary Astro lost some of its subscribers reducing the number to 140,000 subscribers . According to PT Direct Vision as the operator of Astro Pay TV, the decline was as a result of negative report in the media accusing it of monopoly in the broadcasting of the Premier League matches. The lost of 7,000 subscribers caused a loss of Rp140 million in income per month.

In 2007, subscribers satellite-based Pay TV accounted for 75% 452,372 subscribers of the total Pay TV subscribers in the country. The remaining 25% or 143,703 were subscribers of cable-based Pay TV.

Free to air televisions could not yet cover the entire areas of the archipelago. Therefore, those that could enjoy the free service from free to air television stations choose to subscribe to Pay TV stations.

Satellite based Pay TV dominate the number of subscribers of Pay TV as satellite based pay TV has wider coverage. ...........