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Starhub Ltd’s Secret to the Future of Television

On 12 September 2014, local news station Channel NewsAsia broke a story about the brewing fibre broadband price war between StarHub Ltd. (SGX:CC3), Singapore Telecommunications Limited (SGX:Z74), and M1 Ltd (SGX:B2F). A day earlier, it reported that M1 fired the latest salvo by slashing its 1Gps broadband price plan by half.

This broadband price war may have already left its mark on Starhub, as the company reported a 15.4% drop in its broadband services revenue for the first half of 2014.

To add to this, in an earlier report from Straits Times, StarHub was asked by the Infocomm Development Authority of Singapore to share its “last mile” of cable network with its fierce competitor, Singtel. This could have further implications on StarHub, as the revenue for its Pay TV segment is roughly twice the size of its broadband services revenue. 

How will Starhub fight back?

The answer may lie in the speech that Chief executive officer of StarHub, Tan Tong Hai gave during the Digital Conference 2013. In his speech, he spoke about the different business models available for television. Beyond this, he had an over-arching point to make, and this was what he termed as the “secret to the future of television”:

I think we are all too caught up with the platform. Is it IPTV [internet protocol television], OTT [over-the-top content], or it is over mobile phone or whatever? I think the most part of understanding the future of TV is to understand the consumption patterns. This is not just consumption pattern, it’s also the behaviour. Or more important, the viewing habits.

If you truly understand the behaviour, and the viewing habits, I think you got it. That, in my view, is the secret behind the future of TV.”

But, can Starhub’s bold move work out?

Precedence to this move

The move for StarHub parallels what American company Netflix, Inc. (NASDAQ: NFLX) has been doing for the past five years. In this case, the focus on understanding consumer behavior gave Netflix a “view that no one else has” on the granular preferences of its consumers. And, granular by Netflix’s standards would mean that it has been able to categorize all Holloywood movies to a mind boggling 76,897 micro-genres. The deep level of detail has in turn enabled the American company to pick and price its video content, and even produce its own original content. Fellow Fool Danny Vena explains in his article:

Netflix can extrapolate how successful a program will be based on the data it collects, which helps the company determine how much it should pay for programming. This even helped predict the success of recent Netflix Original programming.

Netflix picked up 14 Emmy nominations in its first foray into original programming. Judging from the high rate of success, it would appear that Netflix has turned its data collection into a competitive advantage.

Foolish bottom line

It remains to be seen if StarHub is able to gain a long term advantage from its focus on consumer behavior, and viewing habits. The key is how it is able to capitalize on the data that is collected. This might turn out to be one of the most important advantages it has in the future. As we have seen, the competitive environment it operates in can turn hostile on the pricing front. So, the company may need to take whatever advantage it can gain.

As of last Friday’s close, Starhub traded at a price to earnings ratio of about 20, and has a historical dividend yield of 4.8%. Incidentally, StarHub is one of the cool companies in Singapore that shares its earnings call transcript.

 

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Chin Hui Leong owns shares in Netflix.