The Netflix Effect: Are Singapore Telcos’ Pay TV Businesses Doomed?

Credit: Fool Editorial

Local telecommunications giant Singapore Telecommunications Limited (SGX: Z74) reported its fiscal fourth quarter earnings recently.

During the earnings briefing, there were questions from analysts about the Singtel TV business. The scrutiny could be for good reason. The number of Singtel TV subscribers had dipped by 1,000 quarter-on-quarter in the fourth-quarter and was actually flat compared to the previous year. These are summarised in the slide below:

2016-06-06 Singtel Pay TV
Source: Singtel’s earnings presentation

By itself, the developments depicted in the slide does not look too frightening. After all, the Singtel TV business’s revenue grew by 5% year-on-year. But, one analyst had pointed out that one of Singtel’s peers, StarHub Ltd (SGX: CC3), had also experienced a loss of subscribers in its pay TV business over the same timeframe.

The question is: Were the declines in the pay TV subscribers due to the launch of online streaming alternatives in Singapore, such as Netflix Inc? Are companies like Netflix a threat to the telcos’ pay TV business?

The Netflix effect

Yuen Kuan Moon, Singtel’s Chief Executive Officer (Consumer Singapore), made this statement in the recent earnings briefing:

“Let me move on to the pay TV business, and I think you can see that the market has shifted in the way our consumers have started to view their content. It’s no longer only through the traditional pay TV platform where they’re getting the content onto the setup box through the TV.”

While Singtel did not explicitly acknowledge that Netflix had an impact, the telco believes that consumer behavior may have shifted away from the traditional setup box platform. Yuen added:

“So with really good fiber network as well as a very good Singtel 4G network we are seeing our customers now enjoying their content via different streams and delivered through different methods. And therefore we are also ensuring that we acquire content and distribute them in a manner that suits their new and current viewing behaviors.

So recently we have introduced bundling with Netflix to allow our customers to offer their choice of watching content on a different platform as well, including on the set top box and broadband as well as mobile. Similarly, we have cut a deal with Viu which we are bringing premium Korean content into Singapore later this year.

So these are some of the things that we are doing to ensure that we keep up with the market trends and the technology trends where consumers are looking at different ways of viewing their content.”

In essence, Singtel is looking to bundle its mobile and cable services with different over the top services like Viu and Netflix. Meanwhile, StarHub has its own StarHub GO offering and sees the different services as complementary. Howie Lau, Starhub’s chief marketing officer, explained in the company’s recent earnings call:

“What we do recognise as well is that the customers continue to focus on two main things. One is the quality of the content, which we are very focused on and the second is having an option in terms of the way they would like to view it. So obviously besides having the traditional pay TV offering, we have our own TV offering called ‘StarHub Go’.”

He added:

“We offer both the linear as well as the OTT [over-the-top] offering – what we’re observing is that different types of contents and different customer segment groups tend to lean towards different type of combinations. So we actually see it more as complementary.”

On StarHub’s side, it would appear that the subscriber loss will continue for the next couple of quarters. This could hurt, as Pay TV made up 16% of its overall revenue in the last reporting quarter. In contrast, the Singtel TV business was less than 2% of Singtel’s latest quarterly revenue.

At the moment, it is not clear whether the entry of services such as Netflix into Singapore has had an impact on the pay TV business of the local telcos. The question may arise again if StarHub or Singtel continue to lose pay TV subscribers in the near future.

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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.