StarHub Ltd’s Year in Review: The Age of Disruption in Pay TV

Last Friday, StarHub Ltd (SGX: CC3) reported its full year earnings for 2016.

During the year, StarHub earned $2.2 billion in Service revenue, a figure that was a touch lower than in 2015. Although Service revenue barely changed, it was a different story for the individual business segments. StarHub’s Service revenue has four components: Mobile, Pay TV, Enterprise Fixed, and Broadband.

Let’s take a closer look at the Pay TV business segment.

A bird’s eye view

2017-02-03 Starhub Segment Revenue
Source: StarHub’s earnings presentation

Pay TV revenue fell 6.1% from $100 million in 2015 to $93.9 million in 2016. The segment accounted for a little over 17% of StarHub’s overall Service revenue, down from 17.6% in 2015. With the decline, the Enterprise Fixed segment’s revenue eclipsed Pay TV’s contribution for the first time in 2016.

The Pay TV business has been under pressure since the second quarter of 2015.

The age of disruption

2017-02-03 StarHub Pay TV Subscribers
Source: StarHub’s earnings presentation

In the second quarter of 2015, StarHub’s Pay TV business had 545,000 subscribers.

But by the end of 2015, the number of Pay TV subscribers had declined to 536,000. In 2016’s first quarter, StarHub lost 8,000 subscribers when compared to the fourth quarter of 2015. Then, StarHub lost 10,000 in the second quarter and another 11,000 in the third quarter. The figure has moderated to 9,000 in the last quarter of 2016, but it still represents a sizable loss.

All told, StarHub’s Pay TV business ended 2016 with 498,000 subscribers, representing a loss of 47,000 subscribers – or 8.6% of the segment’s subscriber base – in one and a half years.

Initially, StarHub suggested that the falling number of Pay TV subscribers was due to its own decision to stop promoting its TV Lite service. Howie Lau, StarHub’s chief marketing officer, said the following in the company’s 2016 first quarter earnings presentation:

“As you know, we stopped the promotion of the TV Lite and we do expect that the remaining TV Lite will see the impact for the next two quarters.”

But the elephant in the room was the presence of US-based online video streaming giant Netflix; the company had entered Singapore in early 2016Lau noted in the 2016 first quarter earnings presentation that StarHub was working with Netflix to provide high-definition streaming to its customers. He also said that Netflix would likely be complementary to StarHub’s own offerings:

“We offer both the linear as well as the OTT offering [over-the-top] – 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 [referring to OTTs like Netflix] more as complementary.”

But as StarHub’s Pay TV subscriber losses continued, the company started acknowledging that customers have alternatives to its Pay TV offering. In StarHub’s 2016 second quarter earnings presentation, Lau said:

“This lower TV subs is due to three reasons. (1) Is that we have a larger – out of contract customer base in quarter two. (2) We are no longer promoting our TV Lite offering. (3) We do recognise that there are more alternatives in terms of viewing options for our customers.”

As the pressure mounted, StarHub seemed to have shifted its focus toward protecting its core customer base. Lau said the following in the third quarter earnings presentation:

“So our focus is making sure that the high-ARPU [average revenue per user] customers continue to stay with StarHub, at the same time make sure that there are other options available. For example, if you are always on the go, you can subscribe to StarHub Go S$9.90, which is a lower price option.”

In its 2016 fourth quarter earnings, StarHub reiterated its stance that it will be looking to keep its high-ARPU customers.

2017-02-03 Starhub Pay TV ARPU
Source: StarHub’s earnings presentation

If you look at the chart just above, StarHub has managed to keep its ARPU mostly unchanged during 2016. The company ended 2016 with an ARPU of $51, unchanged from where it was in 2015. We will have to see if StarHub can keep hold of its core customer base against the onslaught of disruption.

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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.