Advertising growth on new digital TV channels may disappoint, Fitch warns
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Advertising revenue is likely to trickle into the new digital television channels more slowly than expected, says Fitch Ratings, meaning it will take TV stations longer to break even.
Incumbent free-to-air TV operators, including Channel 3 and Channel 7, are likely to continue to dominate TV advertising spend over the next two years.
The adoption of terrestrial-based digital TV has been slower than Fitch’s expectations in the six months since the initial launch in May. This is mainly because of the delay in the regulator’s distribution of subsidy coupons, which has resulted in viewers deferring purchases of digital set-top boxes. However, Fitch expects the adoption rate to increase rapidly in 2015 and 2016 after the National Broadcasting and Telecommunications Commission began to distribute the coupons last month.
In addition, the launch of new quality content on digital platforms has been slow. Consequently, Fitch thinks that new entrants will take longer than previously expected to build up viewer ratings and attract advertising revenue. Advertisers are likely to continue to allocate the majority of their advertising budgets to the incumbent free-to-air channels in the medium term.
New digital operators will, therefore, take longer to generate sufficient cash flow from operations to cover their capital expenditures and licence fees. Fitch estimates that variety digital TV channels will require average annual revenue of at least Bt1.4 billion to cover annual production and operational costs of around Bt800 million and capex (including licence fees) of around Bt500 million to Bt600 million per annum.
The agency thinks competition in the sector will be fierce over the next two years because of the increase in advertising airtime from new digital channels, which could put pressure on industry advertising rates. Nevertheless, given their larger view base and stronger content, incumbent free-to-air operators will continue to dominate the TV advertising market over the next two years, commanding higher rates than those of new digital operators.
While advertising rates for the TV sector may trend down, Fitch thinks that absolute advertising spend on free-to-air TV is likely to increase as a greater availability of advertising inventory is likely to more than offset lower rates. It expects small and medium-sized businesses to take advantage of lower advertising rates to promote their products on free-to-air TV for the first time. This increase in TV’s share of the advertising market is likely to be at the expense of traditional media, particularly newspapers, magazines and radio.
Free-to-air TV is the main medium for advertising expenditure in Thailand, accounting for about 60 per cent of total advertising expenditure last year. The market leaders are Channel 7 and Channel 3, which together account for 60 per cent of TV advertising spend.
New entrant digital channel operators are mainly current content producers that aim to broaden their distribution by bypassing the established channels.
