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Development of Pay TV service industry amid tight competition.

Backgrounds

Business in Pay 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.

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.

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.

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.

--Hybrid Fiber Coaxial (HFC)

The HFC technology is a combination of the use of optic fiber and coaxial cable when entering the location of subscribers to channel TV broadcasts in an analog system. This technology is an offspring of coaxial cable technology, which is the pioneer in PY TV technology. This system requires the operator of Cable TV to build infrastructure in the form of optic fiber and coaxial cable networks.

In the beginning in the 1920s, coaxial cable was used for telephone cable networks as transmission trunk media between telephone centrals. In 1936, telecommunication giant AT&T launched coaxial cable for telephone and television between New York and Philadelphia, by placing an automatic booster in every 10 miles. Large use of coaxial cable later was in the 1950s when coaxial cable was used as submarine cables for international connection. In the 1960s coaxial cable was used in the data-processing business.

Coaxial cable produces larger frequency spectrum compared to twisted-pair cable. Coaxial cable of ordinary TV networks could support frequency of 370 MHz. The latest products of coaxial cable which has been developed and modernized such as Hybrid Fiber Coax (HFC) could support a system with the frequency of 750 MHz or 1,000 MHZ.

In term of capacity, coaxial cable could produce a capacity of 370-1.000 times larger than that of twisted-pair cable. With the capacity, coaxial cable could be used as a facility in a broadband network. The magnitude of the capacity depends on the location (standard used in that area).

In the system used in North America, every channel of Cable TV uses bandwidth of 6MHZ, according to the standard of NTSC (National Television on System Committee. In Europe, with the standard of PAL (Phase Alternate Line), the channel of the bandwidth is 8 MHz. With larger bandwidth and capacity, coaxial cable also will support system with varied services such as voice, data, video and multimedia.

Since then development of digital technology began through cable networks. Currently most cable TV networks in the world use a combination of coaxial cable and fiber optic called HFC (Hybrid Fiber -Coaxial).

--Direct To Home (DTH)

This technology uses satellite system that is broadcasting TV service through satellite. Cable TV subscribers are given decoder as customer premises equipment (CPE) that they could access the service. Service with this technology has wider coverage.

The transmission of program in the DTH system uses the digital video compression technology such as one base don the program of MPEG-II/III with data speed ranging from 1.5 to 6 Mbps per channel. The subscribers are equipped with small parabola antennae with a diameter of 60-180 cm, receiver and decoder to receiving TV sets and smart card which could access the system.

A number of global companies and countries have implemented this system such as DirectTV in Japan, Thaicom, Koreasat, Multimedia Asia Indonesia, Measat Malaysia and a number of providers in America and Europe.

Currently business players in global scale TV broadcasting want to distribute TV programs to all over the world in as short as possible. Therefore, they use the technology of Direct to Home (DTH) as infrastructure of TV Link to broadcast hundreds of programs directly to households through satellite network.

DTH has the advantage in that subscribers could choose among various programs, various services any place and any time as long as with the same satellite coverage.

Technology and facilities of PY TV operators in Indonesia

Development of Pay TV technology in Indonesia is not the same as in advanced nations as pay TV in Indonesia began with the use of satellite not with coaxial cable. PT MNC Sky vision, which was established in 1988 and started operation in 1990 launched the first Pay TV business in Indonesia with the brand of INDOVISION using Palapa C-2 satellite.

The first Pay TV based on coaxial technology was launched by PT Broadband Multimedia with a brand of Kabelvision in 1996.

Currently in Indonesia Pay TV is dominated more by satellite technology, but the latest development of Pay TV with the technology of HFC which combines Pay TV and broadband internet connection has pushed up the popularity of HFC.

The following table shows infrastructure and technology used by the operators of Pay TV both satellite and cable Pay TV.

Indovision

PT. MNC Sky Vision (formerly Mediacitra Indostar) as the operator of Cakrawarta-1 has secured the license from the communication ministry to operate on the frequency of 2520-2670 MHz by selling Pay television service through satellite. MNC Sky Vision operates TV satellite with the name of Indovision, which is the pioneer in Pay TV business in Indonesia.

In 1997, PT MNC SkyVision made innovation by changing its presentation signal from analog to digital system. The innovation could improve the quality of pictures and sound. In the beginning PT MNC Sky Vision used the service of Palapa C-2 satellite with the frequency of C-Band and analog signal. Later it plan the launching of Cakrawarta-1 satellite using digital signal and frequency of S-Band which is more resistant to change in weather suitable to tropical area and nation wide coverage.

ASTRO

At the start of its operation, Astro received a warning from the government over its landing right as it still uses the Measat 2 satellite of Malaysia that could accommodate up to 48 channels. The coverage area of Astro, which used the service of Measat 2, included Sumatra and Java, Kalimantan and Sulawesi. However, as the priority footprint of satellite is Sumatra and Java, subscribers in Kalimantan and Sulawesi needed to use larger parabola with diameter of at least 1.2 meter to have the same quality.

Measat-2 has the strongest Ku-band footprint in Indonesia with the availability of sufficient capacity (transponder) for Pay TV service. Other satellites with Kuband beam in Indonesia have no strong signal. Therefore, the parabola must be larger, which mean higher cost. By using Measat satellite for Ku-band, smaller parabola of 80 cm in diameter will be enough.

Later Astro used the service of Measat 3 satellite and the DTH technology. Measat 3 has larger accommodating capacity of up to 150 channels.

Astro has two uplink broadcasters and each could transmits four satellite transponders. Each transponder could broadcast 12 through channels.

In 2008, built broadcast centre in Karawaci. Therefore, it could switch to Karawaci if the weather is bad in its present place.

Kabel Vision

Kabelvision uses the connection, which is a combination of infrastructure in cable (optic fiber and coaxial) and technology of satellite network. This company operates two types of cable network broadband HFC (Hybrid fiber-coax) and network of Broadband IP(internet Protocol) in Indonesia, provides wide coverage of internet with the brand of Fastnet and data communications service to users such as total communications solution to transfer data with high speed and internet application.

In 1999 Kabelvision started using network with high speed and always active in internet transmission service with the name of Kabelnet. This service is available through PT LINKNET which is an internet service provider like Indosat, CBN, Uninet, Indonet, and Centrin.

Kabelvision uses coaxial cable with high capacity exceeding the limited availability of bandwidth cable, which is used widely now. Coaxial cable could support 88 analog channels of TV program. With digital technology, the capacity will be expanded to 100 digital waves. Kabelvision also uses optic fiber cable as backbone to unite coaxial networks.

Kabelvision is superior over other operators as it provides triple play service cable TV service, the largest broadband network and high speed data communication service..

Telkom Vision

Telkomvision provides interactive multimedia service Cable TV, Satellite TV and internet services channeled through transmission of HFC (Hybrid Fiber Optic Coaxial) and satellite technology of Telkom--1 satellite which is connected to TV and or Personal Computer. In the development of cable TV, TelkomVision uses the network of hybrid fiber coaxial (HFC), which is provided by Alcatel. HFC constitutes a platform of network that could provide TV channel, internet access and telephony. The owner of ordinary parabola does not have change the parabola to subscribe to TelkomVision, as it uses the technology of C-band

Currently there are 40,000 home passes--houses that its cable network could pass through, 1,000 in Surabaya and the rest in Jakarta.

In July 2007, after improving and upgrading its sets of equipment, Telkomvision launched prepaid service. This is a new system in Pay TV business through the use of refill voucher the first for Pay TV subscribers in Indonesia. By using refill voucher, subscribers could choose desired channel. Part from refill voucher non voucher model has been offered that is through ATM or e-banking. All of the services are to facilitate subscribers in accessing entertainment and information with convenience in arranging payments.

TelkomVision is differe4nt from other operators of Pay TV as its subscribers could use ordinary receiver parabola (Free To Air) at the same time could enjoy Telkomvision packages with additional sets of equipment (LNB & Display Card) that could catch broadcasts from Telkom satellite.

After improving the quality of head end in Cibinong in 2007, now Telkomvision could serve subscribers through satellite. Satellite TV of Telkomvision will be the only Pay TV service in Indonesia using frequency of satellite transmission of C-Band which guarantee prime receiving quality in any weather condition.

Meanwhile, TelkomVision also built the early phase of digital Cable TV network (Digital Cable Television on) in Bintaro.

Development of business in television broadcasting in Indonesia

In the beginning Indonesia had only TV free to air that could be enjoyed free by all Indonesians. In 1962, the government built the first TV station in Indonesia TVRI (Televisi Republik Indonesia).

In 1989, the first private TV station RCTI was established. Later other private TV broadcasting stations followed including SCTV, TPI, Indosiar, ANTV, Metro TV, Trans TV, Global TV, Trans7 and TV One (formerly Lativi). Until now, there are 10 TV stations operating with nation wide coverage and more than 120 local TV stations--or the largest in number in a country in Asia.

In 1988, the operator of Pay TV began to enter the competition in the entertainment business with the launching of Indovision, the first Pay TV in Indonesia.

The entertainment services in TV program offered by the providers of Pay TV service include free TV programs (local, regional and international programs and advertisements), education TV, Pay TV and Video on Demand (VOD) or Pay Per View.

In general, Cable TV business service available at present are broadcast television, which dominates Pay TV business. The operators in Indonesia still provide this service with contents consisting of around 37-45 TV channels from various countries like the United States, Britain, Italy, South Korea, Japan, France and domestic TV stations.

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.

New Investment

A number of old Pay TV operators have announced expansion plan until 2011. Kabelvision plans to build cable and optic networks in a number of cities with an investment of US$650 million.

Indovision plans to invest around US$ 100 million to replace satellite with new one to be launched in 2009. The satellite is being built by U.S. satellite maker.

The government has not set limit to the number of broadcasting operation license (IPP). Investors still show strong interest in Pay TV business as they see the market is still highly potential. Currently a number of investors are seeking IPP from the government. One of them is PT. Arvia Dimensi Technology (Arditech) for which issuance of license is delayed pending the digital television master plan.

The MNC Group and Bakrie Group are especially aggressive in seeking to dominate the business of television media. Similar ambition is also shown by the Sariaatmadja. Family, a business tycoon, which owns two TV free to air stations SCTV and O-Channel. SCTV is quite popular as an entertainment and news television station. SCTV has developed a new service that could be accessed through cellular phones.

Now the Sariaatmadja family is also seeking to strengthen its position in the television media business through PT Elang Mahkota Technology that will operate the TV E-Vision station. Unlike most of other Pay TV stations that use satellite service, E-Vision chooses to use terrestrial channel as television free to air.

Large investment is needed in pay TV business, therefore, only financially powerful investors would likely survive competition in this business area.

The lease tariff of a satellite transponder (normally having 15-20 channels) is around Rp900 million per month. Building a controlling station will cost at least Rp10 trillion.

PT. Karya Megah Adijaya, which operates Aora TV, won a tender in September 2008 for England Premier League football program at a price of US$ 20 million from ESPN Sport.

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.

Market penetration of Pay TV

Pay TV has not made much progress in market penetration in Indonesia after the service was first launched in 1998. Based on data from Asia Pacific Pay TV and Broadband Markets 2006 issued by Media Partners Asia (MPA), the penetration was only 0.8% in 2005.

In 2006, the penetration was estimated at 1.3% when the country had 40 million TV sets in use. The penetration was estimated to rise to 1.8% in 2007.

Compared with other countries the penetration was small. In Singapore the penetration of Pay TV already reached 45%, Malaysia 38%, the Philippines 10%, India 64% and China 33% and Thailand 3%.

Profiles of Main Players

PT. MNC Sky Vision

MNC Sky Vision operates a satellite-based TV named Indovision. MNC Sky Vision (formerly PT Matahari Lintas Cakrawala) is a subsidiary of Media Nusantara Citra (MNC Group) owned by Harry Tanoesudibjo. MNC Group is known as an electronic media magnate in Indonesia owning a number of TV stations RCT, TPI and Global and Trijaya FM radio station.

MNC as the holding company in November 2007 acquired 51% of Linktone Ltd., a provider of interactive media service and entertainment products and services for consumers in China. The acquisition cost around US$91,2 million--US$118.56 million.

In 2006, PT MNC Sky Vision reported Rp 402 billion in income, up 34% from the previous year's income of Rp300 billion. Its operating profit shot up 185% from Rp 28 billion to Rp 81 billion and its EBITDA surged 120% from Rp 61 billion to Rp 133 billion in 2006, with an increase in EBITDA margin from 20% to 33%. Its income in 2007 rose to Rp 500 billion and its net profit reached Rp50 billion. In 2007, Media Nusantara Citra the parent company of MNC Sky Vision launched Initial Public Offering (IPO) to raise fund to buy more stake in Indovision.

By the end of 2007, PT MNC Sky Vision received a loan of US$75 million to finance expansion.

Until now Indovision remains unrivalled. In 2007, Indovision recorded 305,372 subscribers. Its success was attributable mainly to Pay TV operation. It is the first operator of Pay TV in Indonesia.

PT Direct Vision

PT Direct Vision operates Astro--satellite-based television from Malaysia, coming on line early 2006. PT. Direct Vision is a subsidiary of the Lippo Group, which is also the owner of Kabelvision, a-cable-based Pay TV station.

PT Direct Vision together with have developed local program they produce themselves including children program (Astro Ceria), educational program (Astro TV IQ), information (Astro Awani), entertainment (Astro Aruna), music and life style (Astro Xpresi) and film (Astro Kirana). The entire programs are presented with the facility of dubbing and subtitle.

In 2007, Astro Nusantara already had 147,000 subscribers, and Astro in Malaysia had 2 million subscribers. The law in Malaysia gives monopoly right Astro Malaysia as the operator of pay TV, therefore, it has no competitor in that country.

However, with the dragging conflict between Astro Malaysia and Direct Vision, by October 2008, Astro stopped operation in Indonesia as it had no longer supplies of programs from its parent company in Malaysia.

PT. First Media Tbk

PT. First Media Tbk was established in 1994 with the name of PT. Broadband Multimedia to operate as cable pay television with his brand of Kabelvision. It started operation in 1996 with coverage including Karawaci, Tangerang, and later Jakarta. First Media Tbk is a subsidiary of the Lippo Group.

Kabelvision provides triple play service cable television, broadband internet network, high speed data communications service.

Kabelvision has developed broadband internet service with the brand of FastNet (formerly My Net). Fastnet offers 5 products with different speed from 384Kbps to 3Mbps with prices ranging from Rp.99,000 to Rp.1,195,000.

To equip the triple play package, the service of First Media is DataComm, a service that provide solution for corporation and interconnection of network to banks, telecommunications companies and the government.

In September, 2007, First Media will invest US$ 650 million over a period of four years to build HFC cable network.

In the early phase, it plans to invest US$250 million. The investment will include US$200 million for infrastructure network for one million houses in Jakarta, and US$ 50 million for branding, marketing, operational and promotion to attract more subscribers.

First Media will cooperate with a number of vendors and foreign suppliers to develop the project such as Shanghai Media and Entertainment Group of China, MDOC, Motorola and Cisco, which will also take part in the investment.

Kabelvision had 114,000 subscribers in 2007. Most of the subscribers are in Jakarta, Surabaya, Bandung and a number of other large cities. In 2006, construction of the network of Hybrid Fiber Coaxial Cable (HFC) already reached 2,597 km in length with a capacity of 750 MHz. Currently the HFC network has passed through 250,000 houses.

First Media is the largest provider of the programs of cable TV and broadband Internet in Indonesia. First Media will focus service in the Greater Jakarta area and Surabaya. It has set a target to have 1 million subscribers in 2009.

PT. Indonusa Telemedia

PT. Indonusa Telemedia (with the brand of TelkomVision) was established in 1997. Its founding shareholders were PT. Telkom, PT Rajawali Citra Television Indonesia (RCTI), PT Datakom Asia and PT Telekomindo Primabhakti.

In 2004, PT Telkom, a state company and the country's largest telecommunications company, acquired more stake to become the majority shareholder. In 2005 Telkom owned 95.68% of the company.

PT. Indonusa Telemedia operates Pay TV station named Telkomvision. Telkom makes TelkomVision as a business vehicle in Pay TV and internet service operations.

Telkomvision started operation in 2001, but it failed to expand until it launched Pay TV service in 2006.

Satellite TV of Telkomvision has various services offered at cheap prices Satellite TV of Telkomvision will have product named Telkom Speedy, in providing internet service which is now widely needed by subscribers.

Cable TV of Telkomvision has been in operation in a number of large cities for which it has built additional network of 500,000 connections in five large cities the Greater Jakarta area, Bandung, Surabaya, Semarang and Bali which could offer the product of bundling with the Telkom Group in the form of internet service and other services such as home shopping, video phone, home banking, interactive games, CCTV, etc.

Meanwhile, TelkomVision also has network of Digital Cable Television in the early phase of construction in Bintaro. In 2007, Telkomvision already had 22,889 subscribers. PT Indonusa as the operator of TelkomVision will use infrastructure of the Telkom Group to speed up access to prospective subscribers. In 2010, Telkomvision hopes to list 1 million subscribers.

PT. Karyamegah Adijaya

PT Karyamegah Adijaya (PT. KA) secured the principle license for broadcasting on 3 September 2007 with a decision of the state minister for communications and informatics.

In leasing satellite transponders, PTKA cooperated with network operator PT Patra Telekomunikasi Indonesia/ Patrakom, which handled the job of securing the landing right and the license for radio station (ISR).

In May 2008, PTKA started broadcasting trial operation involving 150 subscribers free of charge in 7 cities--Jakarta, Bandung, Surabaya, Denpasar, Makassar, Balikpapan, and Medan using 12 channels including 6 local television free-to-air and 6 channels for international programs. In June 2008 PTKA sent a written application to the minister for evaluation of trial operation.

The permanent license was then issued on July 29, 2008 to operate Pay TV station named AORA, which began broadcasting in August, 2008 presenting events of he Beijing Olympic Games.

In August 2008, AORA acquired the right to present the Premier League matches from ESPN Sport at a price of US$ 20 million for the 2008/2009 season. AORA offers 12 channels including ESPN and STAR Sports which broadcast fully 370 matches of the Premier League

According to plan, AORA will start commercial broadcasting in 2009 presenting more than 50 selected programs local and international. Currently AORA has 2,000 subscribers. AORA leases the transponders of the Measat 3 satellite, which is owned by Ananda Krishna, which is also leased by Astro. PT KA has spent Rp450 billion to have 50 channels.

The ownership of PT KA have changed hand from the old owner to PT. Arono International, which is 95% owned by Rini M. Soemarno and her brother Ongki P. Soemarno and 5% by Indonesia HGC Telecommunication and Solihin Kalla, a son of Vice President Jusuf Kalla.

Astro controversial case

The operation of Astro satellite TV has been marred with controversy since it came on line in Indonesia in 2006. Astro Nusantara made a good start with big success in grabbing a large share of the market of Pay TV in the country. It came as a serious threat to Indovision the first operator Pay TV in Indonesia. Astro came up with intensive promotion. One of the biggest attractions was the right to broadcast the Premier League matches it bought from ESPN Sport. Premier League is very popular in the country--more popular than Italy's Serie A, Spanish, German and French football matches.

Astro was later reported to the Business Competition Supervisory Commission (KPPU) by three other operators of Pay TVIndovision, Kabelvision Telkomvision, IM2 Pay TV, which accused Astro of monopoly over the its rights to broadcast the Premiere League matches.

After ESPN Sport planned to give the exclusive right to broadcast the Premiere League to Astro in June 2006, the Malaysian pay TV Company reported a sharp increase in its market share from 1% to 5% in July 2006. In September its market share rose further to 8% mainly at the expense of Indovision.

Earlier, the Premiere League matches were broadcast by TV 7 now Trans 7 and all Pay TV stations. However, after PT DV was given the exclusive right in July 2007, the number of subscribers of PT DV surged and its market share rose from 17% to 23% in August 2007.

Meanwhile the market share of Indovision dropped from 54% in July 2007 to 48% in August, 2007.

However, KPPU decided in favor of Direct Vision saying the one to blame for giving monopoly to DV is ESPN Star Sport (ESS) and All Asia Multimedia Network (AAMN)--the parent company of Astro in Malaysia, as they gave the rights without a process of tender. Direct Vision is not involved in the process of negotiation between ESS and AAMN. Direct Vision is only the carrier for the Astro Group in bringing to reality its business and strategies in Indonesia.

However, in mid 2008, the Corruption Eradication Commission found case of Rp500 million corruption involving KPPU leaders. Mohammad Iqbal, a KPPU member, was charged with receiving bribe from former president of PT First Media Billy Sindoro to make the decision favoring Astro.

In April 2008, the operation of Astro was suspended as its frequency license was revoked by the government. Its operation was suspended from April 11 to 14 April. It was allowed to resume operation after PT Direct Vision fulfilled all the conditions set by the government including payment of Rp 191,390,285 for the right o use the frequency.

In October 2008 Astro Malaysia stopped supplying programs for PT Direct Vision after the two was involved in dragging dispute.

Late August 2008, KPPU decided to allow Astro Nusantara to continue the program under Direct Vision, which is owned by PT Ayunda Prima Mitra, a subsidiary of PT First Media. PT First Media is a media business unit of the Lippo Group. KPPU also decided All Asia Multimedia Networks (Malaysia) must continue to supply programs for Astro Nusantara until heir legal dispute is settled concerning the ownership over PT Direct Vision.

The decision of KPPU upset Astro All Asia Network Plc. or Astro Malaysia as the broadcasting rights over Premiere League has been handed over to PT Karyamegah Adijaya, the owner of AORA. Astro Nusantara handed over the right as by the end of August, 2007 they decided to terminate the contract to use the brand of Astro by replacing it with Direct Vision.

However, Astro Malaysia extended the contract until 30 September 2008. In mid September, 2008, Direct Vision asked for extension of contract for supply of program from Astro All Asia in Malaysia. On 30 September, Astro Malaysia agreed to extend the contract until 19 October. After that the cooperation between Astro Malaysia and Direct Vision came to an end.

Astro Malaysia filed a law suit against PT Ayunda, PT First Media, and PT Direct Vision with an international arbitration court in Singapore and demanded a return of fund its has invested valued at RM 905 million (around r Rp 2.5 trillion) in Direct Vision.

Astro Malaysia also field law suit with the Central Jakarta district court against the decision of KPPU that required All Asia Multimedia to continue to supply Astro Nusantara with TV programs.

Around 147,000 subscribers of Astro protested with the disappearance of Astro from the air, but Astro Malaysia said the shareholders of PT Direct Vision including PT Ayunda and Silver Concord Holdings Limited, and affiliates the Lippo Group were the ones to be responsible for losses claimed by the subscribers.

Indovision has a 51.2% share of the market of Pay TV

With clear pictures even in bad weather Indovision remains unrivalled in the pay TV market. In 2007 had 305,372 subscribers or a Markey share of 51.2% in Indonesia.

That year Astro emerged as the most serious rival with 147.000 subscribers (24.7%), Astro made a big start thanks mainly to its exclusive right to broadcast Premier League matches.

Kabelvision, a cable-based pay TV operator, had 114,913 subscribers or a market share of 19.3%. Kabelvision attracted subscriber's thanks mainly to its triple play services Cable TV, internet broadband and data communication, the first in Indonesia.

By the end of 2008, the Pay TV subscribers in the country are estimated to reach 800,000.

Market Value exceeds Rp 1 trillion

The last three years have seen an increase in the total income of Pay TV operators to follow the rise in the number of subscribers.

In 2004, the total income was around Rp 361 billion, up 40.7% to Rp508 billion in 2005, to Rp 688 billion in 2006 and to Rp 1,072 billion in 2007.

Indovision was the largest contributor to the total income accounting for Rp549.7 billion in 2007, followed by Astro accounting for Rp264.6 billion See the following table.

Subscription fee tends to decline

In general the subscription fee is relatively expensive ranging from Rp150,000-Rp250,000 per month not including installation cost. Some operators offer lower tariff in a bid to increase market share.

MNC Sky Vision that operates Indovision sets subscription fee at Rp 149,000-Rp 229,000 per month offering 56 channels. The channels have increased with the inclusion of the channels of Global BBC Worldwide that is BBC Knowledge and CBeebies for Indonesian subscribers presented through DTH Indovision starting 1 April 2008. In BBC Knowledge, subscribers of Indovision could enjoy the latest serial of Top Gear. CBeebies is a program for children.

MNC Sky Vision in November 2008 launched TOP TV for middle to low segments of the market at a price of Rp85,000 per month. TOP TV has 25 TV channels and 18 radio channels. It has exclusive programs like Vision1 Sports, and various other exclusive programs. Like MNC Entertainment, MNC News and MNC Music.

In the beginning TOP TV coverage included only Central Java and North Sumatra but now it ahs expanded to West Java, Bali, Kalimantan and all Sumatra,

Kabelvision

Kabelvision, the largest cable Pay TV in the country offers 3 program package--Home Cable Sweet 15, Home Cable 88 and Premium channels that could be ordered "a la carte". Home Cable 88, with 88 video and audio channels is offered at a price of Rp145,000 per month.

The cost of broadband Fast Net is relatively cheap compared to other Internet Service Providers to follow the trend of broadband prices in the world that tend to decline. Fast Net offers internet access service with a speed of 384 kbps at a price of Rp99,000, 512 kbps at Rp 195,000, 768 kbps (Rp 295,000), 1,500 kbps (Rp 595,000) and 3,000 kbps (Rp 1.2 million). Subscribers of 384 kbps and 512 kbps are required to buy modem at a price of Rp 500,000. Subscribers choosing higher speed access are entitled to free modem.

In addition to normal package, Indovision offers a number of other packages that could be selected by subscribers. Among the packages is Prime Education at a price of Rp149,000, Prime Sport Rp149,000, Prime Family Rp 149,000, Prime Grande Rp 229,000. With 54 channels plus 18 Jakarta and foreign radio channels, subscribers are free to select packages as they like. Cancellation of subscription before expiration date is charged with administrative cost of Rp400,000.

Subscription packages of Astro are cheaper than those of Indovision but limited in number. Cancellation of subscription before expiration date is charged with administrative cost of Rp500,000.

Telkomvision offers subscription vouchers to buy program packages. Subscribers, therefore, could select the program as they desired. The vouchers are more 15 that could be selected effective for a month at a price of Rp30,000 for news package and Rp300, and 000 for complete combo package.

Competition and marketing strategy

Most products offered by the pay TV operators are almost the same. The competition, therefore, is tight. Any operator could provide programs from international channels like Discovery Channel, Cartoon Network, National Geographic Channel, Disney Channel, HBO, AXN, ESPN, Star Movie, Fashion TV, CNN, BBC World, etc. The competition, therefore, is related to technology, and in type of service and prices.

Competition in Technology

Almost all pay TV operators use satellite services with the exception of Kabelvision and Telkomvision which use cable and satellite.

The frequency of satellite is different. Some use Ku-Band, C-Band, and S-Band each having different characteristics. The users of Ku-Band satellite such as Astro still have problem with the weather that could blur the pictures.

Telkomvision chooses satellite in the zone of C-band, such as used by free to air television. With decoder, Telkomvision could reach isolated areas as long as there is electricity power.

TelkomVision also uses cable in addition to satellite of Telkom 2. The cable network of Speedy used by TelkomVision is often considered slow that many subscribers choose to subscribe to KabelVision which uses cable access.

In July 2007, Telkomvision replaced its old cable with digital cable model with broadband with an investment of Rp100 billion.

Indovision chooses satellite in the zone of S-band, which lies closer to the earth. The strength of signal of S-band is excellent better than C-band and Q-band zones.

Competition in content

In order to win market competition, an operator has to be able to turn out exclusive products not owned by other operators, offering new innovated packages to suit subscribers.

Astro led in competition with special channels it produces such as Astro Ceria for children Astro Aruna, Astro Awani, Astro Kirana and Astro Xpresi. Astro also had enjoyed the exclusive right to broadcast the popular Premiere League matches.

Indovision has two music channels MNC Entertainment and MNC Music in addition to MNC News. Other alternative channels are Vision 1 for sports, Vision 2 for drama films and Vision 3 for Baby TV.

Telkomvision, as a subsidiary of state-owned telecommunication company Telkom, cooperates with TVRI in producing educative programs.

Price competition

Secara umum paket berlangganan setiap operator berkisar Rp 150.000-Rp 250.000 per month dengan paket program yang hampir sama.

However, Telkomvision offers prepaid package with voucher system. The prices of vouchers are relatively cheap from to Rp 30,000 to Rp300,000 effective for a month. Consumers, however, need to buy decoder at Rp1.7 million, with a compensation of free television service with clearer pictures.

Indovision and Astro come up with different offers. Decoder and antennae are loaned to subscribers with monthly fee to be paid. Astro sets the subscription fee at Rp 150,000 per month. The subscribers of Indovision are required to pay Rp 149,000 per month.

The latest offer from First Media is package 2 in 1, cable home plus fastnet at a price of Rp 188,000 per month. Subscribers could watch TV while having internet connection.

Marketing strategy

A number of strategies have been launched by providers such as building new networks, promoting discount, pre-paid service for certain program packages.New networks.Indovision shows it is more aggressive in opening new branches in South Sulawesi.

Prepaid service

Generally subscriber's subscription fee by the end of month, but Telkomvision offers prepaid voucher. The vouchers are cheap in price lower than the subscription fee. The lowest price is Rp 30,000 as against its "paket hemat" of Rp 75.000 per month or kombo package of Rp 300,000 per month. Telkomvision chooses not to compete against other satellite Pay TV stations. Instead it seeks to expand coverage in the regions among low income consumers. Telkomvision has 650 agents all over Indonesia and its outlets cooperate with antennae and electronic shops.

Three other major operators Indovision, KabelVision, and Astro, set monthly standard package at Rp 150,000 to Rp 200,000.

Government Policy

Broadcasting Regulation No. 50/2005. Foreign investors may not have more than 20% stake in broadcasting companies. The regulation is to prevent foreign control of the broadcasting business.

Other policies of the government include the Law No. 32/2002 on broadcasting and the regulation of the state minister for communications and informatics No. 8/P/M Kominfo/3/2007 on licensing procedure and operation of private broadcasting companies effective since 21 March, 2007

Conclusion and Prospects

The prospects are still encouraging for business in Pay TV service industry in Indonesia. The growing number of subscribers--up around 32.2% per year in the period of 2003-2005 from 204,000 subscribers to 596,000 subscribers shows that the market is still not yet fully exploited. The number of subscribers follows the increase in the number of operators, more attractive program packages and declining trend of prices.

The penetration of Pay TV in Indonesia is relatively low at 1.8% that the market is still wide open for exploitation. The penetration is much lower than in other neighboring countries. In Singapore it is 45%, Malaysia 38%, the Philippines10%, India 64%, China 33% and Thailand 3%.

Pay TV business is capital intensive, therefore, only financially powerful investors could take part in the market competition. Currently Pay TV service is dominated by the MNC group, which is owned by media magnate Harry Tanoesudibjo, who has vast experience in the broadcasting service business, through Indovision. Recently the MNC Group launched a new Pay TV station TOP TV and OK Vision which is expected to come on line soon. The MNC group is already in control of a number of electronic media known with the brands of RCTI, TPI and Global TV in the free to air TV business.

With Astro, formerly its closest rival, out of business, it easier for Indovision to further strengthen its market domination in the country.

Meanwhile, the Bakrie Group has launched B Vision, which has gone through trial operation. The Pay TV station will form synergy with ANTV and TV One, two free to air TV station owned by Bakrie. Though no significant experience in the broadcasting business, with strong financial backing of Rp 450 billion, Ongki P. Soemarno and his sister Rini M. Soemarno (former industry and trade minister) established AORA TV by taking over PT Karyamegah Adijaya. The take over triggered short lived controversy over allegation of violation of the Broadcasting Law No.32/2002 on transfer of ownership of shares.

The government has not stopped offering new license. The restriction, however, might come in the limited availability of satellite transponders. It is estimated that the Indonesian market has 12 million potential subscribers or 21% of the total number of household TV owners in the country. In the next five years, the number of Pay TV subscribers is predicted to rise to 2.5 million in 2012.
Table--1
Technology and facilities of operators

No Operator Channeling Facilities
 media

 Frequency of S
1 Indovision Satellite bandwave

2 Kabel Vision Cable Length of cable
 - 2,859 km
 Home passed -
 257,979
 connections

3 IM2 Pay TV Satellite Frequency
 Cable

4 Telkom Vision Satellite & Cable Frequency of
 C band wave
 Length of cable
 --
 Home passed --
 29,700
 connections

5 Astro Satellite Frequency Ku
 -band

6 M2V Terrestrial Frequency

Operator Technology

Indovision Satellite Cakrawala -
 A1 which uses S-band
 wave with a frequency
 of 2.520 MHz - 2.670
 MHz

Kabel Vision Hybrid Fiber Coaxial
 Cable (HFC)

IM2 Pay TV Palapa C1

Telkom Vision - Satellite Telkom -2
 - Hybrid Fiber Coaxial
 Cable (HFC) using
 network of Broadband
 Communication
 System (BCS)

Astro Satellite Measat 3 of
 Malaysia

M2V

Source : ICN

Table--2 Operators of Pay TV, 2000-2008

Year Number of operators

 2000 2
 2007 5
 2008 11

Source: ICN

Table--3

Companies already securing licenses to operate pay TV service, 2007

No Name of company Brand Media of
 channeling

1 PT. MNC Sky Vision Indovision Satellite

2 PT. First Media Tbk
 (formerly PT. Kabelvion Cable
 Broadband Mulrimedia

3 PT. Indosat Mega IM2 Pay TV Cable
 Media

4 PT. Indonusa Telkom Satellite &
 Telemedia Vision Cable

5 PT. Direct Vision Astro Satellite

6 PT. Mentari Multimedia M2V Terrestrial

7 PT. Karya Megah Aora TV Satellite
 Adijaya

8 PT. Media Commerce B-Vision Satellite
 Indonesia

9 PT. Nusantara Vision OK Vision Satellite

10 PT. Cipta Skynindo I-Sky-Net Satellite

11 PT. Global Comm Safuan TV Satellite
 Nusantara

 Name of company Coverage area

PT. MNC Sky Vision Nation wide

PT. First Media Tbk Jakarta, Surabaya,
(formerly PT. Bandung, Medan
Broadband Mulrimedia

PT. Indosat Mega Jakarta and
Media Surabaya

PT. Indonesa Satellite : Nation
Telemedia wide
 Cable: Jakarta,
 gandung,
 Semarang,
 Surabaya, and
 Medan

PT. Direct Vision Nation wide

PT. Mentari Multimedia Jakarta, Bogor,
 Depok, Tangerang
 and Bekasi

PT. Karya Megah Jakarta, Bandung,
Adijaya Surabaya

PT. Media Commerce Nation wide
Indonesia

PT. Nusantara Vision Nation wide

PT. Cipta Skynindo Nation wide

PT. Global Comm Nation wide
Nusantara

Source: ICN

Table--4 Investment plans b Pa TV operators

 Total
Operators investment Use of fund Period
 US$ million

Astro 1.000 - procurement of Astro
 equipment
 - program purchase
 - transponder lease
 * -Construction of
 infrastructure
 * -subsidy on
 provision of
 antennae for
 subscribers

Indovision 100 - replacing satellite Indovision

Kabelvision 650 -building optic fiber Kabelvision
 cable network

Telkomvision 11 - Repair of network Telkomvision
 -building optic fiber
 cable network

Source: Data Consult

Table--5 Companies awaiting IPP

No Name of company Brand Media of
 channeling

 1 PT. Adiwarta Perdana Satellite
 2 PT. Multimedia Nusantara Smart Satellite
 3 PT. Indonesia Broadband Mega Vision Cable
 Communications
 4 PT. Fasindo Jaya Kabel TV Cable
 5 PT. Gemilang Putri Cable
 Nusantara
 6 PT. Global Mega Wisata Global Vision Satellite
 Mandiri International
 7 PT. Globalcom Internasional Globalcom Satellite
 8 PT. Triutama Kominakom Visicom Satellite
 9 PT. Arvia Dimensi Arditech Satellite
 Technology
10 PT. Television Prima Digital Easy TV Satellite
11 PT. Digital Mobil Network Tren Satellite
12 PT. Indonesia Media IMT Satellite
 Television
13 PT. Digital Broadcasting DBI Satellite
 Indonesia
14 PT. Mediatama Anugrah Citra MAC Satellite
15 PT. Elang Mahkota E-Vision Satellite
 Technology

Name of company Coverage area

PT. Adiwarta Perdana Nation wide
PT. Multimedia Nusantara Nation wide
PT. Indonesia Broadband Bandung &
Communications surrounding areas
PT. Fasindo Jaya Kabel TV Bandung &
 surrounding areas
PT. Gemilang Putri Denpasar &
Nusantara surrounding areas
PT. Global Mega Wisata Nation wide
Mandiri International
PT. Globalcom Internasional Nation wide
PT. Triutama Kominakom Nation wide
PT. Arvia Dimensi Nation wide
Technology
PT. Television Prima Digital Nation wide
PT. Digital Mobil Network Nation wide
PT. Indonesia Media Nation wide
Television
PT. Digital Broadcasting Nation wide
Indonesia
PT. Mediatama Anugrah Citra Nation wide
PT. Elang Mahkota
Technology Nation wide

Source: Menkominfo

Table--6

Number of subscribers by types of services -, 2003 2007

 Year Number of subscribers Total Growth
 TV satellite Cable TV (%)
 2003 102,000 102,000 204,000 ---
 2004 120,000 120,000 240,000 17,6
 2005 1,135,000 135,000 270,000 12,5
 2006 300,896 139,654 440,550 63,2
 2007 452,372 143,703 596,075 35,3
Average growth 32,2

Source: ICN

Table--7

Penetration of Pay TV in Indonesia, 2004--2007

 Year Penetration Growth

 2004 0.50 ---
 2005 0.80 60.00
 2006 1.30 62.60
 2007 1.80 38.50
Average growth 53.70

Source: ICN

Table--8

Market share of pay TV operators, 2007

Name of operators Number of subscribers Share

Indovision 43,228 51.20
Astro 15,928 24.70
Kabel Vision 49,377 19.30
Telkomvision 22,889 3.80
Other operators 5,901 1.00
Total 62,511 100.00

Source: ICN

Table--9

Total income of Pay TV, 2004-2007

 Year Total income Total Growth
 (R Billion)
 Cable Satellite
 2004 169 192 361 ---
 2005 208 300 508 40.70
 2006 218 470 688 35.40
 2007 268 804 1,072 55.80
Average growth 43.90

Source: ICN

Table--10

Tariffs set by operators of Pay TV

Providers Installation Monthly fee Number of
 Rp Rp channels

Indovision 200,000 149,000 56

Kabelvision Free 145,000 88

Telkomvision 500,000 253,000 56
 (for satellite TV)
 200,000
 for cable TV

IM2 Pay TV 300,000 158,000 48
 500,000 (cable TV
 and internet access
 384 kbps

Astro 200,000 150,000 34

Source: ICN

Table--11

Number of subscribers, 2008-2012

 Subscribers Subscribers Number of
 Year of satellite of Cable TV subscribers Growth
 TV(000) (000) (000) (%)

 2008 510 290 800 --
 2009 694 406 1,100 37.5
 2010 902 598 1,500 36.4
 2011 1173 827 2,000 33.3
 2012 1525 975 2,500 25.0

Average growth 33.1

Source : ICNI Data Consult
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Title Annotation:INDUSTRY PROFILE
Comment:Development of Pay TV service industry amid tight competition.(INDUSTRY PROFILE)
Publication:Indonesian Commercial Newsletter
Geographic Code:9INDO
Date:Nov 1, 2008
Words:8566
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