ASTRO MALAYSIA HOLDINGS BHD wants to aggressively sell channels and content to regional markets in the near future to reduce its reliance on subscription revenue.

While Astro has been selling local vernacular content overseas, the media group’s two new ventures — a documentary channel known as SPARK Asia and a partnership with Mexico’s TV Azteca SAB de CV to co-produce Asia-based telenovelas — are its first steps in diversifying into genre-based content to appeal to more international viewers.

Astro CEO Datuk Rohana Rozhan compares Astro with global media companies Twenty-First Century Fox Inc and The Walt Disney Co. The Astro brand might conjure images of satellite dishes and decoders in Malaysian homes, but the group is more than just a pay television operator, she says.

“They (global media companies) don’t just have a platform but the whole value chain: studios, channels and distributors. The reality is, that’s who we are,” she says in an exclusive interview with The Edge.

Astro’s revenue is still very much reliant on subscription fees. For the first half of its financial year ending Jan 31, 2015 (1HFY2015), 82.14% of the group’s revenue of RM2.603 billion came from television subscriptions. The segment’s top line grew 8.91% year on year during the period.

However, revenue parked under its “other” segment — comprising licensing income, publications advertising expenditure, programme sales, revenue from sister company NJOI (a subscription free satellite service), and movie theatre revenue — more than doubled to RM180 million in 1HFY2015, according to Astro. Its share of group revenue also improved to 6.92% in 1HFY2015 from the previous year’s 4.69%.

Rohana declines to reveal if Astro has a target for the “other” segment’s revenue share.

Better off monetising existing IP

In October, Astro took a 30% stake in a joint venture with SPARK GmbH and Moving Visuals International to create SPARK Asia, touted as the region’s first dedicated high-definition (HD) factual and documentary channel. It is scheduled for premiere in the first half of next year, on linear television and in digital space.

This is not Astro’s first venture on the international stage. The group has sold some of its channels — such as Astro Ria, Astro Prima and similar channels primarily for local audience — to neighbouring countries, and is now moving into producing various genres that appeal to a wider viewership.

“We don’t look at the factual channel (SPARK Asia) as a Malaysian channel. It’s for the Asian audience. This is where the monetisation comes from,” Rohana says. She declines to reveal which market or pay television provider has committed to picking up SPARK Asia.

Generally speaking, the price paid for SPARK Asia or any other channel by international buyers could translate into pure profit for Astro because all production costs have already been covered by the Malaysian market. Any retransmission cost for international markets will be covered by the subscribers of a particular market. The more viewers in those markets, the higher the profit margin.

“Typically, [selling a channel] works if there’s a minimum guarantee [of viewership] to recover your cost of retransmission, and there’s headroom after that. For example, for the first 100,000 [viewers], [buyers] will pay one dollar per customer per month. And then for the next 100,000, you pay 90 cents because the whole idea is to incentivise the reach of the channels,” Rohana says.

As for its joint venture with Azteca, Astro will market Malaysian telenovelas produced by local production house Global Station. The first release, Memori Cinta Suraya, is adapted from the telenovela A Love to Remember. Astro will sell individual programmes as intellectual property (IP).

Rohana does not rule out selling other Astro-owned channels and IPs. She says its premium channel A-List, which airs art house and critically acclaimed international films, has “global potential”.

“European markets like [these films]. A-List is an amalgamation of all these critically acclaimed, award-winning films which don’t get the big-screen treatment.”

Rohana is confident that even with rising production costs from increased output, the group can maintain the percentage of its content cost at 32% to 35% of its television revenue. This is because the group’s average revenue per user (ARPU) has been growing, as it introduces more channels and makes its content available on smart devices, which are open to non-traditional Astro subscribers.

Astro recently increased the fees it charges HD viewers by RM5. As at 2QFY2015, its ARPU was RM98, up from RM94.90 last year.

Astro, one of the companies on the FBM KLCI, has advanced 11.79% to RM3.28 since the end of December last year. Its net profit for 1HFY2015 grew 24.9% to RM265.99 million. This compares with the 1.75% decline in earnings for 1HFY2014, during a “reinvestment” phase, when it incurred costs to upgrade its subscribers’ standard definition set-top boxes to HD.

Rohana says about 90% of Astro’s 4.2 million subscribers had swapped their old decoders for the HD ones as at Nov 27.

“That’s (the reinvestment phase) pretty much done because we don’t need to swap [the old decoders] of the remaining 10% of subscribers. There will be natural attrition as and when they upgrade to HD services.”

However, Rohana says the group might not see big growth in its profit after tax (PAT) in FY2016 as that will be “the peak amortisation year” on items that are unrelated to Astro set-top boxes.

“Thereafter (FY2017 onwards), PAT is going to grow very strongly [to enable] a progressive dividend payout,” she adds. Despite paying out most of its net profit, the stock had a yield of only 2.29% based on last Thursday’s close of RM3.28. However, Rohana says Astro’s total return — combining stock appreciation and yield — is “quite comfortable”.

This article first appeared in The Edge Malaysia Weekly, on December 8 - 14, 2014.

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