This article first appeared in The Edge Financial Daily, on May 9, 2016.

KUALA LUMPUR: Media Prima Bhd is not ruling out withdrawing its television channels from the free-to-air (FTA) space when Malaysia migrates to digital broadcast, as it regards the transmission fee charged by the digital terrestrial television (DTT) infrastructure operator — controlled by tycoon Tan Sri Syed Mokhtar Al-bukhary — as commercially unviable.

If that happens, it will mark the end of an era of Media Prima channels’ presence in the FTA space, which dates back to 1984 with TV3’s debut as Malaysia’s first privately owned terrestrial television network — more than two decades after the country made television broadcast available.

Media Prima Television Networks chief executive officer Datuk Kamal Khalid said he is “still cautiously optimistic” that the group could land a mutually beneficial agreement with infrastructure operator MYTV Broadcasting Sdn Bhd.

“If you push me to the wall and ask, ‘Would you actually not migrate [to DTT]?’ I’d say, ‘Yes, there is a possibility.’

“But it is not our preferred possibility. We want to be supportive of this; it is a national initiative,” he said in an interview with The Edge Financial Daily.

“But even if they ultimately don’t, we would not be saying bye-bye to Media Prima’s four channels. You can [watch us when you] turn on Astro, you can turn on HyppTV. We’re available online.

“Even as far as our content is concerned, we’re an equal opportunity company. If you subscribe to iflix and you want to watch Malay dramas there, chances are they are our [produced] dramas.

“The fact that we are an open-source company and available on multiple platforms puts us in a good stead,” Kamal said.

If MYTV refuses to budge on the amount and Media Prima relying on Malaysia’s pay television operators as vehicles for its broadcast, will Media Prima’s loss in viewers result in a lower advertising revenue?

Kamal acknowledges the possible opportunity cost in sitting out DTT, but adds: “We are cushioned by the fact that we are already available via all pay television platforms and we stream our channels online via Tonton.”

Many industry players have said the last thing that they need is for transmission fees to spike, when theoretically DTT should bring the cost down since more digital channels can be broadcast in one analogue television channel bandwidth.

Traditional media players are already struggling with softer advertising buys while consumption pattern has largely veered towards online medium, made worse by rising production costs across various mediums. A January 2016 note by Kenanga Investment Bank Bhd, citing a Nielsen Malaysia report, said advertising buys on FTA television fell by 10.9% to RM2.86 billion last year.

At RM12 million a year to transmit a standard definition (SD) channel, sources said the fee MYTV is charging is several times the current one. And the transmission fee for high-definition (HD) channels is more than double, at RM25 million per annum.

In a January 2015 interview with The Edge weekly, MYTV chief commercial officer Haniza Ros Nasaruddin said its transmission fee is actually cheaper than the current one, considering that MYTV’s infrastructure will provide coverage to 98% of homes, compared with the 55%-to-95% range that the analogue format is giving now.

And the HD transmission fee is at a discount when taking into account that broadcasts in this resolution require three times the bandwidth of SD channels, she said.

Media Prima’s annual report for financial year 2015 ended Dec 31 (FY15) showed that the group’s transmission and bandwidth expenses were RM37.67 million, but this was the aggregate fees for the stable of electronic media it owns — which include four television stations, four radio stations, and multiple websites.

Assuming that Media Prima joins the DTT bandwagon and keeps its television channels — TV3, ntv7, 8TV, and TV9 — in SD, it will cost the group RM48 million a year in transmission fees.

Throw a HD channel for a simulcast into the equation and the cost will be RM73 million. This is equivalent to 5.11% of Media Prima’s group revenue of RM1.43 billion in FY15, and more than half of its net profit of RM138.72 million. And it should be noted that Media Prima Television Networks’ share of contribution to the group revenue and net profit was 44% and 52.4% respectively.

MYTV is a special purpose vehicle created by Puncak Semangat Sdn Bhd, which in January 2014 beat i-Media Broadcasting Solutions and Redtone Network Sdn Bhd — a joint venture between Redtone International Bhd and the Sultan of Johor — for the tender to build the DTT infrastructure and operate the concession for 15 years.

The plan is to switch off Malaysian television’s analogue transmission in 2018. The DTT is undergoing a test run, with all seven existing FTA channels available for viewing.