Thursday 28 Mar 2024
By
main news image

This article first appeared in The Edge Malaysia Weekly on November 11, 2019 - November 17, 2019

INCUMBENT pay-tv provider Astro Malaysia Holdings Bhd seems to be binding itself closer to the streaming disrupters that some observers say are eating its lunch.

In May, it was HBO Asia’s Internet-based service HBO GO debuting in Malaysia exclusively on Astro. Last Wednesday, iQIYI — Chinese internet search giant Baidu Inc’s video-streaming affiliate — chose Astro as its partner for the first launch of its video streaming app outside China. The world’s first iQIYI-branded television channel has been available on Astro’s Channel 300 since July 17.

“We believe this is the start of many more initiatives with iQIYI. The partnership is timely as we are seeing growing streaming services and interest as consumers are able to enjoy rich content choices in a convenient and personalised manner. iQIYI is at the forefront of video streaming, offering both compelling content and a good user experience. We look forward to benefitting from iQIYI in data analytics and AI (artificial intelligence),” Astro CEO Henry Tan says, letting on that more partnerships with other streaming providers are also in the works.

Yet, the iQIYI partnership alone will prove to be a game changer if Astro can secure meaningful access to its superior technology capabilities.

“If Baidu is China’s Google, then iQIYI is a lot more than just the Chinese Netflix equivalent,” an observer says of the technology-based entertainment group.

The complex world of content and its monetisation requires experience and inside knowledge, something insiders say the seasoned hands at Astro possess, thanks to the organisation’s 23-year-old roots in the business. Google’s YouTube, for instance, is stepping away from the expensive high-end original content space that Netflix and Amazon are moving into. The production cost of HBO’s global hit Game of Thrones reportedly rose from US$6 million per episode in 2012 to US$15 million in the final season.

Having deep pockets is an advantage but does not guarantee success, as seen with Alibaba Pictures’ epic flop Asura — the RMB750 million (RM444 million) special-effects heavy fantasy film that was intended to be the first installment of a trilogy but was pulled from theatres after a paltry US$7.3 million box office tally on its opening weekend in July last year.

China’s biggest internet streaming platform, iQIYI — which competes with Alibaba-backed Youku and Tencent Holdings’ Tencent Video in China — has had some success in capturing that X-factor needed for shows to win a cult following.

iQIYI and Huanyu Film co-produced the 70-episode period drama, The Story Of Yanxi Palace, with colourful back-stabbing imperial concubines that was the world’s most searched-for TV show on Google last year.

The riveting series, which reportedly had a budget of about RMB300 million, was streamed more than 17 billion times and is available in over 70 territories worldwide. Half of China was reportedly following the debut of every episode last year — a dream, not just for idealistic souls in the creative arts but brand marketers looking to strategically position advertising dollars. French maison Guerlian, for instance, had a lipstick hue for all the women leads in the show. Hong Kong actress Charmaine Sheh, who played Consort Xian, was inspired to launch her own cosmetics brand, Sh.

In 2016, iQIYI effectively funded over one-third of the US$11 million production cost of Descendants of the Sun — the sensational South Korean KBS drama starring Song Hye-kyo and Song Joong-ki — having paid US$250,000 for each of the 16 episodes (US$4 million in total) to be released simultaneously in South Korea and China exclusively on the iQIYI platform. The Beijing office of the Korea Creative Content Agency described the South Korean series (which aired from February to April 2016) as the biggest force driving the jump in paid users of iQIYI, with subscribers jumping 50% from 10 million as at end-2015 to 15 million as at March 2016. As at end-September this year, iQIYI had 105.8 million subscribers, of which 99.2% were paying members.

Astro serves 23 million indivi­duals in 5.7 million (or 76%) Malaysian households,  engages with two million home shoppers through its Go Shop and says its digital brands host 10 million average monthly unique users across multiple entertainment and lifestyle portals. Astro subscribers will be given two months free VIP access to the iQIYI App, with “attractively priced” access bundles thereafter.

“With strong marketing capabilities, outstanding content creation and distribution strength, Astro has been a close partner of iQIYI. We share the same belief in providing users with a high-quality entertainment experience through technological innovation and content creativity,” says Yang Xianghua, iQIYI’s president of membership and overseas business group. “We hope to provide quality entertainment services to overseas users by sharing our research and development results, data storage capability and computing power with our partners.”

“Malaysia is a very significant market,” he tells The Edge in Mandarin.

 

Cracking overseas Chinese

While Yang did not elaborate on the significance of the Malaysian market, an observer says Malaysia has one of the largest diaspora of overseas Chinese in the world, shy of Taiwan’s 23.8 million population but bigger than that in the US, Canada and Singapore. The 6.68 million Malaysian Chinese excludes many Malaysians who enjoy Chinese shows with subtitles and an increasing number of non-Chinese Malaysians who also understand Mandarin and/or other Chinese dialects.

iQIYI’s application to set up a subsidiary in Taiwan was reportedly rejected by the Taiwanese government in 2016. Mainland propaganda was reportedly among the concerns.

Interestingly, though, iQIYI’s phenomenal success with the two series drew flak from the Chinese government. In March 2016, China’s Ministry of Public Security posted a warning on its official Weibo site against the harmful effects of watching South Korean dramas. In January this year, programming schedules were reportedly changed in China after Chinese state media went after imperial dramas such as Story of Yanxi Palace and Ruyi’s Royal Love in the Palace, which they say negatively influence society by promoting extravagance over virtues of frugality and hard work.

As the world begins to expect cash-grazing unicorns to deliver profits, Malaysia could well provide useful earnings for Nasdaq-listed iQIYI.

In Malaysia, a budget of RM5 million is considered a big production, says Astro’s Tan, relating how Malaysian director Chiu Keng Guan teared up when he first heard the musical score of Ola Bola played by the Malaysian Philharmonic Orchestra. Chiu, who could not afford to hire an orchestra for the movie, recorded one instrument at a time and layered them together to achieve the effect he wanted, Tan says, noting the ingenuity of Malaysian talent and the importance of combating piracy to ensure the survival of the creative souls operating on shoe-string budgets. Chiu is now in China.

Financiers’ reluctance stems from how challengingly diverse Malaysia’s 32 million population is. Apart from the Malay-speaking market, Tan says Malaysia has at least four other key 8% segments: Mandarin, Cantonese, Hokkien and Tamil.

“I always say that anyone who can crack the Malaysian market will not have a problem elsewhere,” Tan says, adding that he has seen strength emerge from diversity.

 

Clicks and bricks?

At least one equity analyst witnessing the fanfare at Astro headquarters told clients that  Astro’s target of 100,000 subscribers for iQIYI is conservative, saying that The Star Media Group’s over-the-top (OTT) offering, dimsum, claims over one million users.

“We understand that while there is a revenue-sharing arrangement between Astro and iQIYI, this venture could be earnings accretive rather quickly as Astro will not have to pay for content,” Maybank Investment Bank analyst Yin Shao Yang writes, adding that dimsum’s starting subscription of RM13.90 per month is above iQIYI VIP Gold’s at RM12.90 per month.

Yin estimates that iQIYI could contribute about RM20 million to Astro’s net profit if it can convince 500,000 subscribers to each pay an average of RM12.90 per month, assuming 50:50 revenue share and 50% net profit margin. He has a “buy” recommendation and RM1.72 target price for Astro.

At its RM1.41 close last Thursday, Astro’s market capitalisation was RM7.35 billion — just over one-10th of iQIYI’s US$14.5 billion. Last year (FY2018), iQIYI’s revenue was close to RMB25 billion (RM15 billion) — triple Astro’s — but its net loss was RMB9.4 billion (RM5.5 billion). Astro had RM1.6 billion free cash flow, booked a RM462.92 million net profit and paid out RM469.27 million in dividends for the financial year ended Jan 31, 2019 (FY2019).

For the nine months ended Sept 30, iQIYI reported RMB21.4 billion (RM12.6 billion) revenue and a RMB9.16 billion (RM5.4 billion) net loss, with content cost for the period being RMB7 billion (RM4.1 billion).

Astro, which will announce its third-quarter results (3QFY2020) on Dec 4, booked RM345.53 million net profit on the back of RM2.47 billion revenue in the first half of the year.

Astro is 41.29%-owned by T Ananda Krishnan, the 81-year-old billionaire who sold the idea of the iconic Petronas Twin Towers to Prime Minister Tun Dr Mahathir Mohamad. Khazanah Nasional Bhd has a 20.67% stake in Astro, an investment in the “commercial” basket, which (in theory) means it is for sale at the right price.

Using the most optimistic target price for Astro — Macquarie’s RM2.13, which represents about a 50% premium to prevailing prices — Khazanah’s stake could fetch RM2.3 billion. The stake gave Khazanah about RM118.6 million in dividends from Astro’s FY2019 payout and RM134.6 million from its FY2018 payout. Board members include a representative from the Employees Provident Fund, which had 8.437% equity interest in Astro as at end-October and receives dividend income from it every quarter.

It may well be too early to speculate if Astro’s Chinese partners will one day sit on the board. For Tan, the partnership with iQIYI  opens the door to new possibilities for Astro, which is working to deepen connections with customers as it explores new ways to monetise its intellectual assets.

“It’s a defensive move. Why have many different [OTT] apps, when it is all on Astro [GO app]. That’s probably their game plan,” an observer adds.

 

 

Save by subscribing to us for your print and/or digital copy.

P/S: The Edge is also available on Apple's AppStore and Androids' Google Play.

      Print
      Text Size
      Share