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Straight Talk Media & Entertainment

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This month’s TV Connect MENA conference in Dubai will come on the back of a few years of frantic change in MENA’s premium video market. First was the launch of the first major international SVOD player, Starz Arabia, in April 2015, followed by Netflix and Amazon Prime Video in January and December 2016, respectively. In the interim, South East Asia’s iFlix also launched. Second, beIN ventured into the entertainment space, dropping "Sports" from the company name while retaining its specialist sports focus. Third is the unprecedented economic squeeze, with preliminary austerity measures now being delivered in key markets such as Saudi Arabia.

With the market flipped on its head, nobody has been impacted more than the incumbent pay-DTH regional operator, OSN. The company has seen a hemorrhaging of revenues and a loss of subscriptions. Under new leadership since June 2016, CEO Martin Stewart (previously CFO to the English FA and Sky) initiated a multipronged change in strategy. First, OSN’s pricing on key packages was revised (beIN’s basic entertainment packages at the time of its launch were around 40% cheaper than those of OSN). Second, Pay-OTT platform Wavo was launched in 19 Arab-majority markets, offering a mix of English and Arabic channels, with three distinct "packs": Entertainment, comprising 14 live channels including OSN First (HBO content), and VOD, for $10/month; Movies, comprising VOD only, for $7/month; and Sports, comprising 7 live channels for $14/month, focusing on cricket, Moto GP, and Combat Sports, with options for weekly ($8) and daily ($5) passes, and a further $10 for WWE content.

OSN’s Wavo is a reincarnation of the Go by OSN service, and is OSN’s attempt to build an online audience for its high value content proposition, across premium channels, movies and sports rights. The danger for a pay-TV broadcaster in launching a pay-OTT platform, as always, is the risk of cannibalization. The risk is amplified because Wavo is based partly on linear entertainment channel streaming: 21 OSN channels are going OTT linear, whereas its base satellite entertainment package has 32 channels.

Stewart was quoted by Gulf News as saying that Wavo will represent between 35% and 40% of OSN's business within three to five years, which is an aggressive target given that its potential is debatable. Unless cannibalization of its pay-DTH business has a huge role to play in achieving this, it is unclear how this will be realized. Intentionally transitioning existing subscribers to Wavo is difficult to justify commercially. Ovum argues that Wavo must be substantially differentiated from the DTH service and product, and higher ARPU subscribers on longer-term contracts must feel the explicit benefits that a higher-priced service offers them. There is therefore a delicate balancing act in preserving its DTH subscriber base while growing Wavo’s base. Stewart’s experience with UK’s Sky, even though he was there before the launch of its NOW TV SLIN (subscription linear) platform, should help inform strategy.

Given the experience of Go by OSN, it is worth remembering that broadcaster-led SVOD has not been much of a success in the Arab MENA. The other broadcaster-led MENA service, Shahid Plus, owned by regional FTA broadcaster MBC, has not released detailed numbers and estimates suggest that subscription volumes for the service, which launched in 2014, have fallen short of expectations.

Stewart wants OSN to be for the Arab World what HBO is for the US. This means a large content portfolio for premium Arabic content. This pillar in Stewart’s strategy is a result of OSN being heavily skewed toward international content, particularly that from the US. Details on how exactly OSN will become the HBO for Arabic content are sparse. Even with a detailed plan, this is a strategy that will take a long time to achieve because leadership in original content production tends to be hard won through sustained success over a period of years. Creatively, no MENA-based production house has access to the creative talent or the scale of budget available to the leading global US distributors. There is also an ever-growing gap in the volume, type, and scale of shows produced by global players capable of investing against huge audiences, and those produced locally or by regionally bound producers.

So what now for OSN? Tyrion Lannister once said, “Sometimes, nothing is the hardest thing to do.” While there is an element of truth in this, OSN can benefit from focusing on what it has done well for several years, and building on these successes.

OSN needs to strengthen its ties with America’s leading studios and broadcasters, and extend those partnerships to offer exclusive content and enable a demonstrably better service offering. A good example of this was OSN’s exclusive deal for Disney content in an early-release window in the region, announced this month.

OSN also needs to retain a broad base of content. A high-value service with key points of content differentiation in movies, entertainment, and ethnic content will appeal to all types of households. And while it is not as renowned for sports and Arabic content compared to other players in the region, any boost to these to add to its already popular international content will increase its appeal, ensuring it is well differentiated from genre-limited international players such as Netflix, Amazon, and Starz. On the content side, the most compelling Arabic content has traditionally been the mainstay of ad-funded FTA broadcasters. There will need to be a combination of huge investments by pay-TV operators and a generational paradigm shift in attitudes to premium Arabic content before any premium broadcaster can assume the "HBO of Arabic content" mantle. For the time being, Western content translated into Arabic is substantially more marketable and monetizable on the pay-TV platform than original Arabic productions. This is deeply ingrained in the cultural milieu of the region, even though three-quarters of the population is native Arabic. And while high quality Arabic productions capture the zeitgeist periodically, it will be some time before a pay-TV operator can boast the lasting impact of a show such as Game of Thrones or Breaking Bad.

OSN’s position as the leading linear international entertainment provider is safe for the time being, though it is in a period every media incumbent usually goes through. According to Ovum, the Arab world’s pay-video annual revenues will grow from $1.2bn in 2016 to $2.2bn in 2022, and OSN’s slice of this will invariably decrease. OSN’s progress toward its financial and commercial objectives needs to carefully managed. We believe that OSN has a chance to move into a period of sustained but slow growth, but should not expect revenue to multiply in the next few years. The present MENA dynamic is an opportunity for OSN to be more imaginative in its go-to-market strategies, such as a pay-TV OTT proposition to entice more value-conscious audiences, and the reduction of prices for the increasingly crowded higher-value TV subscriber. OSN’s content relationships position it well as a key challenger in the new status quo emerging in the Arab media landscape, but it must focus on providing clear differentiation between its own services as well as competing offerings to minimize DTH cannibalization.

Straight Talk is a weekly briefing from the desk of the Chief Research Officer. To receive this newsletter by email, please contact us.

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