Bangkok--18 Nov--Fitch Ratings
Fitch Ratings expects competition for broadcast advertising expenditure in Thailand to increase significantly in the next three years as new digital television (TV) channels enter the market. Although we expect the greater number of channels to increase TV’s share of media spend, competition is likely to be intense which will drive down advertising rates for free-to-air TV stations. This will affect incumbent operators significantly as they currently benefit from high rates, which reflect the relative scarcity of air time.
The regulator expects to license 24 new commercial digital TV channels by January 2014. These include seven high-definition variety channels, seven standard-definition variety channels, seven news channels, and three children’s channels. Variety channels are the most attractive to new entrants as they target a wider group of viewers and are likely to be able to charge higher advertising rates. Fitch expects these digital TV channels to replace the existing five commercial analog free-to-air TV channels over the next five years.
Following the launch of digital TV, absolute advertising spend on free-to-air TV is likely to increase as greater air time is likely to more than offset the expected lower advertising rates. Expected lower advertising rates should encourage advertisers who are new to the medium to promote their products on the free-to-air TV platform; for example small- and medium-sized businesses who have not previously been able to afford free TV advertising rates. We expect this increase in TV’s media share will be at the expense of traditional media, particularly newspapers, magazines and radio.
New digital TV operators’ financial leverage is likely to increase as they invest in building and upgrading broadcast facilities and fund their license fee obligations, although the latter can be funded over a five year period. Their margins are also likely to be affected by both start-up costs and our expectation that these businesses will take time to build their revenue base.
The two listed incumbent free-to-air TV operators, Channel 3 and Modernine TV, currently enjoy gross margins of 55%-60%. Their margins are likely to decline at least five percentage points due to the competition from new digital TV channels. However, margin deterioration will be gradual, as new entrants need time to establish their positions and gain market share.
Free-to-air TV is the main medium for advertising expenditure in Thailand. It accounted for about 60% of total advertising expenditure and grew by 9% in 2012. The market leaders are Channel 7 and Channel 3 with a combined market share of about 60%.