Bangkok--14 Nov--Fitch Ratings
Fitch Ratings says Thailand’s new digital TV channels’ growth in advertising revenue is likely to be slower-than-expected. Therefore, new TV operators will take a longer time to break-even on cash costs, stretching their financial profiles. Incumbent free-to-air TV operators, including Channel 3 and Channel 7, are likely to continue to dominate TV advertising spend over the next two years.
The adoption of terrestrial digital TV has been slower than Fitch’s expectations in the six months since the initial launch in May 2014. This is mainly due to the regulator’s delay in distributing subsidy coupons, which has resulted in viewers deferring purchases of digital TV set-top boxes. However, we expect the adoption rate to increase rapidly in 2015 and 2016 after the regulator began to distribute subsidy coupons in October 2014.
In addition, the launch of new quality content on digital platforms has been slow. Consequently, we think that new entrants will take longer than previously expected to build up viewer ratings and attract advertising revenue. Advertisers are likely to continue to allocate the majority of their advertising budgets to the incumbent free-to-air channels in the medium term.
New digital operators will, therefore, take longer to generate sufficient cash flow from operations to cover their capex and licence fees. Fitch estimates that variety digital TV channels may require average annual revenue of at least THB1.4bn to cover annual production and operational costs of around THB800m and capex (including licence fees) of around THB500m-600m per annum.
We think that competition in the sector will be fierce over the next two years due to the increase in advertising airtime from new digital channels, which could put pressure on industry advertising rates. Nevertheless, given their larger view base and stronger content, incumbent free-to-air operators will continue to dominate the TV advertising market over the next two years, commanding higher rates than those of new digital operators.
While advertising rates for the TV sector may trend down, we think that absolute advertising spend on free-to-air TV is likely to increase as a greater availability of advertising inventory is likely to more than offset lower rates. We expect small- and medium-sized businesses to take advantage of lower advertising rates to promote their products on free-to-air TV for the first time. This increase in TV's share of the advertising market is likely to be at the expense of traditional media, particularly newspapers, magazines and radio.
Free-to-air TV is the main medium for advertising expenditure in Thailand, accounting for about 60% of total advertising expenditure in 2013. The market leaders are Channel 7 and Channel 3 which, together, account for 60% of TV advertising spend. New entrant digital channel operators are mainly current content producers which aim to broaden their distribution by bypassing the established channels.