All eyes on Astro on how it deals with tough industry dynamics
“Astro is streamlining its cost base by focusing on less expensive local content and rationalising its headcount.”
Neoh Jia Man
THE rise of more flexible offerings and lowered barriers to entry in the pay-television (pay-tv) space with considerable foreign participation means Astro Malaysia Holdings Bhd is facing a much more competitive environment now.
This follows the wide range of choices available today for consumers, as each provider competes for customer subscriptions and screen-time.
Notably, channel offerings can now be subscribed for unbundled through the various platforms and their apps with the tap of a smartphone.
The landscape is now unlike the days more than a decade or two ago when Astro was the sole dominant pay-tv provider and everything was sold as a package with a premium price and broadcast through a satellite signal to customers’ homes.
Prior to Astro, the now defunct Mega TV operated by Cableview Services Sdn Bhd, was the first pay-tv operator in Malaysia.
Astro introduced more channel varieties and package offerings which allowed it to take over the pay-tv competition in the country around the year 2000.
Today, the key change in distribution channels, mainly via smartphone apps, means consumers who prefer only movies or South Korean series, for example, can subscribe for their preferred genre of shows without going through bundled offerings, saving them costs.
Astro in its most recent reported quarter derives close to 94% of its revenue from the pay-tv segment.
It also offers broadband through a bundled service with the pay-tv segment, although this wasn’t reported as a separate business segment in its financial statements.
In its financial results for its fourth quarter ended Jan 31, 2024 (4Q24), Astro says it faces multiple headwinds, the strength of the US dollar, soft consumer sentiment and the recent service tax hike being among them.
It reported a net profit of Rm44.38mil for 4Q24, down 19% year-on-year (y-o-y), on the back of revenues declining 14% y-o-y to Rm819.9mil.
Astro’s shares, which fell to its historical low of 29.5 sen on March 21-22 this year, closed at 30.5 sen yesterday, down some 23% year-to-date.
Among the factors that led to this drop is the reduction in its dividend yield, as prior to its announcement in 2023, the stock commanded dividend yields of some 6% or 7%.
It had in the second half of 2023 announced its move to revise its dividend policy from a dividend payout ratio (DPR) of 75% of net profit to determining the DPR based on consolidated net profit on an annual basis.
Kenanga Research notes Astro’s subscriber base had shrunk to 5.34 million or a 3% lower from the previous year.
According to Tradeview Capital’s portfolio manager Neoh Jia Man, the long-term outlook for the company remains challenging.
“This is due to the steady annual loss of 2%-3% of its pay-tv subscriber base. This trend is attributable not only to changes in customer demographics and media preferences but also to the entry of foreign competitors such as Netflix and Disney+,” Neoh tells Starbizweek.
“The introduction of more affordable offerings like Sooka is intended to address these challenges by better meeting the demands of younger viewers in terms of media format and pricing.
“While cheaper offerings may negatively impact Astro’s margins, they could also help mitigate the decline in its subscriber base, thereby offering some margin protection,” he adds.
He also notes that Astro is streamlining its cost base by focusing on less expensive local content and rationalising its headcount.
Given these tough industry dynamics, it appears that Astro’s still inherent competitive advantage is from its localised vernacular channels but it is still unclear if these will be able to sufficiently help lift the group as a whole.
“While we do not have specific insights into the advertising expenditures for the vernacular segment, we believe that this segment is where Astro can differentiate itself and avoid direct competition with foreign players. At the very least, the firm can cater to and retain a loyal viewer base,” Neoh says.
But competitive pressures may also come in this space, according to Kenanga Research, which notes that within the vernacular space, Astro is fighting for market share with domestic free-to-air TV.
Astro highlighted some of its achievements on this front, saying its All Stars Gegar Vaganza, which is the country’s No.1 show, is now in its 10th season with over eight million TV viewers nationwide.
The company is also involved in making movies that are aired in cinemas locally, with recent box office takings netted it some Rm103mil.
Another area the company says it is tackling is piracy which remains a persistent issue for itself and the media industry as a whole given that livelihoods and jobs are at stake.
TV boxes or streaming devices are technically illegal in Malaysia, although they are still easily available today.
Such devices which usually provides unauthorised access to copyrighted works such as movies is an infringement under the Copyright Act 1987.
A possible way forward for Astro could also be through a merger with Maxis Bhd since both companies share the same majority shareholder – Ananda Krishnan.
If both companies merge, the entity would be able to more effectively bundle offerings and offer better cost synergies for itself and its customers.
“An Astro-maxis merger could make sense, especially since both entities are controlled by the same shareholder.
“Operationally, offering bundled broadband and pay-tv subscriptions could create revenue synergies. However, it’s worth noting that Astro has launched its own broadband services since 2022, which might lessen the immediate rationale for a merger,” Neoh says.
“But given the current valuation level, a privatisation of Astro ahead of any merger seems more likely,” he adds.