RE-INVENTING ASTRO

After two listings and being taken private once, what’s next for Astro?

IT’S a name familiar with a large number of households. Many pay for its service to watch the favourite TV shows, movies and sports. But the company itself that brings such content to homes via satellite, Astro Malaysia Holdings Bhd, has undergone changes while being away from the stock exchange for nearly the past 2½ years.

“We are very different now,” says CEO and executive director Datuk Rohana Rozhan, who has helmed the job for five years.

That came about after some “tough technology decisions” were made nearly three years ago to be platform agnostic. That decision was vital to capture the future growth since the market has evolved, technologies has advanced and there is a dramatic increase in the intensity with which people use digital devices and platforms that give power to decide what content to pull and push.

The new Astro, South-East Asia’s largest pay TV operator by subscriber base, now has a foot in fibre and its tie-up with Google gives it access to markets beyond Malaysia’s borders.

Rohana talks about how Astro has morphed into an integrated consumer media player over the past two plus years away from prying eyes of the public from just a pure pay TV monopoly. It makes investors and subscribers wonder what if it did not “re-invent” itself at the right time.

Making the right decisions is everything and she says the re-invention of Astro was done when it took itself from public scrutiny. Astro was taken private in June 2010.

Yesterday, the refreshed Astro re-emerged, opening at RM3.03 a share and closing at its IPO price of RM3.00.

The early years

Sixteen years ago, Astro started beaming signals across a footprint that centred on Malaysia. It was days after Measat-1 was thrusted into orbit from French Guyana in South America in 1996. The event marked an major milestone in Malaysia’s broadcasting journey.

Astro, then known as Astro All Asia Networks plc, became the country’s first satellite pay TV operator offering 36 pay TV and radio channels. Choices were limited then as there were only free-to-air channels and the only pay TV operator then was Mega TV but its coverage was limited and content still much to be desired. It no longer exists.

Very quickly Astro ruled living rooms in Malaysia and today it has 3 million or 50% market share of the 6 million TV households. It was first listed on Bursa Malaysia at RM3.65 a share and its first day at trading was a roaring success. For its new listing yesterday which comes nine years after its first listing, Astro raised US$1.5bil or RM4.55bil for its IPO and it was the country’s third largest IPO and sixth largest globally. In 2003, Astro raised RM2.03bil.

“The company that was listed before was supposed to build a business in South-East Asia. It had assets in Hong Kong, Indonesia, India, the Middle East and Malaysia,” says Rohana.

It began creating its own Malaysian content and today boasts a library of 40,000 hours of local content. It also started beaming channels into Indonesia and boasted of operations in some other countries.

But things did not pan out as planned. In no time, its overseas ventures turned sour, some dragging Astro into court. To remove the distractions, Astro went into hibernation, it was taken private in 2010 and its shareholders including elusive billionaire T. Ananda Krishnan offered RM4.30 a share. Astro then had a market capitalisation of RM8.3bil and today it has doubled to RM15.59bil. For financial year ended Jan 31, 2010 Astro earned RM613mil in net profit and RM3.2bil revenue.

Astro may have gone public once again but it has a daunting task in fighting new rivals that were not there when it started 16 years ago.

The Internet is its biggest rival as it allows for telecom companies to be broadcasters overnight. Services such as Netflix, Google and even smartphones such as the iPhone are giving viewers a new window at a click of a button.

People can download movies and songs for a fee or free. Astro as a product was also repeating too many programmes and it had to change and evolve to remain relevant because of the proliferation of the Internet in people’s lives. This is despite the fact that, “Astro has a strong content provision as it holds rights to the Barclays Premier League (BPL) and has developed local content such as Akademi Fantasia, Masterchef Malaysia and the Raja Lawak competitions and this ensured customer loyalty”, writes a M&A Securities analyst in his report.

And drastic changes were made in 2009 and Rohana says it was to “complement and supplement its IT system to allow Astro to evolve.”

It has come to a stage that it was not so much about protecting market share but what more can Astro do to gain more share in the Internet era. To Astro, the Internet was a “boom factor” that allows it to deliver its content over multiple platforms. It allows Astro to move from the living room where viewing is communal into a consumer’s private lifestyle space.

It started migrating consumers to the B.yond platform and that added RM20 a month for each user to its coffers which helped raise its arpus (average revenue per user).

Today it has migrated 1.6 million users to its B.yond platform and the process continues. Fibre is important as a delivery tool and it first tied the knot with Time dotCom Bhd to provide IPTV to multi-dwelling units and also fast Internet access.

Then came all its different offerings via video on demand – Astro First and Astro Best, and its PVR, a recording service to give people a chance to see programmes when they want to. Rohana says Astro will add many more high definition channels in the coming weeks and months.

A wider market

Addressing the high end customers by giving them super value packs and video on demand, segmentising and focusing on what each person in the household needs is the new way of doing things at Astro.

It has by now different platforms – satellite, fibre, mobile and Internet – to reach out to a wider audience.

In March, Astro teamed up with Google to legalise some of its content and also remove content that is not supposed to be on YouTube, hence protecting itself and its property, says Rohana.

She adds that the arrangement allows Astro to sell Malay content it has developed to the global market and this is something that is not possible without the Internet.

But the icing on the cake is the tie-up with sister company Maxis Bhd about two months ago. That gives it access to the 1.3 million Malaysian households as Maxis has an agreement to use Telekom Malaysia Bhd’s (TM) high speed broadband (HSBB). If TM expands the HSBB to other areas, Maxis will get more access and so will Astro.

And it has Astro-On-The-Go to give people a chance to watch their favourite programmes while on the go. Today the service is available only for Astro subscribers, but next year it would be extended to non-Astro users, says Rohana.

Astro has also moved to protect its turf against new entrants in the pay TV market.

It launched NJOI, a free subscription service to capitalise on its wide coverage via satellite but that came after rival Asian Broadcasting Network announced it will be coming to the market with its service.

But Rohana says “it is all about timing and alignment of content, technology, affordability and distribution network.”

Though a free service, NJOI also has a prepaid proposition that allows users to buy movies and that translates into additional income for Astro.

So the new Astro is “a completely different Astro” and Rohana explains why.

“Our focus is on the customer and it is about how we can put them on the value chain,” she says.

The Astro that is listed now only has Malaysian media assets. It calls itself an integrated consumer media entertainment group, and still engages in creation, aggregation and distribution of content but over multiple delivery platforms which include TV, radio, publications and digital media.

It may control 50% of TV households, but with the new delivery channels, the market has broadened to 7.7 million and can it “get a bigger slice of the consumer’s wallet.”

“That’s the strategy, the focus is to take a fair share of the consumer’s wallet and advertising,” she says, adding that “we take the more affluent and upscale consumers and offer the super packs and PVR, Astro First and Best, and the take-up rate has been encouraging thus far,” says Rohana.

Its arpus has gone up from RM82 to RM93 and even at the lower end at RM70 arpus, there is growth.

Astro First attracted 4 million buys and Astro Best which offers Hollywood blockbusters and Korean dramas has seen 200,000 buys. Its PVR adds 300,000 buys and it added 100,000 new users to its network in the first half of this year.

“From communal viewing in the living rooms, we are addressing individuals in the households, and we also have the mobility option with our Astro On The Go,” she says.

“By riding on Maxis, we can address 1.3 million premises, though one million are already our customers but we now can go back to them to offer high speed broadband and we can be their single supplier. And all comes in one bill,” she says.

The spending power for broadband and entertainment is about RM260 and RM290 per month for the high end users and Astro’s portion is about 40% in the Time deal. She won’t say what is the percentage with the Maxis deal.

“What I can say is content consumption is getting higher,” she says, adding that “the challenge is to give a value proposition to our top end customers with bandwidth.’’

Arpus will be up but she won’t share any numbers.

Astro’s earnings are on an uptrend from when it was in private hands. M&A Securities estimates that Astro will earn RM701mil in net profit for financial year ended Jan 31, 2013 and in 2014 it would be RM755mil on the back of RM4.3bil and RM4.6bil in revenues respectively.

But to grow and offer more channels, Astro still needs more capacity and it needs to lease more transponders for that. Rohana says that will only happen in 2014 when its channels could double from 150 now.

“Today, we have 22 HD channels and 1.1 million households are subscribing to it. We have bigger aspirations and our priority is to grow the HD offering. We have also dedicated bandwidth to Astro First and Astro Best which is driving certain buy rates. We will look at channel capacity in tandem with our aspirations and offer value. The younger generation has a higher propensity to spend and that is a positive trend that will underpin our growth.” she says

Dividend play

The re-invention has made Astro an interesting stock but its share price did not see the same roaring success it had on its first day of trading in 2003. Still, the new Astro has 22 cornerstone investors, some of which are very big names and they have a lock-in period of three months.

Just days before the listing, Rohana talked about Astro’s future to more than 300 global investors across several financial capitals.

“The affirmation is that they acknowledge that we are market leaders and we are still extremely hungry’’ despite having libraries of content, a workforce of 4,000 people and newage technology.

For the changes Astro talks about, analysts see the stock as a dividend play. M&A Securities writes that Astro will provide “stable dividends” but not much in capital appreciation for the moment.

Astro has a fixed dividend payout policy of 75% and its dividend yield based on the IPO price is pegged at 3.36%.

Analysts have their own concerns and it has to do with the expiry of Astro’s exclusive satellite TV licence in 2017, though the pay TV licence is till 2020.

Then there is competition from TM, which is adding to its own pool of subscribers and bidding for content, especially sports such as the BPL to give its HyppTV a boost. There are other competitors too that will try to take a share of the 7.7 million addressable market.

So can the re-invented Astro meet the new age challenges? Only time will tell.