A different Astro?

StarBizWeek conducted a question and answer session with Astro Malaysia Holdings Bhd CEO and executive tive director Datuk Rohana Rozhan recently, Below are the excerpts:

What has changed? (from Astro All-Asia Networks plc to Astro Malaysia Holdings Bhd)

The listed company before which holds not only media assets but also regional assets in Hong Kong, Indonesia, India and the Middle East as well as Malaysia. The company was taken private in June 2010.

The re-listed company, Astro Malaysia Holdings, is newly incorporated and holds the Malaysian media assets and the focus is to take a fair share of the Malaysian consumer wallet and advertising. We are an integrated play with radio, digital advertising and publication.

Our business is premise on satellite technology and our direct-to-home (DTH) platform is by far second to none and satellite is only game in town that allows the reach and Malaysia has six million TV households.

But one of the things we realised is that we need to also play in the newer technologies. When we were evolving, we were adding 200,000 to 300,000 new subscribers per year.

There is continued demand for our services and if you look at the numbers, new consumers were more from the rural and suburban area. Average revenue per user (arpu) was down due to the new lower end customers.

But the bulk of our customer are more affluent and urban and they are now open to new technologies. The landscape is competitive just like in more developed markets with the advent of technology and high speed broadband (HSBB), and over the top players. We were not able to play in that space.

As for consumer trends, more and more people wanted their personal lifestyles catered for and its something we were not able to do then.

While we were still growing and adding customers, we were not able to serve our customers better in their personal lifestyle space. So we took the tough decision in 2009 to complement and supplement our IT system to allow us to provide linear push technology.

Astro today is completely different from Astro All-Asia Networks plc. We focus on customers and put them on a better value chain. We are in the midst of migrating our customers to Astro B.yond platform, to enable customers to take value added services such as HD and Astro B.yond PVR (personal video recorder). Thus far, we have migrated 1.6 million subscribers, of which 1.1 million subscribers have taken up HD services, and some 300,000 are currently subscribing to PVR.

We have also launched Astro First for local and Asian type movies to address customers’ need. What they are looking for is content. We are a premium product... Astro First has seen four million buys. Astro Best, which provides Hollywood movies, has seen 200,000 buys, after it was launched the last few weeks. All that is encouraging. We also have Astro-On-The-Go for individuals. We have seen a big pick-up for Astro On-The-Go. Next year, it will be available to non-Astro subscribers as well.

So we have moved from linear communal to mobility and consumption as well.

Until today, Astro is the only play because we can reach 100% of Malaysia. We have introduced the NJOI service to the free market. Because of our nationwide reach, we can have multi-channel propositions.

NJOI has 37 channels and we have recently supplemented that with a prepaid mechanism which allows users to buy movies.

It gives us a bigger addressable market and we get discretionary and prepaid income. We also have Astro B.yond IPTV that is offered on Time dotComBhd’s network and soon on Maxis Bhd network.

Riding on Maxis gives us access to 1.3 million premises passed and of that, one million is already our Astro customers and we can now offer them bandwidth.

We have changed ... we have addressed the technology and IT gaps, and we have the ability to provide our products and services to homes and individuals, and added moblity and interactively to address a wider market. We will have wider access and a bigger proposition for advertisers.

Astro is no longer about pay TV, it is an integrated media play. At the end of the day, it is about understanding the market place, the needs and customers’ trend and aspirations. It is about bringing content to consumers and differentiating ourselves. The inference is that the pay-TV market is saturated?

The reality is that we have focused on customer migrating on B.yond and did not focus on adding new customers so there were no new adds. But last year, we upscaled installation capacity and added net adds of 137,000 last year, and for the first half of 2012, we added 100,000. We are going to our original momentum of adding 200,000 to 3000,000 net adds, and that is encouraging. We are strongly adding numbers and arpu is going up.

While adding numbers from rural and suburban areas, our arpu is also going up and the last number was RM82 in 2010 and the arpu for first half of 2012 is RM93-RM94. We take the more affluent and upscale them to super packs, PVR and Astro First. At the same time, we will continue to add on lower end subscribers spending an average of RM70 a month. Why is fibre so important?

This is so because customers want a certain lifestyle, they have hungered for bandwidth and now they can have that from a single supplier. We can now ask our customers ... do you want bandwidth as part of the package offering? That in itself is an attraction.

We will offer broadband and voice in one bill besides the Astro packages and the consumer can spend RM260-RM290 of which RM130 is for content and RM130 is for bandwidth. This amount is then shared between us and the bandwidth provider. Under the Time deal, our portion is 40% but with Maxis we have not decided on the percentage. How rampant is the spending for content among your NJOI users?

We launched NJOI in conjunction with Hari Raya Aidilfitri celebrations. The take-up rate has been extremely encouraging. Where is the next arpu growth area?

We are adopting focus and segmental approaches. By offering broadband it helps double our arpu. Users can pay up to RM300 a month for broadband.

The challenge for us is to give unbeatable value proposition to the 1.3 million premises that has HSBB layer it with Astro First and Astro Best and providing broadband and our arpus will grow.

Then we have the mid and low users but each has their own needs and adding the need of each segment and capitalising on the affluent market will give us the arpus.

A lot of arpu comes from HD, PVR, Super Value Packs and Astro First and Astro Best. We have to understand the consumer trends and bring value to them. Content consumption?

It is growing in all directions – by hours and various different groups. Internet is also a challenge?

That is normal. The name of the game is to differentiate ourselves. We are not a single product or not one studio or movie. It’s all integrated. We have the best of news, movies and when we pass 50% market share, we have to be like a supermarket and have our own brands.

The reality is four out of five hours of viewing is our own creation, we must also be about niche, mass product and we have to provide content in integrated form. One of the things differentiating us is 40,000 hours of our own content and every year 12,000 hours of new content would be created. We invest in content and we are the first to have our own sports channel in the region. What benefit does the Google tie-up give Astro?

It is about following consumer trends and consumption. It is not about egos but about working in partnerships for the benefit of consumers to give them the content they want. There is a lot of content consumed on YouTube and we thought, why not legitimise. At the same time, what Google will do is take down illegitimate content that is ours. It is a win-win situation and it lets us work with ISPs or Google’s or YouTube to legitimise and yet give access to your content. You have more competitors now?

We expect competitors but we are not in the business for the short term, we have to evolve and differentiate ourselves all the time. We have been in this business and will do what is right and continue to make sure we serve Malaysians and our brand remains the customer’s choice.

The way businesses are run, there is infrastructure play, and content is a different play. TM has entered into collaborations and joint ventures to enables highest utilisation of their fibre. What we need to do is provide compelling propositions to the 1.3 million premises. Astro has some very impressive cornerstone investors. Your comment?

From the company’s perspective, we have always had the strongest of promoters and are glad to say they remain strong shareholders. By the time of the listing the 30% (shareholders), what it does is it complement and strengthen our shareholder base. It adds very strong local shareholder and add other strong institutional investors, some of which are familiar names. They were also there before, and what they bring is the understanding of global brand and industries. Who do you benchmark Astro against?

It is a solid company, has good talents and we have to earn to be in their portfolio (investors).

We are in the business for the long term, it is to win the customers heart and earn the right of share of consumer wallet on a consistent basis. Technology is borderless and you cannot focus on local competition as there are the global competitors such as iTunes, Google, iPhone and netflix. We have to understand consumer trends, technology and behaviour and benchmark against what is available and do it well. There is no such thing as local or foreign benchmark. Learning and taking what is best and localise – that is our philosophy. Where is the investment going to?

A steady business like ours will need to spend 4% of revenue on repair and maintenance. We just have to do that year-onyear because you want to stay relevant and ahead. You have to look at the components we spend on, the transponder leases, the broadcast centre for more production and creation, and set top boxes. Other than that, we add capacity.

We will double up transponders from 2014 as that will double up our channels. We have a bigger aspiration and the 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 aspiration and value and higher propensity to spend. Your content cost?

We spend between 31% and 35% a year on content. In big sporting years, content cost can go up to 34% and in normal years, it will be 31%-32%. Content cost is growing yearon-year. By far, we are spending RM1.2bil on content. Will Astro again bid for BPL/EPL?

BPL is a very popular content and like other interesting parties we are reading the bid document with interest. The seller is the one setting the conditions we have to live by the rule book about sharing of content. We wouldn’t know who else in the market place will put in the bids for the next season (as all that is privy information). Revenue composition?

About 93% of revenue comes from subscription and 6%-7% from advertising. As we widen and deepen our reach, we are more relevant to advertisers. What is your churn rate It is 7%-8% . What’s Astro’s biggest risk?

I see risks and challenges, and as market leader we must always be hungry, and we must earn the right to be market leader everyday. The challenge upon us is complacency. We need to push that out of our mind. Astro’s debt is a whopping RM3.7bil, when will it come down?

Out net debt ratio is 2.4 times and it is extremely comfortable.

We will use RM500mil to pay our borrowing and it will be 1.2 times net debt to EBITDA.