Media Partners Asia has published its first report on the Middle East region, entitled GCC Video & Broadband Distribution 2020.
The report provides analysis of the current state and future outlook for telecoms, online video & pay-TV industries across the six Gulf Cooperation Council (GCC) countries: Bahrain, Kuwait, Oman, Qatar, the Kingdom of Saudi Arabia (KSA), and the United Arab Emirates (UAE).
According to MPA, the GCC video industry, comprising free TV, pay-TV and online video, will generate revenues of $1.6 billion (€1.3bn) in 2020, representing a 13 per cent Y/Y contraction with deep declines in TV advertising & subscription only partially offset by the significant growth of online video. Covid-19 related macro issues have exacerbated headwinds across the TV sector. A rebound is expected in 2022 but the TV industry will continue to face secular challenges in the future. OTT video services will continue to proliferate as platforms reposition and reinvent. GCC video industry revenues are forecast by MPA to increase to $2 billion by 2025, a CAGR of 5 per cent from 2020. Online video will surpass TV to account for the lion’s share (>60 per cent) of total video industry revenue by 2025 with both pay-TV and free TV in secular decline. Within the GCC, KSA and UAE will continue to contribute >70 per cent to pay-TV and online video revenues in aggregate by 2025.
Commenting on the findings of the report, MPA Vice President Aravind Venugopal said: “The GCC’s vibrant and highly competitive video ecosystem has seen some significant changes in the past few years. Online video services continue to grow, driven by: (1) Low-cost pricing; (2) Telco partnerships, including hard bundles; and (3) The availability of premium local and global content online, including increased investment into exclusive originals. Telco partnerships are revenue accretive and help to broaden the customer funnel but the longer-term success of OTT platforms will rest on their ability to retain customers, manage subscriber acquisition costs (SAC) and increase lifetime value (LTV). Over the next five years, the focus will move to the acquisition of high LTV subscribers via D2C. Market consolidation is also likely as the GCC region will be unable to support 15+ platforms with many competing in the same customer segments. New entrants into the market such as Disney+ Hotstar and HBO Max, could provide further impetus to industry growth, competitive intensity and consolidation.”
“Meanwhile, the slow pace of innovation by pay-TV operators combined with high prices of services (vs. SVoD) and the proliferation of broadband have contributed to the decline of pay-TV. IPTV has maintained subscriber growth, driven primarily by hard bundled triple-play services. However, as telcos re-examine their cost structures and investments in content and platforms, there remains an impending threat of the breaking of the hard bundle, which could further endanger pay-TV,” added Venugopal.
As per the report, within the GCC online video sector, three business models have emerged in recent years: (1) Freemium operators, led by MBC-owned Shahid, PCCW-owned Viu and Zee’s Weyyak; (2) SVOD operators, led by Netflix, Amazon Prime Video, STARZPLAY, Jawwy TV, Watch iT and OSN Streaming; and (3) AVOD operators, including YouTube and TikTok. Given the diverse demographics and large expat population in the region, several services targeted at specific language/ethnic groups have also launched in recent years. These include the Indian and South Asian segment, which are key audiences for Zee5, Sony Liv, Eros Now and YuppTV. As platforms seek to further expand their customer base and drive consumption, investment in Arabic originals has become a key battleground. While the Covid-19 pandemic and the economic/political crises in the region have impacted production activities, MPA forecasts that productions will return to normalcy by Q1 2021 as economies recover and new content production hubs (i.e. UAE, KSA, Jordan) are established.
In the telecoms sector, fixed broadband has been relatively insulated from economic woes given its utility-status in UAE and low penetration in KSA. However, mobile services, particularly prepaid, have experienced subscriber declines. The UAE and Qatar leads the region, both in terms of fiber connectivity and penetration with over 90% of homes having access to fixed wired services via fiber. From a mobile perspective, the GCC is well connected, with a highly competitive environment (ex-UAE) keeping retail prices relatively affordable. Data consumption remains fairly high, driven primarily by video services. There remains further scope for growth, especially in markets with low fixed broadband penetration.