2012 Australia - Broadcasting and Pay TV

Smart connected TVs and online streaming are a threat to the pay TV industry

With subscription TV household penetration still around 30%, more content available online through IPTV, the extra FTA channels available for viewing under digital TV, the NBN rollout and faster broadband and the availability of digital radio, the broadcasting industry will need to change over the coming years if it is to attract and retain the audiences that have increased over the last 50 years.

Being progressed by the analogue switch-off that is being phased throughout Australia, as it commenced in the first half of 2010 and continues through until 2013 when analogue TV broadcasts will have ceased. We are seeing more and more Australians now enjoying the extra features and channels that are available as digital transmission first commenced back in 2001 and in 2011 celebrated 10 years of operation. A number of regions have now switched completely from analogue to digital, and of these regions most have hit 100% household penetration leading up to the changeover, with some users being assisted by the Household Assistance Scheme or the Satellite Subsidy Scheme.

While the free-to-air counterparts have delivered many new digital channels since 2010, the subscription TV companies have also added new channels so as to maintain and increase subscription levels while also growing revenues and profits. Unfortunately the subscribers have been leaving, churn increasing and now into 2011-12 revenues now also decreasing and expected to continue this way in the short term.

One positive highlight of subscription TV revenues is that the ARPU of both AUSTAR and FOXTEL are still increasing as the remaining subscribers have a higher tier package takeup. As yet, we still have to really see how the subscription TV operators can increase subscribers as the analogue switchover to digital broadcasting moves across the Australian continent.

There are more than 200 channels currently available to subscribers of the three major local subscription television groups with a selection of time-shifting, HD and digital channels available. The local pay TV providers are FOXTEL and Optus TV (each of which operates in the metropolitan markets), and AUSTAR (which operates in the regional markets). Between them in early 2012, these three operators had around $3 billion in annual revenue.

One of the killer internet applications that is being produced is by the users themselves, with YouTube being the second-most-visited site in Australia in early 2012. IPTV may get the revival it needs in 2012 with more widespread ADSL2+ broadband available, the prospect of new business models on the NBN and a new look at Triple Play models is putting IPTV back on the agenda again – if the pricing is right.

The most popular video downloads and streams are full-length episodes of TV shows, amateur video clips such as YouTube, music videos and feature-length films. BuddeComm estimates that video downloading and streaming of video has grown to well over 50% of all regular online video users who intend to increase their use of streaming video.

The increased take-up of smart TVs has seen sales increase by more than 20% in the last year as smart TVs are now becoming a must have item for the consumer. Some of the smart TV manufactures that have included internet connectivity with inbuilt EPGs include LG, Panasonic, Samsung and Sony. When these are connected to a high-speed broadband these smart connected TVs will become the home media centres of the next 5 or so years.

In the digital economy we are seeing spending on online advertising expenditure in Australia continuing to reach new highs. The amount spent in the online advertisements segment in Australia is continuing to grow as does the expenditure by the businesses and consumers in this marketplace. Driving the spending is often mobile devices where purchases can be made on a whim or as the need arises and by comparison shopping using the mobile device.

By end-2011 online advertising had increased overall by around 17% year-on-year in 2011. The increase in online advertising may be in anticipation of an increased economic environment coming into 2012 as Australian businesses continue to increase the amount of online sales.

The increased use of video advertising and also video viewing continues to grow as the increase in broadband availability has seen advertisers continue to experiment with new formats. Into 2012 we will continue to see an increased use of targeted advertising delivered over the internet, as millions of users watch millions of online videos monthly. Overall it is estimated that video advertising is still less than 2% of overall online advertising spending.

The commercial and national broadcasters (Australian Broadcasting Corporation and Special Broadcasting Service) formally commenced digital radio services in the five mainland state capitals in Adelaide, Brisbane, Melbourne, Perth and Sydney in 2009. Trials of digital radio are still progressing in Canberra and Darwin in 2012 as an extension of the trial was granted in 2011.

It was also expected that community broadcasters would commence services in these markets but funding and uncertainty about standards has temporarily put a stop to this. While Australian commercial radio broadcasters have agreed to adopt the new DAB+ standard for the implementation of digital radio, the excessive infrastructure costs may slow regional adoption. Other issues include the limited coverage area as opposed to existing technologies.

While digital radio has the potential to deliver a range of new and innovative services to listeners through the more efficient use of radiocommunications spectrum, the introduction is premised on digital radio being used as a supplement to existing radio services rather than a replacement technology. As such, digital radio will be introduced in stages, and operate alongside existing analogue radio services.

Key performance indicators of the broadcasting, subscription TV and online markets – 2011

(Source: BuddeComm, based on various industry figures and estimates)

Market highlights:

• Sales of smart TVs increased by around 20% across Australia in 2011.
• YouTube is the second most visited site in Australia in 2012.
• Estimated ARPU statistics and Pay TV revenue forecasts to year end 2012.
• By early 2012 over 80% of households had converted to digital TV.
• By end-2013 all analogue transmissions are to cease.
• Expenditure on online advertisements in Australia grew 17% year-on-year in 2011.
• Mobile advertising was estimated to have increased by more than 300% year-on-year in 2011.

Data in this report is the latest available at the time of preparation and may not include the current