Real average annual growth rate in revenues of 17% between 1995 - 2005

• Steady pace of liberalization is encouraging
• Positioned economically to see acceleration in industry earnings and value
• Digital terrestrial, perhaps by 2004

The small market most likely to offer the greatest potential

Among Southeast Asia’s newly industrialised economics, Malaysia’s economy is perhaps best positioned to offer growth that will support robust and multi-faceted expansion in its TV industries, both free TV and pay TV. We expect that the Malaysia television market will grow from an estimated commercial revenue level of RM360 million (US$144 million) in 1995 to RM2.3 billion (US$1.1 billion) in 2005. This translates into a 10-year CAGR of 20% in local currency terms (17% in real terms) and 19% in US dollar terms, using our assumed future exchange rates. This puts Malaysia just below China and India in terms of expected revenue growth.

Earliest among ASEAN-4 to see significant convergence

Malaysia is likely to develop a market for convergent services well before Thailand, Indonesia and the Philippines. All this opportunity sounds cheerful but it also means that the risk of self-delusion is higher. This is in contrast with Thailand, Indonesia and the Philippines, where one could easily be convinced that a versatile and expensive broadband infrastructure need not be on the medium-term agenda. Malaysia’s market is at the stage where operators (and investors) must make commitments to business models and technologies without the confronting presence of a large market (eg. Japan, India & China) or very high-income market (Australia, New Zealand, Taiwan, Korea, Hong Kong and Singapore) to take up the services of less cost-effective delivery infrastructures, should that be the case.

(RM Bils)

(RM Bils)

(RM Bils)

Real CAGR (%)

Real CAGR(%)

Real CAGR (%)

Gross Television Household Income

Television Industry Commercial Revenue

215

0.36

359

1.07

572

2.30

6.7

20.4

6.9

13.6

6.8

16.9

(%)

(%)

(%)

CAGR (%)

CAGR (%)

CAGR (%)

Terrestrial Analogue Free TV

Terrestrial Digital Free TV

SMATV-TVRO

Wireless Cable

Wireline Cable

Direct-to-Home Satellite

Terrestrial Digital Pay TV

Telephone VOD

100

0

0

0

0

0

0

0

60

0

0

11

2

27

0

0

56

1

0

5

18

18

0

2

12

NM

NM

147

NM

NM

NM

NM

15

NM

NM

-1

75

7

NM

98

14

NM

NM

56

NM

NM

NM

NM

Malaysia Commercial Revenue

100

100

100

24

17

20

(%)

(%)

(%)

CAGR (%)

CAGR (%)

CAGR (%)

Advertising

Basic Service

Premium Service

Viewing Fees

100

0

0

0

61

38

0

1

59

37

2

2

13

214

NM

NM

16

16

72

43

14

91

NM

NM

Malaysia Commercial Revenue

100

100

100

24

17

20

Micro & Macro Outlook

Driven forward on all cylinders

Malaysia’s television market is one of the few in the Asia-Pacific region that will be driven forward on all cylinders over the next ten years. At the macro level, income should continue to grow while consumption is likely to take a rising proportion. At the household level, there is still a small portion of the market without televisions. In addition, the average Malaysian viewer spends little time watching television - only 135 minutes per day on average. This is well short of covering the broad definition of prime time, which in most developed markets lasts up to 4 hours. As the government exhorts people to travel abroad less as a way of reducing the export of currency, the home entertainment industry may be a beneficiary.

Consumption torise strongly

We expect GDP to rise at a 10-year nominal CAGR 10.2% (18.9% in US dollar terms), with GDP rising from RM219 billion (US$87 billion) in 1995 to a 2005 level of RM576 billion (US$205 billion). The proportion of GDP consumed by the private sector should rise from 47% in 1996 to 52% in 2005. This may shape up to be an environment supportive of both free and pay TV. Television advertising in Malaysia takes up a lower portion of national income in comparison with other rich, and some lower-income, markets. We expect advertising revenue to grow from an estimated 1995 level of RM359 million to RM1.4 billion in 2005, or a 10-year CAGR of 17.3%.

Current Services

Steady pace of liberalization

The Malaysia free-TV market has, like Indonesia, undergone a steady degree of liberalization. Malaysia’s first private broadcaster, Sistem Televisyen Malaysia Berhad’s TV3, has come to lead the market in terms of viewership and ad revenue. The government’s broadcasting arm, Radio Television Malaysia, operates TV1 (Premiere Channel) and TV2 (Golden Channel). These two channels are funded by compulsory license fees as well as advertising. Though ostensibly competing against each other, they largely specialise in different programming genres. TV1 is more popular.

Growth in regional TV

MetroVision (TV4), the country’s second private free-TV operator, has for the moment a limited agenda, is focused on the middle-class market and only transmits in the Klang valley. Similarly, Sarawak-based Nasional TV is due to being airing in its region. The government also approved the launch of another private station, to be operated by Medan Mas and broadcast in the Indonesia-Malaysia-Thailand growth triangle starting in the summer of 1998.

Pay TV represented by wireless and satellite

Mega TV is the country’s first pay-TV operator, distributing five channels (soon to be ten) through MMDS. Mega TV, which is 40% owned by TV3 and 30% by the Ministry of Finance, has only passed 28 urban areas in the Malay peninsula. By year-end 1996, Mega TV claimed 120,000 subscribing households. MEASAT Broadcast Network System’s (MBNS) Astro service, which was launched in October 1996, offers 20 channels through a smart-card keyed conditional access system. MBNS is the region’s first operational digital DTH service.

Competition

Wireless cable likely to arrive, but slowly

MBNS, which is 80% owned by Binariang, also distributes its Astro service through Binariang’s small cable system, which it plans to steadily expand. Indeed, wireline cable services are the only area in which new operators are likely to be able to provide a service. Both Mega TV and MBNS have exclusive licenses for their delivery technology. New cable system operators, probably associated with telecom operators, are likely to have to buy programming from these two competitors unless they choose to become a multi-system operator. Even without the presence of new cable system operators, Mega TV and MBNS have already begun to compete strongly. Prior to the launch of the Astro service, Mega TV began to offer free installation.

More free TV operators a possibility

There is speculation about the government issuing even more new free-TV licenses. Since the free-TV market is not clearly dominated by any one channel, issuing new licences would probably lead to a more marked increase in competition in Malaysia than it would do in other, unbalanced, markets. However, we do not expect new operators to develop a national presence quickly.

Convergence

Significant commitment to multimedia development

Malaysia has made significant policy and regulatory commitments to the development of an information society and, with it, all the necessary infrastructure. The most significant initiative so far has been the launch of the Multimedia Super Corridor (MSC), a 750 sq. km high-tech industrial zone. Companies participating in the scheme will have access to the zone’s high-speed communications infrastructure, as well as numerous tax incentives, duty exemptions and research grants. The country will permit companies in the MSC to operate under more liberal financial and ownership arrangements. The government also resolves to be the regional leader in intellectual property protection, as well as to ensure no censorship of the Internet.

Rapid broadband growth to be pushed by telcos

While the MSC project is an exciting development for the multimedia industry, its impact on Malaysian consumption of multimedia products will not be as significant as the liberalization of the telecommunications sector. Malaysia benefits from having four telecom players committed to the development of broadband networks, at least at the trunk level. In addition to Binariang, the other players include Telekom Malaysia - the former monopoly telco - Time Telecom and Celcom.

MBNS also incorporating convergence

MBNS has also take significant steps toward convergence. The Astro service includes eight digital radio channels. The architecture is also designed o support the delivery of data, such as Internet web pages, although this service is not yet in place. Finally, we believe it is likely that Malaysia will be one of the first of the major southeast Asian markets to begin the transition of DTT. We expect that experimental services will be initiated in 2003.