• Real average annual revenue growth of 13% between 1995 - 2005
• Liberalization of telecoms and recategorization of cable opens up investment opportunities
• Well-developed free TV will still see strong growth in advertising

Long-term potential will be realized slowly

With a large English-speaking population and income growth beginning to match that of its neighbours in Southeast Asia, the Philippines holds much long-term promise for its television industry. But, as with Indonesia, the Philippines is still relatively poor and its national TV market will simmer slowly, not boil rapidly. In contrast with Indonesia, however, segments of the Philippines market, particularly Metro Manila, are in their own right small but valuable pay-TV markets. We are likely to see a higher degree of convergence take place sooner in the Philippines than in Indonesia and Thailand, with cable operators likely to begin delivering local phone and Internet access.

Industry revenue growth rate of 19% during 1995 - 2005

We expect that the Philippines television market, in the back of rising TV penetration as well as rising income, will grow from an estimated commercial revenue level of P4.9 billion (US$192 million) in 1995 to P28.8 billion (US$847 million) in 2005. This translates into a nominal 10-year CAGR of 19.4% (16% in US dollar terms).

(P Bils)

(P Bils)

(P Bils)

Real CAGR (%)

Real CAGR (%)

Real CAGR (%)

Television Industry Commercial Revenue

4.94

12.24

28.81

12.1

13.1

12.6

(%)

(%)

(%)

CAGR (%)

CAGR (%)

CAGR (%)

Telephone VOD

0

0

0

NM

NM

NM

100

100

100

20

19

19

(%)

(%)

(%)

CAGR (%)

CAGR (%)

CAGR (%)

Viewing Fees

0

0

1

NM

69

NM

100

100

100

20

19

19

Macro-level spur likely to be most forceful

Consequently, we anticipate consumption by the private sector will take up a declining portion of the rising income. We expect GDP to rise from P1.9 billion (US$74 billion) in 1995 to P6.1 billion (US$179 billion) in 2005, or a 10 year CAGR of 12.3% (9.2% in US dollar terms) and 5.5% in real terms. We expect consumption to decline from 74% in 1995 of GDP to 68% in 2005.

Concerned about already aggressive ad-rate growth

Nevertheless, there are additional sources for growth. Television penetration in the Philippines is estimated to be around 60% in 1997, meaning that there is still substantial room for the free TV universe to expand. Our one concern in this area is that advertising revenue in the Philippines may already be substantial relative to the estimated gross TV household income. This ration for the Philippines is greater than the estimated ratio for higher income markets such as Taiwan, Singapore and Malaysia. This could mean that TV advertising rates have moved ahead of the market and may become uncompetitive if, in future, free TV players attempt to increase them in line with rising TV penetration. We expect advertising revenue growth over the 1995-2005 period will lag that of the overall TV market with an average annual growth rate of 15.6%

Current Services

Free TV choice is wide and expanding

Filipino viewers face a wide choice of free TV offerings. Viewers in Metro Manila can select from 12 VHF and UHF channels. Of the seven VHF channels, four are wholly privately-owned. ABS-CBN's Channel 2, the oldest Filipino network and the one with the greater coverage, has been challenged by GMA's Channel 7 in the past few years. ABS-CBD historically dominated ratings but Channel 7 has steadily expanded its geographic coverage and programming quality. The Associated Broadcasting Corporation's Channel 5 is the youngest of the private networks. The fourth, Channel 11, is available in the Metro Manila area only and is controlled by the El Shaddai religious cult.

Micro & Macro Outlook

Sequestration may have limited growth of some players

These stakes are sequestered shares formerly belonging to associates of former President Marcos. The government proposes to privatize its holdings, although the IBC privatization is pending clarification of ownership. All three government-affiliated stations lag the three wholly private VHF stations in terms of geographic coverage.

UHF channels are expanding coverage

There are also five UHF channels which have sprung up in the past five years. These channels currently have less than 15% technical penetration of television households although coverage should increase as the operators continue with their broadcast network buildout.

Cable television industry is alive and well

In marked contrast with Indonesia, the Philippines has a vibrant cable television industry. Since the cable industry was opened up in 1987, a large number of small to medium-sized system operators have been established. A few have even begun to consolidate systems and become MSOs. The largest MSO is Sky Cable, which is owned by ABS-CBN and is estimated to have over 100,000 subscribers. Sky Cable recently merged its provincial cable systems with those of Sun Cable. (Subscriber figures from the Philippines are as unreliable as those from India, due to under-reporting by the system operators as a way to weaken demands from content providers for fees).

Cable operators are also packaging channels

Sky Cable, largely due to its affiliation with ABS-CBN, has successfully developed three self-produced channels. These channels, along with ABS-CBN's The Filippino Channel (TFC), is also marketed to cable operators countrywide. TFC is the vehicle which ABS-CBN hopes to export to Filipino markets abroad. Sky Cable has also produced two channels for export.

Competition

Competition Intensifying between top two players

Competition in the Philippines' free-TV market is now quite healthy in the Metro Manila market. ABS-CBN rival GMA has committed to a costly expansion of radio and television broadcast facilities and has committed to establishing, as ABS-CBN did with Studio 23, a UHF channel.

Provincial competition likely to intensify

Owing to the ban on foreign ownership of broadcast media, the television sector has only slowly extended its coverage throughout the country. Consequently, as current operators expand coverage, competition in the provincial areas should escalate. The government's privatization of its stakes in Channels 9 and 13 will also help to boost competition.

Rivalry in pay TV also likely to deepen

In the cable universe, the question is who can counteract the programming strength of ABS-CBN and its affiliate Sky Cable. With Sun Cable having effectively merged with Sky Cable, only Home Cable remains as a MSO with a subscriber base significant enough of finance a self-packages channel. Despite its substantial English-language content, STAR TV is only received in approx. 400,000 homes, many of which receive it through their cable system, not SMATV. Home cable agreed to offer STAR TV's premium Viva Cinema channel, a joint venture with local film studio Viva Films, giving it a competitive boost.

Foreign participation will further spur growth

Now that the government permits minority foreign ownership in cable operators, competition within the sector should develop even faster. US firms Falcon Cable and United International already hold convertible debt in Cavite Cable and Sun Cable, respectively. More foreign parties, particularly telcos, are likely to enter the Philippine market in the next few years.

Convergence

Networks are being upgraded

The introduction of foreign investment will help to speed an upgrade process which has already begun. Many cable systems in the Philippines are still all-coaxial but are steadily upgrading to HFC and higher grades of plant. The first benefit will be the ability to provide tiered services, helping to maximise revenue per subscriber.

Market demand for telephony is a good reason to allow convergence

Cable system operators have been keen all along to entertain some portion of foreign ownership because of the need for expertise in developing their systems for possible cable telephony services. With telephone penetration in the Philippines relatively low, cable operators could find themselves in a strong selling position to both old and prospective subscribers, offering a compelling TV-telephony package.

Internet accesses being pursued

Cable operators, many of which built their businesses catering to the higher income brackets, are also interested in adapting their networks for Internet access. The ISP business in the Philippines holds significant promise, partly because of the wide use of English but also because of the use of Roman script.

DTT and DTH not likely to be significant factors during our forecast horizon

While the Philippines topography might lend itself to DTH broadcasting, we do not expect such a venture will be undertaken. This is largely due to the concentration of the higher-income brackets in relatively tight areas that are already served by cable. We do not expect that there will be a DTT service in the Philippines over our forecast horizon.