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| Industry Forecast
Four factors make investment in television worthwhile
The potential of the free-TV and pay-TV industries in the Asia-Pacific region has been obvious for some time for the simple reason that the industries are still building from a small base. Predicting growth in a high-growth region is not a bold claim. However, there are four factors that make investment in the television industry particularly compelling in the coming 12 - 18 months. As a result of these developments, we believe players in what we currently think of as the television industry will find themselves extracting greater value from within their economies. Through this capture of value, investors in the industry are likely to realize returns that are higher-than-average.
We think investors should take a close look at television players now in order to calculate how they are positioned, or how they might position themselves, to take advantage of these coming changes. The four key reasons why investors should initiate a review now are:
Macro factors are attractive but well commented on Many of the macro variables affecting the regional television industry reflect enormous growth potential that is already well documented. Some of these macro variables include the following:
All of these factors point upward over the long term. In our opinion, the coming business cycle will be particularly important. In general, we expect it to be characterized by accelerating consumption. While we see regional income growing in US dollar terms at a 7-year CAGR of 7.7% between 1998 and 2005, we expect private consumption to grow during the same period at a rate of 8.0%. For the markets in the region excluding Japan, Australia and New Zealand, we expect aggregate income to grow at a rate of 12.0% during this period while consumption will grow at a rate of 12.4%. The two main revenue flows to the television industry are advertising and subscriptions. Both will increase, The transition into the coming cycle, therefore, may be the period during which we see the fastest acceleration in industry value.
We expect the "television" industry to be worth US$33.7 billion in sales in 2000 We expect revenue for the television-service component of the wider information-services industry (including telephone network video services, but excluding telephony and network services provided by broadcasters and cable companies), to grow from an estimated commercial revenue level of US$24.4 billion in 1995 to US$60.2 billion in 2005. This translates into a 10-year CAGR of 9.5%. Starting from next year's base, the growth rate will be 13.3%. For emerging markets in the region, the 10-year and 7-year growth rates are expected to be 15.9% and 18.7%, respectively. We expect that Japan will remain the largest market in revenue terms. The three fastest-growing television markets over the seven-year period in US dollar term are forecast to be India, China and Malaysia. The slowest are forecast to be Japan, New Zealand, Hong Kong & Australia. These four, however, offer significant potential for television players to play in the larger information-services arena.
NA: Nor Applicable Source: Smith Barney Inc./Salomon Brothers Inc estimates
For free-TV (excluding public revenues, but including satellite free-TV as well as future digital free-TV), we expect the three fastest-growing markets will be India, China and Malaysia, while the three slowest will again be Japan, New Zealand and Australia. Excluding those three mature markets, we expect the "growth" markets of Hong Kong, Thailand and Korea also to register single-digit revenue growth for free terrestrial TV. While we estimate that free terrestrial TV. While we estimate that free terrestrial TV took up to 82% of the total industry revenue in 1995, we expect that its share will fall to 57% by 2005, with the balance going to pay TV and a small amount to satellite free-TV. For pay-TV, we expect the three fastest-growing markets will be Malaysia, Indonesia and Singapore, while the three slowest will be Taiwan, New Zealand and Japan.
Among the various technologies, we expect that wireline cable will become the dominant pay-TV platform in most markets. From a revenue level of US$3.0 billion in 1995, cable revenue (including a small amount of wireless cable sales) should rise to US$18.3 billion by 2005. We are not generally as enthusiastic about satellite as some others, although satellite television is likely to be successful in a few Asian markets. We expect that by the year 2005, satellite TV will earn US$4.9 billion from direct-to-home services.
Free digital terrestrial television is becoming a reality in Europe and the US. In the Asia-Pacific region, we expect digital free-TV to bring in US$4.8 billion in revenue by 2005. For the moment, we are not forecasting the operation of digital terrestrial pay-TV services in any of the Asia-Pacific markets, but it is a possibility that investors should keep in mind.
Note: We categorize NHK’s domestic satellite television services as DTH although the service is actually a hybrid of SMATV and satellite pay-TV. NM: Not Meaningful Source: Smith Barney Inc. / Salomon Brothers Inc. estimates
Asia-Pacific 10 - Television Commercial Revenue Breakdown and Growth Rates by Delivery System, 1995E-2005E (Percent)
NM: Not Meaningful Source: Smith Barney Inc. / Salomon Brothers Inc estimates |
       
DAEDALUS MEDIA
Bob Oehler MMCP |
