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Lat-Am Perspectives 2017: Market Consolidation, Regulatory Changes To Reshape Pay TV Competitive Dynamics

The following post comes from Kagan research, a group within S&P Global Market Intelligence. To learn more about the full report or Kagan research, please request a call.

2017 will be a year of change for the competitive landscape in the Latin America and Caribbean, or LAC, pay TV market. The economic environment is slowly improving, and the region's GDP is projected to grow in 2017. Oi SA's bankruptcy offers a golden opportunity for telecom groups operating in the region to enter or consolidate competitive position in the Brazilian market. Regulatory changes in Mexico and Argentina will allow telecom companies to offer pay TV services, opening the door for increased competition and consolidation in the region. All of these factors will have a significant impact on the LAC pay TV market and may reshape competitive positions among the groups operating in the region.

Economy: Expectations for 2017

Economic growth expectations for the LAC region are positive due to the stabilization of commodity prices and reduced political uncertainty. The World Bank projects LAC's economy will return to growth in 2017, estimating the region's GDP will likely rise 0.5%. The primary factor behind this projection is the improved outlook for Brazil, LAC's biggest economy, which is set to benefit from stable commodity prices and moderated uncertainty around the "Operation Car Wash" scandal corruption investigations.

A major risk for the region's economic outlook is the new set of economic policies to be implemented by the U.S. government. One of President Donald Trump's campaign promises was to renegotiate NAFTA, which could impact investment and economic growth in Mexico, one of the biggest economies in LAC.

Oi's bankruptcy

Oi's situation is expected to be resolved during 2017. Currently, prospective investors are reviewing the books and detailing a rescue plan. Oi is the incumbent telecommunications provider in most of Brazil, the fourth-largest pay TV operator and the third-largest ISP measured by number of subscribers, with $6.9 billion in total revenue in 2015. Its current situation offers a prime opportunity for companies interested in entering the Brazilian market or local operators looking to consolidate their competitive position.

ETB for sale

Another great opportunity for operators looking to invest in LAC is Colombian state telco Empresa de Telecomunicaciones de Bogotá, or ETB. Bogota's district government selected JPMorgan Chase & Co. as financial adviser for the sale of ETB. The Secretaria de Hacienda (Finance Secretary) expects to complete a transaction by October. For 2015, the company had revenues of $478 million.

Impact of regulatory changes

Pay TV regulatory decisions in Argentina and Mexico are set to change competitive dynamics in the region. Investment in Argentina's pay TV may surge during 2017 due to a presidential decree signed in December 2016 that will allow telephone operators to offer pay TV services by January 1, 2018. The objective of this measure is to promote technological convergence. Grupo Televisa SA's dominant position in Mexico's pay TV industry may be threatened by Telmex due to a June 2016 decision by the telecommunications regulator, Instituto Federal de Telecomunicaciones, or IFT. The IFT decided that Uno TV, Telmex's online video service, is an internet portal and not a television service, which opened the door for Telmex to offer TV content through streaming.

Pay TV market to grow in 2017

Economic stabilization, regulation softening and technological expansion offer a fertile soil for subscriber growth in 2017. Kagan projects the LAC pay TV subscriber base will expand 5%, led by Mexico. On the technology side, we expect direct-to-home to remain the dominant video platform in the region.

TV Everywhere gains ground

TV Everywhere will continue to expand as more people want to have access to content on different devices, and as access to high-speed wireless and wireline internet services improves due to increasing the availability of 4G/LTE and fiber-to-the-home services. In 2016, the number of operators managing TVE services grew 22%, reaching a total of 33 operators. Sports programmers' TVE platforms are the most widely distributed with ESPN Play and FOX Play leading the charts.

Subscription VOD/OTT

Regional operators are scrambling to compete in the video-on-demand market. Netflix Inc. remains the dominant player in the region; nevertheless, operators are developing their own offerings. In 2016, 16 operators were managing VOD content on their own platforms tailored toward local subscribers. Kagan expects this market to remain dynamic as offerings like IZZI from Televisa, Claro Video from AMX and Movistar Play from Telefónica SA continue to gain market share.

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