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MENA Pay TV: Content Is King, But Distribution Is King Kong

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With muted direct-to-home adoption, very little cable or IPTV infrastructure, and most homes connecting via their own free-to-air satellite or terrestrial receivers, pay TV is an underdeveloped industry in the Middle East and North Africa (MENA) region, or MENA, with the exception of a handful of markets. These markets primarily consist of the Gulf Cooperation Council countries, as well as Israel and Turkey. Although Israel and Turkey are the among the three largest, most advanced, and dynamic multichannel markets in MENA, the region's leading digital TV conference and part of the global series, TV Connect MENA, held October 30-31 in Dubai, focused almost entirely on the Arab world with just one Turkish speaker.

The speakers agreed that while content is king, in a region with limited telecom infrastructure and low broadband adoption, particularly the Arab countries, distribution is King Kong. The majority (62%) of multichannel homes in MENA subscribe to DTH services, while IPTV accounts for a 19% market share, with Turkey being the largest IPTV market and cable present only in Israel and Turkey. In the Arab world, however, substantial IPTV deployments can be found only in the United Arab Estimates and Saudi Arabia, with small systems operating in Bahrain, Egypt, Lebanon, Oman, and Qatar. Satellite remains the main content distribution channel in much of the region, while most telcos focus on wireline and wireless data voice services. Thus, the rationale of a content offer to be paired with core network services is increasingly strong, particularly as the MENA over-the-top market is heating up, and the willingness to pay for content is increasing.

In 2016, Netflix Inc. and Inc.'s Prime Video service launched across the Middle East, and the Southeast Asian subscription video-on-demand service iflix followed in the first half of 2017. The three international OTT services will compete with a host of established local OTTs, including icflix, Starz's Starz Play Arabia, Orbit Showtime Network's OSN Play, MBC's, Istikana, Telly, and beIN Sports Connect. Nevertheless, the existing MENA OTTs are not afraid of the new entrants.

On the contrary, Carlos Tibi, CEO of ICFLIX Media FZ LLC, pointed out that Netflix helped attract subscribers to icflix because consumers recognize Netflix's brand, become comfortable with paying for content and then seek out similar services with different/local content. In fact, Arabic OTTs have learned from Netflix and Amazon how to build a successful SVOD service in terms of content delivery, including bandwidth optimization, offline downloads, user experience, and marketing, according to Maaz Sheik, CEO of Starz Play Arabia.

Iflix's head of MENA, Nader Sobhan, agreed with Tibi and Sheik, adding that differentiated content is another reason that iflix and local MENA OTTs are not afraid of Netflix and Amazon, although local players like Istikana had to rethink their content strategy and focus more on their niche: Arabic content.

While Netflix and Amazon came with scaled-down versions of their U.S. libraries that feature Hollywood and original content, the local players mainly focus on Arabic content, while iflix offers a variety of Bollywood, South Korean, and other Asian dramas and movies, which tend to be popular in MENA. Both iflix and Netflix have announced production of original Arabic content to further increase their appeal to local audiences.

Sobhan noted that iflix's success in Asia also stems from localization of its operation as the company opens offices and hires local staff in all of its markets. However, Netflix is also seeking greater localization in terms of content and user experience in MENA. Maria Ferreras, Netflix's vice president of business development for Europe, the Middle East, and Africa, argued that Netflix is following a long-term vision to understand the region, the market, and culture in order to develop its offering successfully.

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And while content is king, Sobhan argued that its delivery is equally as important. That's why service pricing and partnerships with other industry players are of high importance to iflix. "We want to figure out how little we can make people pay," Sobhan said. In fact, iflix's prices are less than half of its competitors'. The company also partners with telcos, pay TV and mobile operators in most of its markets. Iflix establishes deep connections with telcos in order to learn who their customers are and how to best reach them. In MENA, iflix entered into a joint venture with the region's leading mobile operator, Zain, to establish iflix Arabia. Similarly, icflix considers partnerships with telcos very important for subscriber acquisition and retention, with 60% to 70% of users coming from telco partners, according to Tibi.

Martin Stewart, CEO of the region's largest pay TV operator, OSN, argued that the launch of the company's streaming OTT service Wavo in August did not result in cannibalization of its pay TV offering because the operator simply offers content in a manner that the customers want, be it via TV set or OTT. Although the current Wavo offer is priced much lower than the pay TV service, the former also offers less content. Besides, satellite delivery will always be relevant in certain areas of the MENA region where wireline infrastructure is lacking, such as Iraq, Syria, Yemen, and parts of North Africa.

A unique challenge for content delivery arises during Ramadan – the challenge of scale, according to Rory McVicar, global product lead for content delivery network and Vyvx at Level 3 Communications Inc. McVicar said content traffic in the UAE increased exponentially overnight during Ramadan in 2017, and hours of peak content consumption changed too. Israel, Saudi Arabia and Jordan also saw strong increases in volume. Furthermore, overall demand for content did not drop off after the end of Ramadan. Thus, operators offering streaming services have to be ready for dramatic increases in content traffic during the year.

The MENA region is the smallest and least lucrative multichannel region in the world with just 10.7 million homes subscribing to pay TV services in 2016, earning $2.5 billion in video service revenues, according to Kagan, a media research group within S&P Global Market Intelligence. The region also has the lowest multichannel penetration among the six global regions, standing at just 16.7% in 2016.

Global Multichannel is a service of Kagan, a group within S&P Global Market Intelligence's TMT offering.

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