No. 5, Fall/Winter2000

Special Issue:
The Arab World

continued: "Does Satellite TV Pay in the Arab World Footprint? Exploring the Economic Feasibility of Specialized and General Channels"
by TBS Senior Editor S. Abdallah Schleifer
page 2 of 2 / page 1

As for Orbit, their basic marketing strategy was sound. They were delivering a product attractive to a small, well-traveled, bilingual and well-off elite who understood that one must expect to pay for quality. And there was no confusion in shifting gears, since Orbit launched as both digital and pay-TV from the beginning. But how much will even such an elite be willing to pay for quality? Orbit's initial pricing, particularly for its decoder, was so outlandish that the optimistic assumptions that there were 100,000 Arabs ready to pay several thousand dollars for a decoder distorted Orbit's business plan—just as their too-pioneering role in digital TV would soon stick Orbit with an obsolete MPEG system that could only be altered at great expense.

The problems of lack of differentiation in a highly competitive field and the cost of new technologies are not limited to pay-TV satellite television. In 1998 the Egyptian Radio and Television Union (ERTU) launched, at great expense, its own specialized or thematic channels: Nile News, Nile Sports, Nile Children, Nile Culture and Nile Variety. Except for Nile News none of these channels are particularly differentiated from ART or from the increasingly Arabized offerings of the even more upmarket specialized pay-TV channels of Orbit. Even Nile News, while representing something of an advance over Egypt TV's conventional general channel news coverage, still cannot compare to the news product of Al-Jazeera, ANN, or the occasional news bulletins of MBC.

The plan was to broadcast in the clear for three years, offsetting some of the costs with advertising revenue and then, having established an audience, swinging over to pay-TV. More to the point, the Nile Thematic Channels, now known as Nilesat Thematic Channels, are suffering the worst of two worlds. As a digital free-to-air network that is part of the encoded Nilesat bouquet they are not truly free-to-air in the same way that analogue satellite was in the early nineties when ART and MBC acquired their audiences. It is true that up until now no one has had to pay for a subscription to the Nile Thematic Channel network, but the far broader mainstream market of analogue dish owners in Egypt, aimed at Arabsat, are deprived of access unless they are prepared to digitalize their dish and secure a Nilesat decoder at significant cost.

Nilesat's growing number of viewers is a comfort to the pay-TV bouquets carried by Nilesat, specifically the ART Arabic bouquet and the Showtime English-language Western entertainment bouquet. Those viewers, still relatively few, are now growing rapidly and with ever-increasing vigor thanks to increasingly successful marketing efforts by both the MultiChoice Egypt-CNE DTH platform providers and by Showtime, with ART finally adopting similar successful strategies with the appearance of the Astra and with Showtime veteran John Tydeman as the new CEO of ART's marketing, distribution, and platform provider arm.

But Nilesat Thematic, as I stated above, has been caught in the worst of two worlds. It has not benefited from the growing pay-TV revenues that are being acquired by ART and by Showtime, and has never had the opportunity to acquire the large audiences that earlier-into-the-market free-to-air competitors have acquired. As a digital and Nilesat-encoded network it is not truly free-to-air; it has never had access to the large analogue market, nor has it the program differentiation opportunities initially enjoyed by its competitors. But that is about to change with its self-reinvention as a pay-TV network on Nilesat that will begin to acquire some revenue as well as liabilities.

Added to the problem of a culture socially conditioned against pay-TV, and the problem of ever-increasing popular free-to-air satellite channels both general and specialized, are the limits of pan-Arab ambition motivating ART, Orbit, and MBC, in that key ingredients in programming--music, soap operas, drama and even certain types of talk shows--still reflect strong local Arab cultural identities rather than a pan-Arab one.

It is the free-wheeling highly political talk shows, first initiated by Orbit's "Ala al-Hawa" hosted by Emad ad-Deeb, and now very much the brand image of Al-Jazeera, which are most successfully pan-Arab. But that broad cultural identity does not necessarily carry over into other spheres of production. Both LBC and Future are, by virtue of satellite, pan-Arab and transnational, but we could accurately describe them as supranational channels carrying Lebanese culture in the broadest sense to the hundreds of thousands of Lebanese expats working in Arabia and the Gulf. Presumably a privately owned supranational Egyptian satellite channel, with the same appeal to local cultural values but with more freedom and superior production values than available from ERTU's terrestrial and satellite channels, would also prove to be as successful. It too would appeal to the vast number of Egyptian expats who are far better off and far more sophisticated in taste than a per-capita equivalent sample back home in Egypt.

Nevertheless, there is some light at the end of the tunnel for pay-TV specialized channels. Showtime, which has slowly and steadily secured subscribers in both the Egyptian and Saudi-Gulf markets, is rapidly approaching break-even status. Of course Showtime has numerous advantages: it is offering Western entertainment, and its product is far superior and more up to date than the Western entertainment that is carried alongside predominantly Arabic programming by the national channels or the free-to-air satellite general channels. Showtime basically repackages Viacom products, so its production costs and concerns are minimal and its attention is very focused on marketing, promotion, distribution, and public relations.

But it does have a formula which responds directly to the problems I have surveyed, and to the degree that formula has been followed or even initiated in certain cases by its Nilesat subscription service providers MultiChoice Egypt and CNE DTH, it has been successful. [Editor's note: MultiChoice Egypt General Manager Khalid Abu Nuwar spoke to TBS about their marketing strategy and why it's a key reason behind CNE's success.] Following the recent major changes in management at ART that I have already alluded to, that same market strategy is now being followed by ART.

Showtime's strategy is to keep adding value without adding price, but at the same time never cutting price. Where the cost has come down is in hardware (dish, decoder, smart card), which according to both Showtime and MultiChoice executives removes the real barrier to entry. Program cost alone, according to this now successfully demonstrated theory, was never the real obstacle given the growing sense in the region of obvious value as well as immediate gratification. When Showtime launched in the region only a few years ago they had six channels in their bouquet: The Movie Channel, Paramount (American sitcoms), TV Land (American adventure shows), MTV Europe, VH1 (a somewhat more tasteful MTV alternative brilliantly established by MTV as its own slightly more upmarket competition), and Nickelodeon. Since then Showtime periodically adds new channels without increasing subscription fees: Bloomberg (business news), Style (a predominantly women's fashion and soap opera channel), Discovery, Hallmark (upmarket and family-oriented TV movies), Sony Entertainment, CNN, Turner Classic Movies and Turner's Cartoon Network. [Editor's note: since this paper was presented at the colloquium, still more powerful channels have been added: Abu Dhabi Sports, with its Italian League football and NBA professional basketball properties, and The Movie Channel 2.]

When Showtime departs from the formula of adding value at no added cost, it only does so outside of its regular package. Thus Showtime, partnering with Sheikh Saleh in his recent acquisition of the Euro 2000 football finals, established a pay-per-event channel, the Euro 2000 channel, with Arabic and English options for commentary and analysis.

In Egypt, where equivalent Arabic commentary was available on Egypt TV, the pay-per-event experiment drew a limited audience of English-speaking viewers. But in the Arabia-Gulf market the Euro 2000 channel was much more of a success, and that success indicates that if the market culture remains somewhat hostile to paying for ongoing television service, it increasingly understands that special events, especially sports events, justify special costs. Whether this attitude will carry over to pay-per-view movies is not clear--and perhaps doubtful, given the incredible amount of piracy still prevalent in the Arab videotape market, which will rob any pay-per-view movies on satellite of much of their otherwise timely appeal.

Showtime is about to become the first digital multimedia network in the Middle East, with a three-phase operation. Phase one, ShowCast, is already operative and being offered experimentally in Egypt and Kuwait, and again at no extra cost to full-bouquet subscribers. ShowCast is an Internet service offering Web pages selected by Showtime, and can handle between 200 and 300 sites. The service currently includes around 100 sites in five categories: entertainment and lifestyle, news, sports, kids, and Islamic culture.

The Web pages are automatically cached in the computer hard drive (connected by PC card to the satellite receiver) whether the computer is on or in standby mode. This is not true interactive Internet, but it is super-fast, family-friendly Web browsing--and sufficient for many users, since surveys show that most Web users rarely go to more than 16 or 17 sites on any regular basis. Added to that are three TV channels--CNN, ANN, and Bloomberg, plus a real-time Microsoft ticker tape of stock exchange information--which are Internet-delivered onto the viewer's PC--and this is not cached viewing; these are real-time video-streamed TV channels.

Interactivity is available at added cost. That's ShowNet, and the cost is $60 a month for fast, always-available basic Web access via satellite, but using local ISP and telecomm facilities to access the service. This way Showtime is not cutting out the local telecomms from participating in the profits, and is allowing those telecomms that chose to do so to filter website requests.

Added value, product differentiation, almost always at no extra cost. It is a never-ending strategy, not a tactic. And by this time next year, Showtime will extend its ShowNet capability to a set-top box that will deliver Internet into the satellite-connected TV monitor, making the Internet easily available to the hundreds of thousands, if not millions, of Egyptians who own TV sets and satellite dishes but not computers--or those who, if they are not already linked by a dish to satellite broadcasting, are far more likely to subscribe to Showtime than to buy a computer. And that will be another world, a potential communications revolution in the expansion of new media in the Arab region, and just possibly worthy of another paper. TBS