There was more urgency than usual among the more than 600 executives that attended Asia’s leading event for television and broadband industries last month in Bali. Top players taking part at the fifth annual APOS event in April, organized by Media Partners Asia (MPA), had a keen eye on how the leading brands in media and telecoms distribution planned to renew their consumer bonds in the context of both broadband and mobility as well as the vital traditional pay-TV distribution ecosystem.

According to MPA’s latest annual research report, the entire Asia Pacific pay-TV ecosystem added 26 million net new customers in 2013, the lowest annual growth since 2007. This reflects marked deceleration in China and India as well as softer growth in Southeast Asia, especially Thailand, which was the big weak link in the region.

Net new additions will accelerate in the region over 2015 – 2016, largely due to gains in India associated with the next delayed phase of digitalization. Adjusted for multiple subscriptions, MPA analysis indicates that pay-TV penetration will grow in the Asia Pacific from 52 percent in 2013 to 60 percent by 2018.

In China, new cable subscribers have slowed down significantly, due to direct competition from Internet Protocol Television (IPTV), and to some extent, online video. IPTV in China saw steady growth of 5.6 million net additions in 2013, driven by content and increasing broadband reach. In India, Phase 1 and Phase 2 of digitalization boosted growth in 2012; but even with the two phases completed, and amidst various structural factors, including currency depreciation in the macro environment, growth slowed in 2013.

The next delayed phase of digitalization, Phase 3, will help boost net new subscribers to 8 million a year in 2015 and 7 million in 2016 before decelerating again by 2018. At present, the three fastest growing players in the Direct-to-Home (DTH) market are Videocon D2H, Tata Sky and Airtel, while DEN and Hathway continue to dominate digital cable deployment.

On an active paying basis, India now has more than 60 million paying digital subscribers, with 37 million from DTH and 23 million from cable. Over the next decade, MPA expects pay-TV penetration to grow to 180 million homes, versus 135 million last year, with 70 percent of these homes with digital pay-TV. The market share split between cable and DTH will be 60:40, versus 73:27 in 2013.

Net additions in Southeast Asia slowed by almost half, from 3.7 million in 2012 to 1.9 million in 2013, and the two big DTH platforms in Indonesia and Malaysia contributed more than 45 percent to net adds. MPA research suggests that net additions will accelerate once again in Southeast Asia to about 2 to 2.5 million a year, driven largely by steady growth in Indonesia, Malaysia and the Philippines. The growth in North Asia can be attributed mostly to Korea, which contributed 80 percent growth due to new customers with IPTV and DTH in a market where penetration exceeds 100 percent.

Beyond Traditional Pay-TV

Since the mid 2000s, a number of ‘smart’ devices have launched that have changed content consumption patterns in the region. Not only have these devices challenged pay-TV operators in terms of user interfaces and experience, but they’ve also opened our eyes to the possibility of consuming content away from the traditional TV screen. While the growth of illegal content has caused the industry to react and ensure that content to multiple devices gets delivered, it has also made the industry think beyond the household — and to adopt users as a measurement metric.

Within this interactive universe, with return path technology and non-linear consumption, the growth of Video on Demand (VOD) is really starting to take shape. MPA data suggests that VOD revenues across pay-TV will grow by 15 percent Compound Annual Growth Rate (CAGR) over the next five years to reach $4 billion, driven by China, Korea and Japan. In Southeast Asia, Malaysia is the clear market leader with satellite pay-TV service provider Astro Best. New offerings from DTH players in Indonesia (MNC Sky Vision, Telekom Vision) and expanded services in India (the top four DTH players in India) will also help grow the pie.

TV Everywhere (TVE) subscribers are also expected to grow from 4 million, to around 15 million over the next five years even though the revenue generated from these authenticated services is expected to amount to only $200 million by 2018. The growth of OTT and TVE service availability has been significant, with 15 key pay-TV operators in Asia launching OTT and TVE services.

Encouragingly, over the past year or two, user interfaces adopted by pay-TV platforms have undergone vast changes thanks to some prodding from the OTT and third-party device world. Netflix, Astro, Foxtel and Samsung’s Smart TV are some of the more notable and successful examples. Next up are ways to integrate OTT to services through set-top boxes and rollout branded Stacked Volume Optical Disk (SVOD), which DTH, cable and telecom operators are looking at in almost every market across the region.

Vivek Couto is the executive director of Media Partners Asia, a research and consulting firm for media and communications services in Asia-Pacific with offices in Hong Kong, Singapore and India.