Investors are taking note of Astro’s efforts to adapt to the changing dynamics of the media industry

by ANIS HAZIM / Pic by BLOOMBERG

PAY-TV operator Astro Malaysia Holdings Bhd has elevated its business after its recent partnership with over-the-top (OTT) streaming services, namely HBO Go, iQiyi, Disney+ Hotstar and the latest, Net ix.

According to Hong Leong Investment Bank Bhd (HLIB), Astro’s transformation is multi-faceted as it attempts to adapt to the fluid landscape of the media industry.

“Astro’s main revenue contribution is still from its pay-TV subscription segment, with -75% contribution in the financial year 2021. However, there is a structural decline in subscription over the recent years,” HLIB analyst Tan Kai Shuen told The Malaysian Reserve (TMR) in an email reply.

The analyst said this is due to changes in consumer content consumption trends as consumers switch from linear TV to on-demand viewing, as well as the availability of illegal TV boxes that are cheaper and provide easy access to view content.

On the other hand, Tan also sees some strategies in the group’s transformation to tackle the challenge.

“Broadly, we think Astro’s transformation can be broken down into the following three strategies to tackle the challenge, with its defend strategy, tapping into the growing OTT market and developing new earnings from its growth driver.

“Astro has taken proactive initiatives to defend its bread and butter pay-TV subscription revenue as it attempts to slow down the cord-cutting momentum by introducing affordable package NJOI to retain customers who wish to unsubscribe from pay-TV,” Tan said.

Astro has also collaborated with broadband service providers, Maxis Bhd and Allo Technology Sdn Bhd, which allow customers to access over 60,000 videos on demand through broadband connectivity, in-line with the shift in consumers preference to on-demand viewing.

Apart from that, Astro introduced Ultra Box that includes the 4K ultra-high definition (UHD) viewing experience.

Tapping into the growing OTT market, Astro-owned OTT app, Astro Go, complements its customers to stream Astro’s on-demand libraries through their mobile phones, which satisfies consumers who are increasingly mobile-centric.

“As the saying goes ‘if you can’t beat them, join them’, Astro does not view the OTT players as its rivals, but rather as its potential strategic partners, and is also targeting to be the leading aggregator of streaming services in Malaysia,” Tan added.

Last month, Astro launched another OTT app, Sooka, which the analyst opined that will help the group penetrate into a market segment that is currently underserved, especially young millennials who are not subscribers to Astro and prefer to consume online content through mobile platforms.

According to Tan, there should be another two or three more partnerships to be announced this year after Astro’s recent partnership with several OTT services.

He views the group proposition as a one-stop entertainment solution that will become appealing as consumers will be able to mix and match different entertainment options according to their preferences at attractive prices.

Astro’s share price has been declining since 2018 from above RM2 to an average price of around 86 sen in 2020.

“In the past, Astro was preferred among investors due to its stable earnings from its pay-TV subscription. However, due to the structural decline in the revenue from its subscription, investors are concerned about the group’s prospects, and whether it will be able to continue delivering stable earnings as it did in the past,” the analyst said.

Tan stated that Astro’s share price, however, has charted a rebound with a year-to-date increase of 30%.

“We believe investors are taking note of Astro’s efforts to adapt to the changing dynamics of the media industry. Its move to partner streaming services is viewed positively as it may potentially sustain its subscription revenue and lift its average revenue per user, given its growing homeshopping segment also providing an additional leg of growth towards its earnings in the future,” he added.

Tan told TMR that he foresees 2021 as a challenging year for the group since the onset of the pandemic.

“Pay-TV subscription has come under further pressure due to lower commercial subscription from hotels, bars, and food and beverages outlets, as a result of prolonged lockdown restrictions, together with cancellation from customers due to lower household income impacted by the pandemic,” he said.

Nevertheless, Tan opined that the decline is still moderate due to the positive efforts and initiatives carried out by Astro to improve its products and to retain its customers

“As the cord-cutting trend continues and the OTT market is growing, we think Astro’s move is timely to capitalise on the megatrends in the media industry,” said Tan.

Astro’s shopping segment is enjoying a healthy growth riding on the e-commerce boom, which will give the group another leg of growth in its earnings to cushion the revenue decline in its pay-TV segment.