The Latin American Pay-TV market has attracted the attention of a diverse range of international investors. The projections of development in the region explain it: from Mexico to the Southern Cone is calculated, by 2000, an estimated population of 500 million people and a growth of 90 million today to 110 million households with television.
About 35% of TV households are between social classes A and C, and over the next three years the potential market will be about 40 million Pay-TV subscribers. However, this growth is not without its challenges.
The development of strata or programming options (channel packages through a certain grouping and with an independent rate for each group) is a good example to examine. Mexico and Argentina show us the stark contrasts that the market implies.
Contrasts
Mexico has two million subscribers of the basic cable service, out of a total of 16 million households with TV, which represents a market penetration of 12.5%. It has about 700,000 IRD (decoder boxes), installed in the homes of subscribers (35% of total subscribers to the basic service).
Operators offer different scheduling options: the basic 40-channel package, for about $15 a month; the "super basics": three to five channels at US$5/package/month; premium film packages: up to five channels for US$12/pack/month; and pay-per-view, both for movies (about $3 per film), and for specials up to $40 each.
Argentina represents the largest Pay-TV market in Latin America: five million subscribers to basic cable service, out of a total of 9.2 million households with television; with a market penetration of 55%. But it only has about 100,000 IRDs installed (2% of total subscribers to the basic service).
In Buenos Aires, a basic option of 70 channels is offered for almost US$32 per month. Inside, the basic offer consists of 40 to 45 channels, for about US$28 per month. With the exception of recent attempts in small towns, there has been no significant movement by operators to create or establish a system of scheduling options.
Errors
Mexico and Argentina represent extremes in the development of programming strata offerings in Latin America. Overall, pay-TV markets in the north have not offered basic 70-channel options, as their southern colleagues have done. And, with the exception of Mexico, they have experienced, to a limited extent, the system of options, almost non-existent in the Southern Cone, including markets of the magnitude of Argentina and Chile.
This absence, a mistake made by both operators and programmers, dates back to the beginning of the Pay-TV markets in Argentina, Chile and the other countries in the area. No one made an effort to introduce programming options during the development of these markets, which becomes difficult when they have reached a certain maturity.
Programmers, including those offering premium options, rushed to get markets quickly to secure distribution. If they had waited, the market would have had to introduce proper technology and offered option packages. Operators continued to add more and more channels to their basic packages, due to competitive pressures, without sufficient resources to improve their systems and offer option packages to their subscribers.
Thus originated a vicious circle: they do not offer premium programming because there are no decoder boxes available in the market, and they do not have boxes because there is not enough premium product to justify their purchase.
Results
Many owners of local cable systems have sold to multinationals and MSOs that are facing industry pressures and issues such as the need for significant improvement to stay competitive and offer added value and revenue-boosting services (such as premium movie channel packages and pay-per-view).
Systems that only have basic offerings have a limited capacity of channels and see a strategy of options necessary to increase their profitability of services, which cannot be offered without the operator making an investment to acquire the IRD for its subscriber base. DTH platforms, such as Direct TV and Sky, are aggressively entering pay-TV markets and offering options services to those who can and want to afford them.
Programmers are also affected by these circumstances, due to the lack of options. Fierce competition affects channel inclusion; that is why some programmers have been forced to give up their channels to ensure distribution and thus generate advertising revenue in the future. As a result, many programmers are struggling to survive and think they can't continue to reinvest in high-quality programming.
In the Southern Cone it is assumed that the subscriber gets a bargain by receiving so many channels for the same price. The problem is that the channels do not have a particular valuation, because they all cost the same. Programmers compete, thus, only for distribution, but not necessarily to supply the best product to the subscriber. And which has no freedom to choose which channels it wants, nor to decide the alternative it wants to pay for.
Odds
The transition is already underway. Premium and super-premium channel programmers, as well as those who rely on marketing movies and pay-per-view events, are at the center of the process, controlling the product with the highest demand.
For the transition to be the best possible, premium channel programmers, equipment suppliers and cable operators need to work together. There should be a spirit of partnership and cooperation, with subscriber satisfaction among its priorities.
Major programmers of premium movie channel packages are investing to create high-quality schedules and new signals and schedule options for their services, only available to certain subscribers.
Programmers whose channels have optional packages will have to accept the challenge of maintaining the best quality content. They will no longer be competing for a comfortable guaranteed distribution of their basic service; they will have to compete to increase the volume of subscribers. They also need to find creative avenues to help operators acquire IRD.
Equipment suppliers, in turn, have to "invest" in flexible financing programs, to support and incentivize the acquisition of available technology, of which they are ultimately beneficiaries.
By keeping the initial cost of IRDs low, operators will be able to purchase larger quantities. The subscriber will have faster and better access to the scheduling of options, which will lead to greater acceptance and demand from IRDs, and the possibility of assuming part of the investment. The IRD will allow you to receive a better avenue of entertainment and is a necessary conduit, such as the video or CD player. The operator may even require the subscriber to purchase it in installments or include a monthly fee for the rental of the box.
The operator should reduce the number of channels and the price of the basic service; have a long-term vision and make their programming offers more flexible (more attractive packages such as super basic, premium and super premium), considering the purchasing power of the subscriber and their desire to choose what they want to see. The user will then have options to make their ideal menu of channels.
The system of options must be marketed exhaustively, by all participants in the process. Thus, the subscriber will understand that he has more advantages and will obtain the satisfaction of having invested in Pay TV without feeling that he has lost something that he previously received for free.
