IPTV business troubles carriers

By Cho Mu-hyun

Mobile carriers are suffering from lower-than-expected revenue from media businesses, especially Internet protocol television (IPTV), impinging on their desperate effort to expand income outside of voice calls and texts.

SK Telecom, KT and LG Uplus have all vowed to create more content since the deployment of data-intensive long-term evolution (LTE) networks two years ago, with media being the top priority.

IPTV is an important part of that move, though it was launched before LTE, with telecommunications companies wanting to take market share of the lucrative media sector from cable companies and broadcasters. So far they succeeded in taking a large chunk, with IPTV subscribers totaling near 7 million as of April.

Despite the feat, earnings have remained lackluster. Industry observers say it will be a long time before media content generates hefty margins.

“Demand for media content is already extremely high and growing rapidly,” said HMC Securities analyst Hwang Sung-jin over the phone. “However, at the same time, media content previously only available though TV is now accessible through different distribution channels and routes, which are also expanding rapidly.”

“The problem is that because of the increased distribution chains, the profits are shared by many more players. The program providers, distributors and IPTV service providers (telecoms) each get a piece, and the margin per sale is decreasing,” he added.

Though the margins are shared, the lion’s share goes to the program providers with large content, and not the companies trying to expand their meager media portfolio.

The providers charge around 1,500 won for individual reception of recently aired popular programs, while the telecoms are forced to package multiple programs together and sell them at a discount.

Telecoms have all ventured into creating their own media content to control the whole value chain, but self-developed programs have not been popular so far.

Hwang said that their efforts maybe in vain as program making requires know-how that can only be accumulated over time and it would be better for them to manage the supply chain better and attempt to increase competition among providers by increasing media platforms available.

Another problem are margin rates themselves, which are declining due to explosive demand that is cutting prices due to consumer complaints and wide availability.

Carriers say they are aware of the marginal profit that the media businesses bring, and the current aim is to acquire the “know-how” they lack and look for returns in the long-run.

“We acknowledge that we haven’t made sufficient profits in the media business, but it must be noted that despite the slowness, we are consistently growing,” said an official of one of the carriers requesting anonymity.

He also said that the declining margin rate, which will is also expected to plummet further due to competition among carriers, will be offset by the sheer increase in market volume.

“The growth in media demand is spectacular, but there hasn’t been a surge that we can call an explosion as of yet. We expect sometime going forward that the way media content is consumed will completely change,” said the official.

However, analyst say without that sudden rush towards IPTV, revenue from TV platforms will be limited.

“Besides the carriers, manufacturers such as Samsung and LG are also dipping into media content with their Smart TVs, but when is the last time you remember they made money from it?” said another industry official. “Apple won’t do media as well, at least not yet, because of the low returns.”