Best Practice: PCCW Proves Content is King for IP TV

PCCW’s NOW TV saw ARPUs increase 84 percent from US$7.34 in 4Q2003 to US$13.50 in 4Q2004.  Additionally, PCCW has experienced strong uptake of its NOW TV service, reporting about 361,000 subscribers by YE2004, representing 24 percent of Hong Kong’s overall broadband lines.  This is quite impressive considering the cable operator, i-Cable, was able to attract less than half of NOW TV’s total subscriber level over its first year of commercial deployment and in more than 10 years of operation it has gained only 700,000 subscribers in a 2.1m-household market. 

Key factors contributing to the rapid subscriber and revenue growth include NOW TV’s exclusivity arrangements and a flexible pricing scheme.  Since its inception, NOW TV has rapidly evolved from offering only 23 channels to incorporating premium content and growing to 74 television and radio channels.  Additionally, PCCW has been able to strike a number of key exclusivity contracts for premium content with ATV, HBO, Cinemax, Star Movies, MGM and ESPN-Star Sports which has helped the operator increase demand and revenues.  Moreover, PCCW has localized its offerings to make them more appealing, with over 70 percent of the content provided in Chinese or with Chinese subtitles.

PCCW charges for pay TV services on an a-la-carte basis.  Customers can choose the channels they would like to subscribe to and pay-per-channel.  The operator has also introduced mini-packs, which include a number of premium channels for a fixed amount per month priced strategically lower than i-Cable’s packages.   Mini-packs account for approximately 58 percent of the channel subscriptions and were a key contributor to the ARPU growth.  On-demand programs are charged on a pay-per-view basis.

By YE2005, PCCW expects to have more than 500,000 NOW TV subscribers.  We think this is an achievable target given that PCCW has invested in building exclusive relationships with content providers, effective marketing, and lowered the barriers of entry for customers through subsidizing end-user equipment and pricing on a pay-by-channel basis.  We believe NOW TV’S premium content will continue to attract customers to PCCW’s other services, including voice and broadband access.  With the ARPU for bundled voice, data and video services in the range of over US$26, PCCW is likely to increase its profitability going forward.