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StarHub Left To Lick Its Wounds
Corporate Digest | 06 October 2009
Related stocks:
CC3
By: Lai Wyai Kay
Articles (53) Profile

Selling pressure on StarHub’s stock continued yesterday, sheding a further 1.5% from last Friday’s close, as investors remained spooked by the loss of programming rights to the English Premier League (EPL).

Whether StarHub has significantly underestimated its rival’s, SingTel, ambitions, or simply unwilling to engage its rival in a bidding war, is debatable, even as it attempted to smooth any ruffled feathers with the obligatory statement.

But SingTel has always lurked in the shadows. In 2006, it threw in its lot with StarHub and ESPN Star Sport (ESS). Then, StarHub won the bid, taking the rights from ESS.

So, in an apparent tit-for-tat, ESPN Star Sports will also migrate to SingTel’s mioTV platform next year. With the UEFA Champions League already in the bag, it is a hat-trick of sorts for SingTel.

And apparently, the market looks to have correctly predicted SingTel’s win, as its shares rose prior to the day that the company announced its win.

Power of Sports
Singapore last year, according to the statistics yearbook, had 583,000 households subscribing to Pay-TV services. StarHub, in the same period, reported 524,000 subscribers, which gave it about 90% share of the market.

The company derives about 18% of total revenue from its Pay-TV operations, including advertising revenue; analysts estimating that at least 45-50% of current Pay-TV customers subscribe to the sport packages.

But come mid-2010, StarHub’s exclusive football offerings will just be left with the Spanish La Liga and Germany’s Bundesliga, and ESS defection removes a big chunk of its other sports content, including major tennis and golf tournaments – all of which prompted a rash of revisions to StarHub’s stock (see table).

With average revenue per user (ARPU) from its Pay-TV operations at $57, potential revenue bleed could top $15m – about 3% of total Pay-TV revenue. Goldman Sachs estimated that the telco could lose 70% of its sports-pack subscribers.

While StarHub’s range of other programming content, arguably still better than the ones on mioTV, could provide some buffer to this figure, experts agree that in the realm of Pay-TV, sports content is key to winning and keeping subscribers, and driving advertising revenue.

And there are still the potential knock-on effects to think about that will affect its other business segments. About 21.7% of its household customers had at the end of last year, subscribed to StarHub’s full range of services.

Damage Control Mode
Brokers looked to be unanimous on this point, saying that the loss of the EPL rights is a blow to StarHub’s “hubbing” strategy, or its bundle of quad-play services, which, with the EPL rights, was what gave it the edge – and the telco could face considerable churn once the current EPL season ends.

“The unexpected loss of EPL and ESPN rights raises concerns about StarHub’s ability to compete effectively in the medium term,” says Nomura, which downgraded StarHub’s shares, adding that it stands to lose 4-14% of annual revenue.

But brokers are confident that dividends this year, which is unlikely to be affected, should put a floor to its stock. However, the picture is clouded going forward and CitiGroup sees “material downside threats to earnings 2H10 onwards”.

Parallels have been drawn to what happened in the Hong Kong market, which for eight years, was dominated by i-Cable. Since losing the EPL rights in late 2006 to PCCW’s pay-TV arm, now-TV, its fall had been speedy – it lost its market leader position; ARPU has been down a third and it ended in the red last year, its first loss since listing in 1999.

Incoming chief, Neil Montefiore, who for so long had battled the two giants in the sector, has got another fight on his hands. Helming M1, he had wisely resisted challenging SingTel and StarHub head on in gaining market share.

That strategy might not be that tractable now and in any case, he definitely needs a Plan B…fast.

StarHub  1.540 +0.010 +0.65%   
Business: [FY18 Turnover] Mobile (34.9%), sale of equipment (22.4%), enterprise fixed (21.6%), pay TV (13.2%), broadband (7.9%).

Insight: Feb-19, FY18 total revenue slipped 2% to $2.4b att... Read More


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