TELCOs – OCBC
Minimal World Cup Boost
Full 64-match broadcast. Both SingTel and StarHub have managed to secure the broadcast rights for all 64 matches of the month-long 2010 World Cup event in South Africa; this was done via two separate non-exclusive contracts after their earlier joint bids were repeatedly rejected by FIFA. SingTel will broadcast all 64 matches on its mio TV and mobile, with complimentary viewing on the Internet. Likewise, StarHub will also broadcast all the matches live across all three of its platforms – cable TV, Internet and mobile.
Pricing may be the sticking point for home viewers. The two telcos did not reveal how much they paid for the rights, but we believe that it is probably several times higher than the US$5m that StarHub reportedly paid for the 2006 World Cup event. Looking at the current packages, which cost (pre-GST) a minimum of S$66 before 31 May and S$88 thereafter, we note these are around four times more expensive than the packages of S$15 and S$25 that StarHub charged in 2006. A reason for the higher pricing could be due to the likely smaller advertising revenue given that the telcos only managed to secure the rights with a month or so to go before the event kicks off. We also note that the packages are higher than our back-of-the-envelope calculation of around S$40.
Likely good response from businesses. A dip in the takeup from home viewers could see, conversely, a better response from the business segment, as F&B establishments are likely to use the “live” telecasts to attract viewers who will not be subscribing for the event. As the pricing for businesses ranges from S$2888 (for the first TV set under 50 inches) to S$4888 (for the first TV set above 50 inches), a business customer is worth at least 44 to 55 home customers. Assuming that the telcos paid a total of S$20m for the rights and that the average subscription price is S$70/subscriber, the telcos would probably need to sell 280k packages to break even – we think that this is achievable.
Maintain OVERWEIGHT. In any case, we expect to see higher content costs for both SingTel and StarHub in the third quarter, which may depress margins; but we have already worked this into our estimates. Instead, we continue to like the telcos for their defensive earnings and high dividend yields, especially in the increasingly volatile market. Maintain OVERWEIGHT.