Industry analysis on ABS-CBN

Lopez  family-controlled ABS-CBN Corp. said it expects profitability throughout the year with the support of its airtime revenue after gaining in the first quarter of the year. In a briefing, Geronimo C. Estacio, ABS-CBN officer in charge for Finance, said profits for the full-year of 2006 may come from its airtime revenue, given the higher rating of the network’s primetime shows. Estacio said ABS-CBN posted a net income of P121 million in the first quarter of the year from P132-million losses in the same period in 2005. In the first three months of the year, ABS-CBN audience share averaged 32 percent compared with 43 percent of its rival GMA channel 7. On primetime, ABS posted 35 percent share from 36 percent compared with GMA’s 43 percent from 46 percent. The company attributed its profit turnaround to the lower cost base that resulted from last year’s manpower optimization and judicious production cost spending, as well as from license fees for the migration of North American DTH (direct-to-home) subscribers to DirectTVs platform. License fees from DTH amounting to P409 million were booked in the first quarter of the year. Total subscriber base of ABS-CBN Global grew by 22 percent year on year, which translates to 2. 1 million viewers worldwide by-end March. The Lopez-led company also said airtime revenues, which accounts for 60 percent of the total, grew 4 percent to P2. 26 billion in the first quarter of the year from P2. 18 billion in the same period in 2005 as it continued to strengthen its primetime programs. Gross revenue rose by 14 percent to P3. 95 billion, driven by license fees from DirectTV and higher airtime revenues. When Kris Aquino announced she and co-host Korina Sanchez might be in the United States late this year to tape some of their â€Å"Morning Girls† daily show, ABS-CBN International (NA) received lots of calls for the specific dates. â€Å"The response was amazing even if nothing has been firmed up,† said Rene Encarnacion, senior vice-president for international operations of ABS-CBN Broadcasting Corp. and managing director of ABS-CBN Global Ltd. ABS-CBN International is one of four subsidiaries of Global, which is, in turn, a wholly owned subsidiary of ABS-CBN Broadcasting. With access to 25% of total Filipino-American households, ABS-CBN International accounts for 70% of gross revenues generated by Global. â€Å"The North American operations used to account for 85% of total revenues but that has happily dropped as we follow Filipinos abroad. There are Filipinos working in every country in the world except Bhutan,† said Encarnacion. Using a market yardstick of between 50,000 to 70,000 households, each household made up of five to six people, Global has presence in Asia-Pacific, the Middle East, and Europe. In Asia, the company works with local partners. It services Saudi Arabia and the United Arab Emirates through subsidiary, ABS-CBN Dubai; and England, Germany and Italy through another subsidiary, ABS-CBN Europe. â€Å"The Filipino-American market is so huge, there’s still a lot of penetration to do. Just maintaining our 25% market means we’re already growing. This is not a transient market; they are in the US for good and they have large disposable incomes,† said Encarnacion. Bundling Entertainment accounts for 65% of Global’s product mix. The company maintains four channels, which are either directly beamed to the homes of subscribers or by satellite. These channels are segmented by content, offering 24-hour news, the best of Channel 2 shows, and Philippine movies as well as sports and culture. Global pays royalties to ABS-CBN Broadcasting and its content-producing subsidiaries. It also sources other suppliers of content, such as the Philippine Basketball Association. Global holds the international broadcast rights for the PBA games. In a classic bundling strategy, the company has built on its existing relationship with customers to push non-entertainment products, all of which are billed through one cable statement. The nature of technology opens so many opportunities. We have become a distribution one-stop for everything from entertainment to courier services to retailing Philippine-made products to our customers. It’s a convenient pipeline that other Philippine media companies have not yet fully exploited,† said Encarnacion. Global also sells pre-paid US-to-the-Philippines cards which offer 60 minutes to 100 minutes of telephone use. The cards are offered to retailers for private labeling or sold in-house under the brand name, Sarimanok. Arm’s length Global was incorporated in the Cayman Islands last year, although its North American subsidiary has been in business for the past nine years. Consolidating ABS-CBN’s international operation is part of the strategy to sell Global shares through an initial public offering two or three years from now. Part of the proceeds will pay off the $25 million advanced by ABS-CBN Broadcasting, mainly to put up the transmission infrastructure. â€Å"We have an arm’s length relationship with our parent company. It’s important that we show we can and have been going it alone,† said Encarnacion. The company generated in excess of $40 million in gross revenues in 2002, accounting for close to 70% of total revenues generated by all ABS-CBN subsidiaries. On a consolidated basis, subsidiaries accounted for 20% of ABS-CBN’s total revenues in 2002. Money-makers This year, Global sees a 20% growth in gross revenues and a 30% growth in subscriber base through the three-pronged strategy of better programming, more non-entertainment products, and improved customer relationships. For one, programming for the American market will no longer be targeting solely first generation immigrants but their children and their grandchildren as well. The first generation of Filipino-Americans are nostalgic about the Philippines and they want to keep abreast with what is happening back home. The second and third generation understand and accept their Philippine heritage but they have their own distinct buyer preferences in terms of, say, what kind of music they want to listen to. We want to secure more programs developed by Fil-Ams for Fil-Ams,† said Encarnacion. For another, programs such as â€Å"Balita Middle East† developed for foreign audiences may soon be shown in the Philippines because of their relevance to Filipino viewers. Balita Middle East†, which has a segment where overseas Filipino workers can interact with their families in the Philippines, is the second highest rated show in the 24-hour cable news channel, ANC. From a wider perspective, Global intends to balance its revenue stream and be less dependent on the American market. It formally launches ABS-CBN Europe in Italy this month. It is also asking itself whether or not it makes sense to continue its partnerships in Japan or Australia, which have been delivering on their bottom line commitments.