Market Insight

Dogan Media reports 19% growth for D-Smart

March 18, 2014  | Subscribers Only

Constantinos Papavassilopoulos Constantinos Papavassilopoulos Principal Research Analyst, Service Providers & Platforms
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Turkish media company Dogan Holding reported a 19% increase in subscribers for its Turkish satellite platform, D-Smart, in 2013. The total subscriber figure at the end of the year was 1.835 million, a number that includes paying as well as non-paying customers (the service in the latter case is funded by advertising, pay-per-view and SMS voting). The growth of paying subscribers was even more impressive, rising from 740,000 at the end of 2012 to 1.033 million, a 39.6% gain. Dogan also disclosed that the revenues from the total media sector increased by 32% in the last year. The group’s flagship channel, Kanal D, was the most-viewed free-to-air TV service in Turkey in 2013.

While the numbers undoubtedly project an optimistic outlook, the company’s management was more reserved about the state of the Turkish economy. Foreign exchange rates for the Turkish Lira dropped considerably in 2014, and that development will form an additional burden to the Turkish economy, threatening debt-laden private companies in particular.

Dogan Holding AS operates in a wide range of business sectors, including media and telecoms, publishing, energy, construction,finance, trade and tourism. In the nedia sector the group is active both in pay and FTA television D-Smart is the second largest pay satellite platform in Turkey.

Our take

Last year’s strong performance for D-Smart came on the back of impressive growth over the last five years since the satellite platform launched in 2008. According to IHS TV Intelligence data, D-Smart managed to almost quadruple its pay satellite subscriber base between 2009 and 2013. Over the same period, revenue increased from 4.16 million Turkish Liras in 2008 to 221.63 million in 2013, a CAGR of 94%.

While Digiturk, the largest pay TV operator in Turkey, focuses primarily on sport, D-Smart offers a more diversified diet of content to its clients. D-Smart has exclusive first run movie deals with Sony Pictures, Disney and MGM, is the owner of TV-Muzik Yapim, the largest video clips library in Turkish television, sports (it controls the rights of the Champions League, Formula One and NBA). In general, D-Smart caters to the content needs of a broad spectrum of TV viewers. Another reason for its success is the popularity of Turkish TV drama series that Dogan Media produces, which also export well. D-Smart’s competitor, Digiturk, is also facing the uncertainty of an impending sale (the company has been on sale since May last year), which may also have helped D-Smart to attract more customers.

The biggest gamble in 2014 for Dogan Media Group, and for the whole television market in Turkey in general, will be the acquisition of Digiturk. Dogan has made, till mid-March 2014, the highest offer amounting to $879.5 million for the acquisition of 53% of Digiturk. This bidding price is 66% higher than the $530 million offered by the second bidder, Turk Telekom. If Dogan succeeds in taking control of  Digiturk, this will create the largest pay TV operator in the country with more than  four million subscribers, or four times more than the second operator (cable platform Turksat). This outcome, however, seems unlikely as the Turkish Competition Authority will probably oppose the acquisition stating that it undoubtedly creates an entity with significant market power.

Despite the very encouraging results of 2013, this year might be a challenging one for D-Smart and Dogan. The Turkish economy is experiencing some tough times and Turkey’s strong financial structure has received a considerable blow around the end of 2013. While the household disposable income (a crucial factor for the growth of pay TV) has registered an impressive growth between 2001 and 2013 (according to IHS Global Insight it went from $153 billion in 2001 to $662.7 billion in 2013, a growth rate of 333%) the omens for 2014 seem negative. The Turkish Lira lost 21% of its value against the Euro to the end of 2013, while from May 2013 till February 2014 it has lost 31% of its value towards the US dollar. The weakening of the currency will have a serious impact on Turkish companies, especially those that have to serve foreign loans. Private sector debt therefore might be a big issue for Dogan. Another development that could potentially can harm the D-Smart content proposition is the breaking of the carriage deal with Oflaz Media Group. As a consequence, D-Smart lost all six SinemaTV channels (four of them in HD). Oflaz Media Group executives claimed that around 430,000 D-smart subscribers were taking the SinemaTV package. As a response to the flop with SinemaTV, Dogan media Group inked exclusive first run rights deals with Sony Pictures Television, Disney and MGM.

The most likely buyer of Digiturk is either another big Turkish media conglomerate (in the likes of Dogus, Calik or Ciner) or even a foreign operator with strong financial backing (as in the case of Al Jazeera which is already present in Turkey having paid $20 million for a DTT channel licence) the end result will probably herald a fierce competitive era for D-Smart.

Geography
Turkey
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