Market Insight

Parent company Wharf calls off sale of Hong Kong's i-Cable

March 24, 2017  | Subscribers Only

Kia Ling Teoh Kia Ling Teoh Senior Research Analyst – Advertising & Television Media, IHS Markit

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Hong Kong pay TV operator I-Cable is facing an uncertain future after parent company The Wharf Holdings said that it would cease funding for the company after failing to find a buyer. 

Wharf, which owns a 74% stake in I-Cable, announced that it was negotiating a potential sale in July 2016, as part of a strategic review, but has now said that it has terminated discussions. Wharf is now expected to focus on its main property business but will continue to operate free-to-air (FTA) channel Fantastic TV.

I-Cable’s pay TV licence will expire in May 2017 and it is due to respond to a 12-year renewal offer by 26 April 2017; an acceptance means a commitment of HK$3.4 billion ($438 million) investment for the first six years. Meanwhile, the company’s subsidiary Fantastic TV was awarded a FTA broadcast licence in May 2016, committing to an investment of HK$660 million ($85 million) in the first 18-42 months of its operation. Its FTA Cantonese channel is set to roll out in May this year.

I-Cable’s revenue decreased 7% to HK$1,406 million ($181 million) in 2016, with operating losses widening to HK$312 million ($40 million).

Our analysis

I-Cable’s losses are mainly due to the overall downsizing of the Hong Kong pay TV user base, as well as fierce competition from rival Now TV. IHS Markit believes there is room for the pay TV operator to shift focus to FTA broadcasting as we forecast advertising revenue growth to recover in the next five years.

The number of pay TV subscribers in Hong Kong has dwindled since 2014, due to the availability of over-the-top services like Netflix and myTV Super, as well as new FTA channels by PCCW, ViuTV and ViuTVsix. This forced TVB's Vision to withdraw from the market in February 2017.

Amid the subscriber erosion, I-Cable has struggled to compete with NowTV. An IHS Markit analysis found the market share (by number of subscribers) of I-Cable dropped in 2016, from 38% to 37%; conversely, Now TV’s share grew from 52% to 53%.

 

NowTV has the advantage of financial and infrastructure backing from PCCW. With strong financial support from PCCW, NowTV has won bids for compelling live sport content including the Premier League, La Liga and Bundesliga. It uses the fixed broadband network of Hong Kong Telecommunication (a PCCW subsidiary) to transmit TV signals. Conversely, though having its own fibre optic broadband network, I-Cable has failed to leverage the advantage. TV revenue dropped 8% and broadband revenue was down 4% in 2016. 

 

TV advertising revenue in Hong Kong was hurt by a retail slump and dropped 2% in 2016; however, the entry of PCCW’s Viu TV and I-Cable’s Fantastic TV is expected to lift the number in the next five years. IHS Markit forecasts TV advertising revenue to grow at CAGR of 2% between 2016 and 2021. The launch of the broadcasters’ own OTT platforms and programming investments they commit to will drive quality content creation and thus, increase FTA TV viewership and advertising. 

I-Cable produces more than 10,000 hours of programming annually; spending HK$870 million on programming in 2016, 3% less than the year before. With the launch of Fantastic TV in May 2017, IHS Markit expects I-Cable to continue its operations and shift its focus to advertising-funded TV. 

Research by Market
Media & Advertising
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