Orbit Showtime pay-TV network weighs on Kuwait's Kipco

Pay-TV networks face an uncertain future, both internationally and in the Middle East.

In the US, a recent study found that 60 per cent of people aged 18-29 were "leaning towards" or "seriously considering" cancelling their pay-TV subscriptions. Some attributed that to the threat posed by web-video services such as Hulu and Netflix.

In the Middle East, pay-TV has not taken off in the way it has in the US or Europe.

The dominance of free-to-air satellite television in this market means that people are not accustomed to paying for TV. Many will have never even considered coughing up for the latest series of Mad Men or Desperate Housewives.

So while US pay-TV operators are struggling to retain subscribers, Middle East operators Orbit Showtime Network (OSN) and Arab Digital Distribution (ADD) are still trying to build a meaningful customer base.

Television is a costly business to enter. And pay-TV networks must fork out even more for content, given that they are expected to premier films and series before their free-TV counterparts.

An indication of how at least one Middle East pay-TV operator is performing came with a note issued by Moody's last Friday.

Moody's said that it has a "negative outlook" on the Kuwait Projects Company (Kipco), which has joint control of the Orbit Showtime Network (OSN).

"Moody's is concerned that the underlying operating and financial performance trends of Kipco's key investments such as Burgan Bank and OSN, may not be sufficient to lead to a significant increase in dividend payments," it said. The investor service said its had downgraded Kipco's long-term issuer rating to Baa3 from Baa2.

A glance at Kipco's first-quarter results show that it lost 2.5 million Kuwaiti dinars from its media-related operations, the worst-performing sector of all the conglomerate's operations.

OSN was formed following a merger of the Orbit and Showtime Arabia networks in 2009. It is owned and operated by Panther Media Group (PMG), a company registered in the Dubai International Financial Centre. PMG is jointly owned by KIPCO and Orbit Group.

Despite the note issued by Moody's, there are some positive signs on the horizon. Following the merger between Orbit and Showtime, OSN achieved 16 per cent cost savings last year, according to Kipco's 2010 annual report. And last December OSN introduced new anti-piracy technology, which it hopes will help boost revenues.

Still, the future of pay-TV in the Middle East is still in the balance. The fate of operators such as OSN and ADD will depend on whether consumers in the Arab world are willing to embrace paying for regular satellite-TV services, or will leapfrog to the new online services becoming increasingly popular in the US.