Industry Overview

8. INDUSTRY OVERVIEW 8. INDUSTRY OVERVIEW &I VALUE PARTNERS MANAGEMENT CONSULTING The Board of Directors Astra Malaysia Holdings Berhad 3rd Floor, Administration Building All Asia Broadcast Centre Technology Park Malaysia
. Lebuhraya Puchong-Sungai Besi Bukit Jalli, 57000 Kuala Lumpur Malaysia Dear Sirs, EXECUTIVE SUMMARY OF THE INDEPENDENT MARKET RESEARCH REPORT ON THE MALAYSIAN MEDIA AND ENTERTAINMENT INDUSTRY We, Value Partners Management Consulting, have prepared the Executive Summary of the Independent Market Research Report on the Malaysian media and entertainment industryfor inclusion in the Prospectus ofAstro Malaysia Holdings Berhad dated 1 1SEP ?nt’} in relation to the initial public offering and the listing and quotation ofthe entire issued and paid-up share capital ojJsl1’o Malaysia Holdings Berhad on the Main Market ofBursa Malaysia Securities Berhad. We are aware that this Executive Summary will be included in the Prospectus and wefurther confirm that we are aware ofour responsibilities under Section 214 ofthe Capital Markets and Services Act, 2007. We acknowledge that ifwe are aware ofany significant changes affecting the contents ofthis Executive Summary between the date thereofand the date ofissue ofthe Prospectus, we have an on-going obligation to either cause this Executive Summary to be updatedfor the changes and, where applicable, cause Astra Malaysia Holdings Berhad to issue a supplementary prospectus, or withdraw our consent to the inclusion ofthis Executive Summary in the Prospectus. The market research process for this study has been undertaken through secondary or desktop research, as well as detailed primary research, which involves discussing the status ofthe industry with leading industry participants and industry experts. Quantitative market information could be sourcedfrom interviews by way ofprimary research and therefore the information is subject to fluctuations due to possible changes in the business and industry climate. No part of this research may be
otherwise be resold or reproduced without our written permission. Value Partners has prepared the Independent Market Research Report in an independent and objective manner and has taken adequate care to ensure the accuracy and completeness ofthe report. We believe that the report presents a true andfair view ofthe industry within the limitations of, among others, secondary statistics and primary research, and does not purport to be exhaustive. Our research has been conducted with an “overall industry” perspective and may not necessarily reflect the peiformance ofindividual companies in the industry. Value Partners shall not be held responsible for the decisions and/or actions ofthe readers ofthe report. The report should also nat be considered as a recommendation to buy or nat to buy the
shares ofany company or companies as mentioned in the report or otherwise. For and an behalfofValue Partners Management Consulting ~~ JennyNg Managing Partner, Value Partners Asia
Forfurther infonnation, please contact: Value Partners Management Consulting 1402, Harcourt House,
39 Gloucester Rood, Wanchai, Hong Kong Tel: +85221031000 Value Partners Management Consulting  1402, Harcourt HoLlSe, 39 Gloucester Road, Waochal  Telellhone: +85221031000 Facsimile: +852 2805 1310  www.valuepaltners.com  Hong Kong  155

8. INDUSTRY OVERVIEW (cont’d) iii VALUE PARTNERS 1. MALAYSIAN MACROECONOMIC ENVIRONMENT The Malaysian economy experienced a compounded annual growth rate (“CAGR”) of 7.4% over the period 2007 to 2011, with nominal Gross Domestic Product (“GDP”) growing from RM642 billion in 2007 to RM853 billion in 2011. More recentlY,in 2011,real GDP grew in excess of less developed countries such as Thailand and the Philippines at 5.1%, on the back of strong government spending growth and strong private consumption growth, at 16.8% and 6.9%, GDP per capita (PPP basis) -2011 Real GOP growth in regional developing countries (US$) (%) 2007 2008 2009 2010 2011 16% 14%59,711 12% I 4~.B7 i·····] 10% 8% 6% “”2% ,I(2%) , (4%) _China _lndoTlE'”la _MaIayo;ia _ …._Phr.pp’nH _Thaaland VielrlOlm Source: IMF. Source: IMF. Growth is expected to be sustained going forward with Malaysia’s nominal GDP forecast to grow at a CAGR of 8.0% from 2011 to 2016, supported by strong growth in both public and private consumption.Malaysia currently has the highest GDP per capita on a purchasing power parity (“PPP’) basis, amongst developing Asian peer countries and is steadily catching up w~h those of advanced countries in the region. Malaysia’s population is expected to grow at a CAGR of 1.7% from 2011 to 2016, with urbanisation increasing from 72% in 2011 to 75% in 2016. PopUlation growth with continued urbanisation is expected to reduce the average household size from 4.3 people per household in 2011 to 4.1 people per household in 2018, contributing to an increase inthe number of households from 6.7 million in 2011 to 7.7 million in 2016. The Malaysian government has recentiy been implementing initiatives to encourage locai investment in higher value industries and avoid over reliance on low value industries. The 2010 Economic Transfonnation Plan included a framework for local investment into electronics, medical devices, oil and gas, and transportation, amongst others. The increased wealth is expected to drive an increase in standards of living with the quality of education, entertainment and accommodation all increasing. 2. OVERVIEW OF MALAYSIA DEMOGRAPHICS In tandem with its growing economy, Malaysia has a fast growing middle to upper income class. Households with an annual income of more than RM24,000have grown from 55% of total Malaysian households in 2004 to 66% of total Maiaysian households in 2009. This income band represents households with higher affordabilily for premium consumer services. There is still a significant proportion of householdsthatlie in the lower income band (33% In 2009), most of which are rural households, which may be more reluctant to spend on premium consumer services. As such, consumer services players adopt a two pronged approach to address the different segments. -1­156 respectively. Malaysia macroeconomic indicators
Nominal GDP N””ina GDP grO’Wth PopulallOl1 P<:IpulallOl1grCPNIh UrbErl! Rural. ep’~ Hou.eholde Household growth Average household so:<! Source: Intematlonal Monetary Fund elMF ), MalaYSia Department of Statistics, Value Partners.
RM bn , MilllOO, Rallo-..'” ” Unn i!!.trr 2010 “-1.1 2014F Z01!>F’00’ ,eo~ .” ~~ 1.010 1,157 ~'” ‘” (6.4%) 11.3% 7.6% ,.. “, 61’411.11% 15.6% 12.7% on 27.9 26.3 30.3 20.8 31.3 … 1.1% 1.5% 1.4% 1.8% ‘”1.7% 1.7% 1.7% H% 27.5 “. “.. ,,. “” 00:32 69:31 70:30 71:29 72:28 73:27 13:17-7426 7525 7525 6,171 6,294 6,418 6,735 6,912 ‘-“” 1.278 7,468 Hilla n’ ‘.” ,.. ,..2,0% 2.0% 2.3% 2.6% 1.6% 2.~% 4,29 4.20 4.174.41 4.36 “. 4.32 “”” “‘””” ‘” GRI’11·’16l  7.4%  8.0%  1.4%  17%  2.2″”,  2,6%
8. INDUSTRY OVERVIEW (cont’d) &I VALUE PARTNERS Malaysia possesses a diverse population comprising three main ethnicities: Malay, Chinese and Indian, constituting 67%,25% and 7% of its total citizens, respectively, in 2011. Household income dynamics in Malaysia vary considerably by ethnicity. Malay households are currentiy experiencing the strongest income growth, compared to the Chinese and Indian households. Malaysian population income bands Average monthly household income by ethnicity (RM per household per month) ~~ ~2007~-I -2009 I 2011E~ ~ Malay 3,156 3.’04 4,443 Chinese 4,853 5.011 5,257 -.-…• Indian 3,799 3.999 4,317 2004 2007 ‘DOll Source: Economic Planning Unit (“EPU”). Source: EPU, Value Partners analysis. 3″ OVERVIEW OF MALAYSIA MEDIA AND CONSUMER ENTERTAINMENT INDUSTRY The Malaysian media and consumer entertainment landscape is fully developed in TV, radio and print. • In TV, there are two free to air (“FTA”) operators, Media Prima and RTM, with 6 channels between them, and one major pay-TV operator, Astra Malaysia, with over 150 channels.
• In radio, there are four major operators consisting of Astra Malaysia, Media Prima, RTM and The Star. Between them they broadcast over 50 regional and national commercial stations.
• In print media, there are 45 national and regional newspapers, and over 300 magazinesin circulation. Major publishers include Media Prima (publishing the most read Malay language newspaper), The Star (publishing the most read English language newspaper), and Media Chinese International (publishing the most read Chinese language newspaper).

Average time spent on media by platform in Major content providers in Malaysia Malaysia (Hours per day) R1M 2 36 n.a. n.a. TV1, TV2 Astra WWi Lal Toi,Astra Malaysla 156 9 n.a.0.’ 060.’ 0.’ HilzFM, Aslraview l! II RedFM, Surla FM,The Star n.a. 45 3 TheSlar 2001 2008 2009 2010 2011 _TV Radio = ….,””Inlemel ….-Newspaper Source: Nielsen. Source: Value Partners. Note: RTM radio channels include regional channels.
Rising disposable income, the advancements in mobile broadband technology and the rising importance of mobilityis driving the proliferation of modern electronic devices such as smartphones and tablets, resulting in the increase of online media consumption and some migration to online and mobile platforms. According to Nielsen’s Malaysian survey of Internet users, approximately 50% of respondents owned a smartphone,while household tablet ownership is comparatively lower at 18%,although57% of these respondents showed an intention to purchase one.This can be seen in the increase in the average time spent viewing media on the Internet (2.6 hours per day in 2011). Accordingly. media operators are utilising a multi-device strategy for distributing content, for example Astra Malaysia’s launch of Astra On­The-Go, an Over-The-Top online and mobile application service. -2­157

 

B. INDUSTRY OVERVIEW (cont’d) &I VALUE PARTNERS The increase in online media consumption has had a limited impact on TV and radio platforms so far, with average time spent per day remaining relatively steady, as online content struggles to replace high quality content available on TV and radio. On average,TV has been the dominant platform since 2007, with 3.4 to 3.6 hours average time spent per day. 4. OVERVIEW OF MALAYSIA PAY-TV MARKET A range of business models and technologies currently operate in the market, with DTH possessing a significant coverage advantage Terrestrial broadcasting (FTA) is a broadcasting technology utiiising ground based radio stations to transmit TV signals to antennas connected to TVs. In Malaysia, Media Prima and RTM utilise terrestrial broadcasting to supply free-to-air television. Direct-to-Home (“DTH”) Satellite is a broadcasting technology that utilises a satellite to transm~ TV signals to receiver dishes connected to set-top-boxes in households. Satellite downlink capacity enables a large number of channels to be broadcast at a high quality. In Malaysia, Astro Malaysia is the exclusive provider of DTH, offering pay­TY services. Internet Protocol Television (“IPTV”) utiiises a broadband connection to deliver TV feeds. Quality of transmission is highly dependent on the connection of the user and the underlying broadband infrastructure. In Malaysia, IPTV (pay­TV) services are provided by AstroMalaysia (in collaboration with TT dotCOMSdnBhd (“TIME”)), FineTV, U Television and HyppTV (operated by Telekom MalaysiaBerhad (“Telekom Malaysia’)). Current factors affecting thepay-TV market in Malaysia Malaysia’s pay-TV industryhas beengrowingsteadilyeven duringyears ofeconomiccrisis Demand for pay-TV services in Malaysia is reflected by the increase of subscribers from 2.0 million subscribers in 2006 to over 3.3 million subscribers in 2011, representing a CAGR of 10%. Even in the face of the economic slowdown in 2009, the pay-TV subscriber base grew by 11 % from 2008 to 2009. In terms of SUbscription revenue, the market has seen strong growth, increasing from RM2.1 billion in 2007 to RM3.3 billion in 2011, a CAGR of 12%. Malaysian pay-TV subscribers Pay-TV SUbscription revenues
Source: Media Partners Asia,Value Partners analysis. Source: Madia Partners Asia, AAAN Annual Reports, Value Partners analysis. Rising Malaysian household income driving pay-TV affordabiJity Household income dynamics in Maiaysia vary considerably by ethnicity. Malay households are currently experiencing the strongest income growth, compared to Chinese and Indian households. In addition, the rapid migration of the population from lower to middle or higher income segments is driving the expansion of the pay-TV market (see section above “OVERVIEW OF MALAYSIA DEMOGRAPHICS”). Demographic diversity and targeted channel offerings Malaysia possesses a highly diverse population. The ethnic split of Malaysia has caused customer segmentation between different programming preferences, mainly tied to the main language of each ethnicity. As such, operators have developed separate programmes and channels to cater toeach segment. -3­158 8. INDUSTRY OVERVIEW (cont’d) PI VALUE PARTNERS FTA operators also broadcast ethnicily specific content but are restricted by the number of channels that they are able to broadcast. Therefore many of these channels cater to multiple languages, with content alternating between them. In terms of content genre, FTA channels are also relatively limited. In general, news and drama programmes dominate in FTA channels, while a few movie, sports and documentary programmes are available from these FTA channels. Channels by ethnicily and language by operator Channels by genre and by operator Astro
Source: Operator website. Source. Operator webSIte. Demand for local content production In view of the market for culturaily diversified content, pay-TV operators are investing in producing content that appeals to iocal audiences. The importance of local content in Malaysia is evident when comparing the ratio of commissioned/owned programming versus content that is exlernaliy bought. This ratio is far higher than average for the Malaysian operator AstroMalaysia than for many of its international peers.This high level of localised content is necessary to successfully operate and maintain a meaningful competitive differentiation in the market and would also act as a significant barrier to new entrants who intend to merely repackage and resell/redistribute international content. Using the example of Astro Malaysia, its own-branded and aggregated channels also play an important role in gaining traction with Malaysians. Vernacular channels like Astro Ria and Prima, AstroHuaHee Dai, Wah Lai Toi and AEC have received higher viewership ratings than other turnaround channels, and seif-produced programmes like “MasterChef Malaysia”, “Raja Lawak” and “Astra CGM Singing Competition” have achieved relatively high ratings compared to some of the FTA programmes.  Commissioned I owned programming (% of total programs) <.’;:; Average2011  as % of total …  Top 10 channels viewed by Astro’s subscribers (number of channels)

 

Source: Value Partners analysis, operator reports. Source: Astra, Nielsen. Imports ofcontentand equipment Imports are an important aspect of the pay-TV industry in terms of content and equipment. In the area of content, operators import a large number of channels and programming from foreign providers while in terms of equipment, inputs into the assembly of set-top-boxes are sourced from international suppliers. -4­159 8. INDUSTRY OVERVIEW (cont’d) til VALUE PARTNERS Sales and distribution Pay-TV service in Malaysia relies on nationwide networks of sales channels, which include the following key channels: o Retail outlets (self-owned or partnership) -Astro Malaysia has historically adopted a stronger partnership approach, relying on local electrical appliances I electronic stores to sell its products.However, its customer service centres and more recently, sales kiosks, are playing an increasing role. HyppTV, on the other hand, leverages on Teiekom Malaysia’s existing sales and distribution infrastructure.
o Direct sales -Involves specialist sales agents who are mobile and support sales campaigns in specific geographical areas.
o Telemarketing (inbound and outbound) -While the effectiveness of this channel is not the highest,it is very cost efficientgiven the popUlation that it can reach.
o Online -Currently still considered as an ancillary sales channel.

Competitive landscape Astro Maraysia is the market leader in pay-TV with approximately 50% of Malaysian citizens’ I residential TV householdpenetration and a market share of approximately99% of the pay-TV market(excluding free views) in 2011, primarily through DTH. Astro Malaysia has established a comprehensive entertainment offering which includeslocal content, tier one sports content, and popular film and documentary channels. Astro Malaysia has recently launched several initiatives such asAstroB.yond IPTV (IPTV service providing both broadband and TV), AstroB.yond (a new set top box that enables two-way connectivity through DTH satellite to allow use of interactive features such as HD, VOD, and PVR),Astro On-The-Go(multi device over-the-topproduct), NJOI (a free satellite service, to encourage rural take up) and HD and 3D TV. Compared to reglonai players, Astro Malaysia’S rich content portfolio and prodUct offerings stand out. Astro Malaysia is the largest pay-TV operator in Southeast Asia by subscribers in 2011 and also has one of the highest market share within its country of operation as compared to regional Asian peers. Pay-TV subscribers in the region -2011 (In thousands) 3,067
538 484 Astra Malaysia MNC SkyVJsion True Vision Starhub Skycable (Malaysia) (Indonesia) (Thailand) (Singapore) (Philippines) Market share within own counlry  99%(1)  72%  44%  59%  34%  Number of channels  156(2)  105  120  170  113  Delivery platform  DTH  DTH  Cable, DTl-i  Cable  Cable
Source: Media Partners Asia, opera1ors’ websites. (1) Astro Malaysia’S 99% market share is calculated based on AstroMalaysia’s DTH subscribers and Telekom Malaysia’S estimated HyppTV’s paying subscribers (approximately 20% of UniFi households): reach based on 1.3 million high.speed broadband homes passed.
(2) As of 30th April 2012, all other numbers as or 31st December, 2011.

Over the past two decades, several pay-TV operators have attempted to enter the market but have struggled to gain traction. Previous entrants include Mega TV (launched in 1995, closed in 2001), U Television (launched in 2005, stopped in 2006) and Fine TV (launched in 2005, now a marginal piayer with subscriber base well below its 20k target in 2008). -5­160

8. INDUSTRY OVERVIEW (cont’d) &I VALUE PARTNERS The latest entrant is Telekom Malaysia’s HyppTV (which is part of the UniFi “triple play” bundled service), a new IPTV piayer. In general, uptake of HyppTV Is constrained by UniFi, which is in turn limited by the geographic roll out of the high speed broadband network.HyppTV is also positionedas an “add-on” 10 Telekom Malaysia’s broadband offering, which means that its content offering is of limited quality,particularly in terms of top tier sports, and it carries fewer movie and children’s entertainment options, lacks locally produced programmes and includes limited news and documentary channels. However, where high-speed broadband has been rolled out, uptake of UniFi has been positive. Telekom Malaysia’shigh speed broadband Phase 12012 target of having 1.3 million premises covered has been mel and out of these 1.3 million premises, 300,000 occupants have become UniFi subscribers, and approximateiy 20% (or approximately 60,000) of these sUbscribers are purchasing premium channels. Another potential new entrant is Asian Broadcasting Network (“ABN”), which is pianning to launch its pay-TVservice later in 2012. ABN has digital cable technology and its pay-TVservice is aimed at the lower income groups, targeting the same segment as Aslro Malaysia’s NJOI platfonTl, which presently has the first mover advantage in the market. In addition to thase key competitors, several others have obtained licences to provide pay-TV services and are expected to launch their services in the near future. License 110lder IDeSCription DE Multimedia Utilising a TV decoder connected to a use~s Asymmetric Digital Subscriber Line (“ADSL”) broadband; Launched in 2010 as joint venture between REDlone and Zhong Nan Enterprise;Strong focus on Chinese segment DMD Fane Unconfirmed; Unknown launch date MahaSemerak IPTV; Unconfirmed infrastructure; Unknown launch dale VassetiDatatech IPTV using self-owned fibre to the home network; Plans to launch IPTV services by 03 2012 YTL IPTV using own WiMax network as part of a quadruple play service; Expected to launch end-2012 Communications Source: Value Partners. Maxis Berhad and its subsidiaries (“Maxis”) was considered a potenlial competitor when on 27 June 2012, it signed a partnership with 14 content providers, as a prelude to the launch of its IPTV offering in July 2012. However, on 30 August 2012, Maxis entered into a strategic partnership agreement with Astra to exclusively develop and co-market an IPTV offering, with Maxis providing fibre, mobile, wireless internet and ADSL for Aslro’sB.yond IPTV and On The Go service. For a three year period, Maxis will be the exclusive fibre network provider for Astra’s IPTV service for areas within the fibre footprint of Maxis but excluding areas within the fibre footprint of TIME, while Astro will be the exclusive IPTV service provider for Maxis and will develop exclusive content for Maxis customerS. While afler three years, Astra can partner with other infrastructure providers and Maxis can partner with other content providers, a non-exclusive partnership will still be in effeel for a further seven years, subject to automatic renewal on an annual basis. Given this agreement, Maxis’ IPTV service will not be in direct competition with Astro for at least three years, and will in fact be a key enabler to the provision of Astra’s IPTV service. FollOWing the loss of exclusivity, direct compelition will be mitigated by the ongoing agreement with Astra and the limited abilily of Maxis to provide competing content. While it is noted that Maxis had signed agreements with 14 content providers in June 2012,we believe the recent lie up with Astro will ease possible concerns of Maxis as a competitor in the pay TV market, especially since the exclusivity over the next 3 years wllieffectively mean that Maxis would co-market and package the Astra IPTV service exclusively with Maxis’ fibre broadband services. In addition, with Astra’s stronger content portfolio, Maxis is expeeled to utilise Astra’s IPTV service to market its fibre service once the exclusivily period ends. Despite the issuance of mUltiple licensees, the following significant challenges are likely to prevent potential entrantsfrom significantly impacting the market or affecting Astra’s market position: • Technology limitations: Without a DTH license, entrants who rely on costly broadband I fibre rollout, which will be limited in coverage, are likely to only compete against TM’s Unifi service. For those who ride on low speed broadband or WiMax networks, there may be issues in TV pielure quality, especially when it is part of triple play or quadruple play offerings (mobile, fixed, broadband, IPTV), which will consume high bandwidth at the same time -6­161
8. INDUSTRY OVERVIEW (cont’d) iii VALUE PARTNERS • Content acquisition: New entrants often find it challenging to acquire popular content, especially against more established players in the market. When content providers choose their broadcasting platfon11 partners, coverage I reach, in addition to financial considerations, are just as important
• Content investment requirements: The dynamics of the Malaysian TV environment necessitate a much higher investment in content, especially loca’ content, than in other markets
• Sales and distribution network set up: To establish a sales and distribution network with sufficient scale to address at least 25% of Malaysian homes (based on HSBB network’s -1.3m homepass) is no trivial task. Direct sales and partnership sales agreements take months, if not years, to develop. Backend logistics for installation, payment collection and technical support also requires dedicated teams to support the operations

It is worth noting that points 2-4 will still be significant challenges for potential entrants to overcome when Astro’s OTH exclusivity ends. As such, the compe@vedynamicsofthe market are not expected to change considerably post-2017. Limiledthreatfrom pay-TV piracyin Malaysia One factor that has been instrumental in the development of pay-TV in Malaysia has been the low levels of pay-TV piracy. In many countries across Asia, individuals are able to illegally watch pay-TVchannels without paying or paying sUbstantially less to an illegal operator. The Cable & Satellite Broadcasting Association of Asia (“CASBAA”) estimates that pay-TV piracy in Malaysia was only 2% of all viewers in 2011, compared to 69% in Indonesia and 61 % in Thailand. This is in large due to the sophistication of the set-tor>-box deployed by operators which makes piracy difficult in Malaysia. Rates of pay-TV piracy across Asia (2011) (Illegal connection as % of total) 60.8% Source: CASBAA. 4.2 Future outlook of thepay-TV industry in Malaysia Significant growth potential The development of Malaysia’s pay-TV market mirrors the development of the economy as a whole: an Asian leader among developing countries with significant growth remaining. At apprOXimately 50% penetration of TV households in Malaysia in 2011 reflecting 3.3 million pay-TV sUbscriptions, Malaysia is far ahead of its peers, Le. Thailand, Indonesia, the Philippines and Vietnam, but still relatively underpenetrated in comparison withSouth Korea (122%), Taiwan (97%) and Hong Kong (93%), implying potential for further expansion. -7­162
I Company No. 932533-V I 8. INDUSTRY OVERVIEW (cont’d) &I VALUE  PARTNERS  Malaysia pay-TV subscribers, household  Comparison of pay~TV penetration of TV  penetration  households
(Subscribers in thousand, penetration in %) (In RM million) ~ ..”…..,,,,,,,,,,,,-,,,,,. 63% \, CAGR: 1~ ~7% ro%

 

 

—-=-,””-lml 50% 44% 47% 415% 4,487
311% 3,617 4,163 2,930 2.9642,646 3,890
2,&30 2,931
2,272 3,067 3,369 3.654 ” ~k To;… H..””” “”‘, ~.., …, _ 101,1,.., 2009 2.010 2011 2012F 2013F 2014F E::::::::IDTH _IPTV _Pay-TV household penetration Source: Media Partners Asia, Value Partners analysis. Source: Media Partners Asia. Nole: In 2010, there was a delay in programming the signup of new customers by Astra, resulting in 100,000 subscribers being added in 2011 instead of
2010. It should be noted that, under a more refined definition of TV households for citizens I residents only, Malaysia’s pay­TV penetration is slightly higher. In Malaysia, about 8% of the population are non-citizen I non-residential population, who are mostly migrant workers. If the population of this sub-group is excluded, Malaysia’s pay-TV penetration would have reached approximately 55% in 2011. (Similarly, under this definition, Astro Malaysia’s service penetration would be approximately 50% of all Malaysian citizens I residential households). Pay-TV subscribers in Malaysia are projected to increase from 3.3 million in 2011 to 4.5 million in 2014,at a CAGR of 11 %, driven by the aforementioned factors such as increasing consumer affluence. As stated, lower income households may be less willing to pay for premium media services but still constitute a large proportion of households.In order to boost viewership and encourage further increases in penetration, as well as to subsequently encourage full-subscription or take up of VOD services, DTH operators in some countries now offer free satellite services. This has been successfully implemented in the UK (BSkyB), Hong Kong (Now TV of PCCW), Thailand (True Life by Truevision), and is currently being implemented in Malaysia (NJOI by Astro Malaysia). New products and seNices launched to boostARPU HD and 3D content are strong drivers of continued uptake internationally and are expected to increase their relevance in Malaysia. In some cases, HD channels account for almost 40% of an operator’s total channels. Malaysians have shown eagerness to subscribe to HD channels, with uptake of HD services rising from 10% in 2010 to 24% in 2011. HO as % ottotal channels HD service take up rate as % of total
Globally, new prodUct I service launches appear to have a positive impact on ARPU. Austar launched its PVR product in 2008 and HD in 2009. Its ARPU rose by 12% from US$78.2 to US$87.7 in two years. Since 2005, StarHub has launched VOD, PVR and HD and its ARPU increased from US$32.4 in 2004 to US$45.1 in 2008. BskyB launched PVR in 2001 andthere was a swift turnaround on its ARPU during the year. DTV and PCCW both had ARPU uplifts after the launch of their PVR and HD prodUcts. -8­163 8. INDUSTRY OVERVIEW (cont’d) tiJ VALUE PARTNERS New product launch timing and ARPU growth -international case studies
PCCW ARPU (lfS$] 2&.0 21.0 22.3 20.0 15.0 l-.-c:’:.,—-,,:’:-:”-~..,–,-‘ 30.0 L,-?~~-:—:'””-:-‘–,-‘. 2007 2000 2009 2010 2011 2003 2004 2005 2006 2007 2008 15.0­96 SskyB ARPU {USlliJ OTVARPij {USfl 10.0

 

SIlO A6. t””‘4 45.0 43.1 44.5 ~ 5~OOS ~OOO 2007 2008 2009

30.0WOO 2000 2001 2002 2003 2004 2005 5S.~ 2001 :2002: 2003 2004 2005 2006 Source: Value Partners analysis, operator reports. Strong growth in Malaysia pay-TV industry revenue Value added services (HD, PVR, VOD, etc.) increase the total value proposition to subscribers, increasing their loyalty, and hence help reduce subscriber churn. Increases in ARPU from the introductlon and adoption of new value added services, continued subscriber growth as well as segmented growth are expeeled to sustain growth in revenues. Considering Malaysia pay-TV SUbscription by ethnicity and historicai household income growth by ethnicity, future ARPU growth is expeeled to be slightly higher as pay-TV players wili likely focus more on Malay households, which has an above average income growth, by offering more new services to this segment. pay-IV subscription revenues are expeeled to increase from RM3.3 billion in 2011 to RM5.3biliion in 2014, a CAGR of 17%. Malaysia pay~TV ARPU Malaysia pay~TV subscription revenues (RM per month per subscriber) (RM millions) 100.0’0″” ….~,., , au az,o ., 0 , 0 “‘ 3,343 ,., ., ., 2,9882,761′” “” ••• ~M 10\” “‘1>E laUE,­-__,PJVo-. .’._D……….

2007  2008  2008  2010  2011  2012F  2013F  2014F  Source: AAAN Annual Reports (with respect to historical data), Media Partners Asia. Value Partners analysis. Note: ARPU of DTH players also includes ARPU of its IPTV subscribers.  Source: Value Partners analysis.
Going forward, ARPU growth of DTH players is expeeled to be sustained by Malaysians’ increasing affordability for pay-TV services. Considering the historical trend of ARPU, disposable income growth and Malaysians’ entertainment spending pattern, it is expected that the future ARPU growth for DTH players will be at -7%. IPTV piayers, given their much lower ARPU, are expeeled to have slightly faster ARPU growth at -10%.
5. OVERVIEW OF MALAYSIA ADVERTISING INDUSTRY Overall advertising expenditure Malaysian advertising dynamics are expected to follow global trends paralleiing trends in media consumption. In the face of increasing Internet consumption, TV and radio have remained relatively strong with print experiencing the majority of the decline. Overall strong consumption growth is expected to propei the total advertising market in Malaysia from RM6.5 billion in 2011 to RM9.3 billion In 2016, representing a CAGR of 7%. -9­164
8. INDUSTRY OVERVIEW (cont’d) &I VALUE PARTNERS Malaysia total gross ADEX Private expenditure growth V5. ADEX growth (post rate card discounts but includes agency fees) (omp.,,,on of growth ,n p,r••,. e”p.n~j(ur. v, 2001-2016 gr<>Wt~ In prov.to ••pend,\.’. v,(RM million)
growlhm MONl <1,,£ ••”,”dllure, 2010 .d”.rh<ln~ “PMd,(vr. In M.I.y”. ~~,~:j;~)-,.,_.,-+~ r”””l-“.281 4,&ln $,IU G,tlOl C.lo01 c.en UISO 1~1J .,M2 0,272

 

~-‘~~ .1111111111 . !-i;·: Ii’ ii, PIlnI. :58%: :~5% 5~i5~ 5~’ ;53’11I: ~’llo, :~’l>52%i :52’10 2007 2008 :lODI 20’0 2.011 2012 2013 2014 2015 20U Source: Zenilh, Value Partners. Source: Zenith, EIU, Value Partners. Malaysia possesses a dynamic advertising market driven by a large retail market. The 2009 financial crisis saw some decline in private consumption with a corresponding decline in advertising expenditure, however historically, advertising expenditure has grown significantly higher than real GOP (11 % vs. 4% from 2006 -2011). This difference is expected to narrOW as real GOP growth recovers and advertising expenditure trends in line with private expenditure. However 2011-2016 growth will continue to be higher than real GOP growth (6% vs. 5%). TV advertising TV advertising is forecast to see growth in the medium term, with net revenues for TV broadcasters going from RM1.4 billion in 2011 to RM2.0 billion in 2016, representing a CAGR of 8%, as it increases its share of the overall advertising market. Historically, TV advertising has been skewed towards FTA with a share of approximately74% of total TV advertising as at 2011. The FTA operators are Media Prima and RTM. This is in part due to relatively iower viewership for pay-TV and the extensive reach of FTA, as well as relatively less sophistication in media buyers’ approach to buying. Net lV ADEX in Malaysia (RM million)
1,954 8% 6%1,794 oFTA Ii’iIPay-TV Source: Zenith, Value Partners analysis. Malaysia TV views hip share by major operators Share of TV Adex by operator, 2011 R1M

11%
26% “”
hIm Malaysia Media PrIma 39% 2011 Source: Value Partners analysis. Source: Zenith, Company reports, Value Partners analysis. -10­165 8. INDUSTRY OVERVIEW (cont’d) &I VALUE PARTNERS Going forward however,the pay-TV advertising proposition is expected to benefit from a more targeted approach by media buyers. Wrth FTA having a limited abiiity to segment and measure viewership accurately, pay-TV can effectively monetise the premium nature of its content and viewership. This, coupied with increasing reach, is expected to drive pay-TV’s advertising spend at a CAGR of 12% over 2011 -2016 versus an overall TV advertising spend CAGR of 8%, growing from RM345 million in 2011 to RM606 million in 2016 (increase in market share of 26% to 31%of total TV advertising spend). Radio advertising The radio market in Malaysia comprises four main networks that collectively serve approximately 94% of the entire iisrenership market as at 31 December 2011.  Malaysian radio landscape  Radio ADEX in Malaysia (RM million)  ‘”
Channels  Listenership share as at 31 Dec 2011  Radio ad9x share Feb ’12-Apr ’12  Media Prima  3  12%  27%  RlM  36  21%  5%  Aslro Radio  9  50%  53%  The Sla­ 4  11%  15%
52 94% 100% Source: Source: Nielsen, Value Partners.

Source: Nielsen. Since 2007, the radio advertising market in Malaysia has seen rapid growth, rising from RM195 million in 2007 to RM346 million in 2011, a CAGR of 15%. The growth was driven by the overall advertising industry growth, launch of several new stations (such as Hot FM in 2006 and THR Gegar and Capital FM in 2008) and expansion of radio transmission into rural areas, particularly in East Malaysia with increased listenership. As the market matures radio adex growth is expected to slow from its previous high growth down to 8%, growing slightly above the market average of 7% per year. Surveys by Nielsen suggest that In the short term, the Intemet is providing an alternative platform for radio rather than a replacement, with more than 1.2 million average weekly iisteners on the Internet radio in Malaysia in October 2011, versus 0.7 million average weekly listeners in October 2010. Printand magazines advertising Advertising expenditure on print has been growing slower than the overall advertising market, its share reducing from 58% in 2007 to 53% in 2011. This is forecast to continue to 2016, whenit will have reduced further to 52%. Actual time spent reading print publications has declined from 0.7 to 0.6 hours per day mainly due to a decline in newpapers, as a result of migration of readers to online sources. Within this,magazines have experienced an increase in circulation with 161million units in publication in 2010, versus 143mlliion In 2008, with a higher number of pUblications,the most of Which, is Astroview. -11­166 8. INDUSTRY OVERVIEW (cont’d) iii VALUE  PARTNERS  Magazine ADEX in Malaysia  Top 10 magazines by circulation (2010)  (RM million)  (In thousands per annum)

“,,,

Magazine advertising expenditure has had a rocky history with a substantial fall in 2009. Post-2009 data however shows some recovery and growth resuming. While print as a whole has struggled to compete against online platforms, the impact for magazines is relatively more limited. Whilst the Internet excels over newspapers due to speed, breadth and convenience, online magazines find it difficult to replicate the style and readability of physical counterparts. As such, magazines are forecast to remain relevant and attract advertising expenditure,which is expected to grow from RM151 million in 2011 to RM177 million in 2016, a CAGR of3.2%. 6, MALAYSIAN REGULATORY LANDSCAPE AND ISSUES Current regulatory issues affecting pay-TIl, Radio and Advertising industry • The expiry of Astra Malaysia’s exclusive OTH rights in 2017 could pave the way for possible OTH new entrants. However, it is highly unlikely to have a significant impact to the market due to the typical two years lead time to secure satellite capacity, the low likelihood of mUltiple OTH operators in a country the size of Malaysia,and a potentially “crowded’ pay-TV segment with the emergence of new market entrants such as HyppTV (Telekom Malaysia), ABN, and Maxis, and possibly new entrants on the digital terrestrial television(“OTT’) platform.
• In April 2012, the Information, Communications and Culture Ministry investigated the idea of mandatory sharing of sports contents that are of “national significance”. This could theoretically weaken current pay-TV operators’ sports proposition. However, the impact could be limijed, as currently, FTA broadcasters and Astra Malaysia already have arrangements to share selected sports content and any sports content sharing will be subject to a

commercial arrangement. • In 2012, Malaysian Communications and Multimedia Commission (“MCMC”), the telecom and media regulator in Malaysia called for a tender for the deployment of OTT infrastructure in Malaysia, with a response submission date in July 2012. MCMC’s intention is for a single entity to build out the OTT infrastructure, and then lease out the OTT infrastructure to broadcasters in the market, including RTM, Media Prima, and other interested parties. The infrastructure OWner will also need to SUbsidise OTT set-tap-boxes to the market. The deployment may commence sometime towards the end of 2013. At launch, the OTT platform is expected to have a capacity of -18 HO channels or -40-50 SO channels. So far, the oniy certain OTT channels are the current FTA channels by RTM and Media Prima. The leasing of the remaining channel capacities will be allocated subject to commercial arrangement between broadcasters and the OTT platform owner. -12­167

 

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