This article first appeared in The Edge Malaysia Weekly on May 20, 2024 - May 26, 2024

EUAN Smith, group CEO of Astro Malaysia Holdings Bhd (KL:ASTRO), is keen on recasting the country’s largest pay-TV service provider as a champion in making Malaysia the region’s one-stop content hub, serving not only screen content creators here and in neighbouring countries, but also around the world.

“We are all excited about [Astro Studios] because that’s where we want to go next in terms of putting Malaysia on the map for what great content is,” he tells The Edge, relating the thinking behind the recently launched Astro Studios and investments over the past three years to add more studios and integrate its in-house production capacity to also cater to third-party content producers at the company’s headquarters in Bukit Jalil, Kuala Lumpur.

The latter includes its September 2023 acquisition of award-winning visual post-production studio Basecamp Film Sdn Bhd along with its staff and expertise on cinematic effects and rendering that have since been integrated into Astro Studios, which features Malaysia’s only certified THX cinema mix facility and can deliver Dolby Vision, Dolby Atmos and THX standards.

“I’ve got an internal asset now that I want to sweat. If you look around the world, before I arrived in Malaysia, not once had I ever spoken to anybody in this industry who said we should look at Malaysia for doing that [film and post-production]. It just wasn’t a thing. I’ve been with some of the real content kings around the UK, the US, Australia and they just haven’t thought about Malaysia as a destination. And then when you come here, you realise there is really a vibrant, young, enthusiastic group of people — like our own guys, they’ve done some really great work.

“And yet, it’s kind of like a great big secret here … so you look at all that and you go, okay, I’d really like to do something more,” says the 56-year-old British national, who entered the TV business over two decades ago at Sky UK, went on to build a streaming service for Fox Corp in the US and helped turn around Foxtel’s streaming platform in Australia.

The UK’s satellite pay-TV and digital broadcaster Sky (a unit of US media conglomerate Comcast since 2018) would not have invested in Sky Studios in Elstree, England, to serve as a hub for Europe if that made no financial sense, he says. Sky, which opened 585,000 sq ft of new studio space in Elstree in September 2023, reportedly expects to make over £3 billion worth of movie productions there over five years.

Pointing to how South Korea has successfully built its film-making industry into an engine that not only gives the country global soft power but is also a key economic pillar driving consumption, exports and tourism, Smith says Malaysia has the potential to create its own compelling niche at competitive pricing.

“We’re just going to do the same thing for Malaysia. We’ve built out our machine now. We used to do quite a lot of OB [outside broadcast] for sports and [other] things before Covid, third party. But now, we’re moving to a place where we’ve got this completely brilliant engine. We know it’s good. We can demonstrate to you it’s really good.

“Now my job — because I believe as long as I’m in Malaysia, I’m Malaysian — I am selling [marketing] this whole country against South Korea, Poland, France, and wherever else … I want to sell the capability that we have, as an industry, not just as Astro. It just so happens to be because we’re so big, we are such a dominant key player in the industry, that it is kind of a privilege and our duty to do this. So, Astro Studios is to build up and showcase what we can do.

“People need studios, they need writing rooms to polish and look after scripts, they need studios to make the scripting, and then there are all the post-production processes to produce something that’s really compelling, looks fabulous and sounds fabulous. Historically, everyone kind of used to do that on their own and they used to do it in high-margin countries … There’s obviously a new way of making, creating TV shows that is very, very attractive if you can get it right to a differentiated high quality at a lower cost [and] if you can get the whole integrated process going with new technologies. That is why we have spent the last three years building out our technologies.”

Smith joined Astro as CEO of the TV business in April 2020 and was named group CEO-designate in September 2022 before assuming the role on Feb 1, 2023.

While Malaysia’s Hollywood aspirations suffered a blow when UK-based Pinewood Studios pulled out of an ambitious venture with Khazanah Nasional Bhd in 2019, followed by the sale of the massive 20ha Iskandar Malaysia Studios in Johor to a Singapore-based media company for only US$7.3 million in 2023, Astro is perhaps much better placed to build Malaysia’s own “Tinseltown” of sorts. Not only has it dealt with top content providers in and outside of Hollywood and the who’s who in the major sporting leagues for decades, the company is also familiar with local regulations and film and content making here, having invested billions of ringgit over the years to make its own content in four languages to serve a diverse base of Malaysian consumers. Additionally, its headquarters is much nearer to local film-makers and production talents, who are mostly based in the Klang Valley.

It remains to be seen if Malaysia’s film-making and creative content industry will enjoy the kind of support and tax relief provided to film-makers and studio owners in the UK as part of a £1 billion creative industry plan to spur continued investments in world-leading British-made shows and films, rather than just being an outsourcing option for international studios. Malaysia, which does not have a global film production track record to protect just yet, will certainly benefit if it is seen as an attractive outsourcing destination by studios in the region and around the world.

Being close to its financial reporting “closed [blackout] period”, Smith did not provide a gauge on revenue potential from Astro Studios but said the company will “probably report this year how much third-party revenue we’ve done”.

“This time next year, I’ll be reporting how much money we’ve made in the first year. That said, the pipeline for these things ... a film often takes three years, for example, Keluang Man, we are building that IP (intellectual property) and we’re going to bring out a movie, but it’s a three-year gestation period. So, when you get a pipeline, you get volume coming through, but you quite often don’t see it in the numbers for a while. I think Sheriff was 2½ years in the making, Polis Evo 3 the same. The Experts, which is the next big blockbuster coming out in May, was a three-year gestation period.

“So, films are quite big. But on top of that, we are bringing out a lot of series. So, this time next year, I’ll do a first-year report card on trying to drive the business,” he says, noting that Astro Studios did the entire back-end post-production work for Sheriff, which was jointly produced by Astro Shaw and Skop Productions and raked in RM16.3 million at the box office after the first four days of screening.

According to Astro, the current clients of Astro Studios include Shanghai-based Moonton Games, which it supports with an entire suite of design and 3D motion services for the various Mobile Legend eSports tournaments across the region.

Box office successes for Malbatt: Misi Bakara and Polis Evo 3 — which beat Hollywood blockbusters Fast X and Mission: Impossible last year to be the No 1 movie at the Malaysian box office last year — helped solidify Astro Shaw’s position as the country’s top film producer with its movies grossing RM103 million overall in the financial year ended Jan 31, 2024 (FY2024), capturing 70% of the local box office market share.

Having said that, it remains to be seen how successful Astro Studios will be in showcasing Malaysia’s film-making and post-production talents, and how much revenue from the business can help make up for the slide in the traditional pay-TV subscription revenue, which is a problem faced by all satellite or cable pay-TV operators globally as more consumers favour streaming services such as Netflix and Disney+.

In FY2019, Astro’s subscription revenue was over RM1 billion a quarter, with paid subscribers estimated at more than 3.3 million. Six years later, its subscription revenue is RM650 million a quarter, with paid subscribers estimated at just under 2.2 million (see Chart 1).

While Astro has not provided a breakdown on its subscriber base since FY2018, back-of-the-envelope calculations show that its premium monthly subscription-paying customers likely peaked at about 3.52 million subscribers at end-April 2017 and made up less than half of its 5.71 million customers at end-April 2020 (1QFY2021).

According to our estimates, paid subscribers account for just under 2.2 million, or about 41%, of its 5.34 million total subscribers at end-January 2024, having lost a million paid subscribers in the past four years since end-January 2019 (see Chart 2).

TV subscription revenue, which comprised more than 80% of the group’s top line, had fallen from just over RM4 billion in FY2019 to RM2.7 million in FY2024 (see Chart 3).

Smaller dividend payouts from smaller profits from its traditional bread-and-butter business sent its share price lower from as high as the RM1.50 level in 2019 to below 50 sen in 2023. Astro did not declare a final dividend for the fourth quarter of FY2023 and fell short of its then dividend policy of paying at least 75% of its consolidated profit.

In FY2024, it only declared a dividend in one of four quarters. At the 30 sen apiece that the shares are currently hovering at, the stock is trading at near all-time lows as investors ponder the likelihood of dividend yields returning to desired levels (see Chart 4 and accompanying story).

“That is a sign of the times. We have seen over the course of the last two to three years such FX (foreign exchange) volatility, the dollar rate, that going quarter to quarter, we’re finding it very difficult … Going to an annual [payout basis] allows us to have a look at the full year before we decide how much money we’re investing in the business and how much we will reward our long-standing and loyal shareholders. That was the primary thinking,” Smith explains when asked about the change in Astro’s dividend payout policy and frequency.

Without divulging the number of Astro pay-TV customers still paying monthly subscriptions versus that of its prepaid box service NJOI and freemium streaming sooka service, Smith says he would not be at Astro if he did not think there was a need for an aggregated ecosystem and believes that it is possible to win back customers as well as slow the decline in subscription revenue.

“I’ve been here for four years. And pretty much since day one, we knew this was what we had to do. Four years later, we’ve been able to actually achieve it because of the long-term nature of some of the relationships we’ve had. So, as you start to drive the cost base down, you can start to offer more value, and you can then offer better pricing, which will be more attractive. If you go back two years, our floor price for the primary pack was RM60. Now you can get in at RM42. Why are we doing that? Because we think our job here, as we take costs out and re-engineer our content contract, is to provide more value to that tier … Almost half of these people are under 40. They all want the product, they all like the product. As we are able to get more value into the product at lower price points, we are seeing people gravitate back towards us.

“So, do I think it’s possible [to win back subscribers]? Yes, I do. But it does require that you continue to be extremely conscious about the cost of the operations, and that you make more intelligent decisions about the content you’re buying. So, for us, the reason you hear me on stage talking about local [content] and sports, is those are the things that are resonating with our [subscriber] base,” he says, noting that Astro has everything from football to golf, Formula One, NBA basketball and cricket to keep sports fans engaged.

Apart from broadcast rights for the English Premier League in Malaysia through the 2024/25 season, the Liverpool fan says Astro also invested in live rights to the Malaysian Football League (MFL) early last year that brought back Liga Malaysia to Astro TV screens. It also holds broadcast rights to other local sporting events like the Sepak Takraw League (STL) that was fully captured and broadcast by Astro Arena in 2023 with augmented reality enhancements. These are among the types of local content which Astro can enhance to capture the local audience and that it will put more resources into going forward.

“If you look at the other things that a pay-TV operator used to buy, Hollywood type of content from the big studios. One, they are all D2C [direct to consumers] now, so you have no differentiation. Two, they are all pirated like crazy … So, why would we pay top dollar for something arriving onshore free? So, you have to go to a model which says, ‘I’m happy to be non-exclusive and have it on the platform, but I’m not paying top dollar for that’,” says Smith.

“Now, what will I pay top dollar for? Our own local content because it’s really good, it’s driving engagements, it is driving viewing, it’s where we get all the buzz from … things like Projek: High Council [the No 1 On Demand show of all time, beating the likes of Hollywood titles such as Game of Thrones], things like KHUN:SA … a brilliant series … but we’ve had loads. The number one show of all time in Malaysia, All Stars Gegar Vaganza (ASGV) season 10, over eight million people watching [and] 8,000 people came to watch the final at Axiata Stadium [Bukit Jalil]. It’s not easily piratable, it’s local, we can control it, and it is what people want. So, we focus on that.”

The ASGV final saw gross ticket sales of RM1.2 million.

Like Sky, which last year cut hundreds of jobs across the UK as part of a strategic shift from satellite to delivering TV over broadband, Astro too went into cost-cutting mode, which included a 20% cut to its headcount via a voluntary separation scheme (VSS) in 2023.

“We took 20% [headcount] in October [2023] because we had to get ourselves match fit. You cannot play in this market if you are carrying an awful lot of headcount and cost. It is all about digitisation and mechanisation. There are really three things I want to spend money on: content, product and marketing. Content, because that is what keeps us alive; product, because that’s what gets the content in front of people, the box and the apps; and marketing, to make sure that everybody knows how amazing the stuff we’re making is, and what’s coming next, so they will continue to want to engage with us. Anything else is a ringgit spent that I don’t really need. So increasingly, we are trying to move more and more of our business to only looking at those three things,” says Smith.

“As we are driving the cost base down, we want to be building and making more of that content that is actually going to be of value to people. You’ll start to see shows or assets that used to be in the higher tier packs. We’re trying to move them down the tier packs to give people more value at the RM45 to RM50 price point. So that is the driver now, but it is taking time because of satellite TV companies’ legacy cost base — it’s just the nature of the business.”

According to him, Astro’s 15-year commitment to the Measat-3a transponder capacity ends in July, but there are other satellite contracts which “go well into 2030” as satellite-related deals are usually long term.

“We’ll gradually reduce our commitments [to satellite] over time and be basically transmission agnostic. So, we’ll increase our speed into the IP world but satellite will be part of this company for a long time,” he says.

Increasing offerings for consumers in the streaming space with sooka does not mean Astro is pivoting away from its traditional channels, says Smith, relating how some global players like Disney are rethinking whether they should “leave money on the table” by abandoning offerings on traditional channels. Indeed, Disney’s streaming business recently reported a rare first profit in the quarter ended March 2024, following cost cuts and the decision to again sell content to rivals.

“We’re in negotiations with Disney on what the next iteration of the contract will look like, whether that is channels or whether that is more assets that we build into reels, or whether we continue to be 100% app environment for Disney is still TBD (to be decided),” says Smith, noting how many people across Southeast Asia who were watching Disney content on traditional channels did not shift to the streaming app when Disney channels were pulled off traditional pay-TV platforms.

“For example, we need a foot in the channels and set-top box camp, because there are a lot of our customers who understand, love and value that world. But there’s an increasing number of our customers who want to live in an app environment, which is why we have Astro sooka. That is why you won’t find many operators that have gone completely one way or the other,” he points out.

While it may be premature to say the worst disruption from the “streaming wars” has passed, it is clear global streaming behemoths too are under pressure to be profitable. Netflix, which has introduced advertisement-subsidised subscription tiers that seemed unthinkable just five years ago, recently cut spending on new shows and said it would no longer report quarterly subscriber numbers from 2025, save for milestone updates.

Recognising the global pivot away from curated channels towards streaming, Astro expanded its content aggregation role when it allowed customers to stream Netflix, Disney+ Hotstar, HBO GO, iQIYI and TVBAnywhere+ with bundled subscription packs on connected set-top boxes in November 2021, which run over Internet Protocol (IP) and do not have a “rain fade” problem faced by satellite dishes. Astro has 1.1 million connected set-top boxes currently.

Since then, Viu, BBC Player, beIN Sports Connect, WeTV, ZEE5, Qalbox and Syok (which aggregates live radio and podcasts) have been added to the suite. Smith lets on that two “big” third-party apps are likely to be added “in a couple of months” to bring the number of integrated streaming services to 15 from 13 currently.

Now, Astro seems to be moving more aggressively to capture a larger slice of streaming revenue, rather than just looking to gain more likes on its own over-the-top (OTT) streaming platform sooka by offering free as well as bite-sized paid content to people who like Astro content but do not want to be tied to monthly subscriptions.

Smith says in “a few weeks”, Astro will introduce the “sooka stick”, a TV dongle that would allow any television set with a HDMI port to screen football and other sooka content on a TV set for larger screen viewing.

“Say, I just want to watch the EPL. You can start to actually differentiate the price quite a lot. And what you see, if you’re looking at the market now, is that the sooka pricing structure is extremely compelling … It’s all on discount to drive further awareness. Honestly, I think we should have differentiated the market faster than we did,” says Smith, noting that sooka is currently the only streaming app in Malaysia with a complete live sport offering.

That could help drive more interest to sooka as well as Astro’s core subscription TV service with the UEFA European Football Championship 2024, which kicks off in mid-June and runs until mid-July, and the opening of the 2024 Summer Olympics in Paris on July 26.

With sooka’s content library expanded into sports, kids and the Korean segment alongside some of Astro’s Chinese assets, its monthly average users (MAU) grew 23% year on year to more than one million in FY2024, with its paying VIP base “almost doubling”, says Astro. It did not say how many paying sooka subscribers it had or mention its indicative monthly spend.

For those who prefer curated TV channels, 15 free ad-supported ones were launched last year, five of which were made available on Astro’s prepaid TV offering NJOI, which also seeks to drive streaming interest on sooka.

Smith also flagged Astro’s intent to move deeper into gamification to drive subscriber engagement. “We are heavily exploring gaming, because gaming obviously is the next ancillary revenue stream … We’re just dipping our toe into the water … but we’ve got big plans to do more in that space next.”

Football content was a strong driver for content consumption last year across platforms and more, says Smith, describing Astro’s interest in live sports content as “no different” from Netflix’s rationale with its recent US$5 billion deal to stream WWE wrestling content for 10 years.

“First season [of Liga Malaysia] was epic for us. We drove daily passes [and] pay per views on sooka, we drove match passes, we drove monthly passes on Astro, and Njoi had a very, very good first season. Engagement on the ground went up as well. But probably the most important is we built 13 different shoulder programmes around the MFL (Malaysian Football League) and various other things that we are able to do. We’re doing more of that for the second season and we’re now going to start adding gamification to expand what we’re doing in Stadium Astro, so that we actually create a whole ecosystem around it, because we’re no different from Netflix or Apple. We’re looking at these things and saying how we can create and build and maximise a property. For us, it’s great because MFL ticks all of our boxes. It’s great for our community because it’s local. It’s great because it lets us experiment and it gets the Astro name around some more. Same principle,” he says.

On whether Astro will be able to keep its ground should it lose key sports content with global names moving into that space, Smith points to Astro’s 5.34 million TV customer base that reflects a 67% household penetration and a 71% viewership share, as well as its in-house ability to add value to content.

“We have a great distribution mechanism. Because we’re ubiquitous across the country, anybody coming in looking at any property and taking it away from us is going to have to think, ‘If I’m only direct-to-consumer, how do I actually get the same audience that Astro can command?’ And that’s going to be a concern when they’re thinking about bidding rights. But there are going to be people that will be thinking, well, I need to make a splash in the market. And when people want to come into markets, they tend to buy tent-pole content. Honestly, just try and have a go. We have a strong relationship with EPL (English Premier League), BWF (Badminton World Federation) … they are regularly telling us how much value we are driving for them, compared to some big regional players or global players, because we can go local. The beauty of a local player is we are on the ground all the time,” he says.

Even as Astro seeks to build a new revenue stream from Astro Studios, Smith admits that the group is operating in a challenging environment where consumer spending is dampened by the higher cost of living as well as changing consumer preferences.

“Advertising dollars are quite suppressed because of macroeconomic factors. It is largely the market. Year on year, there is a genuine downward trend due to pressure on the wallet and advertising spend. We are seeing more customers going into the digital space [including Astro sites],” he says.

Analysts also see traditional media losing out on advertising expenditure (adex) to digital media as more consumers favour streaming and mobile apps, as well as social media platforms, with digital media’s share of adex rising from 15.7% at end-2020 to 23.5% at end-2023.

While Astro’s advertising revenue grew 11.2% quarter on quarter in 4QFY2024 on seasonable factors, it was down about 9% y-o-y to RM393 million in FY2024 from RM433 million in FY2023, largely due to the fall in TV adex to RM166 million in FY2024 from RM206 million in FY2023. Radio adex was also down about RM7 million y-o-y to RM171 million in FY2024, beating TV adex for the first time by about RM5 million to be the largest contributor to adex at 43.5% in the previous fiscal year versus TV’s 42.2% (see Chart 5 and Table 1).

Astro’s attempt to leverage the knowledge of its customer base to deliver targeted advertising solutions via its premium “addressable advertising” offering has yet to take off in a big way, but it did help its digital and addressable advertising revenue go up from RM50 million in FY2023 to RM56 million in FY2024, which saw its contribution to total adex rising to 11.5% in FY2023 and to 14.2% in FY2024.

“It’s taking time for people to understand addressable advertising [as a] solution. Because you’re not [inundating] the country, the pricing model is different because you’re getting quality eyeballs, rather than any eyeball … So, it’s a more premium service and you’re in a market where obviously everyone is looking to extract value and [at] reduced pricing,” says Smith.

“Having seen it grown in other markets, this is just purely a timing thing. There’s nobody saying it is the wrong thing to do. Everyone says it is absolutely 100% the right thing to do,” he adds, noting that addressable revenue tripled in FY2024 to RM12 million from RM4 million in FY2023.

Changing consumer preferences is also why Astro decided to close its TV shopping channels Go Shop in October 2023, which in the nine years from 2015 to 2023 was only profitable in FY2021 as it benefited from the surge during Covid-19 lockdowns, according to The Edge’s compilation of official releases.

“We were operating Go Shop on extremely thin margins. It was increasingly difficult to justify why we were in the business. It took a lot of management time and attention … and it just didn’t look like there was going to be a future because in every country in the world, people are migrating out of home shopping [on TV into live digital platforms]. We were not clear how it was going to add any value to shareholders or the business going forward,” says Smith.

Now that competition looks more rational, even on the streaming front, is the worst over?

“I would never be bold enough to say that [the worst is over] for sure. Because I don’t know whether there could be another Covid. Tomorrow there could be more geopolitical tensions. The world in which we live is a very uncertain place. So, I would never try [to] crystal ball,” he says.

Nonetheless, Smith is confident in Astro’s strategy to maintain its core pay-TV customers while winning over those switching to streaming. “To a certain extent, it is a managed shift. The silver lining is that sooka is growing, Astro Fiber is growing and addressable advertising is growing. All the revenue businesses to which we know we need to bridge are all growing. They’re not growing as fast as I personally would like, but the good news is they are growing and sooka, in particular, has increased really strongly in the last six months.” 

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