Showtime-Orbit deal wraps: Now what?

Chris Forrester

The pay-TV merger between Showtime Arabia and rival Orbit was concluded on time at the end of last month, according to reports out of Kuwait on Aug 11. A statement from Kuwait-based Kipco said the agreement was formally wrapped on July 31.

The deal was announced last month, although no official valuation was given other than a very vague statement that the merger was worth “billions”. Neither was any information given as to who initiated the “merger”, although it is widely spoken of as a Showtime Arabia initiative. Showtime Arabia had reportedly bought out its Viacom minority partner in its Gulf-DTH operation. Kipco, an investment vehicle ultimately controlled by the Kuwait royal family, already controlled 75.3% of Gulf-DTH.

The deal created “the region’s largest pay-TV platform”, a statement much disputed by Arab Radio & Television, which probably does have the region’s largest pay-TV operation, although in the extremely murky waters of Arabian pay-television nothing can be wholly depended upon as regards numbers – which are never supplied – or profits – which are few and far between.

However, the merger does deliver some hope for Kipco and Orbit’s parent company Mawarid Group. It is perfectly possible that both will emerge with some credit at the end of the merger exercise. For example, Orbit gets to hold onto its production arm, responsible for much of the Arabic output on the system, and this should mean an instant profit for Orbit given that it will be paid on a per-subscriber basis for each of the shows/channels it provides.

Orbit also held onto Noorsat, its wholly-owned DTH/satellite arm. While there is no knowledge yet whether Noorsat will end up being the capacity provider for the combined platform, Noorsat needn’t worry too much given that one way or another it is already providing capacity for some 150 digital channels into the Middle East.

Noorsat is a ‘virtual’ satellite operator, leasing capacity from Eutelsat, and operating alongside Arabsat and Nilesat. In other words it is a highly efficient little operation with no expensive orbiting assets to worry about, just taking a very nice wholesale-to-retail profit margin on each and every channel that it signs up. Indeed, Noorsat might just end up as the most profitable thing Orbit/Mawarid has invested in, in regards to TV, ever.

Despite these two financial benefits (at least for Orbit), ‘Shorbit’ (the new business as yet has no new name) still has an uphill road to drive. For a start it will deliver its combined service to subscribers who are already taking both services. Some local estimates put this as high as 30-40% of its total DTH audience. In other words the merger will not mean subscriptions gained but revenue lost. Then there are the wholesale subscriptions to cable outfits like E-Vision, Du, Q-Tel and Bahrain’s retransmission systems. These again are already paying wholesale rates for their Showtime or Orbit channels and so not much in the way or extra revenues here.

Of course ‘Shorbit’ will be able to save some very real cash, trimming duplicated services and speaking with one voice to the expensive Hollywood studios once existing contracts come up for renewal. Its combined marketing and promotion budget should also generate some very real muscle locally.