As the rise of streaming platforms puts pressure on traditional pay-TV networks to produce original content, the Middle East's largest direct-broadcast satellite provider OSN fights for its survival

OSN was the first in the region to introduce digital platforms with OSN Play in 2012

When millions of fans across the Middle East tuned in to watch the last ever episode of HBO’s blood-spattered, dragon-filled fantasy show Game of Thrones in May last year, little did they know the platform on which they streamed the drama series was struggling with its own existential crisis.

Unlike the world’s most profitable TV show of all-time, the MENA platform Wavo, which viewers used to stream the Game of Thrones, is part of floundering Dubai-based Orbit Showtime Network (OSN).

OSN has premium content offerings with over 86 channels for MENA viewers

Owned by Panther Media Group, a joint venture between Kuwaiti Projects Company (KIPCO) and Saudi investment firm Mawarid Group Limited, OSN is the Middle East’s largest direct-broadcast satellite provider.

In 2013, it was even valued at a whopping $4.3bn by Arqaam Capital, leading majority shareholder KIPCO (60.5 percent) to reject a $3.2bn offer by an unnamed US buyout firm the following year. But it’s a decision it’s likely to be regretting now.

Too broken to be fixed?

In January, OSN was valued at just $665m by ratings agency Moody’s. The valuation was based on the “slow progress made in turning around Orbit Showtime Network (OSN)’s financial performance since November 2018, which remains unprofitable and has required financial support”.

It was in the same November that KIPCO hired bankers Goldman Sachs to sell its majority stake in the company, having previously hired Rothschild in 2013 to evaluate its strategy and business, including a possible share sale.

OSN owns exclusive access to the most comprehensive portfolio of rights from seven major Hollywood studios

While neither OSN nor shareholders KIPCO and Mawarid responded to requests for comment by Arabian Business, Anuj Rohtagi, vice president and group financial controller at KIPCO told an investors’ call in the third quarter of 2019 that the company had a “supply side shock in 2016 resulting in ballooning of our content cost”.

He said: “The management team in the meantime continued its efforts to streamline operations with a big focus on retaining and resetting key content rights for future use as well as reverse majority of the cost increase on content we had in 2016.”

OSN’s management team, however, has changed three CEOs in the past five years, with David Butorac leaving in 2016, followed by Martin Stewart who left in 2018 to be replaced by incumbent Patrick Tillieux.

According to a former employee who spoke to Arabian Business on the condition of anonymity, it was the change in top leadership that worsened the network’s performance.

OSN has ditched its exclusive regional sports coverage

“They brought in a lot of people from the UK, which isn’t unheard of, but the fact was they had no Middle East experience. Instead of bringing expertise and leveraging the talent on the ground that had experience of the region to complement each other, they just did their own thing,” he said.

Another employee said the “system itself was so broken that any changes, whether in management or otherwise, didn’t make sense when they tried to shuffle things up because it didn’t work”.

While OSN operated from three buildings in Dubai in 2016, with two neighbouring properties in Media City and a space in Dubai Internet City (DIC), the latter office has since been closed.

Former employees also claimed the company was considering reducing operations to just one building, although OSN did not respond to Arabian Business’ requests for a comment on the claims.

Ex-OSN employees also claimed the company had let go of hundreds of employees over the last 24 months, with one describing the lack of job security as “horrific” and having created a “really unpleasant environment”.

One former employee said staff were going to work “not knowing if you were going to end up in a room being told you’d lost your job,” while another described it as “dodging bullets every day, while trying to keep our heads down and do our job”.

Let the facts do the talking

While such statements could be labelled as mere retaliation by disgruntled former employees, OSN’s recent history shows trouble in content paradise.

Last year, the company ditched its sports coverage to redirect its investments “from sports to content that our customers enjoy the most,” CEO Tillieux was quoted as saying.

He added that OSN would be refocusing its service to more women-centric and premium programming content, abandoning its exclusive regional coverage of the Rugby World Cup, Rugby Championship, USPGA golf, WWE and live cricket.

While the company introduced its new binge-watching channel OSN Binge to offer viewers an uninterrupted marathon-viewing experience with a wide range of box-sets to watch, it saw a further shake-up in the summer as fans of its popular South Asian Pehla channel were hit with a blackout. “Illegal streaming sites, pirate IPTV decoders within OSN’s licensed territories, has made it difficult for OSN to continue offering Pehla,” the company said at the time.

OSN’s former chief legal officer Sophie Moloney had told Arabian Business in 2017 that as much as $500m in revenue is lost each year in the Middle East and North Africa from video piracy and content theft, which she called “a very serious and existential threat”.

And in December last year, Discovery announced suddenly that it was ending a 12-year association and withdrawing their channels – Discovery Channel, TLC, Discovery Science and Investigation Discovery – from the OSN platform, with immediate effect. A war of words ensued between OSN and Discovery, with the latter accusing the Dubai-based entertainment provider of unpaid bills and OSN blaming the US network of “unrealistic” price expectations. However on January 6, the two sides appeared to have resolved their differences as Discovery and all its associated channels returned to the platform.

The price of original content

It may come as no surprise that pay-TV giants are struggling in the era of rising streaming stars like Netflix, which invests heavily in exclusive and original content.

For the 13 Arabic-speaking countries, pay-TV revenues fell by 15 percent from $1.241bn in 2016 to $1.053bn in 2019, according to information from Researchandmarkets.com, although the total is expected to recover to reach $1.269bn by 2025.

The research also showed that pay-TV subscriptions fell by 5 percent between 2016 and 2019 to 3.58 million in the region, although they are estimated to progress to 4.71 million by 2025.

OSN, owned and operated by Panther Media Group, has the rights to broadcast into 25 countries across the MENA region

But GCC analyst Ali Al Salim says current market conditions prove networks must produce their own content in order to survive the era of streaming.

He tells Arabian Business: “Pay TV has been disrupted by the likes of Netflix and most recently Apple TV+ and Disney+.

"KIPCO has reclassified OSN as a ‘held for sale’ asset in recent quarters so accumulated losses are no longer disclosed to the market.

“Competition in the TV space has evolved. It’s no longer enough to exclusively license content, it appears that to survive one has to produce and own content.”

Still, the investors’ call from Q3, just three months previous to Discovery’s withdrawal, was incredibly upbeat, focussing on the strength and success of OSN’s own streaming platform WAVO.

KIPCO’s Rohtagi said: “We are now positioned much stronger than where we stood 12 months back. What we have today, in addition to the great content line-up, is stronger operational set-up, leaner operations with reduced cost base and improved technology platform to distribute our products. All this positioned us to capture the market opportunity and meet the customer need within our region.”

While KIPCO’s group financial officer Pinak Maitra added: “The budget for 2020, which is from Long Range Plan, indicates a close to breakeven situation (i.e.) somewhere between $0 to $30m plus or minus situation.”

Discovery ended its 12-year partnership with OSN in December last year, citing non-payment for the provision of its channels during 2019

Moody’s however was not as optimistic, stating that it could downgrade the ratings for KIPCO from a negative outlook further if, among other criteria, “there is continued uncertainty around OSN’s weak financial performance”.

Saving OSN

The best way to save OSN may be through a merger. After all, the last 18 months have been huge in terms of consolidation, with Disney acquiring 21st Century Fox in March in a deal reportedly worth $71.3bn, while Comcast outflanked rival 21st Century Fox in September 2018 in a $39bn takeover of British broadcaster Sky.

Maitra has previously suggested there could be room for a merger, referencing the company’s Gulf Insurance Group as an example of where this has previously been successful.

He said: “So, we used to own close to 80 percent of GIG for many years from 1996. And then in 2010, we basically invited Fairfax to come in to be our partners. The reason we got in Fairfax to be our partner was that they had tremendous reinsurance capacity and good product origination capacity.

OSN Binge was launched in April last year and is part of the company’s channel refresh which aims to offer a richer programming experience for customers

“Post that partnership that we created, KIPCO remained 48 percent, Fairfax which is much bigger than GIG and the KIPCO group remained at 42 percent and it has been a marriage made in heaven, meaning that we both work together and therefore, GIG now continues to progress and today is one of the top ten insurance companies in the region.

“So, we are used to doing partnerships and we think that partnership model is something that will work in the case of OSN.”

KIPCO is scheduled to hold its quarterly update to shareholders later this month, where leading representatives from the company will shed more light on what’s to come for the Middle East’s direct-broadcast satellite provider.

Perhaps it will witness a happier ending than HBO’s Game of Thrones, which saw the brutal demise of the show’s lead character Daenerys Targaryen. Or perhaps it’s just time for OSN to say goodbye, that’s all folks.

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