Hong Kong-headquartered PCCW Media just secured a roster of heavyweight reinforcements for its regional rollout of the hot new media technology, OTT.
Private equity firm Hony Capital, Foxconn Ventures and Temasek are buying 18% of PCCW Media’s OTT business called Viu for $110 million in cash, according to a filing with the Hong Kong stock exchange on Thursday.
Each brings know-how and connections in mainland China as PCCW Media battles with competitors such as Netflix and Amazon’s Prime to source original content.
“It’s not about the capital,” said Janice Lee, managing director of PCCW Media, who is in charge of the group’s business – spanning pay-TV brand, Now TV, and its OTT offering, Viu.
PCCW is part of entrepreneur Richard Li’s business empire, and he has deep pockets when it comes to funding ventures he believes will eventually be profitable. “PCCW would have been happy to fully fund this operation. It is a small amount in terms of PCCW’s resources,” Lee told FinanceAsia during an interview.
PCCW is bankrolling Viu’s expansion across South East Asia, India and the Middle East. Launched in October 2015, Viu has over 12 million monthly active users as of June.
Watching TV via the internet has been slow to take off across Asia, mostly due to patchy network coverage, piracy and expensive data plans. That is changing fast.
Netflix’s arrival in Asia early in 2016 and Amazon’s launch of Prime Video in December created a buzz around the digital delivery of entertainment, dubbed over-the-top (OTT) content because it bypasses traditional broadcasters or cable networks.
The land grab by the two US streaming giants is turbo-charging investment by local incumbents, already battling to adapt the latest OTT technology for Asian audiences and vacuuming up local language content.
Netflix said on August 4 it will screen its first Chinese language Netflix original series from Taiwan: Bardo (擺渡身).
The scramble for content has pushed up prices for content. At the same time piracy is eating into the profits of acquiring that content.
The Straits Times reported on August 4 that Singapore’s High Court threw out PCCW Media's request to block a website called Dramanice for illegally streaming Korean dramas, including popular ones such as Descendants Of The Sun, My Love From The Star and The Heirs.
Media and telco executives globally are grappling with the conundrum of how to create a profitable business model.
Also on Thursday PCCW Media said that it's EBITDA loss widened to US$16 million in the first half of the year from a loss of US$14 million a year earlier.
PCCW Media is shifting its content mix from TV dramas towards movies and betting profitability will follow. It has recently expanded into distributing Chinese movies.
"Mainland China has vast amounts of content that is available to the rest of the world - but it is about curating the right content that has appeal to overseas viewers," PCCW Media's Lee told FinanceAsia.
Hony Capital has invested in media businesses before. When PCCW Media bought an equity stake in Los Angeles-based STX Filmworks, distributor of movies Bad Moms and Free State of Jones, for $25 million last July, Tencent and Hony also put in capital.
Hony Capital has also backed PPTV, an online video service provider in China. The private equity firm may well be able to help source Chinese content for PCCW Media.
John Zhao, CEO of Hony Capital, positioned PCCW’s OTT rollout as a culture carrier for China.
“Viu at present has laid out effective business map in Southeast Asian countries along the Belt and Road, which will no doubt play an essential and unique role to help the culture, content as well as creative ideas to travel abroad,” Zhao said. "The mainland market itself is quite cluttered [with competitors]."
The new investors could also mean an upgrade for its video streaming and encoding technology.
“Foxconn is transforming to be a technology service provider from content creation to network transmission. We will work with PCCW to deliver advanced OTT service to the market,” said Fang Ming Lu, executive vice president of Foxconn.
Of course PCCW Media can also count on support from being part of the PCCW group, which also owns Hong Kong telecoms provider HKT.
In the past few months PCCW Media has expanded its set top box content rights.
PCCW Media will remain as the controlling shareholder of PCCW OTT but this first round of fund raising could lead to an IPO of Viu eventually.
Hony Capital, Foxconn Ventures and Temasek have agreed to subscribe for 11,000,000 preference shares or 18% of the enlarged share capital of PCCW OTT for $110 million (HK$858 million).
PCCW Media expects the deal to close by September 25.
Hony Capital has been granted an option to subscribe for up to a further 2,000,000 preference shares at an exercise price of $10.00 each. The option may be exercised by Hony Capital at any time within nine months after Closing. If the option is excersied then the group of investors would hold 20.6% of the enlarged issued share capital of PCCW OTT.
The preference shares confer certain customary rights such as dividend, preference in liquidation and upon an IPO or sale of the business. If there is no IPO then the preference shares are redeemable at the original subscription price after five years.
The investor group will also have board representation and other minority shareholder protection.