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State Of Taiwan Online Video Subscriptions

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Spotify’s Direct Listing Gamble Pays Off

Technology, Media & Telecommunications
State Of Taiwan Online Video Subscriptions

Highlights

The following post comes from Kagan, a research group within S&P Global Market Intelligence.

To learn more about our TMT (Technology, Media & Telecommunications) products and/or research, please request a demo.

Apr. 16 2018 — Subscription video on demand has struggled to gain ground in Taiwan due to the prevalence of free content in the form of value-added video options utilized by telcos in an extremely saturated and competitive mobile market, legitimate ad-supported video platforms, and pirated content.

Kagan, a media research group within S&P Global Market Intelligence, estimates that mobile penetration rates reached 124% in 2017 and are projected to climb to 140% by 2022. The major mobile players in Taiwan (Chunghwa Telecom, Taiwan Mobile Co. Ltd., and FarEastOne Communications) each offer forms of over-the-top video. Taiwan is also characterized by high rates of video piracy. In June 2017, an iQIYI Inc. executive claimed that levels of piracy in Taiwan exceeded those in China. He said Taiwanese regulators have not done enough to combat piracy and shore up the legal video market.

Taiwan mobile, broadband and multichannel penetration

For those SVOD players operating in the market, we have identified iQIYI, Catchplay On Demand, and Netflix Inc. as having made the most progress.

IQIYI is China's most popular SVOD service in terms of estimated paid subscribers. In March 2016, the service expanded to Taiwan in order to monetize its content in the second largest Chinese-speaking market in the world. The service operates both ad-supported and subscription revenue models in the country. Currently, iQIYI is a subsidiary of Baidu Inc., but the streaming service and its parent have recently announced plans to list iQIYI service on the Nasdaq Stock Market, having submitted a draft prospectus to the SEC for an IPO. Baidu plans to remain the majority shareholder, but listing the company would provide an influx of capital that would provide additional resources for acquiring and producing content in the extremely competitive Chinese OTT market.

Launched in China through a partnership with local content distributor OTT Entertainment Ltd., iQIYI has repeatedly applied to establish a local subsidiary in the country, but policies regulating the type of investment coming into the country from mainland China are prohibitive. Regulators cite the need to protect their right to broadcast and promote their own cultural content, as well as China's insistence on barring Taiwanese OTT services from operating on the mainland as primary factors in the issue.

Catchplay Group's roots are in theatrical and DVD distribution in the Taiwan market. By branching into content production, investment, and aggregation, the group has built a sizable film library that it monetizes through various ventures. In March 2016, with Netflix having launched in the country only months prior, the group launched SVOD platform Catchplay On Demand. The group's existing film assets allowed the service to enter the market with an advantage in terms of diversity of content and new releases. The service provides Chinese and Asian-language films as well as Hollywood content from independent and major studios including Comcast Corp.'s NBCUniversal Media LLC, Time Warner Inc.'s Warner Bros., and Walt Disney Co. The service also monetizes its film catalog through a rental revenue model in Taiwan.

Netflix launched in Taiwan in January 2016 as part of its global expansion. The service has not been successful in partnering with major telcos in the area possibly due to incumbent telcos offering their own OTT packages. Whether by design or default, Netflix instead pursued partnerships with system-on-a-chip manufacturers in the country. In mid-2016, Netflix began partnering with these regional manufacturers as part of its Recommended TV program. Through the program, Netflix evaluates the quality of smart TV delivery of Netflix content, bestowing a Netflix Recommended TV designation to quality products.

Pricing

SVOD is very reasonably priced in Taiwan. All three services register less than 0.3% on our affordability index, which is based on gross national income purchasing power parity. The affordability of the dominant pay TV platform is 0.4%. Even Netflix, which has typically priced its service on a premium tier throughout Asia, is affordable in the market. Netflix's most expensive four-screen subscription also registers lower than Taiwan's dominant pay TV platform on the affordability index. To provide context, Netflix's two-screen plans register 0.31% and 0.19% on the affordability index in the U.K. and the U.S., respectively.

Select Taiwan SVOD affordability


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Technology, Media & Telecommunications
Spotify’s Direct Listing Gamble Pays Off

Highlights

Spotify Technology SA shares rose 13% above its $132.00 reference price to close at $149.01 the day of the company’s IPO April 3, resulting in a public market valuation of 4.0x estimated 2018 revenue of €5.22 billion and 16.5x gross profit of €1.28 billion.

Apr. 06 2018 — The following post comes from Kagan, a research group within S&P Global Market Intelligence. To learn more about our TMT (Technology, Media & Telecommunications) products and/or research, please request a demo.

Spotify Technology SA shares rose 13% above its $132.00 reference price to close at $149.01 the day of the company’s IPO April 3, resulting in a public market valuation of 4.0x estimated 2018 revenue of €5.22 billion and 16.5x gross profit of €1.28 billion. That compares to a trading multiple of just 1.0x revenue for Pandora as of the same date, but Spotify’s higher trading multiple is justified by its higher proportion of paying subscribers among its listeners and its growth outside the U.S.

Spotify Technology is the parent of Spotify AB, the Swedish operator of the popular Spotify streaming service.

Company guidance for full year 2018, provided in Spotify's March 26 8-K filing, is revenue of €4.9 billion to €5.3 billion, up 20% to 30% year over year, and a gross profit margin of 23% to 25%, with an operating loss of €230 million to €330 million including an estimated total cost for the direct listing of roughly €35 million to €40 million in the second quarter.

Spotify Technology S.A. share price and market capitalization

The 8-K also shows Spotify has ambitious monthly active user, or MAU, and premium subscriber growth targets for 2018, with MAUs projected to increase by 26% to 32% year-over-year to 198 million to 208 million and total premium subs growing 30% to 36% to a range of 92 million to 96 million.

At the end of 2017, Spotify had reported 157 million MAUs and 71 million premium subs. Apple Music came in second place with a reported 36 million subs as of February 2018; based on reports from the Wall Street Journal, the company is growing at a monthly rate of 5% compared to 2% at Spotify. According to a Forbes article on April 4, Apple Music just reached 40 million paid subscribers.

Amazon.com Inc. has indicated it is the third-largest on-demand streaming music company behind Spotify and Apple Inc.'s Apple Music with a reported 16 million subscribers between Prime Music and Amazon Music Unlimited. That leaves Pandora Media Inc. in fourth place with 5.5 million paid subscribers, although it has a larger ad-supported user base with 74.1 million MAUs reported at the end of 2017.

Based on reports by Music Business Worldwide on April 4, Sony Corp.'s Sony Music, which had owned 5.71% of Spotify shares prior to the first day of trading, sold 17.2% of its stake in the company, representing a little less than a 1% total share, for over $250 million based on the April 3 closing price of $149.01.

In Spotify's prospectus filed April 3, Sony Music, before the April 3 shares sale in the first day of Spotify trading, was the fifth-largest shareholder behind Spotify co-founders Daniel Ek (27.1%) and Martin Lorentzon (13.1%), followed by Tencent Holdings Ltd. (9.1%) and Tiger Global (7.2%).

As reported by Music Business Worldwide, according to a memo released by Sony, the company projects that the unrealized valuation gain and the proceeds from the sale of Spotify shares will amount to roughly 105 billion Japanese yen, approximately US$1 billion, for the first quarter of the fiscal year ending March 31, 2019.