The year of living profitably - Son shines bright in STAR-lit sky - South China Morning Post (17 May 1992)

FOR once, the second son of Hongkong tycoon Mr Li Ka-shing may be forgiven for looking smug. STAR TV - the project Mr Li gave Richard to cut his teeth on - is ... profitable.

A year after STAR's first test-signal was uplinked to AsiaSat from its Hongkong transmitter and beamed out over the vastness of Asia, he is happy to proclaim his most startling success to date: advertising revenue at US$120 million (HK$936 million) has overtaken the STAR's total investment to date. "Including everything," says Mr Li, with a note of triumph.

The exact investment figure he is not prepared to divulge. But it is less than US$100 million so far.
If what Mr Li says is the unvarnished truth, it does more than confound the doubters and critics who prophesied years of struggle. It is not merely a counter-blast to the persistent rumours of empty advertising slots and massive losses. It establishes a world record.

"It has to be the fastest break-even point in TV history," says Dr Ernest Martin, senior lecturer at the Baptist College School of Communications. "It's a little surprising. It's a lot faster than satellite services have pulled into profits elsewhere. If you look at Sky (Mr Rupert Murdoch's British-based BSkyB satellite service, which only recently turned the corner into profitability after years of haemorrhaging money), if you look at Super-Channel or what Ted Turner's done at CNN (Cable News Network), it is fast.

"But it is possible. There's really no reason for him to pull the wool over your eyes."

Making money so early is a big coup for Mr Li. But it is far from his only success. Five channels are on air, well ahead of schedule. The satellite is beaming news, sport, music videos, Mandarin soap operas and films 24 hours a day - and the service has proved so popular in India, STAR is considering introducing an all Hindi channel.

Meanwhile, STAR is expanding into homes across Asia from Indonesia to the Middle East with a growth even the gung-ho team at STAR TV had never expected.

Markets have opened up in the least likely places. A survey of five nations carried out by marketing and research consultant Frank Small and Associates surprised even the always sanguine STAR management. Taiwan, where STAR's services can be received by more than a million households, was expected to be the big one. But no one imagined it would be that big.

India, Israel and even Hongkong turned out to be bigger markets than STAR had expected. Only Indonesia disappointed with about 14,000 instead of the hoped-for 20,000. It is a technical problem, insists the deputy chairman. Indonesia will not allow cabling. So, in the main, one dish serves a single household.

Meanwhile, some things are a matter of presentation. While it is reasonable to assume Mr Li has the amount of advertising he claims, a glance at the product on air confirms the critics' complaint that only a relatively small portion - perhaps 20 per cent - of the available advertising space has been filled.

Upmarket corporate advertising for chemical companies and electronics giants induces uncontrollable yawns on the BBC channel, which is aimed at an even more select business elite than the top two per cent of Asia's most highly-educated viewers expected to be attracted by the other channels. A few advertisements for brandy and luxury cars intersperse the sports broadcasts and the music channel.

"That's irrelevant," says Mr Li. "I can fill my slots completely at a price that's much lower. It would be easy to lower the price but it's not so easy to raise the price. We are holding our price. And that will continue to be our strategy. Our rate-card is unchanged."

But Mr Li is sure there is more advertising to come. And Dr Martin supports his view. He dismisses the pessimists' argument that multinational companies are not ready for global advertising of the sort a free-to-air, trans-frontier service like STAR needs to survive. The big corporations, he says, are used to thinking long-term, taking out advertising contracts for a year at a time and using the latest communications possibilities. DESPITE the successes, however, Mr Li admits part of the reason he has done so spectacularly well is the company's low level of initial investment. He learned from the mistakes of other satellite broadcasters, especially the British groups, and did not put all his money up front. His creative staff, his post-production suites, his transmission equipment were packed into some of the cheapest new accommodation available, a factory building in a run-down area of Hung Hom, partly to keep costs low and partly to get the show on the road quickly. If he had waited to have all his facilities at the new Clearwater Bay site up and running, "we'd be waiting to this June to get on the air".

And he is the first to admit he cannot guarantee to break even at all times. Soon there will be new i nvestment in production and post-production facilities at Clearwater Bay and the company has plans for further expansion of the service, which will cost money. Total projected investment is about US$300 million. "But it's not all up front," says Mr Li.

And then, oh dear, there is that problem about Cantonese and the limited access for viewers in Hongkong and southern China. Without the use of the local language, the potential for attracting new viewers is limited.

STAR TV has created a new sandwich class in Hongkong. The majority of Hongkong people are too poor to live in luxury buildings full of expatriates unbothered by the lack of Cantonese and with satellite service built into the management fee. But they are too rich to live in public housing estates where Fortress has been installing satellite dishes with the agreement of the Housing Authority.

And once the service in the housing estates has been running for a while, it will be interesting to see how many mono-lingual households will bother to maintain their subscription for a service available in English, Mandarin and perhaps Hindi - but not in any language they understand.
"You would be surprised," says Mr Li. "A lot of them understand English even if they don't speak it." Perhaps. But will they watch it?

The deputy chairman is tired of trotting out the arguments for Cantonese: the awkwardness of explaining to potential advertising and programming partners why STAR's home government is so unsupportive, the potential for building up the local programming industry, the wealthy local audience so attractive to advertisers, the vast market out there in southern China (it is only in hotels where STAR TV is banned) ... If they could get permission to broadcast in Cantonese, they would have to consider producing their own programming. And although it would be done in Shenzhen or Taiwan to keep the costs down, there would need to be a lot more local post-production and back-up work in Clearwater Bay. But if Cantonese remains banned, it also reduces the available programmes for Taiwan and other Chinese-speaking markets, most of whom are happy to see the majority of their programming dubbed from Cantonese originals.
As for whether STAR should win the pay TV franchise in Hongkong, or even share it with Wharf Cable or one of the other bidders, Mr Li is, perhaps with a touch of bravado, claiming to be unbothered. With signal compression about to offer 40 potential channels, he is confident STAR will be able to offer free-to-air and pay-TV services. If he is not allowed to sell paid-for channels in Hongkong, he can still sell them profitably elsewhere.

The worst that can happen is that Hongkong people are not allowed to receive them. And unlike Wharf, he is not afraid of competition on the Hongkong market.

"The one biggest regret of the past 12 months is we spent too much time dealing with the Hongkong scene. I am saying that if our team spent 50 per cent of the time that we'd spent in Hongkong we'd have produced virtually the same result with the Hongkong Government. And we'd have for certain either developed one more major market, or the major markets would have more households already.

"We almost spent at one period 50 per cent of our time just dealing with the Hongkong Government .. The one major change I proposed this year is to look at ourselves really regionally and not spend so much time dealing with the Hongkong Government.
"I've not heard more unanimous agreement."

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