Mexico's OTT industry poised for massive growth with telecom deregulation

By Jim O'Neill on Jul 21 2014 at 11:00 AM
Mexico is deregulating the telecom industry and opening up OTT opportunities

Mexico's president has signed a telecommunications deregulation bill that will open up the Mexican market, lower consumer prices and encourage competition in the region’s 2nd-largest economy. It also will spur new deployments of over-the-top video services. Mexico is looking to break open $30 billion a year market with a bevy of telecom reforms that President Enrique Peña Nieto, said would be the “opening of a new era of development for Mexico,” noting that while it represents challenges for the companies in the sector, it “also opens up new opportunities.”

Those opportunities are large enough to have prompted Pyramid Research, in a May report to say Mexico ranked high in its “OTT Video Market Attractiveness Index,” where it joined China, Russia and Brazil as an emerging market that would provide the most attractive opportunities for OTT.

Meanwhile, Mexico already has created two new free-to-air stations that the incumbents can’t compete for; it’s also allowing foreign owners to have a 49% stake in broadcasting companies and up to 100% ownership in for telecoms.

Two of the largest players in the market, Televisa and Telmex already are looking for ways to blunt the effect of the legislation on their market edge.

Televisa is the largest broadcaster in Mexico and the world’s biggest provider of Spanish-language content. It has more than a 60% share of free-to-air broadcasting, and has cable and satellite holding that maker it the largest pay-TV operator in Mexico.

In May, it announced a new multiscreen offering that includes TV Everywhere with live linear programming as well as SVOD and TVOD (through Veo).

The other major player in the market is Carlos Slim’s Telmex, once the state-run telephone company, and now a subsidiary of America Movil, which controls 70% of mobile phone subs and 80% of landlines.

Although barred from offering TV service, Telmex, has secured rights to content including past Pan American Olympics, Sochi Winter Olympics, Rio Olympics, other sports and news, and has streamed live events and provided VOD through Claro Video.

The broadband sector remains one of the highest growth sectors in the telecom market, and it’s seen change even before the telecom bill.

Dominant cable TV providers, Megacable, Cablemás and Cablevisión, have reduced churn and increased their share of broadband by offering bundled services that include cable TV, broadband and telephony.

And there’s plenty of room for growth.

International economic group The Organization for Economic Cooperation and Development says that Mexico’s broadband penetration is less than half of the OECD average of the more than 30 nations in its forum. And, it says, consumer prices remain among the highest in the OECD.

Mobile phone subscriptions currently dwarf pay-TV subscriptions in Mexico, but the pay-TV line is growing.

Futuresource Consulting forecasts pay-TV penetration in Mexico to reach 75% by 2018, and more than 2 million subscribers were added to the market in 2013.

Broadband penetration, meanwhile, reached 52% or Mexico’s households in 2013, as a new infrastructure program launched in 2012 started paying dividends across the country.

There already exists a robust and burgeoning digital video market in Mexico, one that grew more than 90% in 2014 to $86 million.

The market more than doubled in size between 2012 and 2013, Futuresource said.

The researcher is looking for a CAGR exceeding 33% through 2018, with the market reaching at least $360 million.

Subscription video on demand will drive much of the market’s growth, although the researcher said increased awareness and availability of other services is helping to boost all platforms.

SVOD services currently are estimated to have 66% of the digital spend in Mexico, and that’s forecast to grow to 70% in 2014.

One key to that growth has been Netflix, which launched in Mexico and 42 other Latin American and Caribbean countries in 2011.

Several other services have launched since then, and more are on the way.

Mexico’s digital transition also is expected to help the market grow.

Currently, about 26% of households have a digital signal, and Mexico – slightly behind in the process – nonetheless anticipates a 2015 completion.

In an effort to accelerate the transition, Mexico’s government purchased and planned to distribute more than 120,000 digital TVs in Nuevo Laredo and Reynosa, in the state of Tamaulipas.

Overall, some 15 million households are expected to add digital TVs by 2020.

Online advertising in Mexico has followed a similar growth pattern to other major markets, growing 31% in 2013 to more than $654 million, eMarketer reported, the fifth year in a row it grew by at least 30%, Much of the growth was due to increased spending in video and social advertising, which saw 100% and 155% increases in 2013.

That doesn’t, said eMarketer, include a mobile ad market that is growing faster than fixed online ads.

Mexico’s economy has the horsepower it needs to support continued growth in the telecom and media sectors, and it’s seeing consumer buying power to match.

While currently ranked as the 14th-largest economy in the world, a number of studies have it accelerating past some other global stalwarts, notably France and South Korea in the next decades.

HSBC forecasts Mexico to rank as the world’s 8th largest economy by 2050, and Goldman Sachs and PricewaterhouseCoopers forecast it to be the world’s 5th- and 7th-largest economy respectively by mid-century.

It’s worth noting that nearly all studies point to Mexico’s structural reform as a key to that success.

Peña Nieto has made that overhaul a centerpiece of his administration, a makeover that will create a new national identity for Mexico.

“Mexico is the coming story over the next decade,” Miguel Kiguel, director of EconViews, an influential pan-regional economic consultancy based in Buenos Aires, was quoted as saying in a story on EmergingMarkets.org. “It’s one of the most dynamic countries in the region, it’s benefiting from the U.S. recovery, and the government is rapidly deregulating key industries.

“If I had to choose to be anywhere in Latin America over the next five to 10 years, I would have to say that place would be Mexico.”

As a Credit Suisse report suggested, the past five years in Latin America have been all about Brazil… the next half of the decade may well be about Mexico, especially as it continues to broaden and diversify its telecom and media segments.

Follow me on Twitter @JimONeillMedia

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