The main sources of revenue in our industry have changed,” says Maya Chams, a top executive with Rotana, the Arab music recording giant and six-channel television network.

“You can no longer count on regular advertising and selling airtime—today you have to look at your revenue from SMS (text messaging), selling ring tones, from all of these things. It’s a very different business now.”
Chams, 33, is admittedly a huge fan of MTV, the iconic American music video channel that grew into one of the most globally recognized brands among young people from India to Brazil: “It’s fabulous because they have created the MTV generation,” she says drawing a parallel to her own audience, a major chunk of which hails from the oil-rich Arab Gulf states where 60 percent of the population is now below the age of 19, she says. And like their Western counterparts, that audience is increasingly plugged in: to cell phones, laptops, iPods, and an ever-expanding array of alternative viewing devices.
Chams is quick to point out that Rotana, owned by Saudi media tycoon Prince Alwaleed Bin Talal, is no “copycat” and cultural restrictions place limits on adapting some of MTV’s racier shows: “We want to modernize but we don’t want to Westernize,” she explains. “Any Arab teenager is aware of what’s going on in the US. We don’t want our teenagers to say ‘wow, they have that elsewhere.’ We want them to say ‘wow’ we have it here.”  To put it bluntly, this means turning this new fleet of gizmos into cold hard cash, money that the Middle East TV industry could definitely use right now. New channels are opening almost every week and the advertising market for Arab television, worth around $300 million by most industry estimates, is simply unable to support the 200-odd satellite channels now crowding the region’s airwaves. The hope among many Arab broadcasters is that new technologies will naturally lead to new revenue streams.  Rotana and many others are now moving their content onto the web, offering a range of downloadable clips that could become “major sources of revenue for us, at least in the near future, if its not now.”  But Chams is most excited about the prospect watching her channel on her cell phone. “This is absolutely fantastic. We’re really counting a lot on this one, I think its going to be a big boom.”                                               

Now Playing

Rotana is by no means the only major Middle East broadcaster hot on going mobile. Pay-TV network Orbit, which broadcasts both original content and pre-packaged channels, has set up a new company called Media Gates to consolidate its production and acquisition holdings in the face of a changing industry. The new entity includes a special multimedia division that will be fully devoted to developing mobile content geared toward capitalizing on the region’s “massive” mobile industry, as well as creating downloadable material for the web. “People handling the visual content are in a trauma over what to produce and how to deliver,” says Media Gates managing director, Robert Khalil from his office in Beirut. He says, Orbit, a Saudi-owned company with around a dozen studios in Cairo and Beirut, is going through a sort of philosophical shift, moving beyond the singular quest for television and film acquisitions to understanding the evolution in consumer viewing habits. “It’s not just about sitting at home relaxing in front of the TV anymore, its seeing TV on the internet, in the office or while moving around on your mobile.” But for now, that kind of reality remains theoretical, mainly due to sluggish internet connections in many regional countries: “I mean you cannot just wait like 30 minutes to download a video,” Khalil says.
One of the latest viewing technologies to actually hit the Middle East market has been the digital video recorder (DVR) from Showtime, the Dubai-based pay-TV network owned by both Viacom and the Kuwait Investment Projects Company.  Dubbed Showbox, the new device allows viewers to record 40 hours of on-air programming and if early success is any indicator, the DVR could eventually mean major changes for the industry. Projected to reach 30 percent of US households by 2009, the DVR phenomenon has begun to change audience habits as viewers increasingly switch from watching live television to viewing recorded shows of their own choosing—a trend that could eventually erode the notion of prime time TV slots and their top dollar rates.
Since Showbox was unleashed on the Middle East market in February, “they’re flying out the door,” says Showtime CEO Peter Einstein. “We probably have about three or four thousand (sets) on the market, but obviously we are going to be building up to hopefully tens of thousands as we go forward.”  
The technology that powers Showbox paves the way for the introduction of video-on-demand (VOD) services in the Middle East, another budding platform that allows viewers increasing independence from prime time schedules by enabling them to purchase and store films and other content. “That’s probably more of a 2007 development,” says Einstein, not willing to divulge exactly when the company would begin to branch out into other forms of new media. Showtime is currently considering a mobile TV deal with a sister company in the telecom industry: “It’s not quite there yet, but it’s on its way.”

Hot programming

As the exec’s ponder the latest technologies, confusion reigns over what the average Middle East household is actually watching or really wants to watch. Because the Arab TV scene lacks any sort of real time ratings system, most broadcasters rely on commissioned surveys, which often become controversial. But then there is intuition. Last September, news giant Al Arabiya decided to make a bold move and for the first time on Arab all-news channel, the main story was not politics. The channel opted to follow the rapid growth of stock markets across the Gulf countries and now Al Arabiya features several hours of straight market coverage throughout the day accompanied by a ubiquitous stock ticker.       
“If a market jumps from the back of the list to number 8 in the world like the Saudi one, then as a TV channel, I think you would be blind if you didn’t see it,” Al Arabiya General Manager Abdul Rahman Al Rashed, explains from his office in Dubai Media City (DMC). “This is a young market. The majority of people are not educated about it, so we try to help them with lots of tips and analysis,” he says.
Zafar Siddiqi, chairman and CEO of CNBC Arabia, agrees: “I think that investors need to be better educated, particularly in companies which have more recently come onto the stock market.” In addition to Al Arabiya, Siddiqi says he expects more competition in the business programming segment, and is encouraged by an increase in advertising from financial firms: “With oil prices the way they are, with the liquidity in the market today and the profits we are seeing coming out of companies, I would say that the advertising buy is increasing. I don’t think it has shrunk.”  
 
Staying Alive

One of the most competitive programming segments in Arab television is music, and Egypt-based Mazzika TV knows the story all too well. “When we went on air on in 2003, the total number of channels on (Egyptian satellite operator) Nilesat was 125 with only 2 music channels,” says company CEO Mohsen Gaber. “Today Nilesat has 267 channels and no less than 30 music channels.” Gaber says he is excited about digital distribution, setting up Mazzika Digital six years ago. He also claims to be the first Arab broadcaster to offer its content on the iTunes website, but one of the company’s core revenue streams has remained in the on-screen SMS scroll bar that hosts an average of 60,000 text messages per day. Last August, Gaber says he received one million text messages from Saudi Arabia alone.  He says ad revenues are also relatively substantial at $4 million per month, and says overall profits run from $6 to $7 million per year. Yet in a market with so many TV channels evolving over such a short time, most stations cannot claim to be doing that well. Rotana’s Chams says she can’t even keep track of the competition anymore. “It’s ridiculous, we’ve stopped counting because channels are opening haphazardly and they’re not really focusing on long term revenue and growth.” For Showtime’s Einstein, competition from free-TV has become “an endless puzzlement.” He says the poor choices on free-to-air are actually a boon to the pay-TV industry, which he claims is worth nearly double the entire television advertising market. He says Showtime is now turning a profit, unlike “other people in the TV business that are there because they like to sit in their mattresses and watch TV.”

Where to?

There’s been a bit of speculation over recent months that major broadcasters such as Rotana and Arabiya’s parent company, MBC, might go public with an IPO in the next two years. Both Chams and Al Rashid say they are still ‘hopeful’ about such moves taking place but would not comment in detail or confirm any specific time frame. But going public may not be so easy. Today, few if any Arab broadcasters publish their figures. A public listing would require strict reporting standards, not to mention attractive returns. “They (broadcasters) must be in a profitable situation before they go onto the market,” says Siddiqi from CNBC.  “I have the distinct feeling we’re still three to five years away from that.” Einstein is equally skeptical: “Many of these companies would probably rather not go through the process (of an IPO) or may think about going through the process but it will take a long time to get their companies to into a point where they can actually deliver public results to investors.”
He says the focus should first be on establishing a legitimate ratings service to resurrect the ad industry, which is currently marked by “all sorts of back room action.”
“There would be more for everybody. It’s not bad to have a small slice of a very large pie versus a large slice of a very small pie.”
Al Arabiya’s Al Rashed agrees that the ad industry could use a bit of sorting. He says the rates have been chronically undervalued due to a lack of proper research, in addition to the industry being “badly damaged by discounts and reductions in the past.”
But he is optimistic about what he sees as a “gradual” increase in the ad market and also believes that consolidation is imminent: “Before, it was difficult because every group would think he is a God-chosen group and that he would survive and the others would collapse. I think now there is going to be agreement between big groups. You will see their services extended.” 

Red Lines remain

Whatever business or technological strategy Arab broadcasters decide to adopt, the future of the region’s media industry will largely develop at a rate governments are comfortable with. Even though there has been enormous progress from the days when all Arab channels were propaganda outlets, today’s private Arab media outlets still have their limits. Al Rachid is frank about the situation with Al Arabiya, which is backed by an influential Saudi family. “There are a lot of taboos left. I cannot deny it. It is the reality,” he says. “But we are moving forward inch by inch.” State security forces have become more “accepting” of spot news coverage, such as on the scene of an explosion. “Before, they would create problems for everybody—they would go ask about our journalists and put them in jail.” But what about investigating Arab royalty? “We don’t investigate companies, let alone go that high,” he admits.
Orbit’s Robert Khalil says it is becoming “cumbersome (for governments) to really have control.” But the broadcaster imposes a form of self-censorship, for example cutting off the signal of Fashion TV during the month of Ramadan. Orbit also has a fair share of talk shows that can get political. “The red lines have always been there; that is that we do not mock anyone’s religion or engage in personal attacks. This is as far as our self control.”
For others though, the frustration with governments goes beyond content. Although high-speed internet connections and advanced third generation (3G) mobile networks are available in some of the oil-rich countries, governments in places like Lebanon have been unable to come up with a information technology policy. As a result, most consumers depend on slow dial up connections—ironic for a country that hosts some of the biggest production houses in the region. “Everything coming out of Lebanon has a huge halo affect on the region,” says Chams from Rotana. “But when it comes to IT support, it’s a disaster. I’m shocked at the government to consider these issues so secondary.”

Who’s really making money out there?
Most executives won’t tell you how much their station makes, so we asked if they were making any profits at all.
Showtime:
 “We are profitable”
Rotana:
 “We broke even in two years and now we’re doing great”
Orbit:
 “Orbit is an excellent business model”
Al Arabiya:
 “We are very optimistic to make profits soon due to the huge day-time audience watching the stock market coverage.”
CNBC Arabiya:
 “Break even- 1st quarter 2008”
Mazzika: “We achieve a profit of $6-$7 million per year”

New on the block

After the collapse of its mid 1990s experiment with commercial television, The BBC will be back on Arab airwaves in 2007, this time drawing on British taxpayer money to make the project work. The plan is to reach viewers on three platforms: the Arabic language website, BBC’s Arabic service radio, which has been around since 1938, and of course the new channel. Station head Hosam El Sokkari claims that the service will provide a greater “breadth of views” for Middle East audiences. “We do not advocate. Our presenters and producers do not take part in debates,” he explains from his office in London, where the channel will be based. “It’s not about running or broadcasting what you think people would like to hear, its about getting people to think and to challenge some of the beliefs the audience has and give them a chance to listen to other views.”
Sokkari says he doesn’t think people will associate BBC Arabic with a government. He is quick to point out that much of staff recruited for the original TV project helped found Al Jazeera, Abu Dhabi TV, and then to a lesser extent Al Arabiya. “I would worry if out of the blue, we decided to broadcast on television in the Middle East.”