Starhub renews non-exclusive contract with Fox International Channels

StarHub has renewed its contract to carry content from Fox International Channels (FIC) in a non-exclusive deal. This deal is the first major renewal of its kind since the changes in the Media Market Conduct Code laid down by the Media Development Authority (MDA) took effect from Aug 1. Under the code, pay-television operators have to make available any exclusive content acquired from March 12, 2010 to subscribers of competing operators.

This mandated availability of content across pay-TV FIC currently provides more than 30 channels to StarHub, including Star Movies, Fox and Channel (V) International. The extension of the contract on a non-exclusive basis indirectly cements Starhub’s long-term relationship with the FIC (since the early Singapore Cable Vision days) and the value proposition across genres that it provides to subscribers.

Nonetheless, the same content would now be provisionally available to other pay-tv operators based on the new content code which effectively dilutes Starhub’s previous stranglehold on FIC’s content. We make no change to our forecast noting that Starhub’s programming cost will likely remain sticky (only partially offset by the subscription price hike effective Aug 2011) as:

(i) the renewal of existing content are likely to be at terms that are no less prohibitive that previous contracts with escalation clauses built-in and

(ii) the signing of new content at higher cost on the back of the generally pricier content worldwide. Maintain NEUTRAL on Starhub based on target price of S$2.85. In addition to Singtel (NEUTRAL, TP S$3.26), Starhub presents a defensive exposure for the more risk averse investors under the current volatile market conditions with commendable dividend yields of 5-7%.