Television uptake continues apace south of the border, and it is this groundswell that is informing America Movil and DirecTV's bids for GVT, Vivendi's Brazilian ISP arm, according to analysts.
According to Northern Sky Research's Global Direct-to-Home (DTH) Markets report, South America remains a growth-focused market, with Brazil leading the charge. By 2021, the number of TV households in South America is projected to surpass North America as incomes continue to rise throughout the region. Satellite platforms will reap the most benefit from these gains, adding another 13 million subscribers over the next ten years.
NSR said that the growth will be felt across the value chain as subscribers upgrade packages to HD and DVRs, and new households enter the market. The steady movement of ever more subscribers towards higher-ARPU packages will result in nearly $5 billion in annual subscription revenue for DTH platforms in 2021 across South America. All told, the market will generate nearly $35 billion in revenue in the ten-year period between 2011 and 2021.
"With an expanding middle class to bolster them, even during the economic recession, DTH players in the region continue to be focused on both expanding the bottom today, and building the networks to service the media demands of a connected generation tomorrow," researchers said.
However, as seen in North America and elsewhere, media consumption continues to shift away from linear-TV towards non-linear, typically Internet-based platforms. To support that, Internet connectivity (both fixed and mobile) remains the key enabler to deliver these next-generation media services to subscribers. "As such, GVT's assets would represent a significant advantage to both DirecTV's Sky Brazil, and DirecTV's bottom line in enabling the next generation of media delivery," researchers said.
According to Reuters, citing unnamed sources, DirecTV and America Movil SAB have submitted preliminary bids of more than $7.76 billion to acquire GVT — making them the frontrunners. Other suitors include Liberty Global and a group of private-equity investors. Telecom Italia, which operates the wireless company TIM Brasil, may also submit a bid in the coming weeks.
Facing stalled growth prospects at home, South America will be a key revenue source for DirecTV, NSR points out, even as competition heats up. "With Sky Brazil posting impressive subscription and revenue growth for the company across both the low, middle, and high-end subscribers, an acquisition of Vivendi's GVT [by DirecTV] would provide access to both the GVT subscriber base, and more importantly, its terrestrial network – and give DirecTV a key advantage it does not have in the US."
Meanwhile, likely looking to expand their presence within Brazil, America Movil will represent a significant hurdle to a successful DirecTV acquisition, according to NSR. "The company already has both terrestrial and satellite offerings within the region, and access to GVT's customer base will continue to accelerate their growth prospects and diversify their coverage area," it said.
Private equity is unlikely to be a viable contender, as cost advantages and network gains significantly favour both American Movil and DirecTV. "As both companies are well funded, have positive revenue outlooks, and are already invested within Brazil, it is very likely bidding will be extremely intense," NSR concluded.
Final bids are expected in January.