Ladies and Gentlemen, good afternoon.
I was going to say " it gives me great pleasure" to be here, but I remembered that Winston Churchill always felt those words sounded insincere coming from a speaker. According to Churchill there were only a few activities from which he derived pleasure - and speaking was not one of them.
Before World War I, he helped found a club called the "other club." Often at its meetings, the name of a member was pulled from one hat, and a topic from another. The member was then asked to give extemporaneous remarks on the subject. Once, Churchill's name was pulled from the hat, along with a one-word topic: sex. Churchill stood and showed the audience the paper on which the topic was written. Then he said: "It gives me great pleasure" - and sat down.
But I am really happy to be here. As I told your president in my letter, although I have been out of Rotary for some time now, I suppose having been a Rotarian before - for more than ten years - I guess I continue to be a Rotarian at heart.
I was once the Chairman of the Program Committee of the Rotary Club of Makati West and I know how difficult it is to invite speakers every week. But like the Rotary Club of Makati West, the Rotary Club of Manila - the oldest and most prestigious Rotary Club in the Philippines - has so many distinguished members who could be speakers at your regular weekly meetings. Maybe you can also do what Churchill's "other club" did.
I say this because I know many of your members.
A senior partner of the law firm where I started my law practice in 1965 - "Monte" Montecillo - continues to be a member of your club. And there's Justice Art Panganiban of the Supreme Court, who in addition to his numerous ponencias, writes a book every year, Atty. Jess Santos, the lawyer of First Gentleman Mike Arroyo, Dr. King Doromal, who after he retired became even more busy in so many NGO activities, and Tom Banguis, president of the top ad agency, AB Communications, to mention a few.
I chose the topic, "The Philippine TV Industry and GMA-7" because managing GMA-7 is what I do now, most of the time.
Unlike in law practice, there are no reference books I can read in solving the problems I encounter in GMA-7. That is why I find my job there more exciting and challenging. After practicing law for close to 40 years now, I thought that perhaps I could branch out to other areas.
Besides, the landscape of the Philippine TV industry has changed a lot.
Just last October 10, we publicly declared that GMA-7 is now the undisputed No.1 TV station in the country in terms of ratings in all segments of the day, that is, from sign on to sign off. In terms of net income, GMA-7 has been ahead of ABS-CBN since 2 years ago, despite the fact that the gross revenues of ABS-CBN continue to be much greater than ours.
But first, let me dwell a little bit on the Philippine TV industry in general.
There are no less than seven Very High Frequency TV stations, namely, Channels 2,4,5,7,9, 11 and 13. There are also eight Ultra High Frequency TV stations, out of which two are not operating.
It appears that in Mega Manila we have too many VHF TV stations as compared to other countries. In the United States, for example there are only five major VHF TV stations, namely, ABC, CBS, Fox, NBC, and PBS.
Out of the seven VHF TV stations here, my information is that only two, Channels 7 and 2, are making money. Channel 4 is owned and operated by the government. Channels 9 and 13 are government-sequestered stations. And Channel 11 is operated by a religious organization.
As far as the UHF TV is concerned, my information is that only Studio 23 is making a little money. With the merger of SkyCable and Home Cable into Beyond Cable, and the consolidation of Destiny Cable and Global Cable, there are now two major cable TV carriers in Mega Manila - Beyond Cable and Destiny Cable. I understand that both of these cable providers are losing.
Thus, the Philippine free TV industry at present can be described as a duopoly between Channels 7 and 2, in spite of the proliferation of other TV stations.
The investment required in operating a TV station is fairly high. A 100 KW transmitter alone costs about $2 million. The antenna costs about $500,000. Then you need to build studios and towers, purchase ENG and OB vans, cameras, etc. which are very costly. The operating costs, such as talent fees, salaries and wages, utilities, etc. are fairly high also. These will give you an idea why TV stations lose a lot of money if their programs do not rate and sell.
The television that we are familiar with today is also changing in form and substance because of technology. The advent of satellite, digital television and the Internet has altered forever the broadcast scene. The remarkable advancement in digital technology providing high resolution, wide screens and dynamic sound, offer more options to the public than broadcasters had ever before.
The conversion to digital has made TV programming accessible to computers. The digital system provides not just clearer and better quality signals but is essential for broadcasting, telecommunication and computing to effectively interact with each other. This has resulted in the proliferation of new products and services now available to consumers. Replacing the analogue waves of television today are digital transmission systems which could integrate a number of broadcasting services into a single broadcasting wave.
We can envision the fusion of cable, telecommunications and computer services functioning under one integrated system. On the same TV equipment, one can receive programs or data, select programs or movies, perform banking transactions, buy groceries, communicate with another person or persons, etc. To the viewer, the television of the future as Ashley Highfield, Director of BBC New Media & Technology, described it " will resemble more of a kaleidoscope, thousands of streams of content, some indistinguishable as actual channels. These streams will mix together broadcasters' content and programmes, and our viewers' contributions. At the simplest level - audiences will want to organize and re-order content the way they want it. They'll add comments to our programmes, vote on them and generally mess out about them. But at another level, audiences will want to create these streams of video themselves from scratch, with or without help."
We are not yet there, but television interaction with the audience has already started here with reality shows where the audience participate in the programs through texting and voting in polls. And based on the audience feedback, we are able to produce shows that satisfy their needs.
The existing conditions in the Industry and GMA's response
With these developments, the free-on-air television broadcasting sector in well developed economies is now facing audience erosion due to increased competition from non-free television providers, and increased costs leading to low growth and profitability. In fact, in the United States, the ratings of the four major networks, ABC,CBS, NBC and Fox had been declining, even in homes that do not have cable as an alternative.
Fortunately, the full impact of competition from the non-free television providers is yet to be felt in the Philippines. This may be due partly to the cost a non-free television subscriber must pay - which in the Philippines and particularly during these times of financial crisis - only the few well-off members of our society can afford. But as the Philippine economy improves and the financial resources of more members of our society gets better, increased competition from the non-free television providers can be expected.
When the economy is down, advertising suffers. According to statistics, advertising minutes as of September this year is down by 6.5%. And when advertising expenditures are reduced, the many television networks and stations now operating find themselves having to share a smaller advertising pie. As a consequence, the already fierce competition among them will get fiercer.
GMA and ABS-CBN share a major portion (83%) of the advertising pie. GMA has the upper hand getting a share of 42% of the adspend allocation as of September compared to ABS-CBN's 41%.
Between the two of us, competition is really fierce. In order to attract more advertising revenues, we have to make our programs rate. In this respect, GMA has studied the market very well to determine what our viewers want. We continue to innovate and to come up with new creative concepts. We produce new programs catering to the needs of our audience.
Our efforts have produced very good results in terms of the high ratings of our programs and the revenues that these programs generated. As of the end of September, we have outpaced our competition. (Slide 2) For the month of September alone, GMA was ahead of ABS-CBN by 4 points according to Nielsen Media Phils. and by 2 points according to AGB Phils. (Slide 3) In non-cable TV homes, GMA leads across various time segments except on prime time where ABS-CBN is still ahead by only 1 point from January to September. Note however the abnormal trend in comparing the results of the Nielsen and AGB surveys. (Slide 4) In the AGB survey, the gap in the ratings of non-cable versus cable TV homes becomes narrower for ABS-CBN while in the case of GMA, there is not much change in the gap as indicated in both surveys. In other words, the cable ratings of ABS-CBN in AGB are unusually high as compared to its cable ratings in Nielsen. And this began to happen only since two years ago when we became competitive to ABS-CBN. We have been complaining about this to AGB, which is the official ratings supplier to the industry.
Three years ago, GMA's programs were trailing far behind ABS-CBN and most of the time, our programs were in the lower rung and could hardly make it to the top 15 ladder. The situation now has changed as these charts would show. In September, 14 of the top 15 daytime programs came from GMA according to Nielsen and 12 out of 15, according to the AGB survey. (Slide 5) In the evening at primetime, GMA dominates the top 15 list of Nielsen while it has 8 programs versus 7 ABS-CBN programs in the AGB list. On late nights, we have a neck-and -neck fight with ABS-CBN although the No. 1 program remains ours.
I am proud to say that our viewers prefer our station's news and public affairs programs because of the station's credibility and responsible delivery of news and information. This was evident during our coverage of the Oakwood mutiny and the elections when our news programs rated higher than our competitor's. I also believe that we have gained many of our competitor's loyal followers as indicated by the recent and consistent high ratings performance of our programs. Thus, with the increase in the program ratings, loading has also increased. In terms of loading, (Slide 6) we also have an edge over ABS-CBN with GMA leading by 5,000 minutes although there was a notable drop of 6.5% in industry loading this year (Slide 7) compared with last year's.
The very good ratings performance of our programs plus our other business initiatives have resulted in a strong financial performance. Last year the company achieved a net income that amounted to P1 billion, more than double the P400 million posted in 2002, a first in GMA's history.
As of the third quarter this year, our financial figures remain ahead of last year's level with revenues growing by 20% over last year. As of August this year, or for the first eight months of this year, we have already equaled our total net income of P1 billion last year. This gives us the confidence that we will meet our financial target for this year.
I attribute our success in achieving the premier position in the industry to the individual and collective competencies of our management and work force guided by our mission, vision and core values which they all take to heart (Slide 8). Their combined talents and capabilities, their dedication and faithful adherence to the values that we hold dear, plus their competitive spirit brought us where we are now.
Along the way, however, we have met some obstacles. We had problems with the KBP and we decided to pull out. We are aware of our responsibility to our audience and did not abuse the KBP rule on load limit even when the rule was not being enforced by the KBP. GMA Network practices self-regulation and has set an internal limit on commercial loads, which is lower than what we achieved last year.
Our average commercial loading decreased after we left KBP last year. I question the arbitrary imposition of the 18-minute per hour rule as I believe this constitutes a restraint on trade. Until now, the KBP does not have a satisfactory explanation where the limit came from and what were its bases.
It is a reality that too much commercials could make the audience dissatisfied, and could cause TV programming to suffer in ratings. The optimum limit in commercial loading will allow free market forces to operate that will effectively limit the ability of TV stations to overload. The U.S. does not have such rule - if you know your audience, you will know at what point they will stop viewing your program because of too many commercials.
We also feel that the playing field is not level as we are experiencing unfair competition. Our competitor, having a virtual monopoly of the cable business (Slide 9) has an edge in terms of the ratings of cabled TV homes as illustrated earlier in the AGB ratings. In fact we have also filed a complaint regarding the bad signal of our TV station on cable when all other stations are not experiencing the same. We have filed a formal complaint in this regard and I am hoping that something will be done soon to correct the situation.
In any case, we already see the handwriting on the wall - there will come a time when some advertising will veer away from traditional outlets like radio and television. To cope with the situation - we in GMA Network, and probably more so in the case of ABS-CBN - have diversified and invested into allied and related businesses, such as film and local TV program production, satellite services, audio and video production services, music recording facilities and services, among others. By January, we will be launching our international channel in the United States and next year, we will be opening our UHF channel and produce movies again.
Further, in spite of the financial crisis, GMA Network has continued to expand and upgrade its 44 VHF stations (Slide 10) all over the country. We have been installing new equipment and infrastructure to improve the clarity of our signal and the reach of our stations in key areas like Cebu, Davao, Iloilo, Zamboanga, Dagupan, etc. We are prepared to meet the demands of our advertisers who are increasing their presence in the regions. We expect that in the future there will be an unbundling of rates to differentiate the Mega Manila market with those in the provinces.
We are doing these and more not only to expand the scale and scope of the coverage of our VHF TV network but at the same time achieve and maintain a high standard of quality in the programs and other free-on-air television services we provide.
Given that no other media outlet at present can deliver the same mass audience that broadcast TV can deliver, advertisers who seek the audience delivery of TV broadcasting have practically no choice. However, may I also point out that with more Filipinos cutting down on shopping, dining out, and going to cinemas due to the economic difficulties, families will turn to TV for entertainment. This means a bigger television audience and greater demands for local programs. This also means more opportunities for film studios and post-production houses which may have to expand their facilities quickly to cope with the demand. We are taking advantage of this opportunity by continuously improving our production capability and coming up with new programs. Thus, we will be producing more local programs not only for Manila but also for the provinces. We plan to make movies next year as outlets for the many in-house/exclusive talents we now have.
Because programming impacts on ratings and ratings are primarily used to set advertising rates, the focus is and will continue to be on programming. The audience will always choose the channel that will entertain them. It is also for this reason that GMA is also pouring some of its resources in improving its production capability and developing new talents as well as providing the infrastructure such as the construction of another bigger state-of -the- art studio next year to support these initiatives. We now have a full blown Artist Center sourcing new talents, undertaking workshops, and deploying our artists and talents to take advantage of opportunities both in the advertising and the TV industry.
But as stated before, because of present and future competition from cable, direct broadcast satellite (DBS) and perhaps the Internet also, the ratings for the broadcast networks and stations can be expected to decline.
But in our view, the condition of the economy has more impact on advertising at present than the competition posed by cable TV, DBS and Internet. It is hoped that our economy will not remain sluggish for too long.
In the Philippines, I believe that because of limited resources, the shift to digital television will be gradual. Most people will still regard their television sets as a means of relaxing and being entertained and they are not going to change the way they use their television sets overnight.
The Future of Broadcast TV- Fusion Into One Integrated System
There is also an opportunity in the international arena. There has been a wave of change in the Asia Pacific region as viewers become more sophisticated and have gained interest in the arts and cultures of other countries and civilizations. We will therefore take advantage of the emerging globalization of broadcasting which provides new opportunities for broadcasters. I believe that in a few years, as we in GMA and ABS-CBN have already started, any broadcaster worth the name will be transmitting program domestically and globally. Initially, we are targeting programs at Filipino communities living in other countries.
As competition between the programming provided by local broadcasters within the country and programming from outside via satellite and other means increases, we need to keep on improving our programming by providing a wider range and variety of programs and actual production and technical quality.
We are also in the Internet now through Inq7.Net (Slide 11) and making positive plans for increasing our visibility using our own website igma.tv. (Slide 12) It is noteworthy that Internet usage in the country is growing by leaps and bounds. The opportunities in Web TV for broadcasters include both connecting their existing broadcasts to Web sites, potentially making it easier to draw audiences and advertising revenue, and even using their TV signals to deliver Web data.
According to a recent study, more than 700 different broadcasters are already transmitting audio or video worldwide via the Web.
It is important to keep track of developments in the industry. Because of huge resources needed and in order to bridge the technology gap, broadcasters should form alliances with other companies, partnering with companies with the resources and the know-how to market their product. This is also a major reason why we have decided to go public next year. We may need additional resources to be able to take advantage of the opportunities not only locally, but internationally.
I believe that we have enormous talents in the country that can be harnessed to make our country the Entertainment Center of Asia. The entertainment industry is labor intensive; it provides job and investment opportunities in allied services and industries. One of the opportunities that technology has brought to the industry is our access to the international market. Just as our audience have developed a taste for Asian soaps (Korean, Taiwanese and Chinese) there is also a growing audience out there who are curious and developing their liking for our own soaps. These, plus the millions of Filipinos out there who watch our programs, constitute a big market not only for us in the industry but more so for our clients and advertisers.
That's why I am happy and it gives me pleasure to be with you today because I consider you as our potential partners. They say there is opportunity in adversity and I believe so. We may be having difficulties today because of our fiscal crisis and a host of other problems. But this should not distract us from looking at the silver lining behind the clouds. We must, as the tagline of our talent search program emphasizes, "Dream, Believe, Survive" and I add "Win". Thank you and good day.
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