OREANDA-NEWS. Fitch Ratings says new digital television channels with strong content in Thailand are likely to continue to gain advertising market share at the expense of incumbents, particularly Channel 5 and Channel 9. However, the two largest channels by advertising market share, Channel 7 and Channel 3, should continue to maintain their market-leading positions given their strong programme content and large viewer base.

New channels with limited in-house production capabilities are likely to face more challenges attracting mass viewers, who prefer locally produced programming; their financial profiles could come under pressure and their ability to maintain enough liquidity to absorb losses over the medium term will be a key requirement for survival.

Of the new digital TV operators, Workpoint Entertainment Public Company Limited (Workpoint), RS Public Company Limited (RS), and GMM Grammy Public Company Limited (GMM, BBB+(tha)/Positive) have in-house production facilities, and this should be able to strengthen their market positions in the challenging environment. Fitch expects the financial profiles of these top-rated new operators to continue to improve in the medium term as their revenues ramp up.

We expect the audience ratings for Workpoint's eponymous channel, RS's Channel 8, and GMM's ONE channel to continue to improve over the next two years, supported by the expansion of the viewer base for digital TV and as they increase the number of programmes on prime time. The audience ratings for Channel 8 and ONE are likely to continue to increase as the operators increase their drama programming, which is supported by their strong rosters of film stars and other artists.

Workpoint is likely to concentrate on its variety shows, which have a strong following. It will move its popular variety show, Ching Roi Ching Ran, its only programme remaining on Channel 3, which is owned by BEC World Public Company Limited, to its own channel in July 2015. The new digital TV operators' strategy is to gradually add new programmes as advertising revenue grows, to minimise the mismatch of content production costs and advertising income.

Fitch expects Channel 5 and Channel 9 to continue to lose market share in the medium term as the new channels expand. Channel 5, which is owned by Royal Thai Army Radio and Television, has weaker in-house production capacity and needs to decrease its airtime rental rate by 25%-35% in 2015. Channel 9, which is owned by MCOT Public Company Limited, has responded by increasing the proportion of in-house produced programmes in 2015. The reliance on bought-in content has become a key risk factor since quality producers - including Workpoint, RS and GMM - are now mostly producing programmes for their own channels rather than selling to competing channels.

Among the new digital TV operators, Fitch expects those that have weaker abilities to produce or acquire popular programmes at competitive rates to struggle as their advertising revenue may not rise fast enough in the medium term to cover the high fixed costs of licence fees and content production.