MBC revenues hit $930M in 2022; market share reaches 40%: CEO

Sam Barnett CEO of MBC Group 

The Middle East's largest broadcaster MBC Group achieved revenues of $930 million (SAR 3.49 billion) in 2022, recording a CAGR of 23% for the period 2020-2022, with strong growth continuing until the first half of 2023, the group’s CEO Sam Barnett told Argaam in an interview.

MBC's market share of Arab TV broadcasting reached 40% in the Kingdom and 48% in Egypt, Barnett said, noting that the share of Shahid platform stands at 23%.

"The media industry is expanding, and we are poised to capitalize on the momentum. With our strategic levers, including subscription, advertising and complementary growth markets, we aim to drive continued investment and progress," the CEO stated.

He pointed out that the number of subscribers to live streaming platforms in the MENA region is expected to double from 12.5 million in 2022 to 25.3 million by 2025.

Meanwhile, Barnett talked about the performance details of the group's segments, Shahid platform revenues, future expectations, and upcoming growth opportunities, and sent messages to the company's new shareholders, and below are the details of the meeting:

Q: What are the objectives that MBC Group aims to achieve through its initial public offering (IPO) on the Saudi market?

A: After a decade of sustained growth backed by our substantial commitments to media, content excellence and entertainment, it’s time for the next phase in our evolution.

The IPO is our strategy to amplify our market position, broaden our audience reach and to bolster investments in our flagship streaming platform, Shahid, as well as other promising entertainment verticals.

Our vision is clear – with our heart in the Arab world, we are forging a global media group that enriches people’s lives through information, interaction, and entertainment.

This offering provides investors with a compelling opportunity to be part of a robust and premium brand with a solid foundation and exciting growth potential.

Q: What are the main operational segments that have contributed to the financial success of the group in recent years?

A: The group’s revenues in FY 2022 reached $930 million, registering a 23% CAGR for the period between 2020-2022, with strong growth continuing into H1 2023.

Revenues underpinned by the expansion of Shahid, representing a CAGR of 59% over the last three years and a growing subscribers’ base by 3.8x growth since 2020.

With focus on generating cash flow, our broadcast unit is a key driver of financial stability and growth for our business.

The group enjoys market leading EBITDA margins. EBITDA from commercial activities (excluding Shahid) was $98 million for FY 2022, representing a 20% adjusted EBITDA margin.

Q: How do you view the entertainment and media sector in the Kingdom and the wider region in terms of size and growth?

A: The media industry is expanding, and we are poised to capitalize on the momentum. With our strategic levers, including subscription, advertising, and complementary growth markets, we aim to drive continued investment and progress.

OTT subscribers are expected to double in the MENA region from 12.5 million in 2022 to 25.3 million by 2025 and increase further to 35.3 million by 2027. OTT subscription-based video on demand (SVOD) revenue in the MENA region is expected to grow at CAGR of 6.9% for the 5-year period between 2022 and 2027, from $1.6 billion in 2022 to c. $2.3 billion in 2027.

In addition, penetration rates are expected to continue to increase, with current rates in MENA at only 4% in 2022, compared to mature markets such as US with penetration rates of 81% in the same year.

Q: What is the estimated market share of the group in its main operational sectors?

A: We have been the pan-Arab broadcasting leader for the last 30 years, reaching over 150 million viewers per week. MBC has a 40% [TV audience] market share in KSA, 48% share in Egypt and 27% and 19% share in Iraq and Morocco, respectively.

With subscription-based platforms, Shahid has a leading market share of 23% (1 in every 4 paid subscribers in MENA) - our premium content and extensive offering is why we are the leader and the region’s favorite premium subscription platform.

When it comes to watching free services with ads (AVOD), we have 22 million active users.

Q: What are the upcoming growth opportunities that MBC plans to explore and invest in?

A: As the media industry continues to grow, MBC is well-positioned to capitalize on this trend and drive ongoing growth and investment via multiple levers such as subscription, advertising, and complimentary markets.

MBC’s subscription model provides a reliable and scalable revenue stream, with potential for significant growth as our customer base expands.

Regional paid streaming subscribers are expected to sustain strong double-digit growth and double by 2025 and reach 25 million.

Through Shahid, MBC is well positioned to capitalize on the significant growth expected in the regional streaming market. With a captive audience of engaged viewers, MBCs platform offers valuable advertising opportunity for brands looking to reach their target market.

Advertising spend on Shahid is poised to continue its rapid growth as online viewership continues to increase alongside time spend on the streaming platform, providing significant upside potential to grow ad market share in AVOD.

Advertising spend on AVOD is expected to grow at a CAGR of 25% and reach $362 million in 2025.

The company is expanding and developing into versatile business segments such as gaming, music and events which will broaden its reach with opportunities for cross-promotion.

Q: Advertising constitutes the largest part of the group's profits. What are your expectations for the advertising sector in the Kingdom and the wider region in the next year (2024) compared to the previous year?

A: It is projected to grow. TV advertising began to rebound last year (2022) and is expected to further grow at a CAGR of 5.5% between 2023 and 2027. Moreover, the share of TV in total advertising spending is decreasing.

On the other hand, AVOD spending is expected to grow.

In 2022, AVOD spending in MENA was approx. $600 million and is expected to grow at a CAGR of 15.3% for the period between 2022 and 2027 to an estimated $1.22 billion in 2027.

Importantly, the appeal for Arabic content globally and the total addressable market outside MENA is significant – there are around 300 million Arabic speakers worldwide of which 40 million are outside MENA.

Q: The group has ownership stakes in subsidiary and peer companies. How do you evaluate the performance of these investments? Are there plans to increase investments or divest some of them?

A: The company currently has investments and important strategic partnerships, such as MBC Media Solutions, and it may continue to enter any such investments and strategic partnerships in the future to achieve its long-term strategic plans and objectives.

MBC also has investments in associates and joint ventures such as Wego, Angami, MBC Game Studio and others.

In terms of performance, the majority have done well and are either up in terms of revenue, year-on-year, or have remained flat. Collectively, subsidiaries’ total revenue in FY 2022 was SAR 3.488 billion versus 2.845 billion for FY 2021.

We are constantly evaluating our investments and we will make decisions in the best interest of the business and our future shareholders.

Q: Over the past three years, Shahid platform owned by the group has shown revenue growth but has incurred losses. Can you clarify the reasons for this, and when do you expect it to become profitable?

A: Revenue generated from Shahid platform represented 15.9% of group’s total revenue in 2022, up from 14.6% and 9.5% in 2021 and 2020 respectively.

The majority of Shahid revenue is generated from subscriber fees and as a consequence, trends in subscribers has a meaningful impact on the revenue generated from this business operation. The Shahid platform witnessed a high intake of subscribers after the re-launch of the service in 2020 and the COVID-19 pandemic with a net addition of 855,000 SVOD subscribers during 2020 and a year-end number of subscribers of 983,000.

The group was able to maintain this growth with the year-end number of SVOD subscribers growing at a rate of 111.9% in 2021 recording 2.08 million subscribers (a net addition of 1.09 million subscribers) and by 37.7% in 2022 recording 2.86 million (a net addition of 785,000 subscribers) and by 18.1% during the six-month period ended June 30, 2023 recording 3.38 million subscribers (net addition of 518,000 subscribers).

This was also a result of the continuous investment in the platform and marketing spend which allowed the group to reduce the average monthly churn rates from 15.4% in 2020 to 13.5% in 2021 and further to 9.6% in 2022 and then to 9.0% during H1 2023.

This continuous growth was primarily a result of the additional investment in marketing spending to acquire new subscribers leading to an increase in reported customer acquisition cost “CAC” from SAR 6.8 per subscriber in 2020 to SAR 12.9 per subscriber in 2021 and further to SAR 29.6 subscriber in 2022.

The growth was also driven by the additional investment in the content available on the platform both to attract new and retain subscribers. During H1 2023, CAC decreased to SAR 24.0 driven by a slow-down in paid media costs, which is monitored based on the budget set, organic growth of subscribers and seasonality of the content aired. The cost of programs increased from 56.7% as a percentage of total Shahid revenue in 2020 to 64.5% in 2021 and further to 83.7% in 2022 (69.0% after removing the impact of the digital content impairment accounting estimate adjustment) and 65.9% during H1 2023.

Meanwhile, the group ensured the continuous growth of its Shahid platform through an increasing level of spending both in terms of marketing and content availability. While the platform is yet to reach profitability, the group has funded and continues to fund the deficit resulting from investments required to further grow the platform’s attractiveness and its subscribers base through cash flows generated from other profitable operating segments and compensations received from the government of the Kingdom of Saudi Arabia.

The future profitability of the platform is largely linked to the group’s ability to grow its subscriber base and increase its revenue to absorb the fixed costs and investments made to attract and retain these subscribers.

Until the segment reaches a breakeven point, the group will have to continue to fund the investments in the technical capabilities, marketing spends and content quality available on the platform as these are they key drivers for the success of Shahid.

Q: You also plan to use 15% to 25% of the IPO proceeds to finance capital. What is the significance of financing in the group's business model and upcoming projects?

A: It is going to improve our financial flexibility to meet our working capital requirements especially when we experience revenue fluctuations, like when it is peak viewing season or there are special events.

Q: Does the company aim to distribute profits to shareholders or reinvest them?

A: This is a 100% primary raise (of 10% of the company’s total share capital). In other words, we are issuing and selling new ordinary shares to individual and institutional investors and investing the money raised back into strengthening the business and to support us with our growth strategy.

The money will be invested in:

- Content expenses for Shahid

- Investing in new initiatives such as gaming, events and music

- Enhancing our capital structure

- Enhancing the liquidity margin to finance working capital

We are focused on growing this company and all monies we make is reinvested back in, allowing us to continue producing high-quality content and growing our Shahid platform.

Q: What message would you like to convey to new shareholders joining the company?

A: Firstly, the media industry is expanding, and we are poised to capitalize on the momentum. With our strategic levers, including subscription, advertising, and complementary growth markets, we aim to drive continued investment and progress.

Secondly, our subscription model provides a reliable and scalable revenue stream, with potential for significant growth as our customer base expands.

Thirdly, paid subscribers in the MENA region are expected to sustain strong double-digit growth and double by 2025 and reach 25 million. Through Shahid, we are well positioned to capitalize on the significant growth expected in the regional streaming market.

Fourthly, with a captive audience of engaged viewers, our platform offers valuable advertising opportunities for brands looking to reach their target market. Advertising spend on streaming platforms (OTT) is poised to continue its rapid growth as online viewership continues to increase alongside time spend on streaming platforms, providing significant upside potential to grow ad market share in the advertising-based video on demand category.

Finally, we are expanding and developing into versatile business segments such as gaming, music and events which will broaden its reach with opportunities for cross-promotion.