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Astro
Malaysia Holdings Berhad is a leading consumer media entertainment group in
Malaysia and Southeast Asia. They started their operation on the 1st
of June 1996. Astro is an acronym that means All-Asian Satellite Television and
Radio Operator. Their main operation, All Asia Broadcast Centre is located in
Bukit Jalil, Kuala Lumpur and their satellite Measat in Cyberjaya. They have a few operations
in four types of business which are Television, Digital Media, Radio and Publications.
Today, Astro has over 3.5millions customers all around Malaysia which covers
52% population of this country’s TV households. They are the only company that
provides direct broadcast satellite pay TV service in Malaysia. In 2009, they have
come up with Astro B.yond and Astro On-The-Go which provide 3D, HD, PVR, VOD
and IPTV services. Besides, Astro is also transmitting the satellites in Brunei
and other Southeast Asia countries.
It has been known that Astro is the only one
and sole satellite television proprietor in Malaysia. Therefore, that makes
Astro monopolizing the television industry providing 170 TV channels which
consist of international and their own created channels. Monopoly market means
that there is only one firm in the market that is providing certain products or
services with no other close substitutes. It’s quite hard to determine a company
as a monopoly but Astro has a huge monopoly power which means the closeness of
substitutes by rival industries are rarely exist and that makes them
uncompetitive. Astro has been a successful monopoly company for almost 17 years
as of to date. The fundamental cause of monopoly is the barriers to entry into
this industry which are very restricted or completely blocked. The barriers can
be in a few forms like the economies of scale, government intervention, product
differentiation and brand loyalty and more. Economies of scale means a
reduction in cost of one unit followed from increased in production or in other
words the cost of producing the additional units decrease as productions
increase. Costs of production make Astro as a single producer more efficient than
a large number of producers and this shows that Astro is getting increasing
return to economies of scale in the long run production.
Since
Astro has been operated for quite a while, it has been experiencing extensive
economies of scale and that makes them the only producer in the industry. In this context, Astro is a natural company a
situation where ‘long-run average cost (LRAC) would be lower if an industry
were under monopoly than it were shared between two or more competitors’
(Sloman, Wride & Garrat, 2012). It means that Astro can supply their
services to the entire market at a smaller cost. Therefore, form cost
perspective, this case would be the most efficient because they are only pay TV
company in the market. Following figure explains how Astro is a natural
monopoly in the long run.
Based
on the figure, Astro is making supernormal profits at any output between points
a and b as there are no other firms competing away the profits that they are
earning. If there is a new entrant, the demand curve D1 will change to D2 and
they would have to start up their business in a very huge scale. Therefore
Astro who has already experiencing economies of scale can charge the price
lower than the new entrant’s and that would definitely drive them out of the
industry. Secondly, Astro has been the only company that has the exclusive
right given by the government to sell their service, in this context; the
direct satellite television. This means that the government is giving patent,
license and copyright to Astro to monopolize the market as to serve the public
interest. In addition, Astro has also a product differentiation and brand
loyalty. Local TV stations like TV1, TV3, NTV7 and others are hardly appealing
at all. Astro’s services are very unique and clearly differentiated as they
have diversified channels that cover different vernacular contents and genres
that suit our multi-ethnic and multi-lingual communities in Malaysia. People
would associate this industry with the brand Astro itself since they are the
only one who provides these services. Besides, Astro has won a few awards
throughout the years in Media and Entertainment category such as “Brand of the
Year” award in 2012 and the “Brand Icon” award in 2013 at the Putra Brand
Awards.
• Marginal cost (MC) is the minimum price that a firm is willing to accept and marginal revenue (MR) is the extra revenue gained by selling one more unit per time period.
Figure
above would roughly show the profit maximization for Astro. At the intersection
point A where MC meets MR determines the profit maximizing quantity or output where
Astro will be producing the efficient quantity (Qmax) with monopoly price at MC=MR.
While at point B the demand curve shows the monopoly price consistent with the
quantity. In this market the price exceeds the MC=MR. In monopoly market, the
marginal revenue is always below the price of their goods or services. In this
case, it would benefit Astro in a sense that they can become more innovative
from the incentive that they get and thus will maintain their position.
This
figure would explain how Astro gets the profit from. Based on the graph, Astro
can make economic profits as long as the price of their product is higher than
the average total cost of producing the product (point E > point D).
However,
since they are dominant and a sole supplier in the market, Astro has a
high-price setting power and that makes them a price maker. This means that Astro
can charge a high price of their services without losing the customers as long
as the consumer in the market can bear it. Since consumer has no other
alternatives to turn to, the demand wouldn’t be affected as much even though
the price is high but bearable. Therefore, by charging their prices higher than
it should be and getting the maximum benefit from their services make them
allocative efficient. However, the elasticity of demand curve acts as the
constraint on the price setting behavior. Thus, this implies that the demand
for Astro will be relatively inelastic at each price because there is no other
close substitute. The elasticity of demand is less than 1.0. Since Astro has no
other competitors, they are experiencing a very low of substitution effect or
nothing at all. Nevertheless, according to profit maximizing output analysis, a
monopoly company never selects an output level in the inelastic demand range as
it can generate negative marginal revenue. Following figure shows the inelastic
demand for Astro. An increase in price wouldn’t affect the quantity demanded so
much.
Since
Astro is charging the price above the marginal cost, it creates a wedge between
how much the consumer is willing to pay and the producer’s cost. The wedge
causes the quantity of the services sold to fall and we call this as deadweight
loss.
The
pink region represents the deadweight loss. In order to decrease the deadweight
loss, Astro has been practicing the second degree price discrimination which is
a pricing strategy where Astro has the market power to charge different prices
for different services. For example Astro has a few channel packs that can be
subscribed monthly by the customers and each of the packs are vary in prices
including the basic channels. However, on the 18th of February 2012,
Astro has launched a new product called NJOi where customers are charged with a
fix fee for purchasing the basic channels and there rests still remain
variables. This price discrimination is called two-part pricing. Besides, they
are also applying the bundles price discrimination where customers can benefit
from by purchasing multiple packs like Movie pack, Sports pack, Mini pack and
others at lower prices compared to the sum of the prices. That would reduce the
dispersion in customer’s willingness to pay. Purpose of applying the price
discriminations is to increase their profit and reduce the deadweight loss.
This is another evidence that could support that they are allocative efficient
because deadweight loss can be reduced.
According
to Astro’s 2012 Annual Report, their net customer growth has increased as much
as 418 000 and their Average Revenue per Unit (ARPU) has also increased by RM 4
from 2011 and becomes RM93.20. ARPU is defined as total revenue divided by the
number of consumer. Thus, the revenue growth has increased in 10% generating
from RM3.9 billion in 2011 to RM4.3 billion in 2012. Besides, Astro has been
contributing to the country by giving the job opportunities. Since 1996 to
today, Astro has employed approximately 4500 people. Astro has been more
successful ever since they come up with their own resources and investment
which is Astro B.yond. This is because this platform has transited Astro from
being primarily subscription business to multi-platform media business with
variety of services. Besides this service has become their main long run
production since it was launched in 2009. Astro has been targeted to complete
the migration of the customers onto the Astro B.yond platform by January 2014.
Reference
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