CEE 2012 Special Report: Pay TV outlook
Pay TV is continuing to make progress across central and eastern Europe. Informa expects pay TV to grow from about 65 million households in 2011 to 80 million in 2016, representing a 47% penetration of all TV households.
Pay TV operators are not sitting back and waiting for new subscribers to arrive. Operators across the region’s markets are increasingly innovating with advanced digital services including HD, DVR and video-on-demand and are also branching out with over-the-top and multiscreen services.
Cable remains the mainstay of TV distribution across much of the region. However, the rapid rollout of digital-terrestrial services, in an attempt to meet – in some cases rather belatedly – the EU-set digital switchover deadline of the end of the year, presents a threat to lower-tier services. Informa expects digital cable numbers to more than double between now and 2016, but overall cable numbers will decline from 36.7 million to 35.3 million, while primary digital-terrestrial homes will grow from 12 million to 67 million. DTH homes meanwhile will continue to grow at a steady rate, while IPTV homes will triple, albeit from a low base, according to Informa.
“TV Services available anytime and anywhere will definitely drive future growth of pay TV in Poland and the CEE region,” says Christian Anting, chief operating officer and vice-president of the management board at ITI Neovision, the operating company for Polish pay TV platform ‘n’, whose platform is currently in the process of combining with that of rival operator Cyfra Plus. “What is worth mentioning is also the analogue TV switch-off, which is planned for mid of 2013 in Poland. I am sure it is going to be a key driver for pay TV future landscape. Out of the three million terrestrial households affected, there is about one million that will ultimately become DTH subscribers and our platform is suited to attract a large part of them.”
‘n’, which pioneered HD in Poland, is also developing advanced services to target the increasingly sophisticated requirements of Polish consumers. “We are seeing a strong growth of tablet penetration in the Polish market, so I believe multiscreen services are an important development of the pay TV industry for the coming months,” says Anting. “From live sports to movies and top local production, customers will have the chance to watch linear and non-linear programmes anytime and anywhere, be it on the 60 inch flat TV at home or through a portable device. This kind of service is going to be well met not only by younger customers, but will also become very popular among whole families.”
UPC DTH, the satellite arm of Liberty Global’s European operation, operates acrossthe Czech Republic and Slovakia, (FreeSAT), Hungary (UPC Direct) and Romania (Focus Sat). The company recently teamed up with Telenor (which also supplies its satellite platform) to deliver a double-play of pay TV and mobile broadband in Hungary with Telenor’s local mobile operation
According to Magnus Ternsjö, managing director of UPC DTH, UPC’s priorities in its other markets include the continued growth and development of its Czech service along with a refocusing on new sales channels in Slovakia, where he admits that progress on the latter has not met his expectations. He says that the performance of Focus Sat in the Romanian market, based on a pre-paid model, has been strong and there are no major changes planned. However, UPC wants to make its service in this market easier to access and plans to open up new sales channels and new subscription renewal mechanisms.
On the content side, HD is a priority and UPC DTH recently added Eurosport HD and Eurosport 2 HD to its line-up in time for the Euro 2012 championships and the London Olympics. The company also plans to launch a new HD zapper box to complement its existing HD DVR in the third quarter. The single-tuner box will be upgradeable via software to accommodate recording on a USB extension as well as other internet related services.
One of the many challenges facing pay TV… Read more
Ternsjö also cites a recent survey that showed UPC DTH delivering the best service and response times in the territories in which it is present. The survey marks a change in perception following the introduction of the FreeSAT brand in the Czech Republic and Slovakia, which Ternsjö says was designed to emphasise ease of use and the absence of monthly invoices in favour of one annual invoice for its lowest level service. The operator has also sought to provide access to local channels it did not already have, which was made easier by its move from the crowded Astra platform to Telenor’s Thor satellites.
UPC DTH faces unique competitive environments in each of its major territories. In Hungary it has recently faced competition from the MinDig digital-terrestrial offering as well as from T-Sat and has sought to position itself as a high-value product with a wide range of channels. In the Czech Republic and Slovakia it is facing competition from M77-owned Skylink and CS Link. “Now that they will be charging monthly they will look more like the type of product we already have in the market. This will provide an opportunity for the customer to assess the real value of our total offering and what we stand for as an operator with focus on quality, good value for money and excellent customer care,” says Ternsjö.
Despite the recent consolidation of rival DTH providers Boom and AKTA by Romtelecom, the Romanian market remains highly competitive. “The operators in that market are more focused on cable network expansion or on buying and integrating smaller operators in order to expand their footprint, and that still represents a challenge for DTH as cable is now starting to penetrate rural areas,” says Ternsjö. “However, our DTH operation in Romania managed to secure its growth path by offering a high quality and very stable service, plus an extremely flexible commercial offer supported by its flexible prepaid model.” He says that Focus Sat has achieved up to 25% revenue growth year-on-year, thanks in part to the strength of its content offering and in part to its flexible pre-paid model.
“In all cases we have provided three primary levels which allow customers to select the most appropriate product to meet their viewing and financial needs and also the ability to rent DVRs and access specific HD packages,” says Ternsjö. While UPC has made HD versions of public channels available in its middle tier, it has generally reserved HD for a separate premium offering, keeping costs down for customers that do not require HD services. Ternsjö is focusing on rural areas where multi-play cable and IPTV services are not available. “We have had a lot of success in markets that don’t have access to multi-play cable services such as rural areas and we will continue to focus heavily in such regions,” he says. Ternsjö believes there could be room for further DTH launches outside UPC’s existing territories in the region, notably in south-eastern Europe, a view shared by Telenor Satellite broadcasting, which provides the satellite platform for all of UPC’s DTH services.
Cato Halsaa, CEO of Telenor Satellite Broadcasting, says that markets including Ukraine, where parent company Telenor is already involved in the mobile telecom business through its majority ownership of Kyivstar, presents a strong opportunity for further growth. There is a lot of dynamism in the Ukrainian market. Telcos in the region have bought into DTH platform and those have then sometimes changed ownership. There is still a lot of dynamism in the market so we need to be there,” says Halsaa. “There are still opportunities in the telco market and the Balkans still have possibilities,” he says.
Telenor also has mobile interests in Serbia and Montenegro, and Halsaa says he believes the mobile telecom market could offer interesting opportunities in the future. “Content distribution is important for any mobile telephone operator and when you talk about content, that means TV,” he says. “There are different forms of TV and content distribution and we will see a lot of variety.”
While there are no remaining virgin pay TV territories ripe for the taking, Jean-Philippe Gillet, vice-president of sales, Europe and the Middle East at Intelsat, says there are still a few underserved markets characterised by low pay TV penetration. “There is potential for growth but it’s not huge potential the way it was in 2007-08 when we had a boom in expansion in multiple markets. Any players launching today will do it very carefully and will leverage other investments,” he says.
Gillet agrees that there are still opportunities for satellite platforms from telcos who hope to extend their reach beyond what can be delivered via IPTV. However, he believes movement in this direction too has been affected by the economic crisis. “There was a phase where there was a lot of growth and all the telcos were looking to launch DTH and build triple or quad-play offerings, but then suddenly you had the economic crisis hitting them hard,” he says. “Now they have to spend more time focusing on their core business and less time on expansion.” He believes that project currently on hold will be revived if the economic weather improves. Telcos differ from pure-play satellite operators however in viewing TV services as a way to defend their existing fixed-line businesses and making a large margin on the TV business alone is not necessarily a priority for them.
In order to mitigate the cost of deploying new services, operators have the option of sharing access to major international channels on satellite platforms, something Gillet says Intelsat encourages. “Sometimes it’s not easy to get competitors to share content but it can work,” he says.
Beyond launching new platforms in new territories, existing pay TV operators have the opportunity to upsell or differentiate their offerings by launching HD and other advanced services. However, the progress of HD in the region has been somewhat disappointing, according to Gillet. “We thought HD was going to generate a lot of growth but it hasn’t really happened,” says Gillet. “There has been some development but not as much as in western Europe.” While operators including UPC and ‘n’ in Poland have developed HD platforms successfully, elsewhere operators have held back from developing HD tiers. In Romania, RCS & RDS has HD on its cable platform but not on its satellite platform.
While the CEE region remains competitive, Gillet does not believe there are too many players in the major markets in the region. There has been consolidation already (for example in Romania and, most recently, with the agreement between TVN/’n’ in Poland and Cyfra Plus) and while there are markets with two or more DTH competitors, this is comparable with other more mature markets. “I think the challenge is that there is still a lot of competition on price and less on value,” he says.
Intelsat provides capacity to Orion Express in the Russian market and Gillet sees Russia as a case in itself, with strong prospects for further growth in a market currently underserved for pay TV. “The basic thing is that the Russian economy is growing…and you have an economic situation that’s more favourable to people spending money on all sorts of entertainment services, including DTH. Also there is significant competition but low penetration. If you add it all up it’s a good mix to create demand,” he says. Operators such as Orion Express and Tricolor have sought to capitalise on nascent demand for low-cost pay TV offerings, with the latter signing up 10 million subscribers. “The model makes sense if you retain subscribers and they start spending more money with you,” says Gillet. Orion has a low cost offering and a higher cost Continental package which it tries to upsell .
Also targeting south-eastern European opportunities and markets further east – notably Ukraine – is Israel-based satellite provider Spacecom, operator of the Amos satellite platform at 4° West. Spacecom currently has three DTH customers in the region – Magyar Telekom/T-Com in Hungary and Slovakian offshoot Magio TV, also delivered from Hungary, and Xtra TV in Ukraine.
Jakob Keret, senior vice-president, sales, Europe and North America at Spacecom says the Hungarian operation is doing well, acquiring one additional transponder each for Hungary and Slovakia this year. In Ukraine, Xtra TV, a relatively new service, is looking to capitalise on Amos’s existing free-to-air footprint, where about three million households have antennas pointed to the 4° West position, by delivering additional pay TV channels to complement that FTA offering. “The platform launched last quarter and they are gaining more and more customers,” says Keret. Xtra TV faces two existing DTH competitors – NTV Plus and Viasat Ukraine – as well as cable and fixed-line players in a relatively low-income market. Xtra TV’s offering is squarely aimed at the mass market, with a relatively low-cost service that could capture a large audience looking for some additional content on top of the significant number of free channels already available. “The biggest challenge is to create content that is not expensive but on the other hand which offers incremental benefits to the potential audience to what they have today,” he says. “There are quite a lot of free-to-air channels in the market so there has to be a balance between creating good content and maintaining a low-cost operation.”
Keret says Ukraine is one of the few markets that saw growth in TV in the last year, a situation he contrasts with Romania, where the market has contracted. Spacecom previously delivered services to DTH operator Boom, which has now been consolidated into Romtelecom. Keret also sees potential for growth in other parts of south-eastern Europe.
One fixed-line operators that launched satellite-based pay TV to complement its IPTV and cable services is Romtelecom. The Romanian telco has also branched out by attempting to extend its reach further still via an over-the-top offering. The telco is currently trying to build up the content offering on the service so that it can start to charge a fee to access it.
“We discovered that there is a lot of demand for our service,” says Peter Terpak, director for product marketing and TV business at Romtelecom. “When we start to monetise it we’ll see if there is a real willingness to pay.”
Romtelecom plans to revamp the offering for a Christmas relaunch. It is currently offering a package of linear channels for free and a premium package on top, currently sold at the ?12 for the first six months. Existing Romtelecom subscriber can benefit from bundling with other services and a 50% discount. “We don’t think this is enough – there is potential on the linear side if we add pay TV channels and movie rights,” says Terpak, who adds that Romtelecom has begun negotiations for some premium movie rights.
Terpak says the main use case for the OTT service is “on-the-go”, enabling existing customer to view content on multiple devices. The service is squarely targeted at existing pay TV subscribers and Terpak believes there is relatively little room for organic growth in the market as the vast majority of Romanians already subscribe to a service.
Romtelecom currently has about a million Dolce TV customers and a further 200,000 via its cable subsidiary. Terpak says the overall customer base is not growing significantly (either by attracting non-pay TV customers or by winning over those of rival services) and Romtelecom is focusing on increasing the value of its existing customers (although the acquisition last year of DTH players AKTA and Boom did enable it to grow its overall base). “We are focusing on upselling more premium content rather than pushing growth via discounts and lowering ARPU,” he says.
The CEE region is home to a wide variety of fixed-line operators, ranging from pan-regional players like UPC and RCS & RDS to very small players. Among small-to-medium-sized players looking to consolidate the market and then potentially to sell to a larger player is Nej TV in the Czech Republic, backed by private-equity group BKS Capital Partners.
Nicolas Boissin, a partner at BKS Capital Partners, characterises the Czech market as one where there is very high cable penetration, with relatively little room for organic growth. “The main opportunity is for the consolidation of smaller ISPs,” says Boissin. He says that smaller players that could be seen as targets for consolidation account for about 40% of the market. Boissin says he is “agnostic” about the type of infrastructure over which the company can offer services, preferring fibre-to-the-building where available but using HFC networks over much of its footprint. Boissin sees his key competitors being DTH players Skylink, CS Link and UPC’s Freesat, rather than fixed line rivals including Telefónica O2. He believes the DTH players have a certain advantage due to being based outside the country, enabling them to avoid recurring royalty payments for content. Other competitive forces giving cause for concern include free-to-air digital-terrestrial TV, though Boissin believes the limited choice on offer means that the threat is limited, and low-cost local WiFi internet providers that are putting downward pressure on prices.
One of Boissin’s key priorities this year is to develop a bundled offering based on the launch of a mobile service. “We are looking at the possibility to launch an MVNO and quad-play services,” he says. To date this has proved difficult – the Czech Republic and Bulgaria are the two countries in Europe that have yet to launch MVNOs. Boissin says BKS is pushing the regulator for action on this in the absence of any willingness on the part of the incumbent to play ball. “Mobile services are very expensive in the Czech Republic so there is no reason for them to accept an MVNO unless pushed,” he says. Mobile is seen as a vital part of the mix because mobile penetration in the Czech Republic is about 120%, while Boissin says fixed-line phone penetration on the network is only about 20%.
Boissin’s other major project for this year is to launch an IP-based over-the-top service in September, delivering non-linear and time-shifted services to a wider footprint. The aim is to provide a nationwide offering over the internet to users outside Nej TV’s existing network footprint. “We want to distribute this via a set-top to the TV screen, but it will also work on mobiles or PCs,” he says. The company is currently working on securing extensions of content licensing agreements in order to be able to deliver the service, he says.
Nej TV is the result of the consolidation of 10 smaller operators that have been combined and rebranded. While BKS has upgraded some networks by pushing fibre further out most of the plant it acquired was already two-way capable. “We had to put more fibre in and implement DOCSIS 3.0 and put in amplifiers to get more bandwidth,” says Boissin. While some of the operators taken over by the company offered triple-play services already, other did not. “One of them offered triple-play with a good professional solution. Others offered internet but hadn’t really developed quality of service monitoring,” he says.
Boissin says Nej TV is now migrating about a thousand customers from analogue to digital each month and is also successfully upselling subscribers to premium packages, with about 45% of the base taking some form of premium service. Boissin says his target is to take this up to about 60%. “The main driver in terms of ARPU is the ability to upsell to existing customers – in other words to sell more services to existing customers to get higher blended ARPU,” he says. “Internet ARPU is going down but blended ARPU is going up because of additional services.”
Boissin also has the goal of further expanding the business by consolidation. Nej TV currently has about 100,000 revenue-generating units across the country and he says his ambition is to double this figure.
DTH and fixed-line operators have therefore adopted a range of strategies tailored to the technical capabilities of the distribution platform, the market it is best placed to serve and the particularities of the territory it is serving. While DTH players have typically targeted rural consumers underserved by cable and have focused on attractive pricing, with a relatively slow push towards DTH to date (with exceptions), fixed line players have concentrated on bundling and, increasingly, have added on over-the-top multiscreen offerings. But it is clear that eastern Europe’s pay TV growth overall has still got some way to run – the economic weather permitting.