A reference industry for digital TV delivery
After a decade of satellite TV platforms launches, the satellite TV industry has reached critical size and has become truly global. The 92 TV platforms currently in service cover more than 100 countries in the different regions of the world, with 80 national TV platforms and seven regional platforms primarily in the Middle East, Africa, Centraland Eastern Europe and Latin America.
The success of satellite TV was built upon specific technical advantages that combined the benefits of digital TV (video compression, large TV offers) with the ability to cover a whole country or region for a limited capital expenditure. These advantages over terrestrial networks allowed satellite TV platforms to build strong market positions within short timeframes. With about 95 million subscribers and revenues of approximately $59.2 billion in 2007, the industry has become a reference for the distribution of digital entertainment.
While the majority of historical platforms in the most mature satellite TV national markets have reached operational profitability, emerging digital markets are facing a burgeoning number of new satellite TV platforms vying for position in national markets some of which are already served by three or four satellite TV players.
The takeoff of satellite pay-TV in emerging digital TV markets
Satellite TV platforms were the first to introduce digital TV in almost all emerging digital TV markets. They remain the sole digital TV providers in many countries. Satellite appears to be the most cost effective way to introduce digital TV in developing countries. Moreover, the cost of digital set-top-boxes (STBs) has dropped by more than 80 percent in the last six years, facilitating take-off by lowering a barrier for new entrants. Consequently, satellite TV platforms have multiplied in emerging digital TV markets in the last three years. From 30 in number in 2000, the number of platforms reached 63 during 2007. Last year, new platforms were introduced in Colombia, Brazil, Serbia, Croatia, Russia, Romania, Sub Saharan Africa and India.
Subscriptions to satellite TV platforms have also ramped up in the mean time, from 6.1 million in 2000 to 27.7 million in 2007, i.e. a CAGR (Compound Annual Growth Rate) of 24 percent. Furthermore, this growth has been observed despite the restructuring and consolidation that has also affected emerging markets and the economic crisis that strongly impacted the Latin American market.
In the last two years, growth of satellite TV in emerging markets was supported by the introduction of new services in India, Central Europe and Latin America. The opening of the Chinese market will, in the medium term, likely also give a new boost to the industry.
Telecom operators as key investors in the new wave of satellite services
In the last three years, telecom and cable operators have backed 19 out of the 35 new satellite TV platforms launched. Nine of these were actually launched by telecom operators, while several others are currently under development, as confirmed by recent announcements from France Telecom and Portugal Telecom.
An example of the new focus of telecom operators on satellite TV is Telefonica, which has backed the launch of satellite TV platforms in Chile, Peru, Colombia, and Brazil. Depending on the countries, reasons for investing in satellite TV range from regulatory compliance which prohibited the introduction of IPTV to enabling provision of a full triple play service at a national level, in countries where IPTV could not be delivered in the whole country.
In the mid ‘90s, telecom operators were involved in satellite TV, while by the early 2000s most of them had disengaged from the industry. Reference shareholders include BCE in ExpressVu (Canada), Telenor in Canal Digital (Northern Europe) and Bezeq in Yes TV (Israel). France Telecom was also an investor in the satellite TV platform TPS (France) and Portugal Telecom owned TV Cabo.
The renewed interest of telecom operators in satellite TV is driven by several factors including:
- Telecom operators’ desire to offer a triple play package on a national scale,
- The time and cost required to cover remote areas, either through DSL or FTTH,
- The still-limited penetration of digital TV and DSL, offering room for growth,
- The objective to amortize potential programming costs over the largest possible subscriber bases
The most recent key trend in the satellite TV market has been the launch of a number of “low cost” platforms. In emerging digital TV markets, “low cost” platforms are primarily launched to stimulate market takeoff. The impact of “low cost” platforms may be most striking in Central Europe. While UPC Direct signed 420,000 subscribers in 10 years of operation, the launch of low cost offering DigiTV with a basic package at 3 euros resulting in 3.1 million subscriptions in the last two years. In India, satellite TV platforms have decided to align their prices with analog cable TV in order to stimulate subscriptions. In Poland, subscriptions have accelerated following the introduction of low fees by the new platform N and a sharp decrease of basic fees by Cyfrowy Polsat.
In some of the most advanced digital TV markets, low cost initiatives are beginning to emerge. In France, the AB Group introduced a low cost satellite TV platform, “AB Bis”, at the end of 2007. While historical platforms progressively increased their basic fees and overall ARPU (Average Revenue Per User) in the last ten years, they may have left an opening for services offered at lower fees, especially as penetration of digital TV remains far from maturity in many markets.
This low cost approach may also be a response to the emergence of almost free digital services with, for example, the launch of digital terrestrial television (DTT) in an increasing number of markets and the availability of a number of free-to-air channels over IPTV platforms.
While the sharp decrease in equipment costs and the availability of affordable content has allowed low cost platforms to emerge, the business model has its challenges. With revenues per subscriber that can be five to ten times lower than historical platforms, low cost platforms still need to sign a critical mass of subscribers rapidly to recoup equipment and programming costs. In markets where several platforms were launched, difficulty reaching breakeven will most likely encourage consolidation within the next three to five years.
Content diversity and digital recording as key growth drivers, ahead of HD and mobility
In the last ten years, diversity in content offering was key for growth in the satellite pay-TV sector. Overall, more than 1,000 channels had been added by satellite TV platforms worldwide between 2000 and 2007, with the number of channels reaching over 12,000. Even excluding the broadcast of local networks in the US, the figure still stands at close to 9,000 channels. On average, the number of channels offered per platform has increased from 77 to 100 in the last seven years. In order to further increase subscriptions, both historical and emerging platforms are expected to keep adding new channels with a potential focus on HD for certain historical platforms and on new standard definition channels for emerging platforms.
Digital video recording solutions, already introduced by leading satellite TV platforms, will soon become a standard offering worldwide. Currently, 22 out of the 92 platforms in service are offering DVR premium services compared to seven platforms in 2004. The decrease in the equipment costs has also had an impact here, resulting in an acceleration of introductions of DVR services by platforms. It is expected that by adapting the pricing to local market conditions, DVR solutions will succeed in penetrating the different markets.
In the next five to eight years, most platforms should be in a position to reach penetration of at least ten percent. While DVR penetration for most platforms currently stands below 5 percent, a number of platforms have now already passed that threshold, including Foxtel in Australia (>16 percent), Viasat in European Nordic countries (9 percent), and MIH/DSTV in Sub Saharan Africa. For the most advanced platforms, penetration could reach at least 30 percent of the subscriber bases. As is the case for other new services, rapid penetration for DVRs will be more easily achieved by platforms with a critical mass of subscribers.
By comparison, high definition, except in the North American market, is still in the early stage of development and, therefore, is not the core focus for most platforms yet—and certainly not the low cost platforms. However, in 2007, the number of HD channels increased, and a growing number of platforms such as Cyfrowy Polsat, N in Poland and NTV+ in Russia have introduced HD channels in their offerings.
As for other services such as mobility, many platforms have taken initiatives to build partnerships with cellular operators in order to access this emerging market. It nevertheless remains nascent and shall represent a limited growth driver for most platforms in the next few years.
Strong potential for satellite pay-TV in the coming years
Overall, market drivers are positive for satellite TV platforms in most markets, despite a potential weaker economic environment. Except in a few advanced markets, where increasing competition from iPTV is expected to hamper growth, emerging markets appear to hold promise for satellite TV players.
According to our most recent study on the industry, by 2017, close to 180 million households are expected to subscribe to satellite TV for revenues of more than $90 million. However, the number of platforms currently launched may foretell a phase of consolidation.
The ability of market players to position themselves early on and to rapidly build to critical size will be key to secure long-term growth and profits in the market. In advanced markets, lower growth prospects in terms of subscriptions, and the current convergence observed in the telecom and media markets, may lead to a number of mergers and acquisitions that will allow the emergence of new integrated market players mixing terrestrial and satellite services.
Euroconsult has a number of research reports available dealing with the world of digital broadcasting. These may be accessed directly at www.euroconsult-ec.com and include:
- Thematic TV, Key Economicsand Prospects to 2016
- Satellite TV Platforms, World Surveyand Prospects to 2015
- HDTV in Europe, Key Economicsand Prospects to 2015
Pacôme Revillo has been the Managing Director of Euroconsult since 2003. He spent several years as analyst and consultant prior to his current position, with a specialization in satellite communications, TV broadcasting and financial analysis.
Pacôme is the editor of several Euroconsult research reports and has contributed to numerous consulting assignments in the satellite broadcasting and communications markets for international companies including satellite operators, satellite TV platforms, TV channels, media groups, manufacturers, investment banks, private equity funds and public institutions.
Email: revillon@euroconsult-ec.com