Green shoots are beginning to appear in the European digital television market following a period of turmoil and uncertainty last year.
Freeview, the free-to-air digital terrestrial platform backed by a consortium that includes the BBC and BSkyB, has risen in the place of the collapsed ITV Digital. Further afield in mainland Europe, Germany’s Premiere – the pay-TV operation that had clocked up daily losses of &£1.5m, pushing KirchMedia into bankruptcy – is cutting costs and losses and adding new subscribers under its new owners, a consortium led by the venture capitalist company Permira. It expects to reach cash-flow profitability by next year.
Italy has a competitive free-to-air market with seven national networks, including three owned by Silvio Berlusconi’s Mediaset. But in an attempt to provide a credible pay-TV operator, called Sky Italia, Rupert Murdoch’s News Corporation has acquired satellite operator Telepiu from the debt-stricken French media group Vivendi Universal and merged it with its own satellite platform Stream.
And in Spain, where the digital terrestrial operator Quiero TV collapsed last year after achieving only 130,000 subscribers after two years and piling up debts of &£450m, the country’s two struggling digital satellite operators – Sogecable’s Canal Satelite Digital and rival Telefonica’s Via Digital – are also merging forces.
They are all chasing pay-TV revenues that are forecast to increase in the next five years from &£22bn to &£77bn, according to a European Pay-TV Forecasts report, published by International Marketing Reports (MW last week). It says that increased take-up of pay-TV, broadband and video-on-demand services will be the driving force behind the growth. More than half of the revenue will come from household subscriptions, the report claims, the number of which is expected to increase from 40 million to 68 million by 2008, meaning that revenue from pay-TV subscriptions will rise from &£19.8bn to &£46.6bn.
The UK, France, Spain and Scandinavia will be the strongest pay-TV markets in Europe by 2008 with regard to penetration and revenue generation. The report suggests that countries with a strong free-to-air offering, such as Germany, will be slower off the mark.
Consolidation is helping to boost growth and it is expected that further mergers will follow. Many commentators predict a merger between UK cable operators NTL and Telewest Broadband, and one between France’s two satellite companies CanalSatellite and Télévision Par Satellite.
It is not yet clear which platform – cable or satellite – will come to dominate the European market. Some commentators say cable is theoretically superior to satellite because it has greater bandwidth and a return path that makes services such as broadband and video-on-demand possible. Others predict that News Corporation, which part-owns BSkyB, will pick off the major markets in Europe to add to interests in Asia, Australia, New Zealand and the US. Some even go so far as to say that Murdoch may reveal an interest in Premiere should Permira decide to sell – despite a decision by BSkyB to pull out of the platform when it was haemorrhaging cash under Kirch.
In the past many struggling cable and satellite companies have not been able to invest enough in marketing, instead concentrating on buying up subscription-driving content such as sport and movie rights and tackling piracy issues. But by consolidating they are putting themselves in a stronger position to do this effectively.
John Hardie, senior vice-president and managing director for Europe, the Middle East and Africa (EMEA) at Disney Television, says: “The model that most people are looking at is Sky UK, which is heading towards 7 million subscribers. It is a model based on good product promotion, pricing and a big investment in marketing and in content such as sport and movies.”
BSkyB returned its first annual pre-tax profit in five years this week. It announced profits of &£260m for the year to June 30 on a turnover of &£3.19bn – itself up 15 per cent on the same period last year. A year ago the company made a loss of &£22m.
Unlike other operators, which tend to concentrate on signing up subscribers to basic packages and then trying to get them to trade up, Sky puts all its efforts into attracting consumers at the highest level possible by offering packages with must-have content such as sport and movies, which appear to offer value for money.
But Hardie warns that buying up sports rights “won’t be quite the silver bullet it was for Sky in the UK” because of a move by the European Commission to introduce competition to the sale of broadcast rights by sharing the live rights between platforms. Following pressure from the EC the UK Premier League split its live rights into four packages last week, awarding them to the winning bidder BSkyB for &£1.024m with the highlights package going to the BBC.
Despite the restrictions imposed by Europe, pay-TV operators are likely to continue to increase their subscriber base by buying content that consumers are prepared to pay for. This will, in the long term, lead to the erosion of free-to-air TV’s audience share.
For advertisers, multi-channel pay-TV offers a double-edged sword. On the one hand, more channels mean more choice for advertisers and therefore the opportunity to hold or push down prices. On the other, although the large terrestrial channels such as ITV will inevitably lose share, they will still be able to command high prices for programmes that attract mass audiences, such as Coronation Street.
CNN senior vice-president of advertising sales for EMEA Jonathan Davies says: “Multi-channel TV gives advertisers more choice and better targeting opportunities through smaller channels. But for mass-market advertisers it will be more difficult and possibly more expensive to get broader coverage.”
The report predicts that once penetration of pay-TV reaches 50 per cent, advertisers will be prepared to pay similar rates to those charged by free-to-air broadcasters rather than seeking a discount.
But Nicholas Grand, broadcast executive at Carat UK who has worked in Canada, a country with a strong multi-channel market, maintains the choice of channels will mean buyers will have more power to exclude channels or programmes from a schedule if the price is not right, subject in the UK to share deals. He adds that the few shows which continue to attract mass audiences will attract huge premiums.
It seems that growth in pay-TV across Europe will inevitably give advertisers more choice, but they will be forced to plan their TV campaigns more creatively to reach their target audiences.