European pay TV has thus far weathered the continent’s deepening recession caused by the Euro debt crisis, except in the southern states of Italy, Spain and especially Greece at the center of the storm.
But, Free To Air broadcasters directly exposed to the economy through their reliance on advertising revenue have been much harder hit. Italy's largest private broadcaster, Mediaset, saw advertising revenue decline 10 percent to €623 million in the first quarter of 2012, and says it has continued at this level in the second quarter.
The UK’s leading FTA broadcaster, ITV, has suffered from an advertising decline exacerbated by its failure to miss out completely on the Olympic Games currently taking place in the country. The BBC has exclusive Olympic broadcasting rights in the UK, but it has made 24 standard and HD live streams available to pay TV operator Sky, leaving out ITV.
Partly as a result, ITV said that the traditional summer slump in TV advertising had deepened and would continue well into September. Its TV ad revenues fell 10 percent year-on-year in July, and ITV predicted it would be down 11 percent in August. The Paralympics are anticipated to help a slim recovery — with projections between zero percent and 5 percent down in September.
The broadcaster is then hoping for the traditional seasonal rally as Christmas approaches to end the year flat or even slightly up on revenue. At least ITV is better placed than many of its FTA counterparts in non-English speaking continental Europe in having strong content, which has helped keep viewing figures up as well as generating international sales revenues. Its production business reported revenues up 34 percent year-on-year to £355 million for the six months to the end of June, well ahead of analysts' expectations. Profits at this division, whose recent shows have included Downton Abbey, Titanic and Come Dine with Me, were up 32 percent year-on-year to £50 million.
Mediaset also appreciated the importance of maintaining investment in content despite the slump in advertising revenue, with Vice Chairman Piersilvio Berlusconi, son of former Prime Minister Silvio Berlusconi, announcing it would spend almost $2 billion on programming for the upcoming season 2012-13.
Meanwhile, a number of European Telcos are grateful to pay TV for offsetting losses elsewhere. This is the case for incumbent Dutch Telco KPN, whose IPTV customer base increased by 78 percent over the year to reach 741,000 at the end of the second quarter of 2012, with the rate of gain actually increasing this year. This was partly offset by a decline in number of customers for KPN’s digital terrestrial service Digitenne from 868,000 to 771,000 over the year ending June 30 2012.
KPN’s IPTV gain was partly at the expense of cable operator Ziggo, the Dutch pay TV leader with a total customer base slipping from 2.88 million to 2.85 million over the three months ending June 30. This pattern is typical of many cable operators in Europe, which are shipping customers to IPTV and DTH, with MSO Virgin Media in the UK also down by 15,000 net customers over the last quarter. But both Virgin Media and Ziggo managed to increase ARPU slightly, suggesting they are shedding bottom end customers that are perhaps churning to Free To Air alternatives.
Meanwhile at Telefonica, Spain’s incumbent Telco, a 1-percent increase in pay TV, mostly IPTV, subscriptions took it past the million mark and combined with overall gains in Latin America to boost net profits for the second quarter of 2012 to €1,327, 5.3 percent up over three months. This was despite a decline in its home market of Spain, but for several years Telefonica has been cashing in on Spanish speaking Latin America, where success in both broadband and pay TV has helped it become Europe’s biggest telecommunications operator.