European pay-TV market set for shake-up

Europe’s pay-TV future doesn’t require a crystal ball, because it has already arrived in France and a few other hot spots such as Romania and Poland. This is the finding of a new report from digital media analysis firm Rethink Technology Research, which predicts that competition will intensify across the continent as pay-TV operators of all types compete in increasingly saturated markets for the same triple- and quadruple-play customers.

Cable operators will complete their transformation to digital networks and expand their off-footprint services where possible through acquisitions or partnerships with DSL and fiber-to-the-home (FTTH) infrastructure providers. Satellite operators will also be migrating to full-blown interactive IP-based services by acquiring broadband lines for a return path, while IPTV operators will be pushing fiber further toward the consumer to ramp up bandwidth sufficiently to deliver HDTV services. At the same time, pay-TV operators of all kinds will be extending their reach to more devices and new geographical areas via over-the-top (OTT) and mobile TV services.

This is all leading toward a crunch, which could be painful for pay-TV operators in regions currently enjoying high ARPU, such as in Spain, where only just more than 20 percent of homes have pay TV so far, and the UK, where there are two operators (BSkyB and Virgin Media) dominate the space.

The Rethink report notes that ARPU is high in countries where cable is currently dominant, but when there is strong competition between operators spanning all the technologies, prices are eroded with triple- or quadruple-play discounts and special offers. The report also highlights one eternal truth that will survive any impending European shakeout: Content will remain king. It will continue to be the operators with sports, movies and other premium content that will retain control over eyeballs, while they will also be best-placed to resist both churn and ARPU erosion.

This point was also highlighted by another recent Rethink Technologies report, “Pay TV in Latin America – Economic Miracle or another False Dawn,” addressing how satellite operator DirecTV achieved a spike in subscriptions in several Latin American countries through its rights to the 2011 World Cup. With soccer a dominant sport in a number of European countries, this could play a major part in Europe’s pay-TV competition as well. But, the biggest change will be the fact that in a quadruple-play, OTT world, operators will be squaring up to each other directly, as is already happening in France, providing clues to the strategies operators will adopt elsewhere.

For example, France Telecom, the incumbent telecoms operator there, is already building its own TV channels and weighing in with bids for sports franchises as part of its strategy to be a player, not just distributor, across the pay-TV ecosystem.

The Rethink report attempts to predict the outcome of Europe’s intensifying competition, which it says will create a hotbed of deal making and acquisition, with cheaper and more desperate bargains becoming available. Already the Eastern and Central European pay-TV field is being thinned as major players straddle multiple countries.

One other aspect of Europe will also influence its pay-TV service: It’s one of the world’s most diverse pay-TV markets in terms of culture and language. While Latin America, for example, is united by Spanish, with the exception of Brazil, there are six important languages from a content standpoint in Europe, and many others across Scandinavia and Eastern Europe that command significant audiences. The result is that Europe will provide fertile ground for popular as well as niche content beyond the blockbuster sports and movies, and this could encourage greater diversity than elsewhere in the emerging OTT field.