Europe is in the middle of an MSO sales spate as an indirect result of the Eurozone crisis sweeping the content, with latest on the market Poland’s Multimedia Polska at an estimated price up to €700 million.
There have been strong rumors reported by Reuters and others that GET, Norway’s largest MSO and second biggest company overall, is also up for sale with hopes of fetching at least €1 billion. Bidders in both cases are likely to include private equity firms, with Permira, EQT and Mid Europa Partners (MEP) rumored to be in the running for GET, but Liberty Global subsidiary UPC, as the only significant pan European cable company, is likely to compete strongly for both.
UPC, with 13.4 million customers across European countries, is already present in Poland with about 30 percent of the country’s cable market through UPC Polska, and also Aster, which it acquired in 2011 and is currently incorporating into a single operation. Currently, UPC Polska, combined with Aster, has just under 1.5 million cable TV subscribers, while Multimedia Polska has 830,000. But the country’s pay TV market is dominated by DTH operator Cyfrowy Polsat, which with 3.47 million customers is Poland’s largest and Europe's number four satellite platform. By acquiring Multimedia Polska, UPC would have around 2.3 million subscribers and become a strong number two pay-TV operator in the country.
Meanwhile in Norway, which UPC has yet to enter, acquisition of GET would provide a strong presence at a stroke, since the operator has 370,000 subscribers, 23 percent of the 1.6 million pay TV households.
UPC, or other prospective buyers, will be hoping to pick up these MSOs for considerably less than they would have paid a year or two ago. Early in the global credit crunch that began in 2008, pay TV operators held their value well, being regarded as safe havens in the economic storm, lately because subscriber numbers continued to grow, while Average Revenue Per User (ARPU) tended at least to be maintained.
But, then the deepening crisis surrounding the Eurozone has caused pay TV subs growth to level off and even decline in some regions, while ARPU has come under pressure. The cable TV sector has been hardest hit, facing at the same time strong competition from powerful DTH operators in most of the leading markets, along with a growing IPTV presence and, most recently, the emergence of OTT.
While broadband revenues are holding up because that is an essential utility now, European pay TV in general, with the notable exception of Germany, has suffered from “cord thinning” as subscribers save money by downscaling to cheaper packages, along recently with some outright cord cutting, particularly in the hardest hit southern countries of Spain, Italy, Portugal and Greece.
ARPUs have fallen as a result, particularly for cable, and this has cut the value of many MSOs. Among the first hard evidence of this came in Sweden a year ago in June 2011 when Canal Digital, the Swedish pay TV subsidiary of the Telenor Group, decided that it wanted to exit the cable TV sector. Telenor, Norway’s incumbent Telco that has expanded across the Nordic countries, had decided the future for cable looked difficult and was happy to sell to rival operator Com Hem at what appeared the knock down price of 85 million Swedish Krona (about $13.5 million) to gain 220,000 TV homes.
This equated to just over $60 per home, far lower than the going rate had been, reflecting the emerging weakness of the market. As it happened this deal was quashed by the Swedish Competition Authority (Konkurrensverket), which took antitrust action on the basis that this would give Com Hem 68 percent of the market for cable TV in apartment blocks, ignoring the fact that it would not be in a dominant position overall.
In neighboring Norway, GET would expect to obtain a much higher price per subscriber because ARPU is greater, but still probably well below the values that have been cited by some analysts. The same applies to Multimedia Polska, although as always it depends on how much competition there is, and what view regulators take. But, UPC is sure to be bidding, given its ambition to expand further across Europe and overtake Comcast as the world’s biggest MSO.
A major part of its strategy will revolve around Liberty Global’s Horizon box unveiled at IBC 2011, providing access from TVs to traditional broadcast channels alongside online content and personal data, through a 3-D interface into a common search and recommendation engine. The box also enables TV content to be transferred to companion screens on PCs, tablets and smartphones, in or outside the home, via MoCA or WiFi with support for automatic device discovery and management via DLNA. It is now available in the Netherlands and ready for roll out elsewhere in Europe, with a growing armory of apps developed using Liberty Global’s SDK (software development kit). The box is manufactured by Samsung and includes an Intel Atom CE media processor, with NDS providing the middleware and user experience, Nagra for Conditional Access, and Ioko service management. Liberty Global CEO Mike Fries has repeatedly stated that Horizon is an aggressive box designed to gain market share and boost ARPU, rather than just to defend against emerging OTT upstarts.
But, it is UPC’s equally aggressive acquisition strategy that has been gaining market share this year, most notably in Germany, which so far has been largely immune from the Euro crisis and where pay TV has been growing fast from a historically low base. Liberty Global’s German presence has been gained entirely by acquisition, starting with Unity Media, taken over for €3.5 billion in January 2010, followed by Kabel BW in December 2011 for €3.16 billion. Together, these two gave Liberty Global a subscriber base in Germany now almost 7 million.
Its ambitions go further still, with rumors it will be bid for Kabel Deutschland itself, which would create an operator with well over 20 million customers. But this would end competition within the German cable TV sector, since there would be just one defacto monopoly provider. For that reason, Liberty Global CEO Mike Fries was arguing at the recent ANGA Cable show in Germany that the real competition is not within one pay TV sector, nor even across the whole of pay TV, but within the converging fields of broadband communications and digital media. On this front an enlarged Liberty Global, which might have revenues around €10 billion in 2012, would still be dwarfed by the major European Telco incumbents, such as Telefonica of Spain with 2011 revenues of €62.8, and Germany’s own Deutsche Telekom with €58.7 billion.
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