Latin America has long been touted as having strong growth markets for pay-TV with blue chip markets such as Mexico and Brazil being key targets for operators in the region. However, with economies struggling and the influx of Over-the-Top (OTT) and mobile video offerings, what does the future hold for DTH operators in Latin America?
Dish Mexico is one of the main pay-TV operators in the region operating in a market close to 130 million people. However, while this is a strong market for pay-TV, the business dynamics have changed.
Carlos Miranda, CTO of Dish Mexico, told Via Satellite that he believes pay-TV penetration in Mexico is around 60 percent, which means all operators in the market can participate in growing the 40 percent of the rest of the market. However, he concedes that pay-TV is not necessarily the preferred way to spend leisure time. “Right now, the spare time that we all have is ‘distributed’ for things like gaming, social networks, watching videos, enjoying music, etc. There are many ways to spend your free time. What I am saying is that talking about pay-TV is talking about part of the way people entertain themselves in their spare time. They have many options and a lot of those activities are not separated anymore. When you think about the new way in which people access entertainment, you find devices like cell phones, tablets, computers, etc. The personal devices are a very important way to spend leisure time,” he says.
Additionally, in Mexico, households can enjoy Free-To-Air (FTA) TV in digital and HD throughout the country. Households can access up to 30 HD channels now for free. “Before the digital switchover, terrestrial TV was not really moving forward. Now, with analog switchover, there is much more content and the signal quality is really good. Having access to content from all over the world from the major networks is still something that makes traditional pay-TV strong,” says Miranda. “When you are talking about movies and series, these are now being consumed OTT. Major sporting events and local content [such] as news are still important for Pay-TV in the traditional model. [Video on Demand] VOD has become a new way to deliver content. We are witnessing these trends; in the long-term, every piece of entertainment will find its own niche.”
Latin America is home to a number of satellite pay-TV operators such as Claro, DirecTV Latin America (DTVLA) and TuVes Digital. TuVes Digital is targeting emerging markets in the region, using capacity on Telesat’s Telstar 12 Vantage satellite, through a prepaid model. Close to Miranda’s estimates, TuVes CEO Konrad Burchardt says that pay-TV penetration in the region is around 50 percent. Therefore, he sees plenty of opportunity for TuVes Digital and believes penetration could reach up to 85 percent in the medium term.
Beyond its prepaid solution, the company has a wholesale business where it approaches larger and smaller operators, cable companies, mobile operators, telcos, and cable associations so that they can launch their Direct-to-Home (DTH) satellite service based on TuVes’ satellite and software platform. TuVes gains growth through both the wholesale model, as well as selling direct to customers. Its offer is based on having a low Average Revenue per User (ARPU), but having a high-quality service based on satellite.
There is little doubt that the models for pay-TV have changed significantly over the last few years. Miranda admits that companies such as Amazon and Netflix have changed the business models for companies like Dish Mexico. In the past, pay-TV operators had control: yhey had a license to offer services, they had their own Set-Top Boxes (STBs), their own conditional access, and their own pricing models. But the level of control has now changed, Miranda says.
“When you talk about Netflix, you are talking about a deep change in the business model, because you are going OTT and you don’t control the process in the traditional way: you do not own the way to deliver the content; it is the internet. You don’t own the set-top box. You have to adapt to all the devices that can receive your content. You do not control the access any more through CA. It is all “on demand” and that is a game changer in many ways. Furthermore, considering the legal and right requirements are solved, the content could be available worldwide, not limited to footprints or coverage areas anymore,” says Miranda.
Miranda believes Netflix no longer has to be seen as the enemy. “You will watch Stranger Things on Netflix and Game of Thrones on HBO Go. What I am saying is that you don’t have to fight with [the OTT operators]. We all should join forces, putting a better offer to customers. That is happening in the United States. It is worth to enforce delivering the best of both worlds; this is a transitional time. We cannot assume that people will be happy watching content on the TV only. Pay-TV operators must embrace the change and, even though we must ensure our premium content is on the TV at home, now we need to deliver content on mobile devices,” he says.
Burchardt echoes Miranda’s sentiments by saying OTT offers great flexibility for users to watch content when they want on the device they want. He believes this definitely favors the user but poses important challenges for broadcasters. “Computer solutions (IT) companies today can compete with solutions as interesting as those that a traditional broadcaster can develop,” he says. Burchardt believes that Netflix and Amazon are a complement to its TuVes DTH product, which he says are very popular in rural areas with low fixed-broadband penetration. “In these areas people access the internet through their mobile phone or router. It is very expensive to download movies on that technology since today it is charged variable per MB consumed. In a heavily fibered area, Netflix operates very well,” he says.
However, even in emerging parts of Latin America, things are changing. TuVes itself is developing hybrid STBs that will enable households to access content via satellite as well as IP. So the operator looks well-set for the future.
The reality is that, for the first time in many years, satellite’s role in fiber-intensive growth markets is no longer seen as the slam dunk it once was. Miranda believes the hybrid model of using satellite and fiber is now the way to go for pay-TV operators — satellite’s rule may well be over.
“Satellite used to be dominant in the pay-TV business, but it is not alone anymore, it is a part of a new ecosystem. However, in the future, once we see the launch of LEO and MEO satellites, this could lead to major change. It opens up the possibility of a new age for satellite services, to deliver real broadband services from space. There are three or four major projects in that direction, and we will have to see if they come to life and deliver what they are promising today. Right now, the most efficient way to move content is using a hybrid model with satellites and terrestrial networks,” says Miranda.
Burchardt, however, believes satellite DTH will remain the dominant platform for several more years, since fixed-broadband penetration is still low (around 12 percent in 2015). He says households in Latin America are using mobile broadband systems to access the internet, and that these systems are not good for IP or OTT pay television at the moment, mainly due to the charges for consuming bandwidth. “From the economic point of view, it is more profitable to deliver linear television by satellite than by 4G wireless systems. Therefore, for its scale, ubiquity, and arrival at any place, for a low cost, the DTH will be the dominant technology in pay television,” says Burchardt.
Nevertheless, the satellite pay-TV market is likely to remain strong despite the changing dynamics. “What we have seen is the pay TV market continues to grow, but at lower rates, but the satellite television market has had good growth rates. Obviously, people are already starting to use the new OTT services, with an emphasis on Netflix, but Netflix is more a complement to existing solutions. There has not been a desertion of pay TV to OTT; moreover, the operators of cable TV and internet access are delivering their own OTT solutions to their customers. We are delivering solutions to our customers in IP also,” says Burchardt.
While pay-TV operators such as Dish TV Mexico and TuVes Digital remain optimistic and are adapting to the changing dynamics of how people consume content, what does this mean for the satellite operator that still relies on selling capacity to broadcasters and pay-TV operators? Gustavo Silbert, president of Embratel Star One, one of the largest satellite operators in the region, told Via Satellite that the company has seen an increase in capacity demand from its main DTH customers but that, in general, the demand for capacity has pretty much remain stable. “The economic crisis in the region has affected the service churn rate but we believe it will recover very soon,” he says.
While there is a move to combine IP and DTH, the demand for ultra-HD is not yet there, according to Silbert. “We believe that within two years, however, the advent of the new H265 format (HEVC-High Efficiency Video Coding) that brings a much more efficient compression scheme will help the deployment of ultra-HD in satellites,” he adds.
In terms of future trends, Silbert adds, “Embratel Star One sees the ultra-HD already mentioned as a trend as well as OTT using satellites. Embratel Star One also sees new demands coming from 5G and the Internet of Things (IOT), but these will happen a bit later. We have noted some TV households’ habits are changing. A few are getting rid of their linear TV to go to streaming or IPTV formats, most of them using multiple devices.”
However, from the satellite operator’s point of view, he says it is not clear if OTT will have a relevant impact in the demand for transponders and the ability to sell bandwidth. “We believe there will be room for providing OTT services using satellites in complement to the terrestrial network. This fact, with the arrival of the ultra-HD, could generate a large demand that shall modulate our future investments,” he says. “For sure, [Netflix and Amazon] are bringing or influencing new business models. It is interesting to note however many traditional broadcasters, producers and pay-TV operators are all introducing simultaneously new format and businesses alternatives as part of their portfolio in a way customer can choose more freely.”
Claro Brasil is one of the largest DTH providers in Brazil. It uses capacity on Embratel’s satellites to provide services. CEO Agricio Neto spoke exclusively to Via Satellite about the changing dynamics of video in Brazil. He still believes there are great opportunities for Claro to grow customer numbers in in the regions where it offers services.
Neto points to the fact that with Brazil covering a large territory, DTH technology offers pay-TV operators, such as Claro, great opportunities to provide services across the country. Neto believes another great opportunity for Claro is increasing Average Revenue Per User (ARPU) amongst its existing subscribers, particularly as technology innovations will allow it to provide more Video-on-Demand (VOD) services than ever before.
So, what has been the impact of OTT in a market like Brazil? “VOD consumption has become stronger and more popular in Brazil, allowing customers to be able to customize their pay-TV experience. This is an old wish, but it has now come true. I understand there is no way back,” says Neto. “Technological solutions need to follow these behavior changes. Video streaming technologies enable users to customize their schedule, allowing them to access it anywhere, anytime. This is yet another way to consume content. However, traditional broadcasting also has its audience share, especially when it comes to live content such as sports and news.”
Claro aggressively invested into VOD services with the launch of Now, its on-demand service, which is available to Claro TV (DTH) and Net Hybrid Fiber Coaxial (HFC) customers. “Now is the largest VOD platform in Brazil and one of the largest in the world. It is a fundamental part of our business strategy, as it brings customers loyalty, and drastically reduces churn,” says Neto. “Due to technology limitations, previously Claro TV customers could only access Now services through websites and applications. Today, we have embraced technologies that enable Claro to make these services available via TV.”
One of the big questions for any pay-TV operator is when to bring expanded 4K services to its customer base. Given Brazil is one of the biggest soccer markets out there, there could be demand around this programming. But despite recent major sporting events such as the FIFA World Cup and the Summer Olympics being held in Brazil in recent years, Neto believes progress here could be slow. “The offer of 4K content is still very limited in Brazil. We have the 2018 FIFA World Cup in Russia this year, where some games will be broadcast in 4K to Brazil. However, I personally do not believe in the rapid growth of 4K services in Brazil. But I can say when we see a customer demand for 4K, we will be ready,” he says. VS