Pay-TV Operators Evolve to Survive

Not long ago, you could define “satellite” pay-TV operators, “cable” TV operators and “Internet Protocol Television” (IPTV) operators as distinct entities. Nowadays those classifications are much more difficult, as even the operators that started with DTH roots now have multi-layered content strategies of which satellite is now part, rather than all of the plan going forward.

Modern Times Group

Modern Times Group (MTG) is one of the largest media companies in Europe, and it has more than a million pay-TV subscribers in Scandinavia, with half of these being on satellite, and another half being third-party cable, broadband and IPTV. Jørgen Madsen Lindemann, CEO of MTG, admits that the satellite piece is not growing and that this particular segment is now fully penetrated. The biggest growth for the company is now coming from OTT broadcasts through its Viaplay service.

“We have seen a tremendous growth in OTT and streamed viewing on TV, PC and mobile devices in Scandinavia, where broadband availability and speeds are so high. Our ViaSat satellite subscribers get Viaplay as part of our premium offering, and we also have a ViaSat to-go service as well that is available online. We have seen OTT as complementary to our traditional services [and] has enabled us to reach consumers direct in urban environments where satellite dishes are not allowed, so we have a much bigger market opportunity today,” he says.

When comparing the service with Netflix, Lindemann admits the operator sees it as a different business model as Viaplay is not bundled with other services; the instant online availability on multiple devices means limited hardware cost or installation. He sees ViaSat’s library as much deeper; and on-demand consumption patterns alter the concept of “prime time.” Lindemann believes it is ultimately about the quality of the content, the user interface, and the delivery, adding that MTG views OTT as a huge opportunity.

“Viaplay can reach all homes, and we do not just offer a movie and TV service, but also premium live sports, so we see OTT as much more of an enabler than a disrupter, which is why we were so early to market with our product. The growth potential in the market is very high: premium pricing is now aligning between premium OTT and other more traditional forms of delivery, and the absence of high subscriber acquisition costs mean that profitability horizons become shorter once you have scale and a great technical platform. And it is a big plus that there is often more than one subscriber per household,” he says.

According to Lindemann, satellite is now around 20 percent of the market in the Nordics. However, he describes it as a very stable and high quality environment. ViaSat also makes packages that it delivers on satellite available to third-party distributors. These packages include its own and third-party channels.

In terms of the trends in the market, Lindemann says everyone is talking about OTT and aggregated online content offerings, with the big media owners looking to bring digital content portfolios together — both in openly available ad-funded models and behind premium pay walls.

“The best content is not getting any cheaper, so you need big reach and scale businesses to monetize effectively,” he says.

The overall video market is changing dramatically.

“The new global video superstars are no longer necessarily to be found in Hollywood or on the sports field — just look at the likes of Clara Henry or PewDiePie. The way that content is created, delivered and shared has changed dramatically. The worlds of technology, telecommunications and media have fused and there is a massive opportunity for teams that think dig ital first to bring the most relevant products and be ready to embrace global communities by bringing locally relevant content and stories. One size does not fit all,” says Lindemann

NTV+

One of the most vibrant pay-TV markets in Europe is Russia where there is a growing demand for pay-TV services. NTV+ is one of the biggest buyers of satellite capacity in Europe, using more than 20 transponders to deliver pay-TV all across Russia. OTT is also starting to happen with Netflix recently announcing that it is launching services into Russia. Oleg Kolesnikov, technical director at NTV+, agrees that over the last three to four years, there has been an “explosion” of new OTT services in Russia. However, he questions how many of them will find long-term success.

“A number of them have launched, but as far as I am aware, not many of them are profitable, and all of them are looking for a partnership with stronger players to create a content aggregator which is capable of providing different content one to two major players.”

Kolesnikov also believes that Netflix will have limited success in the Russian market with a subscription fee of $7 a month. Kolesnikov sees this as being on the high side, given the currency exchange rate with the ruble, and of what customers in Russia might pay.

“[These offerings] are also with the original audio track, and no subtitles in Russian, so it will be of limited interest to a Russian audience. This is almost the same type of offer as Apple TV. The service had a limited amount of titles, so its impact was relatively minor. People are most wanting to watch movies, which are available in Russian. Netflix is providing international movies and soap operas. When localized content is available, it will become more popular. They may have to re-evaluate their pricing policy in Russia, as the price they are asking for is high compared to the services offered by local operators,” he says.

Given its geography, Kolesnikov expects satellite (point-to-multipoint) will continue to dominate over the next two to three years, until fiber connectivity is rapidly deployed. Rostelecom is involved in a massive upgrade program, but even when it fulfills its commitments, there will still be areas that fiber will not cover. Satellite will still be dominant, according to Kolesnikov.

However, given its economic situation, Russia is a unique market right now. Rostelecom is predicting sustainable growth of its customer base but it will be less than it has seen before. Kolesnikov admits the opportunities will reside in new Video-on-Demand (VoD) services, which will allow it to better compete with the IP world in terms of delivering content.

North America

The United States has long been one of the most exciting pay-TV markets in the world with the likes of DirecTV and Dish flying the satellite flag against intense cable competition. AT&T’s acquisition of DirecTV also added another layer of interest to the market. Sam Rosen, vice president of cloud content and OTT video, connected home and consumer electronics, wearables and devices at ABI Research, believes the two operators have performed well in challenging circumstances. He says DirecTV has done well and remained at a premium based on the NFL Sunday Ticket exclusive package. Rosen says its Average Revenue Per User (ARPU) has remained high relative to others in the market thanks to strong programming and a good technology platform. However, he believes DirecTV’s U.S. subscriber growth has plateaued; in contrast, the company as a whole is buoyed by strong growth in Latin America, he adds.

Rosen says Dish was doing well as a price leader in the market, and has been particularly strong in rural areas. However, in recent quarters the company has again started to shed subscribers — a shift Rosen says is likely due to decreased marketing spending as well as a technology offering (Sling) that fails to resonate in a market where most other players are investing in TV Everywhere.

In terms of satellite’s overall place in the ecosystem, Rosen says things are changing and that DTH operators are no longer being defined by the network, but rather by their content holdings. He believes satellite remains a very economical distribution format, but it struggles in responding to the on-demand consumption patterns of today’s consumers.

“Satellite operators have invested heavily in Digital Video Recorder (DVR) technologies, but they need to move through another paradigm change that uses analytics to get past the ‘programming your DVR’ mindset, and instead look at the satellite network as part of a larger content delivery network which intelligently prepositions content when its consumption can be expected, and adaptively responds (leveraging backchannel requests) to get content quickly and economically delivered,” he says.

ROW

Mohammed Hamza, a TV and video analyst at SNL Kagan, points to Sky in the United Kingdom and Sky Deutschland in Germany as being able to perform well in the face of strong competition. “Sky is the country's number one triple play provider. Sky Deutschland continues to grow in a country with low pay-TV penetration and a very strong FTA environment. Attractive to content owners, these operators still hold sizable number of homes that pay a lot of money, i.e. $50 and up, versus very low ARPU on other platforms such as cable and IPTV, and even lower on OTT,” he says.

Wangxing Zhao, a media and communications analyst at SNL Kagan, says the majority of Asia Pacific DTH subscribers are coming from India, which, being a market with limited fixed broadband infrastructure, means less of a potential impact from OTT. In advanced markets such as Japan and Korea, DTH will grow slowly, but mostly due to IPTV and not so much to OTT. There has not been an OTT provider in the region with a massive subscriber base and content offerings strong enough to cause cord-cutting, Zhao adds.

In Latin America, DTH has expanded mostly in low to middle-income household segments, which did not have any form of pay-TV in the first place, according to Marcos Rodriguez, a telecoms analyst at SNL Kagan. “The resiliency of DTH against OTT has perhaps been stronger than that of other linear multichannel video platforms, but they too have not suffered much from OTT services yet,” he says. “Subscription VOD (SVOD) OTT has become more of an add-on to traditional linear pay-TV. The major effect has probably been that many households that would otherwise subscribe to the most premium pay-TV packages are choosing to subscribe to a less expensive pay-TV package and to complement it with, say, a Netflix subscription. Still, this behavior is probably relegated to high-middle and high-income households.”

Impact of Netflix

Netflix is now a well-known brand in pay-TV markets around the world, and has been a disruptor to pay-TV operators globally. Michelle Abraham, a senior research analyst at SNL Kagan, says the influence that Netflix has had is that subscribers expect more from their pay-TV service. This includes being able to watch video wherever they are, on whatever device they have, with content that is suggested for them. She also points to the fact that Netflix has been one of the first movers to 4K, which has forced pay-TV providers to come up with their own Ultra-HD strategy.

Rosen says it is highly significant that Netflix has started bidding against cable TV and second-tier broadcasting companies for “reruns,” and has since been investing in original content. He says Netflix has opened up libraries of content and changed the value assigned to all content production, leading to experimentation on content windowing and content strategies.

A comparison can be made to what we have seen in the retail market, according to Rosen. “In terms of cord cutting, the change is similar to the wholesale-retail realignment that Walmart, Amazon, and to a lesser extent, Target have gone through over the last 20 years. Consumers can continue to rely on existing distribution channels, but also have the opportunity to get content more directly. Channels on TVs have given way to apps,” he says. “Meanwhile, the largest players with large national distribution networks will make both licensed and exclusive content available. Legacy distributors generally continue with large licensed programming contacts (which specify a minimum number of subscribers) while newer distributors strike out revenue sharing agreements which pose less risk.” VS