Local flavour: channel strategies in CEE

Scripps has used presenter Tomasz Schafenaker to give a Polish flavour.

TV channels are investing in localisation and digital distribution in CEE, but the classic pay TV model still rules. Stuart Thomson reports. 

The universe of pay TV channels in central and eastern Europe has expanded over the last few years as digital services have extended their reach. International channel providers that have increased their presence in the market now face a range of channels familiar to them elsewhere – the growth in demand for non-linear and multiscreen viewing platforms as well as challenges to the existing pay TV ecosystem in the shape of OTT, changes in the TV advertising market and consolidation amongst distributors.

Views of the overall state of the region’s market among channel providers show that it now displays characteristics common in mature pay TV territories. “We see the same challenges in this region that we do in other international markets, such as incumbents and other channel brands competing for pay TV budgets, and the need to rise above the crowd with an increasing number of free-to-air and paid channels,” says Jon Sichel, managing director, Scripps Networks, UK and EMEA.

For Sichel, one key to success is to secure comprehensive programming rights, which enables broadcasters to be available across platforms. “The opportunity for us is linked to our high-quality programming we produce with deep rights cleared. This allows us to offer our content across multiple platforms and help support the pay TV ecosystem,” he says. Sichel adds that Scripps’ channel positioning and strength in content enables it to differentiate its offering. The company operates three pay TV brands in the region – Food Network, Fine Living and Travel Channel, with all three present in a number of markets.

“In some cases we may decide to offer a free channel, as we have in Italy, where the consumer demand and advertising market offer an opportunity,” says Sichel. “In the CEE region, we find there’s enough room for our pay channels and receive positive responses from audiences and platforms alike.”

There is a danger in making too many broad generalisations about central and eastern Europe. For Izabella Wiley,  general manager at A+E Networks Poland, each market “presents peculiarities and similarities regardless of our penetration and distribution”. In the case of the Polish market, she says distribution networks are fragmented compared with mature markets including the UK, but that both markets are highly competitive.

“Overall in the CEE region it is very challenging to launch new channels nowadays, but we are working hard on growing the footprint of our portfolio of History, Lifetime and H2,” says Wiley. Over the last year, A+E has launched factual-crime channel CI on Romtelecom and UPC Romania in Romania, and Slovak Telecom and UPC Slovakia in Slovakia. “We have more plans in the pipeline and this only shows that there is still space for strong original content and quality brands,” she says.

Bruce Tuchman, president, AMC/Sundance Channel Global, believes that channel providers face a general challenge of more bandwidth becoming available and a proliferation of distribution channels and content, which successful players have met, he says, by focusing on quality.

“Only having content puts you in a good place and it shows to distributors that you have the goods,” says Tuchman. However, he believes that channels that essentially aggregate third-party content will continue to play a role provided they act as valued curators of that content. “I can see that owning your own content is becoming more important but these models will continue to coexist,” he says.

For Louise Cottrell, vice-president, affiliate sales at AMC-owned Chellomedia’s subsidiary Chello Zone, the market in the region “has gone through many changes” and now presents “a sophisticated television marketplace with significant choice for viewers”, both in terms of the number of channels available and in terms of associated products and services.

“The market has become more and more competitive for channel providers in general and channel content now has the potential to be viewed in so many different ways meaning content, scheduling and rights have to be as flexible as possible in order to retain and build the attention of audiences,” says Cottrell.

Dual-revenue model 

The pay TV channel business continues to focus on the dual revenue model of combining subscription revenues from distribution partners with advertising, which can be sold by the channel or its agents, by distributors or by a combination of both. “What makes this business so unique and has enabled channels to enjoy the admiration of analysts is the dual revenues stream model, and it is important that it continues,” says Tuchman.

Advertising revenue can be enhanced by localisation in the form of opt-out windows where blocks of advertising are sold locally, which may be combined with pan-regional or international advertising taking up the remainder of the ad time available.

Localisation in general can take a number of forms. There are a number of distinct staging posts in between a single feed for all markets and full-scale local versions of channels with a significant portion of locally-sourced programming. These include the basic language versioning of channels and scheduling of channels to meet local tastes. Along the way, advertising opt-outs offer a straightforward revenue opportunity. However, developing an ad sales organisation involves a cost, and channel providers want to be as certain as they can that the investment will pay off. “Ad sales vary very much from market to market in terms of performance; in line with the economic position and climate but also of course in line with the depth of distribution and packaging of television channels,” says Cottrell.  “In those markets where we do undertake advertising sales, for example Poland, it is an important part of our business and helps supplement our pay TV revenues, which in turn allows us to further develop and customise our channels and support clients in the services that they need to deliver to their subscribers.”

Extending efforts to create local programming is more costly and the revenue is less certain. However, developing local content to sit alongside acquired international fare is increasingly important for a number of reasons. First, it provides a way of securing viewer loyalty to a particular channel. Second, it differentiates the channel in the eyes of distribution partners and gives them a reason to sign up or extend existing deals. And third, it helps cement a distinct identity for the channel at a time when the very concept of the channel is under growing assault from the availability of non-linear and web-based content.

For Cottrell, localisation is not an end in itself and its merits must be considered carefully before taking the plunge. She points out that Chello Zone has developed a portfolio of services with a “strong selection of finely tuned genre-based channels” that may or may not benefit from localisation. “The correct level of localisation is integral to success in any market – making sure content is in the local language and that schedules are targeted and built to the tastes of the local audience at a minimum – but investment into localisation needs to be undertaken carefully,” she says. “At the end of the day the numbers need to work and in some cases full localisation – e.g. truly local acquisition and commissions – is not actually what the viewers want.”

Nevertheless, Chello Zone has introduced localisation for its most significant markets, in particular for the large Polish market, where it acquired WWE wrestling for the local version of the Extreme Sports Channel and introduced “some well-known Polish children’s content” for pre-school channel JimJam. Chello Zone’s four CBS-branded channels – the result of a joint venture – are scheduled with content from the CBS library as well as in line with local tastes, says Cottrell.[icitspot id=”195402″ template=”pull-quote”]

“And in all cases we carry local Polish advertising. So there are many different ways to localise a channel, it depends very much on the territory and the channel in question – and needs to keep revenue and overall business development in mind,” she says.

Polish pre-school channel Polsat JimJam is  a joint venture between Chello Zone and local broadcaster and pay TV platform provider Polsat. Elsewhere, the company has worked with a number of partners on various channels. “Ventures and partnerships have proven beneficial in being able to take certain channels to the next level and mould and shape them to the needs of a market,” says Cottrell. “We are always open to new ideas as regards partnerships whereby they may bring development potential, or fresh opportunities to build new business. But they need to be the right partners and a good fit to our channels and company economics if they are to work well.”

Localisation

Channel providers have differing perspectives on the overall prospects for advertising revenue in the region. For A+E’s Wiley, the overall market has struggled to recover from the 2008 crash. However, she sees room for growth in advertising in the pay TV market.

“The entrenched control of national channels on advertising is gradually being eroded in many markets as the value of thematic channels with their highly targeted and rapidly growing audiences, as well as flexible creative approach to ad sales, are increasingly recognised by the advertising community,” says Wiley. “A maturing market and sales strategies that consolidate thematic channels’ viewing share are delivering scale and significance to the pay TV market, allowing smaller channels to increase their power ratios and take an ever-increasing share of the TV market.”

Wiley says that expanding advertising windows across the region is central to A+E Networks UK’s strategy, with the additional revenue allowing it to improve its localised service and increase consumer and trade marketing support. The company has had local ad-sales in Poland, Romania and Croatia for a few years, with new territories lining up.

“The challenge is to identify markets where there is sufficient potential from local advertising to outweigh the high entry costs associated with launching advertising either through inserting it into our CEE feed and re-distributing locally, or our ultimate goal of introducing dedicated local feeds,” she says.

A+E has launched separate feeds for History and CI in Poland and Romania and Wiley says other markets will follow. As far as local commissioning and acquisition is concerned, she says that “the era of local programmes made cheap and fast is long over” and that A+E Networks UK’s porfolio offers programming that “resonates well with different audiences around the globe” with shows such as Pawn Stars, Duck Dynasty or My Ghost Story.

Over the last two years, A+E has implemented a significant number of local projects in the region, including CI’s Private Crimes and Killers, looking at stories behind shocking murders in recent years in Poland, Ukraine and Germany. Specifically for History it has created a five-episode series Heroes of War: Poland covering stories of many unsung heroes of the Second World War including that of Witold Pilecki, who voluntarily became a prisoner of Auschwitz to reveal the truth about what was happening there. Other initiatives include a series of shorts on sites of natural and cultural importance in partnership with UNESCO and featuring regional stories in popular international series including Pawn Stars, Mud Men and Miracles Decoded.

Scripps’ Sichel says that the advertising market in the region is picking up with Poland showing growth of over 6% annually. “We are also seeing success with native advertising, allowing us to work more integrally with advertisers across our regions, including Unilever Polska, Nestlé Polska, Continental and Toyota,” he says. He claims that Scripps takes localisation seriously and has versioned Travel Channel into 23 languages and seven feeds. “While cost is obviously one factor we consider, we think it’s important to look at every territory on an individual basis and decide the best fit based on consumer interests, business model and platform development… We have an extensive global library, and we balance that with regional talent and content to add local flavour to ensure we’re meeting our consumer and platform interests in each market.”

Scripps has tailored its programming to local tastes. Sichel cites the company’s use in Poland of chef Ewa Wachowicz and presenter Tomasz Schafernaker “to provide a Polish perspective” on its food offering. “We also work with other territories, such as Romania, to create programming that highlights relatively unknown destinations for our worldwide audience. In some markets, we’ve created localised short form content to blend with our long form programming, which has been a successful combination for us.”

Tuchman says Sundance is still at an early stage of development in the region. However, in general, he says, “the idea of really segmenting and taking channels deeper on a market-by-market basis makes a lot of sense as it better matches up with advertisers’ budgets”. He says that technology now allows channels to break out local windows much more economically. While broadcasters in the analogue era had to retransmit an entire channel and pay for satellite capacity, digital distribution allows them to create sub-carrier feeds, for example. Breaking out ad windows is often necessary in any case because local rules about what can be advertised or national holidays can vary between territories, while the availability of local targeting on the web means that TV channels inevitably have to follow.

AMC has combined the international presence of Sundance Channel and MGM Channel with the local identity of channels supplied by AMC-owned Chellomedia. For Tuchman, going local need not involve wholesale restructuring of a channel. He points to the success of local marketing initiatives on social media. “Especially with Sundance, we thought the audience was naturally adept at, and dependent on, social media as an adjunct to how they view TV. We have launched social media sites, Facebook pages and apps so we can connect to them and connect them with each other,” he says. “We do a lot of that and it enhances the customer experience, especially with narrative drama. You want to know what other people are thinking and so people in their own local languages want to connect with each other.”

Digital services

The growth in digital platforms has led channel providers to view comprehensive rights acquisition as a key element in securing their future. “We are unique in that we own the vast majority of our content. This allows us to offer our programmes across multiple platforms where it makes consumer and business sense. We have worked with operators to offer VoD, catch-up, and digital rights to enhance our mutual relationship,” says Scripps’ Sichel. “For example, in some cases we offer recipes and short-form content on both our own regional sites and with our distributor partners. These digital distribution opportunities are still early in their development, as are our revenues in this area, but we see great opportunities ahead.”

For most – and Scripps is no exception to this – digital distribution is to be done in partnership with established pay TV distributors. A+E’s Wiley takes a similar view. “We are working really closely with all our pay TV partners to ensure they get all the digital products required. TV Everywhere, OTT, backwards EPG and network PVR are products that at the moment are on top of the request list. We are in a fortunate position to own those rights,” she says. However, making money from digital services remains a slightly elusive goal.

“TV viewing in CEE is growing, but it now involves time shifted viewing or multi-screen consumption such as on laptops, tablets and smartphones as well as the use of streaming and OTT services. In the markets supported by advertising, that will have a major impact on revenue. Nielsen has not caught up yet with the latest developments – especially considering the need to make a return on second screen investments possible. When viewing is shifting to non-linear, the measurement systems are still very much focused on linear TV,” says A+E’s Wiley. However, she insists that strong partnerships with distributors will point the way forwards. “The good news is that all platforms are looking to develop those new non-linear products and are keen to work with media companies who provide rights to top shows. Second screen, nPVR, TV Everywhere are all new products which have an amazing potential of development,” she says, highlighting the example of A+E teaming up with operators Cyfrowy Polsat and Romtelecom to make its Vikings series available on non-linear platforms ahead of its linear transmission.

Chello Zone’s Cottrell says that competition is increasing across the central and eastern European market – with new services emerging that can be free-to-air as well as pay services – but points out that only brands that develop healthy lines of revenue are likely to succeed in the longer run. Competition is also emerging from digital-only players, including OTT service providers. However, again Cottrell argues that multiscreen and on-demand services are most likely to succeed if they are supported by an established pay TV model.

“A wide television channel choice and digital television services such as TV Everywhere and VoD are not cheap to supply and need to be supported by a pay model, so it remains important for us to support key operators in supplying pay services,” she says.

Cottrell says Chello Zone has not considered free-to-air or OTT opportunities itself, but doesn’t rule out such a move in the future. “As [Chello Zone] increases in prominence in the CEE territories and new distribution paths may open up that fit with our distribution strategy, then we will of course look to exploit commercial opportunities as may be available and suitable to our business,” she says.

Though at an earlier stage of digital development than advanced TV markets such as the UK, central and eastern Europe is increasingly seeing the launch of new OTT and multiscreen services. Cable and satellite-delivered pay TV services increasingly see non-linear and mutiscreen services as important in retaining the loyalty of their subscribers, meaning that – as is the case elsewhere – they are launching services to see off web-based competitors as much as to develop new lines of business in their own right.

“Digital developments are proving particularly important to cable and satellite operators in retaining their subscriber base and building customer loyalty.  In addition, audiences expect more flexibility in the way they view television channels – and when and where they watch,” says Cottrell. “With so much competition between platform providers and content providers, at this stage additional digital services are not always about new revenues, but about maintaining and building traditional revenue streams.”

In general, however willing broadcasters are to experiment with multi-platform distribution in partnership with pay TV platforms partners, they take a more cautious view of OTT initiatives, while striking out entirely on their own remains for the most part off the agenda.

A+E’s Wiley points out that major pay TV platforms are developing OTT offshoots to attract and retain various categories of viewers, with History and CI already available on OTT services launched by Cyfrowy Polsat and Romtelecom. She says more will follow this year, including distribution on platforms launched by T-Hrvatski Telekom and B.net in Croatia, and Orange in Romania.

“It’s too early to judge how this will develop, but viewers are definitely looking for providers who can give an easy access to the second screen,” she says. “We also do not exclude a direct product for consumers. But if we do, we would look to partner with local pay TV providers, which are core to our business. At the moment we are not looking to diversify.”

AMC’s Tuchman agrees. “Any OTT opportunities must respect the integrity of how the pay TV ecosystem works,” he says.

Despite the challenges, the pay model remains tried and trusted for most channel providers in central and eastern Europe as elsewhere. In a market where digital distribution is still some way behind more mature markets in terms of mass adoption, classic pay TV still appears to have room to breathe.