Satellite states: pay TV distribution in CEE

Intelsat serves the CEE market from 1° West as well as from 45° East.

Satellite is one of the mainstays of pay TV distribution in central and eastern Europe and, despite the growth of non-linear viewing and flattening growth, it looks set to stay that way. Stuart Thomson reports.

Central and eastern Europe is home to a significant number of satellite pay TV services, but the days when the region had a seemingly inexhaustible ability to absorb new players every few months, without consolidation ever taking place are over.

Satellite pay TV continues to have a strong presence across the region and has continued to grow even as overall cable numbers have tailed off or declined in certain markets. The trends evident in other regions, towards internet-connected services, on-demand viewing and multiscreen consumption have, as elsewhere, called into question the future relevance of satellite technology, and possibly have contributed towards consolidation in a number of markets. However, in central and eastern Europe there has also been a notable counter-trend to the reduction in the number of satellite TV operators, whereby fixed-line players, whose footprint often overlaps with rivals, have looked to satellite as one weapon in a portfolio of distribution opportunities and to use the best means available to reach the maximum number of potential customers.

Business for operators

This has meant that there is still plenty of business for the satellite operators that sell capacity across the region.

“We believe satellite TV, with its unique ability to provide broadcast coverage, will continue to increase as the market grows,” says Lars Janols, strategy and business development director at Telenor Satellite Broadcasting, which operates the 1° West position in partnership with US-based Intelsat.

Janols says that pay TV across central and eastern Europe is “extremely competitive” but that the pattern of distribution varies greatly from one part of the region to another. “It depends on the infrastructure that is there…but all in all satellite will continue to be a core delivery mechanism,” he says.

However, satellite distribution does face a number of key challenges. Janols says that operators are of course increasingly looking to deliver non-linear and multiscreen services, as well as providing TV as part of a triple-play or quad-play bundle, meaning that broadcasters are looking to hybrid solutions – combining satellite for broadcast linear channels with online delivery of other services.

“You can do a lot through satellite but ultimately you need to have a hybrid system,” says  Janols. He says that satellite will nevertheless remain a “backbone” of classic pay TV providers’ services as well as a way for fixed-line players to extend their reach beyond the physical limits of their own networks. As competition between operators increases, larger players with the necessary resources at hand will turn to satellite to ensure that their services can be delivered over an entire territory – or even outside the territory in which they are based. “If customers are looking to take multiple services from a single provider then it is clearly going in this direction,” says Janols. “There will be fewer ‘satellite-only’ operators and we need to understand this.”

Jakob Keret, senior vice-president of sales at Israel-based Spacecom, whose Amos satellites serve the region from 4° West, agrees that the DTH market is now saturated – at least in terms of the number of players, if not in subscribers and reach. “In terms of subscribers we are still seeing modest growth,” says Keret. With the number of absolute players in the market likely to shrink rather than grow, the battle is on between satellite operators to ensure that their particular platforms are the ones that remain viable.

The attractions of particular orbital slots will depend on the number of homes they can reach and the wealth of content available. Keret says that Spacecom has successfully established the 4° West position in markets including Hungary and Ukraine and homes throughout the region – with the notable exception of Poland – receive signals from the Amos satellites. New capacity – with the forthcoming launch of the Amos 6 satellite – and new content will continue to attract viewers and platforms to the position, he argues.

However limited the chances of new pay TV operators emerging in the region, fixed-line telecom operators have turned to satellite in significant numbers to extend their potential market. For Jean-Philippe Gillet, vice-president, Europe and the Middle East at Intelsat, central and eastern Europe is still “a dynamic market”. Intelsat recently added Deutsche Telekom-owned Slovak Telecom to its list of customers in the region, following the latter’s acquisition of the RCS & RDS-owned Digi subscriber base in Slovakia. In addition to choosing the 1° West platform for its satellite service, Slovak Telecom is using Intelsat’s teleport facility to uplink its channels. While Slovak Telecom’s existing Magio TV service is delivered from another orbital position, Gillet says that 1° West will now be the operator’s “key orbital slot”, thus reinforcing the attractiveness of the position.

“It is an example of DTH being good for the telcos in the region. Slovak Telecom decided to make an additional investment by acquiring the RCS subscribers and they spent a lot of time thinking about the product and how to price it and position it. That really shows that they conceive of DTH as a key component of their strategy to reach end customers,” he says.

Maintaining and increasing the attraction of a particular slot is key to the long-term future of individual satellite operators in the region at a time of consolidation amongst pay TV service providers. Gillet says he does not believe that consolidation will adversely affect the 1° West it shares with Telenor. “Today 1° West is a key orbital slot in central and eastern Europe and the leading one in Romania and Hungary,” he says. “I am not worried that consolidation will negatively impact it as a leading position. We have enough eyeballs on it.”

Gillet believes the operators that will survive and prosper in the region are likely to be those that are backed by large, well-financed organisations such as Deutsche Telekom. Smaller independent operators have diminished in number, either going out of business or being swallowed up by larger players.

As in western Europe, central and eastern European operators are facing growing competition from OTT players as well as from each other, but Janols believes “it will take some time” before the OTT threat in the region fully emerges.

Nevertheless, central and eastern Europe’s period of rapid pay TV growth has largely passed, and operators are increasingly looking to expand by taking customers from rivals and by selling new services to their existing subscribers rather than by acquiring customers that have not hitherto signed up to any pay service. The impact of this on pricing is unclear. Upselling customers to new services could enable operators to increase ARPU – something that is badly needed in markets that have often been characterised by ‘irrational’ pricing by players seeking to grab market share at all costs.

For Intelsat’s Gillet, most satellite pay TV service providers are now offering more than a purely satellite-delivered service. Nevertheless, he says, satellite continues to offer significant advantages. “Service providers can’t afford to just be on DTH. They need to be able to meet consumers needs which could be for OTT or VoD or whatever, but DTH is the key component because it is the easiest way to reach all of their consumers. You don’t need a specific offering for each region. It is something that can be delivered to one entire customer base,” he says.

White label

Consolidation among operators – another key trend that is seen as overdue in the region – could also lead to a lessening of the intensity of price competition that, in some markets, is widely seen as unsustainable, leading to low-quality customer service and undermining the viability of dealer networks. “I think with consolidation there will be attempts to increase prices,” says Janols.

Consolidation will also ultimately lead to fewer satellite positions being used to target the region’s customers. The fate of the satellite operators in this respect is tied to the success or failure of their key customers and their ability or otherwise to create an established hot spot for the region.

There has also been some discussion of  the development of ‘white label’ satellite platforms that could be used by multiple service providers – for example smaller and medium-sized cable operators – to expand their reach via satellite by pooling resources and thereby reducing the cost of infrastructure. Last year Telekom Austria created a platform on the Eutelsat satellite platform at 16° East with Telekom Austria-owned Croatian service provider Vipnet as an anchor customer.

The template was set last year when Bulgarian transmission services provider Neterra announced that it would create such a platform to enable small and medium-sized cable and other fixed-line service providers in its home market to extend their reach by satellite. After a false start that ultimately led to a switch of satellite operators, it has now launched on the Amos platform at 4° West with a bouquet of about 60 channels that customers can package and market under their own brands in a number of different ways.

“They [Neterra] started a few months ago with a soft launch and it looks pretty exciting,” says Keret. “A few cable operators are using the service. Bulgaria is very fragmented and these local operators currently have a customer base and are looking to expand by marketing the white label service under their local name. It is up to the cable operators to decide which packages they would like to have, and they can also price it differently, with a basic and some premium packages.”

Keret believes that this type of model may become more prevalent as DTH growth begins to tail off. He acknowledges it is unlikely that the region will see more pure-play DTH launches. “This model is something that can work out although it is challenging. It is not straightforward. It is a new model that still has to justify itself but we will know more in a year or two,” he says of the white-label concept.

Other operators are sceptical. Gillet questions the relevance of the white-label model for future development of the industry, noting that it is a concept best suited to immature, fast-developing markets. “I think the white-label product is the right product when the market is developing and in a growth phase. If it is mature, however, that makes it more challenging,” he says. Telekom Austria developed its platform with an anchor customer – which it owns. Gillet is doubtful about the viability of pay TV services delivered by smaller cable players, for example, noting that growth in most of the region was severely arrested by the 2008 financial crisis and that it can no longer be characterised as a high-growth region. “I think the white label proposal is challenging if it relies on revenue from small players. What we see more and more is cable consolidation in each of the region’s countries, with the number of small players shrinking,” he says.

For Telenor’s Janols, whether the white-label model gains traction in the region – where there is still a base of smaller operators seeking to gain scale – remains moot. He says that the model “might work in some settings” but he, like Gillet, is sceptical about its wider relevance in the long run. “Larger operators can realise synergies better by themselves…and smaller cable operators tend to get purchased [by the larger ones],” he says.

HD services

Satellite remains important and operators believe its advantages – the ability to reach a large number of subscribers simultaneously  in areas lacking terrestrial fixed-line telecom or cable infrastructure – will ensure that it continues to be relevant, despite the growing demand on the part of subscribers for advanced non-linear and multiscreen services.

For Keret, the launch of advanced services could in fact be a boon for satellite – especially if HD is included in the list. Satellite TV operators can also deliver non-linear services via satellite, but Keret admits that this will be the choice of a minority. “If there is a terrestrial IP solution operators will select that due to cost but if there is no terrestrial solution they can push content via satellite,” he says.

While the number of platforms is unlikely to increase – with the possible exception of telecom players seeking to extend their reach – the number of channels in the region continues to grow, including HD services. Spacecom recently signed a deal with local channel provider SPI, whose bouquet of 11 channels for the region, such as FilmBox and FightBox, includes five HD services. Keret says that the Amos 4° West orbital slot has in fact seen growth of between 60-80% in the number of HD channels year-on-year.

Spacecom plans to expand capacity at the position by launching a new satellite, Amos 6, late next year, which will boost its Ku-band capacity at the slot by 50% and add Ka-band capacity. According to Keret, the latter could be used for TV services targeting specific localities as well as by broadband service providers.

If the future relevance of satellite as a distribution technology for pay TV services is now coming under scrutiny in mature markets, in central and eastern Europe operators continue to rely on the best means available to deliver a relatively straightforward mix of channels to their users. Uneven broadband coverage – despite the presence of high-quality, high-speed networks in densely populated urban areas – and the fact that multiscreen viewing remains, for now at least, the preoccupation of a minority, means that satellite is likely to retain its role as one of a range of distribution channels available for pay TV service providers to reach their customers.