European Research Update

Key Takeaways from Cable Congress and TV Connect

by Stuart Sikes | Brett Sappington | Apr. 1, 2013

Parks Associates recently attended and participated in two key events in Europe - Cable Congress and TV Connect.

Sessions and discussion at both events magnified the difficulties for pay-TV operators in the markets for TV and value-added services. Low margins, competition from OTT, and regulatory and economic factors create new challenges in navigating this space, especially as companies are working to determine their future strategies in value-added services.

A key point coming out of the event is that cable TV in Europe is a growth business, reporting revenue growth of just over 5% for the year 2012. Not many European industries can boast the same, making this one of the bright spots in the EU's double-dip recession.

While total number of cable subscriber households declined over the past year, the revenues from bundled services, including both pay-TV and Internet services, more than offset the loss of subscriptions. That is, despite pay-TV sub losses, existing and new subscribers are increasing their total number of services by subscribing to bundled services, leading to growth in Internet and phone revenues.

Clearly European cable companies are managed carefully to increase not only revenues but profits as they have to struggle with lower ARPUs than their U.S. counterparts. ARPU across the continent is in the mid $30s per month versus over $120 in the U.S., according to Mike Fries, CEO of Liberty Global.

Many attendees voiced questions on Liberty Global’s planned acquisition of Virgin Media. In particular they wondered whether or not the deal will lead Liberty to replace TiVo with its own Horizon platform, recently deployed, with a few hiccups, in The Netherlands and Switzerland. Fries told the audience that for the near future, Virgin will continue down the TiVo path.

When asked what were the next challenges Liberty will tackle, Fries reported that his cable networks really need mobile assets, yet mobile companies are hard to acquire. This response suggests that building a larger ARPU base from triple play is the next priority.

Providers want to sweeten their returns on subscriber costs, and they see mobile as one important part of that strategy. For example, ZON in Portugal is tying up with a mobile carrier.

TV Everywhere/multiscreen services was less discussed at this year’s conference. The service offering itself is almost a foregone conclusion as operators have agreed to offer their services across many home devices. Therefore, it has quickly become a "standard" offering.

The question was posed if cable companies must own content to increase value and subscriber loyalty – a model being tested by Netflix. However, cable representatives did not hint at any plans to develop their own content.

EU regulators have been mostly friendly, so far, to cable, allowing a primarily foreign-owned holding company to provide fierce competition to state-owned telcos. When, or if, the EU should provide some protection to incumbents is an interesting free market question.

Regarding social TV, panelists said there is no direct monetization of social TV, but they have to do whatever it takes to woo superfans of TV shows, as they are critical to boosting ratings and continuing word-of-mouth enthusiasm for individual series.

On a panel on day three, Parks Associates’ president posed the question as to when cable will show any signs of following their U.S. counterparts and EU telco competitors in providing home controls features.

These solutions clearly appear to be the next offering behind the quadruple play. Several home controls deployments in Europe, using platforms from Intamac, AlertMe, and iControl, have been strong sellers, albeit to small segments of large markets.

If European cable waits several years to get into the game, will they miss ARPU opportunities which may ultimately be flattened by competitive pressure, or will they shrewdly wait until the business models are ironed and out and the value propositions established by their competitors?

Most agree that European cable operators are focused on improving their service delivery platform and will likely not offer home controls until the market proves that these services are in high demand.

At TV Connect, Daniel Danker from the BBC echoed that sentiment, indicating that the industry is constantly looking to the next thing (and the next thing and the next thing) in video and multiscreen, but it hasn't actually declared victory over the things that they are doing now. He emphasized that the multiscreen experience and related business models still need refinement before the industry can call multiscreen a success.

TV Connect speakers and attendees noted that piracy continues to undermine TV services, VoD, and legitimate OTT services in developing markets throughout Europe, Latin America, and Asia. Operators are desperate to find something to provide differentiation and cause consumers to pay for content.

  • In Russia, operators are experimenting with a la carte channels and using "free" linear TV as a value add to get people to subscribe to SVOD.
  • In Hungary, an "aggression-free" SVOD service has become popular among parents with small children who want to use it as a distraction, a "digital nanny," for their kids.
  • Some operators and content companies are preaching the values of "curated experiences" - namely that too much choice without a way to manage it is not helpful to the consumer.


With the notable exception of Liberty Global and a handful of other cable providers, IPTV players and satellite operators have been the big innovators, with cable operators behind the innovation curve in many markets. CPE and content costs remain key concerns.

Currently, 70% of an operator's CPE costs are tied to the STB. Given the costs of content, competition from OTT, and thinning margins, some operators have speculated on the advantages of being the "dumb pipe." In other words, it might not be a bad business decision to sell capacity, focus on efficiency of delivery, and reduce the cost in the network.

This sentiment reflects the new challenges in the market and the difficulties faced by pay-TV providers, especially in developing markets - should they extend their services, through value-added services such as home controls, or refocus on their core services? The answer is still very much up for debate.




Stuart Sikes

Stuart Sikes

President

Stuart Sikes is the president of Parks Associates, a market research firm specializing in consumer adoption of technology products and services. Stuart and team assist clients around the world by predicting trends in consumer technologies and identifying evolving business models. The Parks Associates team serves the world’s leading semiconductor, software, consumer electronics, telecom equipment, and entertainment companies, providing them with industry analysis, consumer research, and go-to-market recommendations. Stuart’s recent industry presentations include the outlook for residential energy management, new business models for the connected home, and the evolution of new video services.

Stuart has served technology companies for over twenty years, designing technical service, software, and hardware solutions for companies ranging from global semiconductor manufacturers to one of the nation’s largest airlines. In his positions with companies including AT&T, NCR, OpenConnect Systems, and Intelligraphics, Stuart’s roles have included sales, product marketing, marketing communications, and executive management.

Stuart holds an MBA from SMU and a BA in economics from Vanderbilt University.


Brett Sappington

Brett Sappington

Senior Director of Research

As a director of research at Parks Associates, Brett Sappington leads Parks Associates services research team, including access and entertainment services, digital media, OTT, cloud media, video gaming, and technical support services. Brett is an expert in worldwide television and broadband services. His personal research focuses on the activities and trends among operators and the market forces affecting their businesses. Brett is a regular speaker and moderator at international industry events.

Brett has spent over eighteen years in the industry as an analyst, executive manager, and entrepreneur. Previously, he founded and served as vice president for Teligy, a software company specializing in software for wired and wireless communications systems. Brett established new divisions for networking and audio/multimedia software for Intelligraphics. He has also been involved in the development and marketing of early-market products for 802.11 wireless networking, VoIP, and other technologies.

Brett holds an MBA from the University of Texas at Austin with a concentration in high-tech marketing and a BA in physics from Baylor University.

Industry Expertise: International Digital Living Trends, Television Services (IPTV, cable, satellite/DTH, terrestrial/DTT), Broadband Services, Multiscreen Services, Value-added Services, Cloud-based Consumer Services, Set-top Boxes, Residential Gateways, Electronic Program Guides, Video Search and Recommendation, Video Metadata, Middleware, Technical Support Services

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