Satellite Pay-TV Operators Performance Analyzed

[Satellite News 3-11-08] With pay-TV competition more intense than ever, and telcos and cable players offering satellite players all the competition they can handle, Satellite News is taking a look at how satellite pay-TV operators have been performing in the United States and Europe.

The United States

    DirecTV seemed to win the battle of the satellite pay-TV providers in the United States in 2007, adding significantly more subscribers in 2007 than EchoStar. EchoStar ended the year with close to 13.8 million subscribers, adding just over 600,000 subscribers in 2007. DirecTV had a banner year adding close to 880,000 subscribers.
    Spencer Wang, a media equity analyst at Bear Stearns, has been impressed by DirecTV’s recent performance and believes the operator has established leadership in the high-definition (HD) market. He said in a recent research note, “Over the last year, DirecTV has clearly taken the leadership in HD television among a crowded field of competing multichannel distributors. We were impressed by DirecTV’s 2007 results, but continue to believe that the company’s leadership position in HD may become harder to translate into outsized results past the 2008 timeframe. With EchoStar, Verizon, and all the major cable operators heavily focused on rolling out competitive HD products, we believe it will be difficult for DirecTV to maintain the kind of subscriber growth and ARPU growth it saw in 2007.”
    Wang was less enthusiastic about EchoStar’s recent performance. He said in a research note, “On February 26, EchoStar reported 4th quarter 2007 in-line financial results but weaker than expected subscriber metrics. Net adds totalled only 85,000 (vs. our estimate for 253,000 and consensus of 193,000). Gross adds of 790,000 fell by 16 percent year over year and led to paltry net additions of 85,000, less than half of our 253,000 forecast. Housing weakness, the overall economy, competition, and Dish’s slow rollout of HD locals were the culprits. Churn was generally in line at 1.71 percent.”
    In other DirecTV news, it was announced the asset swap deal involving Liberty Media and News Corp. has been completed. Liberty Media now has a 41 percent stake in DirecTV.
    However, the IPTV threat is clearly growing, with Verizon in particular becoming one of the global leaders in terms of IPTV. The operator announced Jan. 28 that it had gone through the 1 million customer barrier for FiOS TV, which is a significant milestone for the operator. AT&T ended the year with just over 230,000 subscribers for its IPTV service, U-Verse.

Europe

    In Europe, it was the usual mixed bag in terms of subscriber growth. BSkyB continues to impress, and despite the fact it is operating in a mature market managed to add close to 575,000 subscribers in the United Kindgom and Ireland in 2007. However, there are clear warning signs for satellite in Europe. Both Nordic DTH operators lost subscribers throughout 2007, and the Spanish DTH platform Digital+ saw negative subscriber growth in the final six months of 2007.

The United Kingdom

    BSkyB’s numbers remain impressive. Aside from its subscriber growth, the operator ended the year with close to 1.2 million broadband subscribers, establishing itself as a legitimate force in the broadband market. It has over 3 million subscribers to its Personal Video Recorder (PVR) service, Sky+ and more than 420,000 HD subscribers. While BSkyB retains clear dominance in the U.K. pay-TV market, its main rival, Virgin Media seems to be on the upswing. It ended 2007 with more than 3.25 million digital TV subscribers. BT Vision, the much-vaunted TV service from BT, had 150,000 subscribers at the end of 2007.

Germany

    Premiere had a strong year in terms of subscriber numbers and repositioning the business. The operator ended 2007 with just over 3.6 million direct digital subscribers. However, the operator’s upward curve was checked by a security breach.     Premiere and its Conditional Access (CA) provider, The Kudelski Group are working to swap out smart cards to try and halt the breach. Premiere admitted in early February that “criminal hackers have successfully circumvented the encryption sys-tem with modified digital receivers, enabling them to watch pay-TV programming illegally.” Premiere expects to have resolved the issue by the end of the second quarter.
    In other recent Premiere news, News Corp. announced in February it had secured additional shares in the operator, increasing its total stake to 19.9 percent. In January, the company initially acquired a 14.58 percent interest in Premiere from Unity Media. With the operator competing in Europe’s potentially most lucrative market with a population of more than 80 million people, Premiere could be one of the strongest performers in terms of European satellite pay-TV in the next few years.
    Deutsche Telekom has around 100,000 IPTV subscribers so clearly has a long way to go before establishing itself as a major force in the German pay-TV market.

France

    Canalsat, the French DTH platform, ended the year with 5.2 million subscribers, making it the second largest DTH operator in Europe behind BSkyB. It added 200,000 subscribers in the last nine months of the year. The IPTV threat is very real in France with France Telecom (Orange), in particular, leading the charge. France Telecom recently revealed that at the end of 2007 that it had nearly 1.2 million IPTV subscribers in France, and that this number had doubled in the last 12 months. Like Verizon, it is significant that it had gone through the 1 million barrier for IPTV subscribers. With other operators such as Neuf Cegetel and Free also present in the IPTV market, it is one of the most dynamic markets for IPTV services in Europe.
    If the IPTV competition was not enough, a new low-cost DTH platform is emerging. French broadcaster AB Groupe announced late last year that it had launched a new platform, BIS, which aims to exploit the demand for low-cost pay-TV in France. The basic offer (called Panorama) consists of 25 channels, and is available at 4.90 euros ($7.18) a month. In December, Gregg Bywalski, marketing and development director at AB Groupe and the man responsible for BIS, told Satellite News about his early expectations for the service. “By the end of the first year, we hope to gain around 200,000 subscribers,” he said. “But the current potential of the market is around 5 million households. So, basically if we get 200,000 in the first year, we hope to get 500,000 in the second year.”

Italy

    Sky Italia remains one of the stellar performers in terms of satellite pay-TV in Europe. The operator had another strong year and ended the year with close to 4.5 million subscribers in Italy. The competition for the operator mainly comes from terrestrial services with Telecom Italia (TI) continuing to be guarded about the numbers taking its IPTV service.

Spain

    Here is a market where satellite continues to underperform. Digital+, the Spanish DTH platform, only added 21,000 subscribers for the year. In fact, over the last six months of the year, it saw subscriber growth fall. The platform’s parent company, Sogecable has been locked in a soccer rights dispute with MediaPro, and with soccer proving to be a key element in any growth strategy in a major European market, resolution of this will be critical for Digital+’s long-term growth prospects going forward.
    In terms of the IPTV threat, Telefónica continues to be one of the better performing telcos in Europe. In its most recent results, Telefónica estimated it now had a 13 percent of the pay-TV market in Spain. It added just over 42,000 new customers in the fourth quarter. The operator ended 2007 with just over 510,000 IPTV subscribers, around 1.5 million subscribers behind Digital+.

Nordics

    Satellite pay-TV may well have peaked in the Nordic region. Both the DTH platforms there, Viasat (owned by the Modern Times Group) and Canal Digital (owned by Telenor) lost subscribers in 2007. Between them, they lost close to 30,000 subscribers. In February, Hans Holger Albrecht, MTG’s CEO told Satellite News, “We have a mature market. The growth potential for satellite is now limited. The whole trend for us is going more into the ARPU game. You see the competition from new distribution platforms from Digital Terrestrial Television (DTT) and broadband. This is reflection of the changing dynamics of television. Scandinavia has some of the most competitive TV markets anywhere. We have cable, DTT, IPTV, satellite etc. The satellite market has peaked. We believe future growth in the market will be on other distribution platforms such as broadband.”