Go East! New Markets Emerging in Europe
The digitalization of TV networks is driving a buoyant Eastern European satellite market despite uncertain economic conditions.
The financial crisis that triggered a global recession over the past 12 months has hit Eastern European countries hard. The economy in many countries in the region is facing slowing demand for goods and services, while currency exchange rates tend to reflect poor prospects of economic growth. As such, many companies and individuals are being hit by a double blow: a receding economy and burgeoning debt, often denominated in euros or U.S. dollars, that they are now struggling to repay.
This situation is giving many a headache to finance ministers and central bankers in the region. Yet, evidence seems to suggest that the satellite market is far from suffering as a result of deteriorating economic conditions. On the contrary, satellite operators are reporting what could be defined as a boom in a number of Eastern European markets. "The crisis is certainly there at an economic level, but the perception on the ground is rather different," says Martin Kubacki, managing director of Astra Central and Eastern Europe. "We see positive growth despite the crisis. We have been signing new deals and witnessing growing demand."
There are several factors that can help explain this apparent contradiction. Firstly, it should be noted that while the crisis is general and widespread, it has hit countries in varying degrees. While some nations were hit hard, others were only marginally affected. "The financial crisis is felt strongly in the Baltic states, Russia, Ukraine and Hungary. Outside of these countries, problems are not as dire," says Kubacki. This analysis seems to be shared by other market operators, as Jean-Philippe Gillet, Intelsat’s regional vice president for Europe and Middle East, suggests. "The downturn impacted some countries, but not all. In countries such as Poland and Romania we see a lot of activity," he says.
Secondly, the financial crisis actually has had the unintended consequence of driving demand for in-home entertainment and, consequently, for satellite services. "One of the consequences of the economic crisis is the fact that people do not go out or travel as much," says Kubacki. "They stay at home more and want to be entertained there. As a result, demand for television services is growing."
But above all, demand in Eastern Europe is being driven by media policy decisions and reform triggered by technological developments: i.e., the digitalization of national broadcasting systems and the demand for innovative services such as high definition (HD).
The Place to Be
It is estimated that around 59 million European households are equipped with HD-enabled TV sets. According to a January joint report released by Euroconsult and NPA, this figure is set to grow to 116 million in 2010 — equivalent to a 51 percent penetration rate — and explode to 220 million by 2018. In other words, in the coming years the overall European television market is set to experience a boom spurred by cutting-edge applications such as HD. "Generally speaking, Europe as a market is growing and Eastern Europe is where a lot of this growth is coming from," says Gillet.
Across the region the hot topic is digitalization of TV networks. As often happens in areas that are lagging in technological development for historical, industrial or economic reasons, Eastern European countries, which still are dealing with the legacy of 40 years of Communism, are facing the prospect of having to leapfrog several steps of development. The TV sector is no exception. In the process of digitalizing their systems, many countries are shunning terrestrial technologies in favor of solutions, such as satellite, that allow for the quick delivery of services at a relatively low price. Digital terrestrial television (DTT), digital cable or Internet Protocol TV (IPTV) are expensive means to digitalize a territory and take time to be deployed, while satellite is seen as "immediate infrastructure.".
The relationship between these technologies, however, is not as straightforward. Satellite is both in competition with and a service supplier to DTT and cable — for example, as carrier of direct-to-home (DTH) platforms and signal feeder to cable headends. In addition, not all players see the various television platforms competing with each other. "In the past, there was a sense of satellite fighting other television platforms such as DTT, IPTV and cable, for marketshare," saids Kubacki. "Today, we see two trends in the market. Competition is becoming fiercer and the combination of two infrastructures is possible. Satellite has the advantage of being immediate and not requiring much investment once the infrastructure is in place. In some countries in the region we play a leading role in the digitalization process — for example in the Czech and Slovak Republic via the 23.5 degrees East orbital position. But that does not exclude that other platforms will eventually follow," he says. In fact satellite often remains the only option of delivery of state-of-the-art television services such as HD or pay TV. "In Eastern Europe there is a lot of interest in new programming, and broadcasters are moving to HD," says Kubacki. "We now have seven HD channels we are carrying for the Czech and Slovakian markets."
SES Astra is not the only player experiencing growing demand for this application. In recent months, Paris-based Eutelsat signed a deal with Cyfrowy Polsat, a pay-TV satellite platform in Poland, for an additional transponder on Eutelsat’s Hot Bird 9 satellite. The deal was in support of the continued expansion of digital entertainment services, including new HDTV channels for Polish satellite television homes. The Cyfrowy Polsat platform currently broadcasts more than 70 digital channels, including five HDTV channels: Polsat Sport HD, Eurosport HD, HBO HD, Discovery HD and MTVNHD.
There is another reason why Eastern Europe is seen as an attractive place to do business: Market dynamics still are not completely set and operators have yet to entrench themselves into positions of strength. In other words, the market is in a fluid state, thus creating opportunities for market players. "Eastern Europe is one of the most competitive markets in the world. Western Europe is a rich but stable marketplace, with only marginal upsets to be expected," says Gillet. "Eastern Europe, on the other hand, is still an undefined market, with players vying for position. In several countries there are many DTH players and consolidation is likely to take place there."
Vying for Market Share
The Eastern European satellite market has seen interesting developments since the fall of the Berlin Wall in 1989: Operators from Western Europe competing for marketshare with regional and international competitors in a situation that is yet to become set.
Intelsat has a satellite located at 1 degree West, Intelsat 10-02, which is partly-owned with Telenor Satellite Broadcasting. The location is being developed as a hot spot for Central and Eastern Europe, of which the spacecraft represents a first building block. "We have invested in Telenor’s satellite at 1 degree West and our plan is to expand capacity there, developing the orbital spot for video distribution," says Gillet. Intelsat is carrying Romania’s RCS DTH platform and in 2008 signed a contract with the European Broadcasting Union (EBU) for relaying the signal of the 2008 Summer Olympic Games to the region. Intelsat also has dedicated capacity and manpower in the region for occasional use. In addition, content and services from Eastern Europe around the globe, such as Serbian, Albanian, Polish and Romanian channels to the United States.
Astra’s activity, on the other hand, is concentrated in some of the most Western-looking countries in the region, including the Czech Republic, Slovakia and Poland. "Astra is perceived as a premium high level operator in the region," says Kubacki. "We have a long tradition in the region, as even during Communism people in Eastern Europe used to receive Astra’s analog signals. Today, Astra has a unique position in the region, based on reliability of signals, turnkey solutions on offer and the ability to understand local needs."
However, this region is not limited to the Western-leaning countries now gravitating towards the European Union’s orbit. Other players such as Ukraine, Belarus and Russia, are maintaining a completely different profile and orientation. Twenty years after the fall of the Berlin Wall, it could be argued that Eastern Europe has split into two areas: one made up of Western-leaning countries such as the Czech Republic or Poland and one under Russian cultural and economic influence. The latter makes up a market with a distinct identity and one that is governed by different mechanisms. Despite being in many ways a dynamic market, the Russian-leaning part of Eastern Europe is dominated by the strong presence of former Soviet operators. This has made it more difficult, though not impossible, for foreign companies to break into this area. Often, it is in vertical markets that "newcomers" find a way in. "We are not very active with video customers, but we are doing much more in vertical VSAT markets, such as the oil and gas industry or the maritime sector," says Gillet.
Some Western operators, however, have managed to establish a significant presence in the region, including broadcasting applications. Eutelsat, for example, is supporting Platforma HD, a pay-TV operator for the Russian market, from the Eurobird 9 satellite. Launched in 2008, Platforma HD complemented and expanded its offer in February, adding a package called Platforma DV 20 that contained 20 standard definition channels to go with the five HD channels of Platforma HD.
"The crisis is certainly there at an economic level, but the perception on the ground is rather different. We see positive growth despite the crisis. We have been signing new deals and witnessing growing demand."
— Kubacki, SES Astra
Other companies have taken the approach of separating the Eastern European market into two, with separate companies within the same group dedicated to each market. This is the case of SES, which split the market between its subsidiaries SES Astra and SES Sirius. This strategy also seems to be bearing fruit. "We can see a very positive trend for SES Sirius in Eastern Europe, particularly in the Baltic states and Ukraine, where we have strong DTH platforms onboard Sirius satellites," says Håkan Sjödin, CEO of SES Sirius. "In the Baltic states, DTH penetration has increased by almost 50 percent, and in Ukraine, the number of households able to receive broadcasts via Sirius has increased from 0.36 million to 2.18 million. Sirius coverage on the cable network side is 100 percent both in the Baltic states and Ukraine." SES Sirius is also present in Romania. "We work closely together with our existing customers to further grow their and our businesses," says Sjödin. "In Romania we have the AKTA DTH platform onboard Sirius. Penetration has increased from 4.86 to 5.12 million satellite and cable households since 2007."
And Broadband Too
The television business is not the only market segment interesting satellite operators, as two-way broadband also is proving to be a growing application, especially in a region lagging behind in terrestrial infrastructure. "For us the main driver in the Eastern European market has been DTH, however, we are also doing business in other areas. In fixed satellite services there are other applications, such as VSAT networks, we are marketing," says Gillet. Kubacki confirms that FSS services are meeting the favor of the market. "We are seeing growing interest in our two-way broadband service Astra-to-Connect among our DTH customers. For instance the Czech-Slovak DTH platform SKYlink has just added this offering to their broadcasting service," he says.
Eutelsat, on the other hand, is offering speeds of up to 3.6 megabits per second (Mbps) with its Tooway consumer broadband service at costs reportedly similar to ADSL. The company is preparing for the launch of its KA-Sat satellite in 2010, which will further raise broadband speeds to up to 10Mbps. Tooway is serving customers in more than 20 European countries including the United Kingdom, Germany, France, Spain, Italy, Switzerland and Ireland, with additional countries across Europe rolling-out over the coming months.
Broadband and pay-TV are driving growth in many Eastern European telecoms markets. For example, according to the latest report from Pyramid Research, broadband and pay-TV will become the major source of growth in the Romanian telecom market during the next five years. Satellite likely will benefit from this expected growth, however, pay-TV, HD and bundled services are only some of the key developments facing the satellite industry in coming years. Other innovations at the horizon, such as end-to-end 3D broadcasting, are promising a radically new way of experiencing cinema and television content. In Eastern Europe, like in the rest of the world, satellite will have a key role in the delivery of tomorrow’s television and telecoms services to tomorrow’s audiences.
Digital Future: Serbia’s Switchover
Moving from analog-to-digital is a challenging undertaking for any country. Recently, the Republic of Serbia announced that it would switch to digital radio and television broadcasting by April 4, 2012. At a projected cost of $50 million and with more than half of the 2.4 million Serbian households that currently have a TV set in need of a set-top converter box, this is a major undertaking for the country’s Ministry of Telecommunications and Information Society (MTIS).
Through this ambitious project Serbia is committed to aligning itself with other European Union and neighboring nations. As a matter of fact, the project puts Serbia three years ahead of the 2015 deadline proposed by the International Telecommunication Union and others in the region.
The switchover also is seen as an economic opportunity by many in Serbia. As part of the project, the MTIS is pushing for any analog-to-digital set-top converter boxes to be manufactured in Serbia, which will translate into new jobs and foreign investment in the country. This underscores a growing trend in foreign direct investment in Serbia, which has included significant investment from leading U.S. companies such as Microsoft and U.S. Steel, both of which have opened facilities in Serbia.
If a major manufacturing deal is secured as planned, Serbia will become a hub of manufacturing for the region, including Russia and other Eastern European countries, which will need similar equipment for the analog-to-digital switchover. The market potential includes nearly 72.4 million Eastern European TV households.