European direct-to-home (DTH)satellite television operators have seen some encouraging numbers in the final quarter of 2004. With all the results now in, Satellite News assesses the performances of the main satellite pay-TV operators in western Europe and analyses the prospects ahead for the rest of 2005. Certainly, 2004 provided a number of highlights. The nine satellite pay-TV operators surveyed here added just less than two million subscribers in 2004. The strongest performer was Sky Italia, which added 700,000 subscribers, followed by BSkyB, which added more than 400,000 subscribers. Overall, satellite pay-TV platforms accounted for about 22 million subscribers in western Europe, a healthy number. While BSkyB in the United Kingdom leads the way, both Premiere in Germany and Sky Italia passed through the three million mark in 2004, with CanalSatellite just a shade under this number.

United Kingdom

In the United Kingdom and Ireland, BSkyB had a surprisingly strong quarter in the run up to Christmas. It added 192,000 subscribers, which was its strongest quarter performance for a while. To put that in perspective, in the first three quarters of the year, BSkyB only added 209,000 subscribers. It has a target of reaching eight million subscribers by the end of 2005. At some points in 2004, this target appeared to be falling out of reach, particularly as BSkyB was only adding about 80,000 subscripters a quarter. However, the strong performance in the final quarter was well above analyst expectations in this area. Sebastien Mourot, a media equity analyst at JP Morgan, commented in a research report, “The main feature of BSkyB results was the subscriber figure the company reported for the second fiscal quarter. At 192,000, net additions were significantly higher than our estimates of 150,000 and consensus of 104,000-178,000. Churn stayed below management’s 10 percent target.”

Mourot also noted the company’s new marketing approach is working. A lot ofBSkyB’s earlier success based on premium movies and sports, so the move to highlight different content and attract other types of customers appears to have been successful. He said, “There is a deeper well of demand for theBSkyB product in the United Kingdom; Over time, management believes further 10 million households will move to pay-TV in the United Kingdom. In the short-term, they believeBSkyB can reach eight million subscibers by end 2005 and 10 million by end 2010. Thus, it makes sense to reinvest in the business to capture some of this pent-up demand.”

He continued, “A new product mix and an increase in marketing spendings will address this demand; Management believes the deceleration in the run rate of gross additions is to be blamed on the company’s focus, in the past, on marketing solelyBSkyB’s top tier package and a lack of investment in the business. Increasing marketing costs to reintroduce theBSkyB product and moving away from the top-tier product to offer more price points would rejuvenate subscriber growth in the business.”

So, the signs are encouraging for BSkyB. It has performed strongly and although the cable operators, ntl and Telewest have launched VoD (Video-on-Demand) services in the United Kingdom early this year, it is still in a very strong position.

France

Both satellite pay-TV operators in France should be satisfied with their performance in 2004, although it appears as though CanalSatellite had the better of year. The pay-TV operator, which ended the year with 2,990,000 subscribers, added just less than 240,000 subscribers during the year. It was also a significant year as Canal+ won the entire French soccer league (Le Championnat) rights packages, which will leave its rival, TPS, without the opportunity to broadcast top division French soccer going forward. This will be one of the significant elements of the market throughtout the next couple of years. Previously, both TPS and CanalSatellite had been broadcasting football. While Canal+ appeared to pay a high price of 600 million euros ($798.6 million) per annum between 2005 and 2007 for the rights, it could give the CanalSatellite DTH platform a strong competitive advantage going forward.

However, there are also a number of positive signs for TPS. It added more than 115,000 subscribers in 2004, closing at just more than 1,350,000 subscribers. Also, the soccer loss may not affect the platform as much as people think. CanalSatellite already had the majority of the rights and the cost savings TPS has made are likely to be invested in other content areas. TPS is owned by French broadcasters, TF1 (66 percent) and M6 (34 percent). In terms of its potential performance in 2005, Mike Hilton, a media equity analyst at UBS Warburg said in a research note, “TF1 suggested that TPS would focus on subscriber growth rather than profitability in 2005. TPS is targeting 115-120,000 net ADSL and DTH subscriber additions in 2005. This is slightly more aggressive than our forecast of 55,000 ADSL additions and 50,000 satellite additions, both of which we are leaving unchanged.”

Both satellite platforms are also looking to tap into the TV over DSL market in 2005. In terms of other major market developments, this is the year when DTT (Digital Terrestrial Television) comes to France. There will be a free and pay-TV offering, which will put more pressure on the satellite pay-TV platforms.

Germany

In Germany, one of the biggest success stories in satellite pay-TV in Europe continues to emerge. Premiere continues to thrive in a market where, previously, its prospects had not looked so good. The operator had a strong 2004 and added more than 340,000 subscribers blasting through the three million mark in terms of subscribers. It had a particularly strong performance in the final quarter of the year, adding just shy of 240,000 subscribers, one of its strongest quarter performances in recent times.

It also is set to be a key year for Premiere on a number of fronts. It will have an IPO this month where it hopes to raise more than one billion euros. This money will be used on expanding the offering and debt repayment. Additionally, main shareholder Permira will cut its stake from more than 50 percent to just short of 25 percent.

The operator will also launch high-definition television (HDTV) services in Germany in 2005 and is one of the first pay-TV operators in Europe to launch services in this area. So, it is likely to be a challenging year for the operator.

Spain

The final quarter of 2004 was a significant one for Digital+, the satellite pay-TV platform in Spain. After many quarters of negative subscriber growth, Digital+ actually added subscribers in the final quarter of 2004. It added about 50,000 subscribers closing the year with more than 1,650,000 subscribers. However, despite the positive movement in subscriber numbers, analysts’ overall were disappointed in the results. Javier Marin, a media equity analyst at Morgan Stanley said in a research note, “Digital subscribers came in at 1,653,000 versus our estimates of 1,718,000.”

Digital+ was created out of the merger between Canal Satelite Digital (CSD) and Via Digital (VD) DTH platforms. Up until September last year, Digital+ had been honouring existing contracts from VD subscribers who were paying low monthly charges. So, a number of these customers did not then take the option of Digital+ services at higher monthly charges leading to negative subscriber growth until September.

The challenge this year will be to have strong subscriber growth. There are no excuses now. There are no legacy VD subscribers. With a number of satellite pay-TV platforms performing strongly in Europe, the onus will be on Digital+ to match those growth trends of other pay-TV operators in Europe. As the only satellite pay-TV operator in the market, it should see strong subscriber growth in 2005.

Italy

Sky Italia had the fastest subscriber growth of any satellite pay-TV operator in Europe. It added 700,000 subscribers in 2004. In the final quarter of 2004, the operator added 270,000 subscribers, more than any of the other operators surveyed here. Its growth has been especially impressive and once again it appears as though News Corp has once again worked its magic here. The market dynamics are very favorable in Italy. There is virtually no cable, and Sky Italia pretty much has the run of the market.

The biggest challenge had been piracy, but having moved to the NDS system, this issue appears to have been resolved. The operator is set for another strong year in 2005. Piero Muscara, CEO of the Nexta Media consultancy told Satellite News, “Sky Italia has had a very interesting performance in terms of new subscribers. What is also good news for News Corp is that the ARPU (average revenue per user) is increasing. The basic figures concerning the performance of Sky Italia are quite positive.”

In terms of the potential competition for Sky Italia, Muscara said, “Sky Italia has a major problem to deal with, which is the development of Digital Terrestrial Television (DTT). There is going to be very strong competition in the next 18 months. Mediaset and Telecom Italia (TI) have launched pay-per-view services in terms of soccer. They also have plans to launch movies and adult content. This will enhance the attractiveness of DTT to a certain number of potential customers of Sky.”

He added, “The other big issue is how far can Sky go in the market. According to several analysts, the benchmark is between 4 and 4.5 million, although this is the most conservative. The perception is that Sky Italia has not done all the development in terms of volume of content and enhancement of the basic structure, which has been done by other pay-TV operators in comparable markets. What Sky Italia also is lacking in terms of the offering is investment in marketing on other tiers. They have pretty much concentrated on the premium side.”

Portugal

TV Cabo is the main pay-TV operator in Portugal. In its latest numbers, the operator announced that it had 393,000 DTH pay-TV customers. This represents a close to 12 percent increase compared to the same stage last year. At the end of 2003, TV Cabo ended the year with just under 350,000 DTH subscribers, so it has seen relatively strong growth. One local media analyst in Portugal who requested anonymity told Satellite News that the subscriber numbers “were in line with expectations.” The majority of pay-TV subscription in Portugal are still by cable. TV Cabo also offers pay-TV services via cable and at the end of 2004, the operator had close to 1.2 million cable pay-TV subscribers.

Nordic Region

Both satellite pay-TV operators in the Nordic region, Canal Digital and Viasat had a similar performance in 2004. Canal Digital added more than 60,000 subscribers in 2004 and Viasat added more than 50,000 subscribers. A small proportion of Viasat’s DTH subs also come from the Baltic region. Between the two of them, they have more than 1.5 million digital pay-TV subs in the region.

In terms of overall market developments, the most significant move so far this year was the launch of IPTV services in Sweden by telco TeliaSonera. The IPTV market is a growing one, particularly in Sweden. Viasat is also hoping to tap into this market alongside its DTH offering. The Nordic markets, while small are very competitive. In Sweden, there is DTT, two satellite pay-TV offers, IPTV and cable. So, consumers often have a wide choice of offerings. With the competition intense, both satellite pay-TV operators will be under pressure in 2005.

–Mark Holmes (Sebastien Mourot, JP Morgan, [email protected]; Javier Marin, Morgan Stanley, [email protected]; Piero Muscara, Nexta Media, [email protected], Mike Hilton, UBS, [email protected])