Satellite operators across Europe are gearing up for some key events in the second half of 2005. U.K. satellite pay-TV operator BSkyB is closing in on 8 million subscribers, Germany’s Premiere is getting set to launch high-definition television (HDTV) and Viasat and Canal Digital are stepping up their personal video recorder (PVR) and HD plans in the Nordic region. In our quarterly look at major direct-to-home (DTH) platforms in Western Europe, we assess the prospects for the months ahead.

United Kingdom

BSkyB continues to confound expectations with incredibly strong subscriber growth. The company’s growth is remarkable, because in 2004, the operator appeared to be running out of steam. In the first six months of 2004, BSkyB added 147,000 subscribers. Yet, in the first six months of this year, it added 178,000 subscribers. This is a remarkable performance, as usually when market matures, as the U.K. market has, growth rates and subscriber numbers begin to slow down. But BSkyB’s marketing campaigns clearly have worked, and the company now is within striking distance of reaching 8 million subscribers by the end of this year. It would be a fine achievement given that the subscriber growth appeared to be slowing.

BSkyB’s PVR offering now has nearly 900,000 subscribers and could pass the 1 million mark before the end of 2005.

In other areas of the U.K. pay-TV market, cable operators such as ntl and Telewest continue to roll out video-on-demand services as they aim to put the pressure on BSkyB. Perhaps the biggest announcement in the quarter was BT unveiling its plans to launch Internet protocol television (IPTV) servicesin 2006 in a partnership with Microsoft Corp. and other companies. However, Andrew Burke, CEO of BT Entertainment does not see the offering as real competition for BSkyB. “When we designed our service and we targeted the proposition, it was not a service that we pitched against Sky,” Burke told Satellite News‘ sister publication Inside Digital TV. “It was not one that plays to the wants and needs of the Sky base, but it was very much for those people who have bought multichannel television by buying a Freeview box but would really like additional on-demand content like time-shifted television, archived television and would prefer it on a pay-as-you-go product rather than a subscription product.”

Another analyst believes IPTV will be a threat to Sky. Sarah Simon, a media equity analyst at Morgan Stanley wrote in a research note, “Our view is that the launch of a number of IPTV services in 2006 will not leave Sky unscathed. We have already seen an increase in subscriber acquisition costs and churn as competition with Freeview has increased, and Sky will need to increase its investment is subscriber retention.”

Italy

Sky Italia continues on a pace that keeps it one of the fastest growing satellite pay-TV operators in Europe. The Italian market remains a strong one for satellite, with very little competition from cable and other pay-TV operators, and Sky Italia ended the second quarter with 3.3 million subscribers. Throughout the last 12 months, the company has added 600,000 subscribers, which makes it the top performing satellite pay-TV operator in our survey over the past year.

That could be about to change in a big way, as Telecom Italia announced aggressive plans to attack the television market in Italy. Telecom Italia will commercially roll out IPTV services this fall in 21 cities across Italy, which equates to about 4 million households. The service will offer live Serie A and B football, a video library with 30 new films a month, as well as other commercial channels.

Conversely, Telecom Italia’s entrance into the market could also help another pay-TV operators, Fastweb, which has been one of the pioneers of telcos offering pay-TV services in Europe. Paolo Agostinelli, Fastweb’s marketing director told Inside Digital TV that Telecom Italia’s entrance will make it easier for customers to understand about services such video on demand, which is considered a key competitive advantage of IPTV offerings against satellite. FastWeb could also see its subscriber numbers increase as a result of Telecom Italia educating the consumer about the benefits of IPTV services, and in particular, the on-demand features of the service.

France

The French pay-TV market is particularly vibrant at the moment with the launch of digital terrestrial television (DTT) services sparking the sector right now and other offerings preparing to follow. Just like Freeview in the United Kingdom, the early success of DTT in France has been little short of astonishing. Arnaud Decker, head of research and one of the key decision makers about DTT at CSA (Le Conseil supérieur de l’audiovisuel), is forecasting 1 million DTT set-top-boxes in the first year of service. The service has performed well above expectations and according to local press reports, about 500,000 boxes have been sold three months after the service launch.

The success of DTT will put pressure on the satellite pay-TV operators. In its latest numbers, TPS announced that it had a little more than 1.35 million subscribers, a drop of 3,000 subscribers compared to the end of 2004. In the first six months of 2004, TPS added more than 30,000 subscribers, so the company has seen a drastic decline in its performance in the first half of 2005, compared to last year. What impact DTT has had on this number is still too early to say, but such a drop in subscribers is not an encouraging sign for the pay-TV operator.

Canalsat, the leading satellite pay-TV operator, has not yet disclosed its end of June subscriber figure, though the operator topped 3 million subscribers earlier this year. CanalSat has also been diversifying its potential revenue opportunities. In the last quarter, it hooked up a deal with mobile operator, SFR to offer mobile subscribers access to a Canalsat bouquet of content. Like TPS, the operator is also playing a role in the developing the television over digital subscriber line market and has offers available there.

Germany

At the end of June, Premiere had more than 3.3 million subscribers. The company has set a target of reaching 3.6 million subscribers by the end of 2005, but in the first half of this year added less than 70,000 subscribers.

However, analysts rate the company and its recent performance highly. Harald Heider, a media equity analyst at DZ Bank said, “The numbers were a bit above my expectations, and also I think above market expectations. This quarter is always the weakest quarter in the year. They have a target of 300,000 net additions in the subscribers and this compares to 65,000 subscribers in the first half. So this is certainly a challenging number, even though it is a bit below the figures they reached in 2004. However, I am quite confident this is achievable.”

Christian Schindler, a media equity analyst at Landesbank Rheinland Pflaz said, “Premiere is the dominant market player and I think they have made positive steps in terms of acquiring customers. I think their marketing strategy is better than two years ago. The next important step will be to upsell the ‘Premiere Start’ (Premiere’s starter package) customers. They want to gain more premium subscribers to increase the ARPU [average revenue per user]. I think they have made good progress over recent months.”

The operator is planning to launch HD services in Germany later this year, making it one of the first satellite pay-TV operators to venture into this arena. Premiere will announce pricing and packaging information for the service in early September.

In terms of market developments, there has been further consolidation in the German cable arena with Iesy/ish set to combine with Tele-Columbus. The move combines two operators which have around 8 million basic cable subscribers between them.

Spain

Sogecable‘s Digital+ DTH platform continues to make progress. Of all the major European markets, Spain has been one of the slowest markets for satellite pay-TV development. However, there are clear signs that Digital+ is on the upswing. In the first six months of this year, the operator added more than 123,000 subscribers, its strongest six months in quite a while. In the first six months of 2004, the operator lost close to 160,000 subscribers.

Digital+ was formed out of the merger between Canal Satellite Digital and Via Digital and as a result of the merger, Digital+ had to carry a lot of Via Digital subscribers for a while who were paying low monthly charges for pay-TV services. These contractual obligations expired in September 2004, and the operator has since seen strong subscriber growth and now is pushing towards 2 million subscribers.

According to Morgan Stanley media equity analyst, Javier Marin, the numbers were in line with expectations. He said in a research note, “The bottom line regarding the subscribers is that while not easy to read, the numbers were not disappointing, and we think the maximum risk to our 2,073,000 end of year number might be some 20,000, if any and no more.”

DTT service is expected to launch in Spain later this year, with customers having access to around 20 channels.

Nordic Region

The competition between Canal Digital and Viasat in the last quarter appears to have been won hands down by Viasat in terms of net new subscribers, though Viasat still trails Canal Digital in total subscribers.

Viasat operator added 16,000 subscribers in the second quarter, compared to 4,000 in the second quarter 2004. This pushed Viasat past the 700,000-subscriber mark. Canal Digital only added 2,000 subscribers in the quarter, down from 4,000 subscribers in the same period a year ago and ended the quarter with 853,000 subscribers.

Both operators are planning some key service launches in the next few months. Canal Digital is getting set to launch an HDTV channel also is also getting ready to finalize its PVR plans. Canal Digital CEO Christian Albech recently told Satellite News that the operator was close to making a decision in terms of choosing the set-top box vendors for its PVR service. However, it appears to be trailing Viasat to market with PVR service, as Viasat announced this quarter it selected Pace as the set-top box vendor for its impending PVR service launch.

Canal Digital’s owners, Telenor completed the acquisition of B2, a Swedish telco that is deploying IPTV services in Sweden. It currently provides one of the most comprehensive IPTV services anywhere in Europe. B2 also is considered to be one of the most advanced telcos in Europe based on its all-IP fiber and DSL network.

—Mark Holmes