In a regular look at how satellite pay-TV operators are performing in Europe, Satellite News examines the most recent results of Europe’s leading DTH players, all of whom have announced their latest figures in recent weeks. The overall results contained the odd surprise.

Sky Italia continued to lead the way, adding well over 400,000 subscribers compared to the end figure in 2005. Sky Italia has continually paced European DTH operators in recent times, and it is no surprise they continue to do well. Aside from the Canalsat/TPS merger which now means the French DTH platform has close to 5 million subscribers, Sky Italia was the first operator outside of BSkyB to reach the 4 million-subscriber milestone.

Ironically, when looking at 2006, one of the best results was achieved by German pay-TV operator Premiere even though it lost more than 155,000 subscribers in 2006. The reason why Premiere has gained plaudits for its performance is that it had lost the prime soccer rights (Bundesliga) in Germany, and many analysts were predicting a doomsday scenario for Premiere.

Christian Schindler, a media equity analyst at Landesbank Rheinland Pfalz told Satellite News sister publication Inside Digital TV in January 2006 – just after it was announced that Premiere had lost the soccer rights – that "in the worst-case scenario, they could lose a million customers. But, while I think losing 1 million is possible, I think it is more realistic that they could lose 700,000 customers, which is 20 percent of their subscriber base." Thus the fact they lost fewer than 160,000 subscribers ironically represents a strong performance under the circumstances.

In France, the merger between Canalsat and TPS took place; as of January 4, they will now account their numbers as one platform. So the accompanying table (see page 3) will be the last one to provide separate figures for both operators in France.

For a country-by-country review and look at some of the issues facing the satellite players:

The U.K.

BSkyB continues to set the template for satellite pay-TV operators in Europe and grow its subscriber numbers at a healthy pace. However, its results were not without the odd worrying trend, with churn the main talking point. Nick Bell, a media equity analyst at Bear Stearns, noted in a research note that second-quarter "churn was 11.9 percent, the highest rate since Sky went digital, although the company attributes 1.3 percentage points of this to its new policy to cut retention spending, and quotes an underlying churn rate of 10.6 percent. However, in our view, this market shows a continuing trend of rising churn in what is becoming an increasingly competitive market place given the NTL/Telewest re- branding to Virgin Media this quarter, and BT is still to fully roll out BT Vision."

The operator also got involved in a bitter dispute with Virgin Media which has seen the cable operator no longer carry BSkyB’s basic channels. Both sides have resorted to blaming each other for the breakdown of the dispute. In the latest twist, Virgin Media has threatened to take BSkyB to court if the dispute is not solved within 30 days.

In her latest research note on the issue, Sarah Simon, a media equity analyst at Morgan Stanley believes such a court action would have little chance of succeeding, unless Virgin Media knows something the world doesn’t. She said in a research note "at the end of the day, from the information that is publicly available, we do not understand the legal case against BSkyB. Sky is forced to carry the Virgin channels, but not to pay for them, so the fact that it has negotiated a favorable rate for those channels seems to be purely the result of strong negotiation. Meanwhile, as far as the Sky basic channels are concerned, there is no obligation on Sky to make those channels available to Virgin (this is not like premium channels, where Sky clearly has dominance — general entertainment and news channels proliferate in the U.K.), nor on Virgin to carry them. Even if they cannot reach an agreement, it is hard to see why such a failure is illegal. We must therefore assume either that Virgin Media has additional information, which is not in the public domain, or that the case will ultimately fail."

In other U.K. market developments, BT finally launched its IPTV service late last year. The market seems to be moving towards strong triple-play competition with BSkyB launching a strong "Surf, Speak, See" campaign where people can gain broadband, TV and telephony services for GBP26 ($50.22) a month. While Virgin Media is undoubtedly a much stronger brand than ntl, the cable operator is now a long way behind BSkyB, and with BSkyB more than flexing its muscles in the dispute between the two, BSkyB’s dominance in the U.K. pay-TV market shows little sign of eroding.

BSkyB is also targeting an improved performance on the U.K.’s Digital Terrestrial Television (DTT) platform. It said in February that it will launch a subscription television service on DTT this summer. The pay-TV package will feature sports and movies, making use of existing capacity that Sky currently uses to broadcast Sky Three, Sky News and Sky Sports News. As a result, the channels will cease to be available free-to-air via DTT in advance of the launch of the pay-TV service, a blow to customers who have no intention of paying monthly charges for television, and are losing three popular channels.

France

The big news in France is that the two satellite pay-TV operators have now combined. Earlier this year, Vivendi and Canal+ Group announced that the pay TV businesses of Canal+ Group and TPS were combined into Canal+ France. At a stroke, the second biggest satellite pay-TV platform in Europe was created with close to 5 million subscribers, ranking it ahead of Sky Italia, but still behind BSkyB. Consolidation had long been speculated in the French pay-TV market and the new platform should now be in a better position in a market, with IPTV perhaps having the strongest impact of any market in Europe. Here, operators such as Free, Neuf Cegetel and Orange are all aggressively targeting the TV market. Orange already has close to 600,000 IPTV subscribers, almost tripling its numbers of subscribers in one year. Neuf Cegetel has more than 2 million broadband subscribers, so the opportunities to sell TV services into that base are considerable.

Germany

Premiere’s performance was perhaps one of the biggest surprises in 2006. It also showed how dramatically analysts had overplayed the importance of the particularly premium soccer rights. However, while Premiere showed in essence there was life after soccer, earlier this year, it was finally able to get Bundesliga soccer back on the satellite platform. It made a deal with Unity Media, which will enable it to start screening the Bundesliga to satellite subscribers. The deal with Unity Media is a far-reaching one and will see Premiere able to distribute via satellite all of arena’s (a Unity Media subsidiary) current and future pay-TV sports channels and programming, including arena’s current Bundesliga programming.

Michael Schatzschneider, a media equity analyst at Commerzbank, commented "this deal confirms that Premiere will remain the most significant provider in the German pay-TV market. Arena has abandoned the pay-TV model. They are refocusing on the business model of being a cable infrastructure provider. Strategically, it was a very important deal, although it was not a bargain for Premiere. I would say it is a sensible deal for both parties. Unity Media can reduce the losses occurred through buying these expensive soccer rights. Premiere is repositioned to where it was in 2005, covering the whole of Germany with premium content."

In essence, the German pay-TV market has come full circle, with Premiere likely to have a strong 2007 as the subscriber numbers begin to trend northwards.

In another significant announcement last week, the operator will launch a new programming package via satellite, Premiere Sky, expected to supplement the existing Premiere portfolio as the new package launches in September. Premiere has created a new subsidiary, also called Premiere Sky, to run the operation. Premiere has said the aim of the new operation is to bundle current and new pay-TV channels that have not yet found "a capable satellite marketing partner."

The Premiere Sky package will initially be exclusively available via satellite.

Spain

Digital+ has yet to make any real big breakthrough in the Spanish pay-TV market. Its subscriber numbers continue to hover around the 2 million mark for subscribers. With strong free-to-air television in Spain, satellite pay-TV continues to disappoint there. In 2006, it managed to grow subscriber numbers by close to 85,000, which considered with Digital +’s history represents a pretty strong performance. Its main rival in the Spanish pay-TV market is likely to be telecom giant Telefonica, which is already growing at a strong pace in the Spanish IPTV market. By the end of 2006, Telefonica already had around 385,000 IPTV subscribers in Spain, or close to 20 percent of Digital+’s subscriber numbers. The threat is clearly growing, and Spain is perhaps the one market in Europe where IPTV could really eat into satellite’s dominance. It is definitely a market to watch in terms of IPTV: Telefonica is growing fast. while Digital+ isn’t, perhaps making for one of the most intriguing markets in terms of the new dimension of IPTV versus DTH competition.

Nordics

With TPS and Canalsat merged, the major market where true DTH competition remains is in Scandinavia where ViaSat and Canal Digital battle. While Canal Digital continues to lead the way, ViaSat keeps pegging back the deficit. By end of 2006, Canal Digital had crawled its way to 943,000 subscribers, compared to ViaSat’s 849,000 subscribers. Like a number of pay-TV operators, Modern Times Group (MTG), the owners of ViaSat are looking to boost its presence in the Internet content arena. Earlier this year, it announced it was acquiring a 90 percent in Playahead, one of Sweden’s major online social-networking communities.

–Mark Holmes