IPTV services achieve mixed results in Europe

Transcription

1 Perspective IPTV services achieve mixed results in Europe By Cesar Bachelet (Senior Analyst) February 2009 BT s IPTV service has only attracted subscribers since its launch nearly two years ago, which represents about 7% of the operator s broadband subscriber base. By comparison, Belgacom had achieved 7% IPTV penetration of its broadband access channels within one year of service launch, rising to 12.4% six months later and 16.3% within two years of launch. This Perspective examines the contrast in take-up between these and other IPTV services in Europe, and considers the reasons behind IPTV s mixed success. The European pay-tv market is characterised by its diversity IPTV is emerging as a viable service platform overall IPTV (and its hybrid variant, which incorporates DTT for free-to-air content) is becoming established as a viable platform for pay-tv services throughout Europe. It has achieved critical mass in most cases: individual deployments have reached numbers in the hundreds of thousands (see Table 1). Table 1: IPTV subscribers for selected operators in Europe, September 2007 September 2008 [Source: Analysys Mason, 2009] Operator IPTV subscribers Year-on-year growth (%) September 2007 September 2008 Belgacom % BT % Deutsche Telekom % Orange France % Telecom Italia % Telefónica O2 Czech Republic % Telia % 1 Analysys Mason estimate.

2 IPTV services achieve mixed results in Europe 2 The total number of IPTV subscribers for these seven operators almost doubled in year, from slightly more than 1.6 million in September 2007 to almost 3.2 million in September In comparison with other parts of the telcos businesses, this segment appears to be very healthy. but closer analysis reveals a mixed picture However, subscriber growth figures do not provide a complete view of an operator s success with its IPTV offering. IPTV penetration of an operator s retail broadband base is a much better measure of how well the service is performing in terms of take-up particularly when it is compared with the service s launch date (see Figure 1 and Table 2). Figure 1: IPTV subscriptions as a percentage of retail broadband base for selected operators in Europe [Source: Analysys Mason, 2009] Percentage of broadband subscriber base 40% 35% 30% 25% 20% 15% 10% 5% 0% Belgacom BT Deutsche Telekom Orange France Telecom Italia Telefónica O2 Czech Republic Telia Months since service launch Table 2: IPTV subscriptions as a percentage of retail broadband base for selected operators in Europe, September 2007 September 2008 [Source: Analysys Mason, 2009] Operator IPTV subscriptions as a percentage of retail broadband base Service launch date September 2007 September 2008 Belgacom 20.7% 33.7% June 2005 BT 1.2% 7.0% December 2006 Deutsche Telekom 0.6% 2.5% October 2006 Orange France % 19.0% December 2003 Telecom Italia 0.6% 2 3.3% December 2005 Telefónica O2 Czech Republic 11.0% 19.6% September 2006 Telia % 28.9% January Figures calculated using the consumer retail broadband subscriber base only, resulting in higher percentage. 2 Analysys Mason estimate. 3 Figures calculated using broadband subscriptions, rather than channels or access, potentially resulting in higher percentage, as one subscriber could have multiple channels or accesses.

3 IPTV services achieve mixed results in Europe 3 The IPTV penetration rates for this sample of operators vary considerably, ranging from 2.5% to 33.7%. The operators can be arranged into three groups, based on the performance of their IPTV services and taking factors such as the lifetime of the service into account. The first group of operators achieved rapid take-up of their IPTV services initially by launching a proposition that appealed to potential subscribers. Belgacom runs one of the most successful IPTV services in Europe in terms of take-up. One in three of its broadband subscriber base has taken the service, and it has reached this penetration rate within three years of launch. In addition, penetration has increased at a sustained rate: it stood at 7% after the first year and 12.4% after two years. Telefónica O2 Czech Republic has made steady progress with its IPTV service. Its penetration rate reached 11% of its broadband subscriber base within a year of launch, and almost 20% a year later, which is an impressive take-up rate for a two-year-old service. Telia launched its IPTV service in Sweden in 2005, but its take-up did not start to grow significantly until 2007, when the operator offered a free basic IPTV package as part of a service bundle. As a result of this strategy, the IPTV subscriber base increased more than ten-fold between December 2006 and 2007, from to However, growth has slowed in 2008 following the completion of analogue switch-off in Sweden in October 2007, which reduced the number of potential subscribers. Many analogue cable subscribers chose another platform as a means of upgrading to digital TV. The second group of operators primarily consists of early adopters, whose services are gaining traction in the market after early difficulties, such as limited geographical coverage, unattractive pricing or insufficient content. Orange France s IPTV service is one of the most established in Europe, but it has taken the operator almost five years to reach penetration levels that are broadly comparable with those of the Czech incumbent s service. Two years after its launch (in December 2005), the service had only achieved 4.5% penetration of the Orange France s consumer retail broadband base. Take-up did not increase significantly until the operator adopted more-aggressive bundling strategies. Penetration increased from 8.4% at the end of 2006 (three years after launch) to 14.5% at December The final group of operators consists of relatively late IPTV adopters, whose services have failed to gain significant penetration levels during the early phase of their deployment. For most, it is uncertain whether they will continue to struggle, or whether a change in strategy will reverse their fortunes and accelerate take-up. Despite achieving rapid subscriber growth in the year to September 2008, BT s IPTV service had attracted only 7% of the incumbent s broadband subscriber base in slightly less than two years. This is a low penetration rate in comparison with that of BT s peers particularly for a service that does not require any commitment to a subscription and that requires less bandwidth than most (because all linear programming is delivered through DTT). Nearly three years after launch, Telecom Italia s IPTV service has one of the lowest penetration rates among Western European operators, at 3.3%. Deutsche Telekom s domestic IPTV penetration rate also continues to be low, at 2.5% of the operator s broadband subscriber base almost two years after launch.

4 IPTV services achieve mixed results in Europe 4 Several factors, both internal and external to the operator, affect the market performance of an IPTV service IPTV operators are entering very diverse TV markets Each country s TV market is different, so each IPTV operator has to contend with very different market circumstances and growth prospects. Some of the key country-specific factors include: Take-up of pay-tv: This metric should be examined with caution, because its impact can be the opposite of what is expected. For example, a country that has a high pay-tv penetration rate may still present an opportunity for a new entrant, such as an IPTV operator, if the established pay-tv operators offer predominantly analogue services. This has been the case in Belgium and also applies to the Czech Republic. Take-up of digital TV: Countries with a high digital TV adoption rate, such as the UK, offer poorer growth prospects than those where digital penetration is low. The prospect of the analogue switch-off will encourage consumers to upgrade to digital services. However, consumers in some countries will still be able to receive analogue programming through cable networks after the switch-off, which will delay the upgrade to all-digital TV services. This has occurred in the Netherlands and Sweden, where analogue services have already been switched off, ahead of most other European countries. Competition: In addition to pay-tv operators that use other platforms, free-to-air TV services can also provide strong competition to IPTV services particularly if they offer a wide variety of channels and high-quality content. Such free offerings have undermined take-up of pay-tv services for example, in the UK, where the Freeview DTT platform offers more than 40 TV channels. In some countries, such as Germany, the free-to-air channels are delivered to many subscribers as a utility service in the form of a low-cost analogue cable package, and many of these subscribers may be unwilling to upgrade to more-expensive alternatives because they are satisfied with the content they receive. Operators are subject to different enablers and constraints Operators will also need to take telecoms industry-related enablers and constraints into account when establishing their IPTV services. Some of the key factors include: Reach of the broadband network: Operators need to have extensive broadband coverage, and a high proportion of the network must offer sufficient download speeds to support a basic triple-play offer, which would typically be a minimum of 4 5 Mbit/s. Regulation: The delivery of linear content programming over telcos IP networks has not been as much of an issue in Europe as it has been other regions for example, the Asia Pacific region and Latin America, where operators were forbidden from launching IPTV services in some countries. However, access to infrastructure, either the local loop or next-generation access such as fibre, continues to be a key factor that could enable or constrain IPTV services. Customer base and revenue: The size of an operator s customer base and the amount of revenue the operator generates will influence negotiations with suppliers, such as content owners and vendors. Suppliers will be prepared to offer much more favourable terms with operators that have more money to invest and a large potential audience. Large incumbent cable or satellite pay-tv operators are likely to have an advantage over telcos in their negotiations with content suppliers because IPTV is a comparatively new platform.

5 IPTV services achieve mixed results in Europe 5 There is no universally guaranteed strategy for IPTV success The combination of these factors ensure that there is no universal approach that would be applicable to and successful for all IPTV operators. Based on the environment in which they operate, telcos will have to determine which unique selling propositions they will integrate with their IPTV offer, and then target the market accordingly. As new entrants to the TV market, telcos need to lure established and potential subscribers away from the incumbent pay-tv operators by offering at least one, if not more, of the following: Content: The content offered should be of a greater range or quality than that offered by established services. This is imperative because it is content that attracts subscribers to pay-tv services. Operators also need to be innovative: they could integrate non-broadcast content with the service to supplement the TV experience, or create content themselves. Orange has been investing in film production, while Telekom Austria has been involved in Buntes Fernsehen a prototype community TV project. Cost: IPTV service pricing must be competitive in relation to established pay-tv offers. That does not necessarily mean it must be less expensive, but consumers should perceive the service as good value for money. In this respect, it will be more difficult to drive take-up in markets that have a strong free-to-air offering. Control: Consumers increasingly want and expect to be able to view content on their own terms particularly at a time of their own choosing (that is, time shifting) and increasingly in diverse locations (place shifting). The time-shifting element of the proposition can be addressed through the provision of content (such as VoD and catch-up TV services), devices (PVRs) or services (network PVRs). Place shifting would need to form part of an operator s three screen strategy, although an entry-level proposition can be delivered through the provision of a TV streaming device, such as Slingbox. Convenience: Convenience is key to driving ongoing use of the service, and is affected by elements such as user interface design, personalisation and ease of installation. BSkyB s Sky+ PVR is an example from the wider pay-tv industry of a device with an intuitive user interface, which is tightly integrated with the EPG, that has achieved high levels of take-up: 46% of BSkyB s pay-tv subscriber base had adopted the device by September Convergence: A range of interoperable services that complement each other can add value to a multi-play bundle. Examples of such services include caller display (also known as caller ID) on the TV screen, video calling across multiple platforms, or viewing online photo albums on the TV. Much development work needs to be done in this nascent area, and operators would have to contend with successes and failures as they attempt to identify the services that will attract consumers. Operators need to support all of these elements with high-quality service delivery and customer service to ensure a customer experience that is superior to that offered by established competitors. Operators will need to meet different priorities in the respective countries in which they have a market presence, because of the variety of potential success factors and market diversity. For example, it may be sufficient to provide digital TV and VoD services as differentiators in markets where the competition is largely based on legacy analogue platforms, but it will be much more difficult for an IPTV operator to succeed in markets that have strong incumbent digital TV players, many of which will already deliver such services.

6 IPTV services achieve mixed results in Europe 6 Operators need to act before the opportunity passes No matter which market they operate in, IPTV operators need to act now to differentiate themselves before the opportunity passes. The analogue switch-off is scheduled for 2012 at the latest in most European countries, and other pay-tv platforms are evolving quickly. Cable operators are focusing on upselling their customer base to digital TV and associated advanced services such as HD, VoD and PVRs, while satellite operators are overcoming their lack of a high-bandwidth return path by using the storage space on PVRs to offer push-vod services, or even adding broadband connectivity to their set-top boxes to deliver additional content to their subscribers in real time. New competition is also emerging in the form of over-the-top online video players, many of which have started to deliver content to the TV, rather than the PC. Through their IP-based platform, IPTV operators have a unique opportunity to combine the traditional passive TV experience with some of the interactivity and innovation associated with the Internet experience. They can also introduce Internet business models, such as advertising-funded content, to pay-tv services. Some of the hitherto least successful operators have provided the best examples of innovation recently, in their attempts to drive service take-up. Deutsche Telekom, which has so far struggled to achieve critical mass for its Entertain IPTV service, organised a competition in March 2008 in which it offered prizes totalling EUR1 million to the developers that created the most-compelling interactive TV applications. Following the announcement of the winners on 21 January, the operator can be expected to integrate the best of the suggestions with its service. BT plans to launch branded channels on its BT Vision service Honda TV will be the first to appear on the platform. In addition to video content from Honda, it will also give viewers the ability to order a brochure or book a test drive via their TV. Appendix: case studies The contrasting fortunes of two IPTV deployments, as a result of the aforementioned factors, is briefly assessed in the following case studies. Belgacom s IPTV service is going from strength to strength Belgacom faced difficult market conditions when it launched its IPTV service in June 2005, because more than 95% of households in Belgium obtained their TV services via cable at the time. However, most of the cable operators offered analogue services, and the market lacked a strong DTT platform and competition from satellite-based services. As a result, Belgacom had an opportunity to establish itself as a digital TV platform before the analogue switch-off. In order to gain credibility as a major player in the pay-tv market, Belgacom successfully bid for the rights to televise Jupiler League football matches, which enabled it place exclusive premium content at the forefront of its TV offering. The operator has since made numerous improvements to its Belgacom TV service, such as: adding new content, such as Warner Bros. films via its VoD service on the day they are released on DVD launching the Comfort View PVR service increasing the number of channels on offer, and adding catch-up TV services from leading broadcasters providing second-stream services to enable multi-room viewing launching a HD content package when it had expanded its high-bandwidth VDSL footprint.

7 IPTV services achieve mixed results in Europe 7 Belgacom s success in the pay-tv market can be attributed to three key factors: its strategy and execution; the initial lack of strong digital TV competition; and the favourable economics of rolling out next-generation access infrastructure in a small, densely populated country. BT is struggling in the UK BT soft-launched its IPTV service in December 2006, which was followed by a large-scale launch in May Its strategy was to target the (small) majority of UK households that had not adopted a pay-tv service (53% of households in 2007) and offer access to content that was not available via Freeview without the need to commit to a regular subscription. The proposition consists of the 40-plus free-to-air digital TV channels delivered via DTT, with on-demand value-added content carried over IP, and a low-cost PVR. The service has so far failed to appeal to BT s almost 4.6 million broadband subscribers, largely because the range of premium content available, although growing, continues to be limited. BT has gained the rights to show Premier League football matches, but on a time-delay, rather than live, which seriously undermines the appeal of the proposition. BT Vision is even less likely to appeal to non-bt subscribers. It does not require a regular pay-tv subscription, but this saving is largely outweighed by the commitment to a BT broadband subscription, at a minimum cost of GBP15.65 per month, excluding temporary promotions. By comparison, BSkyB s entry-level pay-tv package costs GBP16.50 per month, and offers more than 150 TV channels, as well as a near-vod service with a wide range of premium movie content. This is complemented by various broadband packages, starting with basic 2Mbit/s access free of charge (GBP5.00 per month for customers that do not take the Sky Talk fixed voice call package from March 2009). The strength of the competition from other TV platforms is one of the key factors behind BT s lack of success. Digital satellite operator BSkyB dominates the UK pay-tv market. It had almost 8.5 million subscribers at September BSkyB offers an extensive range of programmes and, unlike most of its peers, is also an ISP. Its acquisition of local-loop unbundler Easynet in January 2006 has enabled it to launch triple-play services. Cable operator Virgin Media s network reaches only about half of UK homes, but it is one of Europe s most-advanced cable operators: more than 95% of its almost 3.6 million subscribers use digital services; it offers fixed and mobile voice services; and it has launched a DOCSIS3.0-based 50Mbit/s Internet access service, which enabled it to seize the lead in the competition for broadband speed. Free-to-air DTT platform Freeview has had considerable success since its launch in 2002, surpassing BSkyB as the leading provider of digital TV services to UK households. The UK regulator Ofcom estimated that more than 9 million homes used Freeview for digital reception on their main TV set in September Largely as a result of these platforms, the penetration rate for digital TV services is relatively high in the UK: according to Ofcom, the penetration rate exceeded 77% in December 2006, when BT launched its service, and increased to 88% by September 2008 well above the European average. BT entered the market too late to capitalise on the switchover from analogue to digital services, and missed the opportunity that many of its peers continue to have in Europe. IPTV operators in the UK will have to redouble their efforts if they are to have a significant impact or presence in the market. Unless they can offer a user-friendly TV experience that is genuinely differentiated from competing platforms, they seem destined for extinction.