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Media + Networks Market Insight: Western Europe

The Western European TV market is in great shape, with subscriber households growing, rapid technological innovation and more routes to market, writes Andy Fry. The only problem is being nimble and quick to adapt to new technologies and market forces.

Despite the impact of OTT services and the shadow of cord cutting, which has ravaged the US, the PayTV market in western Europe is experiencing something of a boom.

Subscriber numbers are growing, new technological advances are increasing consumer choice and the big players are adapting to new market forces much more quickly than their counterparts across the Atlantic.

April’s figures from IHS Markit show that PayTV in Western Europe is in great shape. According to the company’s research director, television, Ted Hall, the sector will grow 5.6% to 111.5 million subscriber homes by 2021. Within this total, there will be continued growth for digital PayTV at the expense of analogue PayTV, with Hill expecting the latter to virtually disappear by 2022.

Not only is the size of the PayTV market growing but revenues are on the rise too. In fact, says Hall, the sector’s revenues are expected to grow at a much faster rate than subscriber numbers – up 15.2% to €41.9bn by 2021.

The resilience of PayTV comes despite growing competition from SVOD platforms such as Amazon and Netflix, with the latter adding 10 million Western European subs in the past two years. Looking ahead, IHS Markit’s bullish five-year forecasts for PayTV come despite the fact that online video subscription revenues are expected to rocket by 88% to €5bn over the same period. Hill is expecting there to be 57.8m online video subs by 2021.

Explaining PayTV’s current and future resilience, Hill puts it down to a range of factors such as exclusive content rights, a diversification in the packages available to subscribers and an emphasis on innovations that discourage customer churn. “Western Europe’s leading players learned from the US, where operators were slow to react to the threat posed by SVOD. What we’re seeing as a result is Western European consumers adopting services like Netflix as complementary to PayTV.”

As evidence of how operators are innovating to keep customers loyal, Hill points to the number of PayTV platforms that have a) incorporated Netflix into their suite of services and b) made their content available across a range of screens and devices. The latter point is echoed by analyst Dataxis, which estimates (March 2017) that 72% of Europe’s PayTV subscribers now have access to TV everywhere-style cross-platform services.

All of the above changes are good for technology vendors, which help operators innovate in two ways. Firstly, by creating products and solutions that support improved quality of experience (QoE). Secondly, by providing the architecture for operators to extend their influence into new business areas.

Android takeover

This is especially apparent in the attention being paid to the functionality of set top boxes (STB). To cite a current example, ZTE recently won the Best Consumer Device Award at TV Connect for its ZXV10 B860H Android TV STB. Integrating 4K video, the ZTE STB is compatible with android applications, offers home cloud storage and can also be extended as a smart home gateway. As such, it is seeking to address both the QoE and business diversification objectives identified above.

A number of other leading companies are also exploring the kind of technologies crammed into the new ZTE STB. On the subject of android, for example, STB manufacturer Infomir has just unveiled the MAG140, a new box that brings together 4K and Android OS.

More broadly, analyst Ovum conducted a survey of PayTV professionals for security firm Irdeto, which indicates that 72% of respondents are considering Android as a part of their STB strategies. 50% of respondents see Android as being important for their goals within the next five years.

“Video service providers are feeling pressure to innovate their offerings to satisfy consumer demand,” Irdeto director of product management Frank Poppelsdorf commented on the release of the April 2017 survey. “These results indicate that Android TV is not only on pace to play a critical role in the future of TV distribution, but is essential for the industry to meet growing consumer demand for new and innovative services.”

One reason operators are interested in Android is the ability to download additional apps. Irdeto’s commercial interest is that this introduction of third-party apps into STBs may expose them to piracy: “As the industry continues to shift toward more open platforms for the STB, it will be critical for video service providers to implement a robust 360-degree security approach to ensure premium content is protected,” added Poppelsdorf. In other words, every innovation brings with it a series of incremental business opportunities within the pay universe.

Cloud cover

Alongside Android-related opportunities, there is also a lot of innovation around the role cloud-based STBs can play in content storage and distribution. Orange CEO Stéphane Richard recently used an Orange event in Paris to reveal that his company is planning to ‘virtualise’ its Livebox STB. Within five years, all Orange boxes will be what Richard referred to as “non-boxes” – with TV services delivered from the cloud.

Orange is not alone in emphasising the importance of cloud-based PayTV architecture. At Deutsche Bank’s 2017 Media and Telecom conference Rick Westerman, SVP of Europe’s largest cable operator Liberty Global, said his company is pushing ahead with the “deployment of exciting new products like our 4K cloud-based set-top and our WiFi Connect Box.”

This drive by operators is being achieved in partnership with leading solutions providers including China’s Huawei, which has created an agile cloud-based unified CDN to support its partners.

Recent breakthroughs in Europe include a partnership with Norwegian operator Altibox – which Huawei is providing with a complete 4K capable entertainment platform. Among other things, Huawei’s solution eliminates the need for a decoder with a hard disk, with Altibox customers able to store 500 hours of recording in the cloud from any channel.

The cloud offers operators advantages in areas like storage, workflow and data management. But as advanced economies move rapidly towards an internet of things (IoT) landscape, the cloud also creates an opportunity for operators to expand their sphere of influence within the home environment.

Expanding presence in the home

ZTE’s attempt to make its new STB a smart home gateway is indicative of this trend, but it is not the only one. German STB supplier ABox42 used NAB 2017 to demonstrate how its newest STBs can act as the gateway to smart home solutions.

ABox42 also hosts an annual IPTV/OTT Industry Breakfast at TV Connect in London. Following the latest edition of this industry get together, it identified the following key themes: “The TV is still the main screen in the household and it is important that operators keep control of this by offering a compelling multi-application TV solution, which is covering live TV, on-demand services, catch-up TV and major OTT services in a controlled environment. Another main topic discussed (at TV Connect) is the increasing importance of capturing and interpreting analytical data and user behavior to improve the service offering and upsell and cross-sell further TV packages.”

ABox42’s post-event summary also concluded that “seamless security across multiple devices” is more important than ever. As for business diversification, it said: “As we all look forward to additional revenue streams and how to reduce customer churn, it was felt that operator smart home solutions would become the logical next step in extending operator service offering.”

Ericsson is also heading in this direction. At NAB 2017, Elisabetta Romano, VP and head of media solutions at Ericsson, told delegates that integration of TV distribution with smart home technologies is a key area for the company.

A similar message is coming out of Cisco-owned Jungo, a specialist in the connected home market. Jungo recently commissioned Park Associates research director Brett Sappington to write a white paper looking at this development.

He says gateway-based features being deployed by operators in North America and Western Europe are “home automation, security, and energy services. Telcos and cable operators alike are adding support for cameras, motion detectors, door and window sensors, programmable thermostats, and control interfaces for mobile devices. These devices are often linked to cloud-based automation features such as optimisation of appliance and HVAC use to minimise consumer energy bills.”

Gigabit broadband and zapping

All of the above ambitions, TV and otherwise, will be easier to realise with higher broadband speeds. So no surprise that Liberty Global’s Westerman is also talking up the company’s planned DOCSIS 3.1 field trials, which will provide gigabit speeds. IHS’s Hall says consumers may initially question the value of having such high broadband speeds (particularly if they come with increased cost) “but once you have a few members of the family downloading 4K content at the same time I think the appeal of higher broadband speeds will become apparent.”

DOCSIS 3.1 also rated a mention in Arris’s Q1 2014 results, unveiled on May 3, 2017: “We had a solid finish to Q1 on good order flow and shipments.  We expect the key trends that underpin our business – fiber deep, DOCSIS  3.1, advanced wireless home networking, and 4K video - to gain momentum and result in H2 growth,” said Arris CEO Bruce McClelland.

As operators pursue improved quality of experience, other areas of advance include technologies that reduce the time consumers have to wait for things to happen. STB solutions provider EKT, for example, has entered into a partnership with Qarva. Based around the latter’s Fast Channel Change technology, EKT claims the technology improves the industry zap time norm by a factor of 10 from two to five seconds to just 0.2 to 0.5 seconds. At NAB, meanwhile, Harmonic showcased solutions aimed at reducing latency and buffering in OTT services.

Other areas under the microscope include voice recognition as a means for consumers to find content. In addition to discussing Orange’s plans for Livebox, Richard also unveiled a new voice-enabled assistant called Djingo that can be used to stream programmes or control other devices in the home. Sky is moving the same way. A new update to its Sky Q box will bring in voice search via the Ruwido-developed touch remote.

Sky’s voice solution has been developed with TiVo, whose SVP and general manager Matt Berry says: “With more and more content choices and a great range of entertainment available across TV, TiVo is helping partners like Sky provide the best user experience whilst driving content consumption.”

Content discovery

Of course, the opportunities surrounding content discovery and data go way beyond voice recognition. Sky has also been working with companies like Conviva to use data-driven intelligence to generate insights about customer experience. Personalisation in terms of content recommendation and targeted advertising are both high on operator agendas.

Much of the above relates to opportunities that exist within STB ecosystems. So what is the prognosis for STBs in Western Europe? Well it’s clear that there are challenges from smart TVs and streaming media devices. But the general view is that the STB sector is resilient and will experience continued growth. In a 2016 report, Credence Research said analogue to digital switchover, upgrades to HD/4K, merger & acquisition and the emergence of hybrid STBs are all driving factors in the sector.

SNL Kagan predicts STB shipments will slip slightly from 2018 as PayTV markets mature. But it is still forecasting global shipments to be about 261 million by 2020.

Technavio, meanwhile, anticipates significant growth in hybrid STBs. “Hybrid STBs support a satellite input, a regular cable input, and signals transmitted over the Internet,” said Technavio analyst Soumya Mutsuddi. “The technology is versatile as it allows internet access, over-the-top (OTT) services, and also offers pay-on-demand (POD) content on the same device. (Our) forecast states, as of 2015, 29.62 million units of inbuilt hybrid STBs were shipped, and the market is expected to reach 53.51 million units in sales by 2020, growing at a CAGR of 12.56%.”

In terms of PayTV, market share in Western Europe, the key story is the domination of a handful of players. Figures from Digital TV Research suggest four (Liberty Global, Sky, Vodafone and Altice) control half of the region’s subscribers. Liberty Global and Sky control half of the region’s PayTV revenues, says DTVR.

On May 7, Liberty Global released its results for Q1 2017, which provided a valuable view of the PayTV market in Western Europe. While CEO Mike Fries described the company’s European revenues as “soft”, he put this down, in part, to the heavy investment being made in the marketing of the company’s competitive advantages such as “broadband speeds, Virgin’s 4K set-top box (in the UK) and 4G quad-play.”

More encouraging is the rate of take-up of what Fries refers to as “next generation TV platforms” – which include Horizon TV, TiVo and Eos (V6). In Q1, the company added 253,000 next-gen subscribers – taking Liberty Global’s total next-gen subscriber base to 6.9 million (39% of the company’s total video base in Europe).

In the case of Virgin TV’s V6 4K STB, the parent company says “customer satisfaction for this product has been significantly higher than our prior device”. The UK and Germany performed especially well in volume terms, contributing to “our best Q1 video performance in the last ten years,” says Fries.

Whichever way you look at it, the Western European market seems robust and offers great opportunities still for PayTV giants, as long as they are nible on their feet. From a technology standpoint, not only does the market offer an array of areas to cash in on changing consumer demand, but also to expand beyond the TV set and set-top box into mobile and the smart home.



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