Eastern Europe is on course to lose 1 million pay TV subscribers between now and 2022, according to new forecasts from Digital TV Research. Principal analyst Simon Murray blames poor job prospects and low birth rates for the decline, which will also impact on the number of overall TV homes.
It’s not all bad news, however, says Murray. While some of the decline will come about as analogue cable subscribers migrate to free-to-air DTT platforms, most analogue homes will transition to digital PayTV. All told, he expects digital PayTV subscriptions to rise from 58 million in 2016 to 77 million in 2022. So, from the point of view of technology vendors, there are some reasons to be positive about the next few years.
DTVR’s revenue figures for PayTV in Eastern Europe tell a similar story. Murray estimates they will fall from US$6.11 billion in 2017 to US$6 billion in 2022. But during this period, analogue revenues will slide from US$1 billion to US$184 million, meaning that the headline total disguises a useful rise in digital revenues.
Murray’s analysis of SVOD in Eastern Europe is similar. Although SVOD has not taken off as fast as might have been expected, he predicts decent growth “from a low base”, with Eastern European SVOD subscriptions rising from 5.5m to 18m by 2021.
Varied outlook for PayTV
The PayTV picture across the region varies, though Russia is set to be the biggest market in Eastern Europe by some way. According to DTVR, it will account for almost half of the region’s subs in 2022 and more than half its SVOD customers.
The top five PayTV operators in Russia account for 90% plus of subscribers, with market leader Tricolor TV currently around the 12.1 million mark and nearest rival Rostelcom at 9.4 million. Echoing trends elsewhere in Europe, Tricolor has been seeking to drive revenues by the addition of services such as VOD and by improving the quality of its output. In summer 2016, the company launched a package of UHD/4K channels using the HEVC compression format. By Q1 2017, it estimated that viewing of TV channels in HEVC was available to 1.77 million subscribers. Also in Q1, the number of Tricolor TV subscribers watching on multiples screens increased by 3.7%.
DTH platform NTV-Plus is making similar improvements to its offering, with 4K/UHD services available via satellite across the entire Russian Federation. “NTV-Plus has been always distinguished by innovations, premium content and perfect quality,” says CEO Mikhail Demin. “We rely on the most advanced technology platform, high-quality content and high level of service. According to our estimates, the satellite TV market in Siberia and the Far East has significant potential.”
Russia is not an easy market for foreign media firms to enter – as illustrated by the 20% cap on foreign ownership of media companies. However, the imminent arrival of the 2018 FIFA World Cup looks like an opportunity for vendors. In 2014, for example, China’s Huawei signed an MOU with operator MegaFon to deliver trial 5G network services at the event.
Poland is the region’s number two, says Murray and is Eastern Europe’s most technically sophisticated market. Leading PayTV player Cyfrowy Polsat has just reported strong results for Q1 2017. With upselling of products helping drive ARPU among contract customers, the company’s revenues rose 4.6% to US$630 million. Services like multiroom and paid OTT performed well, while the company has also been benefited from higher internet speeds delivered via its LTE Plus Advanced service.
One size doesn’t always fit in SVOD
The advanced nature of the Polish market explains why SVOD platform Netflix decided to launch its first local Eastern European service here in early 2016. Echoing Murray’s cautious assessment of the Eastern European SVOD market, however, IHS Technology forecasts that the service will not have a significant impact on the PayTV market unless it decreases the price, adds Polish subtitles and adds more Polish content.
This downplaying of Netflix’s prospects was echoed at the Digital TV CEE conference in Budapest late last year, when Nikola Francetic, head of group content, media & broadcasting, Telekom Austria, said: “They’re a great company but in the short-term I don’t think they are going to be very successful.”
Part of the problem is the cost of localising in Eastern Europe’s array of small territories. But the job is made tougher by piracy. Speaking at the same event, Luana Alexe, senior product and service development manager at Deutsche Telekom-owned Slovak Telekom, said: “The most interesting target segment (for OTT) is the millennials, but they are also the most piracy-savvy.”
The downbeat assessment of Netflix’s prospects has not dissuaded Naspers-owned VOD service Showmax from entering the region via a partnership with Polish mobile operator Play. All Play contract customers will get free access to Showmax, making the latter available to some 8 million Play customers.
Clearly seeking to distance Showmax’s offering from the criticisms aimed at Netflix, Showmax CEO John Kotsaftis says: “Our strategy runs deeper than light-touch localisation. We’ve built our business in Poland around the premise that success requires having boots on the ground, having a deep understanding of customer needs, and having a willingness to make more than cosmetic changes to meet those needs.”
Regulation and fragmentation
The highly regulated and fragmented nature of Eastern Europe presents a challenge to vendors (75 operators in 22 countries). But there are a few players with scale to support substantial technology investments. Liberty Global, for example, is present in five Eastern European countries (Poland, Hungary, Czech Republic, Romania and Slovakia) via its UPC subsidiary, which has 9 million subscribers and revenues of around €1 billion.
With Liberty Global also a major player in Western European PayTV, it is able to amortise investment decisions and plan partnerships across the entire continent. As a result, its Eastern European divisions are well-placed to deploy the company’s next-generation set-top boxes.
The latest figures from the company show that Liberty Global’s Polish subsidiary UPC Polska has just over 1 million digital subscribers, of which 303,000 have signed up to Liberty Global’s next-generation Horizon platform. A further 188,000 have the company’s Connect Box. Liberty Global also offers its consumers Netflix as part of their content offering. Arguably, this is the SVOD player’s best opportunity to establish a footing in the region.
The technology benefits of having a West-East European axis are also evident at Orange. Recently the company announced plans for the virtualisation of its set top box, a development that will be deployed both in its home market France and at its Polish subsidiary Orange Polska. Orange Polska also recently added Orange TV Go to its suite of customer offerings. The service includes channels, on-demand, catch-up and the ability to view via desktop computers, smartphones and tablets.
Other key players in Eastern Europe, says Murray, are “Deutsche Telecom, with PayTV assets in nine territories, and Telekom Austria in five.”
By contrast, the past couple of years has seen MTG-owned Viasat withdraw from the region. MTG’s departure from the region is a surprising development, given the way the company assiduously built up its presence there over decades.
In March 2017, it agreed to sell all its businesses in the Baltics to Providence Equity Partners for €115 million. Robert Sudo, MD at Providence, said: “Lithuania, Latvia and Estonia are all among the fastest growing countries in the EU. The business friendly environment combined with a highly skilled workforce make the Baltics an exciting region for us.”
Another key market in the region is Romania, where, according to regulator ANCOM, PayTV penetration stood at almost 96% as of mid-2016. This is the highest penetration in the region and is made up of 4.6 million cable, 2.4 million DTH and 89,000 IPTV. This adds up to approximately 7.1 million subscribers of which 4.5 million are digital (a year-on-year increase of 8%).
The leading player here is RCS/RDS. The company used to have widespread interests across Eastern Europe but has retrenched recently, so that it now focuses on its home market and Hungary – operating under the Digi TV banner. With a strong position in cable and DTH, RCS/RDS has recently focused on expanded its mobile business. All told, it invests around €200 million a year, with 80% of that total targeted at Romania.
Although the overall picture in Eastern Europe is mixed, there’s no question that there are pockets of digital innovation across the region. Czech and Slovak DTH platform Skylink, for example, is offering its subscribers 4K/UHD channels, using the Viaccess and Irdeto CA systems. Irdeto also supplies its Cloaked CA security software to RCS/RDS in Romania, working in tandem with SMiT’s conditional access module technology.
Elsewhere, Croatia’s leading telco Hrvatski Telekom has just announced a €28 million, three-year IT transformation project aimed at improving service quality and customer experience.
Implementation of the project will be supported by IBM, Netcracker, Comarch Technologies, and Atos, as well as by HT subcontractors Neos, Croz, Multicom and Zira. HT president of the management board Davor Tomašković says: “In the HT 2020 Strategy, we have set forth that in 2020, we will be the leader in the regional telecommunications and digital services market, characterised by the best network and best customer experience. We will set the new standard in the market.”
Back in the Baltics, Estonia-basedtelecom and IT infrastructure provider Levira has just announced it will offer Internet of Things (IoT) services. Levira will work with technological partner Nordic Automation to provide IoT services and with AU Energiateenus to offer solutions for end customers. “We will enter the IoT market with a smart investment approach by building the network for clients who are ready to start using IoT opportunities right away. With our partners, we will offer fast and flexible solutions designed in co-operation with clients and according to their needs,” said Levira chairman Tiit Tammiste.
One final dynamic of interest was the news in late 2016 that China had set up a €10 billion investment fund to finance projects in Central and Eastern Europe.
Called the China-CEE fund, it is run by Sino-CEE Financial Holdings Ltd and has the goal of raising €50 billion in project finance for sectors such as infrastructure, high-tech manufacturing and consumer goods.
Part of that fund has since been spent acquiring a controlling interest in Hungarian telco Invitel from Magyar Telecom. Assuming the deal gets the necessary approvals, it will boost the prospects of Chinese tech vendors in the market.