'Doing one thing and doing it well' is no longer enough for European satellite pay TV operators.
Satellite is a low-cost means of distributing multichannel TV. It has an edge over digital terrestrial television (DTT) in terms of capacity, which results in a greater number of channels (200–500) and systems (such as HD). Cable and telecoms operators can also offer a large number of channels, but face significant investment and fixed costs when compared with satellite. Traditionally, pay TV satellite operators built up brands based on key areas of premium content, such as sport, movies and blockbuster TV series. They could afford to bid high for exclusivity of this content, knowing that they could serve a very large number of subscribers at a low cost. It could be argued, however, that the operators’ competitive advantage was not distribution, but first-mover advantage on exclusive content.
With the switchover from analogue to digital television and the entrance of new, well-financed pay TV and free-to-view platforms (IPTV, DTT, mobile TV) hungry for popular content, satellite operators have lost part of their strategic advantage. Such operators now need to be innovative and find differentiators to replace their decreasing first-mover advantages:
- DTT became a way to provide large number of free-to-view (FTV) channels (20–40 in most European markets compared to 4–10 analogue channels), which diminishes the attractiveness of basic satellite TV for some users, in a similar way that cable TV had done, but at a significantly lower cost to both TV channels, and the viewers.
- Established pay TV platforms are seeing new and fierce competition from alternative pay TV operators for premium content.
- in France, France Telecom secured a deal with Warner, Gaumont and HBO to gain access to new releases and TV series. It also bought some of the French football league rights for EUR200 million a year, breaking Canal+’s monopoly
- in Spain, Mediapro (owners of new national FTV channel La Sexta, and aspiring pay DTT operator) appears to have secured the rights for most Liga de Fútbol Profesional events, starting in summer 2009. This is likely to change the pay TV market, in particular, the way that premium content has traditionally been shared between FTV and pay TV. However, Mediapro is currently involved in a legal battle with Sogecable (owner of the satellite pay TV operator Digital+) over these rights.
- in the UK, for the first time since 1992, Sky lost its monopoly over UK football league rights and now shares these with Setanta.
The business models of the pay TV operators that out-bid satellite operators for certain key content rights may not, in themselves, turn out to be as profitable or as long-lasting as their proponents now hope. Therefore, if established satellite pay TV operators can maintain their cost, talent and brand advantages while balancing exclusive content, they could be well placed to recover any lost ground in the future. In addition to enhancements to operators’ core offer (such as multi-platform content wholesaling, HDTV, PVR, multi-room services, improved tiering, etc.) they must also develop the right packaging and bundling strategies to maximise loyalty, which might entail entering the broadband market. This may require a bold approach:
- Sky’s integrated bundling appears to be a success and is used as a market reference: Sky’s recent churn (10.5%, the lowest level since four years) and ARPU demonstrate that content need not be the satellite TV operators’ only selling point. With its bundling strategy (Sky offers premium content, up to 16Mbit/s broadband services and unlimited calls), Sky has become one of the UK’s top broadband providers, with more than 1.4 million subscribers.
- Digital+’s joint promotions seem to have delivered poor results. Sogecable and Telefónica’s joint promotion “Trio+” only attracted 5000 subscribers during the first three months of the offer (compared to 400 000 in 6 months for Sky). This was due to lack of integration between the partners (consumers still receive two bills) and the lack of bundle discounts.
All in all, there are significant opportunities and risks for satellite pay TV operators within the new digital markets. Significant managerial resource and investment will be required to overcome these risks. However, with careful planning and a defiant approach, established satellite pay TV platforms can 'do more than one thing' to create significant additional value for shareholders.