While consolidation among satellite pay-TV operators is accelerating in southern Europe, the colder regions of Europe have stimulated robust competition in the satellite TV market. In the Nordic region, Modern Times Group’s Viasat and Telenor’s Canal Digital are competing aggressively in some of Europe’s most advanced digital markets. Both are financially sound, and competition is only likely to intensify. Canal Digital added 120,000 subscribers in 2002, reaching 702,000 subscribers by year’s end, a 20 per cent increase. Viasat ended 2002 with 617,000 digital subscribers, a 12 per cent increase compared with the end of 2001.

The increase in subscriber numbers has been impressive for both operators, but it may not continue. Terje Tandberg, the CEO of Canal Digital, told Interspace that the rate of growth is likely to slow. “The growth in Scandinavia will not continue the way it has done over the last two years … Some of the countries are in quite an aggressive growth phase, but in some markets we are now more in a defensive mode.”

Competitive Threat Of DTT

While both players have strong balance sheets, the main competitive threat is likely to come from the advance of digital terrestrial television (DTT), as much as from the other satellite pay-TV platforms. The spectacular early performance of Freeview in the UK is a warning sign for other pay-TV operators in Europe. DTT is already developing in Finland and Sweden, meaning the competitive landscape is likely to change in the near future.

In Sweden, the take-up of DTT has been slow. The number of DTT households languishes at around 100,000 out of a population of around three million. But the threat is there, and Teracom, the radio infrastructure operator that offers DTT in Sweden, hopes that it will make a bigger impact this year. Jan Danielsson, CEO of Teracom, told Interspace’s sister publication Inside Digital TV in January that lowering the costs of entry will make a big difference. “What will improve DTT in Sweden will be cheaper STBs [set-top boxes]. The cheaper the boxes, the better the business case will be, but also more and more people will think they can buy it.”

Both satellite operators are no worried about DTT. Andrew Barron, the COO of the Modern Times Group, told Interspace: “We are one of very few profitable pay-TV operators in Europe and our margins are strong in the context of the pay-TV industry and our competitors. We have proved the viability and the attractiveness of our business model, which is not true of Europe’s digital terrestrial networks. Our financial model is secure and we more than doubled our pay TV operating income last year.”

Canal Digital’s Tandberg added: “We think we will have the best offer compared to DTT and cable. The people that are less willing to pay for content will switch to the DTT platform. We don’t think they are that willing to pay for television. That is why you are seeing the trend of DTT becoming a free distribution type of service for broadcasters. While there are no successful DTT launches in the region, the key for us is to get as many of those customers as possible before there are successful aggressive launches of DTT.”

There are some interesting dynamics in the Nordic markets. The biggest cable operator, Comhem, which is owned by TeliaSonera, is for sale, but as yet a deal looks some way off.

Piracy

Piracy is a key issue in the region. Viasat has lost millions of dollars to pirates. The situation was so serious that MTG decided to change its conditional access vendor from Viaccess to NDS. Barron explained the reasons behind this decision. “The problem with piracy is that it hurts you by stealth. There are ways of tracking piracy and we are as on top as possible of understanding who, where and how pirates operate. The bigger question is in the context of the migration to NDS and how we effectively eradicate piracy. One of the reasons that we chose NDS is they have zero tolerance of piracy and pirates.” Barron said that the move to NDS will help the operator substantially eliminate piracy in the next 12 to 18 months.

Tandberg said that Canal Digital has not had the same problem with piracy. “Directly, we have not been that affected by piracy because the combination of the MediaHighway platform and the CONAX system isn’t that widespread in Europe. The main piracy problems have come through Viasat, because the Viaccess system was so widely hacked. So when we read in MTG’s annual results release that they have gone to NDS, we were quite happy.”

One of the main concerns of the operators and regulators is how to make things tougher for pirates. Tandberg said that there are a number of legislative improvements that need to be made. “The weakest legislation for piracy exists in Sweden. We want to get the same legislation in Sweden as there is in the other Nordic countries and as we have in the European Union.”

Interactive Services

In terms of service improvements, both operators are looking to improve functionality and interactive services this year. Canal Digital launched a gaming service last autumn and soon hopes to implement an interactive betting service soon. Tandberg admitted that the operator is “now focusing more on interactive services.”

Viasat is looking to make the viewing experience more user friendly. “One of the things we have been doing with the pay TV platform recently is to further improve certain aspects of the look and feel of the platform,” Barron said.

He continued: “You will see it during the year as we get it really smooth, seamless and right, which Sky has done but not many other operators have nailed it. It is a priority for us, as it should be for others. You have to evolve these things. It is not only the precursor to implementing interactive functionality but also to people feeling even more comfortable using the platform.”

Viasat may also look to bring a personal video recorder (PVR) product to the market sooner rather than later. Barron would not give a timeframe for a potential PVR-type product in the mode of Sky+ or Pilotime, but said it was a product “that was on the horizon.”

Channel Offerings

Improving channel offerings is also critical. Viasat has been working very hard in this area. It announced a recent agreement with Swedish state broadcaster SVT to make its channels available on the Viasat digital pay-TV platform for the first time.

The five SVT channels will be broadcast via satellite to all of Viasat’s digital basic and premium subscribers. It has also just added the Disney channel to its bouquet of channels.

“It is obviously important to bring them on board and broaden the offering of highly watched channels. It is important that SVT has joined the bouquet and it shows that we are pushing the content at all levels, whilst maintaining our price leadership in the market. We have looked afresh at our content line-up – it was strong and it is getting stronger, which augurs well,” Barron concluded.

–Mark Holmes