By Mark Holmes

The European broadcasting marketplace is entering a new and particularly vibrant phase. All the talk is centered around technologies such as HDTV (High-Definition TV) and new consumer electronics devices such as PVRs (Personal Video Recorders). In these areas, things are already happening in Europe. Satellite pay-TV operators such as BSkyB in the U.K. and Canal Satellite and TPS in France are already deploying successful PVR strategies. In terms of HD, the emergence of Euro1080, the first European HD channel, is perhaps an indication of things to come in that area. With a number of cable pay-TV operators still recovering from balance sheet issues, satellite players have the opportunity to take an early lead.

The European broadcasting marketplace is entering a new and particularly vibrant phase. All the talk is centered around technologies such as HDTV (High-Definition TV) and new consumer electronics devices such as PVRs (Personal Video Recorders). In these areas, things are already happening in Europe. Satellite pay-TV operators such as BSkyB in the U.K. and Canal Satellite and TPS in France are already deploying successful PVR strategies. In terms of HD, the emergence of Euro1080, the first European HD channel, is perhaps an indication of things to come in that area. With a number of cable pay-TV operators still recovering from balance sheet issues, satellite players have the opportunity to take an early lead.

High-Definition

One of the companies hoping to benefit from the demand for higher quality television is SES Astra. The operator is one of the key players on the European broadcast landscape and hopes to play a vital role when HD makes an impact in Europe. Its CEO, Ferdinand Kayser, expects HD to become more prevalent in the coming months.

"The topic (HDTV) is notably being driven by those households that have bought flatscreens and realize that with a flatscreen, when they watch an DVD they have a high quality, but when they switch back to standard-definition analog or digital, they have problems of quality. That is the reason why various operators, Free-To-Air (FTA), pay, public, private service operators are now showing interest in HD and are working on HD in order to launch HD sooner rather than later. It is not about ‘if, it is about ‘when,’" he says.

Kayser expects the next two years to be critical years for HD. He adds, "We expect some operators to start providing HD before the end of the year. We expect others to start in 2005, and the Christmas business in 2005 will be focused around HD, in particular regarding the upcoming 2006 World Cup in football. Some people will use this as a justification to change equipment so 2005 and 2006 will be breakthrough years for HD."

One of the key drivers of HD in Europe is Euro1080, which is bringing the benefits of HD to European consumers. It runs two channels, a main channel aimed at European consumers, and an event channel where events are distributed in HD at event cinemas. The company’s drive into European consumer households is provoking the most interest. In terms of what role Euro1080 will play in Europe, its CEO Gabriel Fehervari says, "I believe since we launched the idea of a possible HD channel, we certainly speeded up the process in different channels. We are in daily contact with TF1, Premiere and BSkyB, so they are watching our signal. I think we had an influence in terms of the World Cup being fully done in HD. The 2004 European football championship is the first big event that is being covered in both HD and SD at the same time. Those things are triggering the market. A number of these games are going into cinemas and there is a tremendous enthusiasm."

In terms of the channels’ own targets of penetrating consumer markets in Europe, its targets are more modest. Fehervari comments, "Our goal is to have 4 million Euro1080 clients throughout the next four years. If you look at Europe, it is close to 100 million households. So, 4 million out of 100 million is just four percent. It is not a very extravagant penetration mark."

The company is also convinced once others enter the melting pot, there will be quite an acceleration in HD content. "As you know, HD display units, both plasmas, LCDs, as well as rear projection TVs are getting cheaper. They will be cheaper by the end of the year, so that could seriously affect the penetration. If Sky, Premiere and TPS follow, our channel will also go faster. I am absolutely convinced of that.

For example, those in France who buy an HD display will receive TF1 in HD. But that is only one channel, so they might like Euro1080 to be their second channel. These other channels will help us grow faster," notes Fehervari.

In terms of why HD has been slower to develop in Europe than the United States,

Fehervari comments, "Ten years ago, we did have a nightmare experience of HD in Europe, where there were some experiments and everyone came back with nightmares because the system was heavy and very expensive and impossible to manage. So, because of this, there was some skepticism in the European broadcasting arena, which still exists, I believe. We are always slower in Europe. If you look at when we went from black and white to color in Europe, I think on average we were 6-8 years after the Japanese at that time, so we are always slower."

The move to HD was further given a boost in July, when a number of companies (Darty, Envivio, Eutelsat, Fnac, HBS, M6, Noos, Panasonic, Sharp, STMicroelectronics, Sagem, Samsung, Sony, TDF, Thomson, TF1 and TPS) launched an HD Forum, which aims to promote HD in France.

Digital Mix Changing

Others in the value chain are equally optimistic about the future of HD. Mike Tometzki, head of product management at Pace Micro Technology says, "The digital mix is changing in Europe with the move from analog to digital platforms. So, availability of bandwidth is increasing, that needs to be utilized in some way, which is what you are seeing with the potential of initiatives such as Euro1080. They are using traditional MPEG-2 type technology until the advanced coding schemes such as H264 and WM9 are implemented. Every broadcaster we talk to or have been talking to throughout the last six months have HD and HD DVRs appearing on their roadmaps and for very good reasons."

With operators in the United States already competing aggressively in this area, it seems only natural that operators in Europe will follow suit. BSkyB announced an initiative in June where it plans to launch an HD service by 2006. Roger Bolton, business segment director at Tandberg Television, believes Sky’s announcement could have been influenced by the success of Digital Terrestrial Television (DTT) service Freeview in the U.K., where British consumers can buy a box for around GBP70 ($130) and receive an extra 30 channels for free with no monthly subscription charge.

"I think part of that is Sky is a little concerned regarding the success of Freeview in the U.K. and has to find some other differentiators to offer and HD is one of those. I think once people have seen that Sky is offering it, it will stimulate some of the other broadcasters to offer it as well," Bolton says.

As well as launching an HD initiative in the next couple of years, BSkyB is also launching a Freesat service to rival Freeview at the end of this year. Freeview, in a limited timespan, has gained entrance into 3.5 million U.K. households. By launching a Freesat service, BSkyB hopes to grow its subscription business by trying to scale these users up to a pay-TV service.

All the dynamics seem to be right for HD to make a real impact in Europe. All European operators are aware of the success that HD is having in the United States. A number of content providers are already making content in HD format. The price of high-end consumer electronics equipment is also coming down, which will make this type of programming more accepted among the marketplace. With multichannel penetration at a high level in many households, HD will become a key differentiator of service. Warren Hobson, director of corporate strategy at Tandberg Television, believes terrestrial operators will follow satellite operators into the HD arena.

"You have countries like France and Sweden, and there are other countries that have not deployed their DVB-T network and are obviously looking at the business models behind a successful DVB-T service, and I think HD has actually been seen as one of the tools that could differentiate digital terrestrial from analog terrestrial services," says Hobson.

"Up until now, it has probably been seen as not feasible to transmit HD on terrestrial because you need too much bandwidth, but with the new encoding formats (MPEG-4, Windows Media 9), it is actually very viable to offer a selection of HD services on these new terrestrial networks. We are certainly seeing some interest from some of the terrestrial operators, as well as some of the cable companies to carry HD," he adds.

Paul Entwistle, product diversity manager at Pace Micro Technology adds, "We will definitely leverage our experience of HD in the United States into the European market. If you look at Pace’s role in pushing digital and STB technology generally, the key in Europe is that there is a real opportunity to use the latest technologies very effectively."

PVR

While it is universally agreed that HD will make a big impact in Europe, there are other developments that are stimulating the satellite broadcast market. PVRs are another hot topic. So far, PVR penetration is very low among satellite pay-TV operators in Europe. Between them, BSkyB, TPS and Canal Satellite have just more than 400,000 PVR subscribers (end of March 2004), which is incredibly low when considering that between them these operators have a combined subscriber base of more than 11 million. Other heavyweight pay-TV operators in Europe such as Premiere in Germany and Digital+ in Spain are yet to launch a PVR service.

The potential for growth is huge. Many satellite pay-TV operators are spending a great deal of time looking at the potential of PVRs. Typically, BSkyB is leading the way in Europe. It has more than 320,000 Sky+ (Its PVR offer) subscribers. Interestingly, the growth rate of Sky+ was very disappointing when it was charging users GBP10 ($18) a month to use the service. However, once it waived the monthly subscription charge to premium subscribers, the number of people buying the Sky+ box dramatically increased. However, despite undoubted high consumer satisfaction for the product, it has been a slow process. A figure of 300,000 still represents well below five percent of its overall subscriber base, which is more than 7 million in the U.K.

In terms of the importance of the PVR, Entwistle comments, "The DVR, whether SD or HD is very important. It helps reduce churn enormously and there is huge customer satisfaction around that product and that is going to be very important to us."

Other Developments

While PVRs and HD could dramatically change the digital TV landscape in Europe, the competitive dynamics facing satellite operators could change. Cable operators, who have had their financial struggles in recent years, could re-emerge as a serious threat in the digital TV arena.

Telewest, the U.K. cableco, has announced a new digital television marketing campaign, which is really targeting BSkyB’s premium subscribers for the first time. Spain’s ONO is looking to aggressively launch a new Video-on-Demand service next year as the cable operators begin to fight back. In Germany, Kabel Deutschland earlier this year, acquired three other cable operators in Germany, which will give it a reach into 17 million homes.

As well as more aggressive cable players, the threat of digital terrestrial will also become more apparent. As mentioned earlier, the astonishing success of Freeview in the U.K. has offered a blueprint for others in Europe. The Free-To-Air (FTA) service has proved very popular among a certain section of the U.K. public.

However, some are cautious about the effects DTT will have on the overall television market. Kayser says, "We are a little bit surprised about the way digital terrestrial is being pushed in certain markets, notably by politicians and regulators."

He continues, "The reason why we are surprised is because in some of the markets DTT is heavily subsidized which we believe is unacceptable because it alters the competition between the different distribution means, (satellite, cable DTT). The other reason why I am surprised is that during the last 15-20 years the consensus was that electronic media should lead to more choice for the consumer, whereas DTT means limited choice for the consumer, because it is a limited offer compared to cable and satellite."

Looking Ahead

Overall the landscape is changing. With cable players and DTT offering more of a threat than in recent times, satellite pay-TV operators will have to keep finding ways to stay ahead. However, while competition may be increasing in all areas there are tremendous growth opportunities.

The potential to offer HD services as well as bring PVRs to the mainstream European consumer means there are plenty of opportunities to increase revenues, boost ARPUs and reduce churn. With a number of households converting to digital in Europe, the next few years will be a dramatic new era in television than ever before. For the satellite broadcasting industry, it is an exciting time where winning strategies are likely to be well-rewarded.

Mark Holmes is the senior editor of Inside Digital TV and international editor of Satellite News, both sister publications to Via Satellite.