There have been some significant events throughout the past few months in the direct-to-home (DTH) market in Europe. A number of pay-TV operators have launched high-definition (HD) services as they look for new ways to gain competitive advantages over cable and other digital alternatives in the pay-TV market. In most major markets, customers now also have the option of Internet Protocol (IP) TV, which can either mean more competition or the chance for the DTH player to team up with the telco to increase the reach of their bouquets.

Here, we take a look at the latest developments of pay-TV across Europe. In the 12 months to the end of June this year, the operators surveyed here added around 1.5 million subscribers, with more than 50 percent of this figure coming from BSkyB and Sky Italia. Premiere is struggling after losing key soccer rights in Germany, and Digital+ in Spain is making slow progress.

United Kingdom

It has been a momentous few weeks for BSkyB, which continues to set the pace in Europe and, in many ways, provide the blueprint for satellite pay-TV operators across Europe. It has launched HD services in the United Kingdom, one of the next phases of its growth strategy, and now has close to 8.2 million subscribers. In the last few weeks, the operator announced details of an aggressive broadband offer, which aims to put the pressure on BT and cable operators. BSkyB is planning to spend 400 million British pounds ($750.5 million) throughout the next three years on its broadband strategy. The offer was very aggressive and surprisingly available to all of BSkyB’s customers, and not just high-end customers.

The U.K. communications market is in a period of fundamental change, and 2006 is shaping up to be a pivotal year. With BSkyB becoming a triple-play operator and moving away from its DTH roots, other players are also making key statements.

Most recently, major pan-European operator, ISP Tiscali, announced a deal to acquire Video Networks and will also become a triple-play operator. The countdown to BT launching IPTV services gets ever closer with a launch scheduled in the next couple of months. With BT, BSkyB, Tiscali and Orange, the IPTV market is really going to heat up in the United Kingdom over the next 12 months. NTL, the main competition to BSkyB, has completed major acquisitions of Virgin Mobile and Telewest, as it becomes a quadruple-play operator. In the last few weeks, private equity firms have also been linked with a bid for NTL.

Italy

Sky Italia has had a solid year and is the only DTH operator to have added more than 500,000 subscribers in the 12 months through the end of June. In the last quarter, the operator added 120,000 subscribers and is likely to go through the 4-million barrier for customers before the end of the year.

Aside from the TPS/Canalsat operation in France, it is currently the second biggest DTH operation in Europe. It also launched HD services in Italy in May. Like many operators, it provided full coverage of the football World Cup. Sky Italia remains the biggest story in terms of DTH in Europe at the moment. Its acquisition of customers has been impressive.

One of the key questions now for Sky Italia is what role, if any, it will play in the IPTV market in Italy. This is especially relevant when you consider its main shareholder is News Corp., which also is the main shareholder of BSkyB. Will it follow BSkyB’s example and buy telecoms infrastructure? Will it become a triple-play operator and launch a variety of communications services? At the moment, the Italian IPTV market has Telecom Italia (TI) and Fastweb, so there is clearly room for another player, and it will be interesting to see if Sky Italia follows the BSkyB lead; oof all the DTH operators in Europe, it is the most likely to.

One exec at a rival believes it is a strong possibility. Paulo Agostinelli, Fastweb’s chief marketing officer, when asked if he thought Sky Italia would follow BSkyB lead and acquire telecoms infrastructure, told Satellite News sister publication Inside Digital TV in July that "it is tough to say, but frankly, I would say not unlikely [in terms of Sky Italia’s moving into IPTV]. I think they are clever enough to recognize that there are opportunities out there in terms of technology and distribution platforms. IPTV can guarantee something that is relatively different. It offers more opportunities in terms of interactivity. There are a number of new things which can be experimented with, along with their ability to produce relevant content. It makes a lot of sense."

TI launched IPTV services in Italy late last year, and has confirmed recently that it has had discussions recently with News Corp. for the supply of media content, but denied the discussions went any further. However, the company said in a statement, "there are no understandings between the two groups, let alone agreements, nor any reference to a possible share swap. Similar discussions are also underway with other media content providers."

France

August has seen a major development in the digital television market in France, as the country’s Minister of the Economy, Finance and Industry authorized the merger of Canalsat and TPS within the Canal+ Group. It is a significant moment, as France had previously been the only major territory where there were two satellite DTH operators. However, that situation has now changed, and at a stroke the joined force of Canalsat and TPS is the second biggest satellite pay-TV operation in Europe.

Canalsat has refused to give its latest DTH figures. At the end of last year, it had slightly fewer than 3.2 million subscribers, while TPS had more than 1.3 million subscribers, meaning the combination will launch with about 4.6 or 4.7 million customers.

As part of the merger, TF1, M6 and TPS Star will be made accessible to Canalsat subscribers, and TPS subscribers will have access to Canal+ Le Bouquet. There were a number of conditions attached to the merger, including allowing other distribution platforms to have better access to content, such as Studiocanal’s film library, as well as allowing all pay-TV operators to have access to certain high-quality channels. However, the combined forces of TPS/Canalsat will make for a very strong player in France.

In France, IPTV continues to make more of an impact compared to many of markets in Western Europe. Neuf Cegetel, France Telecom (rebranding its services as Orange), and Free have more than 500,000 IPTV customers between them and have partnered with Canalsat, so IPTV subscribers can have access to bouquets that had previously been just available on satellite.

In other market developments, France Telecom announced in June that its MaLigne TV IPTV service will be re-branded under the Orange name. The other main competition for Canalsat will come from terrestrial. Digital terrestrial television (DTT) has made a strong start in France. Natalie Mouyal of Digitag commented that "in the first year following the launch, 2.5 million DTT receivers had been sold, exceeding even the most optimistic expectations. And according to a survey conducted by IFOP, more than 70 percent of viewers are satisfied with the DTT service offering which they would recommend to friends and family."

Spain

Digital+ continues to struggle to get over the 2-million barrier for customers. The operator had a pretty non-descript quarter closing the period with nearly 2 million subscribers, an increase of around 50,000 subscribers compared to the previous quarter. Javier Marin, a media equity analyst at Morgan Stanley, said in a research note that, "the performance of Digital+ has [predictably] not been explosive in the quarter. We take positively the fact that subscription revenues of 257 million euros ($327.9 million) were slightly ahead of the 250 million euros ($318.9 million) we expected for the quarter. Digital+ ended the quarter with 1.99 million subscribers, in line with our 1.985 million forecast, which we take positively given the seasonally weak [second quarter], plus the end of the Liga two weeks earlier than in [the 2005 second quarter]. It seems that the World Cup has had a positive impact on subscribers in a quarter that traditionally saw a net negative figure reported.

"Churn rate was reported at 12 percent, after a similar figure reported in [the 2005 first quarter]. Given both the recent trend in churn, and management comments in the conference call regarding the 11 percent level as its target for full year, we feel comfortable that our 11 percent churn expectation for the end of the year could be reached."

Marin also believes the operator may also look at possibilities of expanding into the DSL market soon. "Additionally, management has mentioned that it is now working on delivering its content through alternative distribution platforms (ADSL and cable). We expect Sogecable to explore the possibility to do so with Telefonica before trying other routes (since it is a shareholder) and we would not be surprised if that happens before November 2007."

Germany

Premiere, the German pay-TV operator, has seen a reduction of the number of customers in the last quarter. It ended the quarter with just more than 3.4 million customers, which has to be considered a disappointing performance. It is the second quarter in a row that the operator lost subscribers.

Premiere seems to be paying the penalty for losing the Bundesliga soccer rights at the end of last year. The operator is very much in damage control mode. However, with the football season now underway, the next quarter is likely to provide a much truer reflection on how the operator is performing. Sarah Simon, a media equity analyst at Morgan Stanley said in a research note, "In many respects, though [second quarter] results were a non-event in the wider Premiere story, given that they provided no visibility on the main issue on the shares: subscriber churn. Investors really need to wait for [the third quarter] and [fourth quarter] results to determine what the churn impact will be, once the football season is fully underway."

Premiere announced in July that it had teamed with Deutsche Telekom (DT) to screen Bundesliga soccer via DT’s new VDSL high-speed network.

Nordics

The Nordic region is now the only region where two satellite pay-TV operators, Canal Digital and Viasat, to compete. Viasat continues to have the better of things, and throughout the last year has added more than 130,000 DTH subscribers, where as Canal Digital has added fewer than 70,000 in the last 12 months.

–Mark Holmes