While in most markets in western Europe – i.e., France, Italy and Spain – consolidation has taken place in recent years, among DTH operators in the Nordic markets, competition between the operators Viasat and Canal Digital is alive and well. The two operators have around 1.7 million customers between them to dominate the pay-TV landscape in the region. The interesting thing in Scandinavia is that the dynamics can change from market to market. For example, in Sweden, digital terrestrial TV (DTT) has proved very popular among households and has put the DTH players under pressure. Interestingly, both DTH platforms have different growth strategies. Canal Digital has been out of the blocks first in terms of high-definition television (HDTV) while MTG has focused more on personal video recorder (PVR) services. Both operators are stepping up their plans on other platforms, and both are looking at mobile and IP as ways to expand their revenue bases. Here, Satellite News talks to Christian Albech, CEO of Canal Digital, and Hans-Holger Albrecht, CEO of Modern Times Group (MTG), the owners of the Viasat platform, about each the prospects for DTH in the region, competition against each other, and how they believe satellite players can stay ahead of competition in all areas.

PVR

Both Viasat and Canal Digital are preparing to launch the next generation of PVR boxes into the Nordic region next year. Canal Digital launched an 80 GB PVR into the market in 2005. Albech outlined Canal Digital’s plans here. He said "we will be launching a more advanced PVR box that will contain multiple tuners and will also support HDTV. The proposed launch date is planned in the first quarter of 2007. We cannot reveal the exact size of our next-generation STB. One comment I can make is that we realize how important it is to have bigger and harder disk space. The first-generation HD boxes were produced by Philips. Our strategy is to have more than one supplier and so we will have at least one more supplier on the HD side. We expect to announce the second supplier in the run-up to Christmas." Canal Digital did not reveal how many PVR subscribers it has so far.

Viasat already has around 50,000 PVR customers and also plans to launch a next-generation box into the market next year. Albrecht said "the response from customers who have taken up PVR has been extremely positive. Over 90 percent would recommend the product strongly to a friend, and the churn is very low. PVR is turning out to be one of the strongest products we have had. We knew growth was going to be slow in the beginning, followed by an acceleration, and that is exactly how it turned out. Right now, we have a 160 GB box in the market. Next year, we will probably have a 240 GB box in the market, probably in combination with MPEG4."

HD

In HD, Canal Digital has led the way and recently launched HD packages in both Sweden and Finland, with plans to launch soon in Denmark and Norway. Albech said, "We have launched the first HD packages this year. We had already launched a premium HDTV movie channel with Canal+. We will extend the concept and that will include more channels… We already have a package in place. The question is whether it can be bigger than the one we have today. Canal Digital will use a lot of effort to follow up HDTV. It is absolutely the differentiator when it comes to competition."

While Canal Digital is adopting an aggressive approach here, Viasat is adopting very much the opposite, a wait-and-see approach, before it dives into the HD market. Albrecht commented, "HD is something we have to do, but we will probably do it next year. The other issue is whether you are going to get the connection through broadband so that you can distribute HD television via the Internet. It is quite expensive, and you have to know when you are going to get the money back through HD. With HD we think that not being first to market has been a good idea. This summer, we had about 30,000 HD-ready TVs in Sweden. If you have a 10 percent take-up, you are looking at about 3,000 [to] 4,000 customers. The technology has to be cost-effective so you can make a mass-market product out of it. Transponder costs are high. However, the situation will change."

Albrecht also believes HD needs to be integrated into other products for it to be a success. He added "you have to have HD capability through a decoder which at the same time is a PVR and also has a connection to VoD services via on-demand. Yet you cannot communicate all of those new features at the same time, because there is not enough marketing bandwidth. We think VoD will be pretty important over time. It is about choice and giving customers want they want, anytime, anywhere. The VoD services will be movies, sports, series — things you would expect. We have everything in place to launch HD; we just have to push the button. It is not a question of ‘if,’ but rather a question of ‘when.’"

IPTV

Both pay-TV operators are also looking to other platforms as ways of generating new revenues. IPTV is a key area. Both operators have been developing their strategies. Recently, MTG signed a deal with Dansk Bredband, a broadband provider, which it will enable it to offer its TV packages over broadband in Denmark. Albrecht believes there are two issues that face the operator here. He said, "You can either distribute the content yourself, which allows you to control the subscriber, like we do with B2, or you can wholesale the whole package. That is the first phase. In terms of the second phase, we think it more likely that people will be able to access their content provider directly; the broadband company is not going to be the gatekeeper. Therefore, we believe content and brand will be the most important things and that distribution will come second."

While BSkyB has acquired telecoms infrastructure, Viasat will not be going down the same route, Albrecht added "we will not do something similar to BSkyB at this stage. There are many broadband providers in Scandinavia, so you can play your position because there is no dominant player. Over time, the broadband operator will not be the access provider. It is another thing if you want to have a triple play offer – the triple play and quad bundles will be coming to Scandinavia. We have to decide whether to create our own triple play offers or work with telephone companies. Right now, we are really at the beginning of those things."

For Canal Digital, Albech admits its early forays into IPTV have been difficult. He said "we have launched IPTV services in Sweden. So far, it has not been very successful. I think there are technical issues which are the main reasons for this, especially when we compete against cable. I think it is very hard to move people from cable TV to IPTV. So, I think, there will be triple play concepts, but cable operators are doing exactly the same… To compete with a cable TV operator means that you have to have a better TV offering, and I think it even has to be cheaper. So, to compete with cable TV with IPTV in the Nordic region, at least, is very difficult. There is a long way to go."

Albech does not see IPTV making a particularly strong impression in the region. He explained "I am not very optimistic about the numbers of subscribers who will be on IPTV in the next 2-4 years. I think most of the population have telephony, Internet, television already. For them to change the TV offer they have today is very hard. I think if you look at the Nordic market, which is four different markets with different dynamics, it is very hard to talk about one market. Nevertheless, in the markets outside of Finland, I think you have very strong competition from very strong DTH players such as ourselves and Viasat, cable, etc. I don’t think the market is big enough to cope with all of these players."

Mobile

Satellite pay-TV operators have also been looking at the opportunity in playing in the mobile TV area. Both operators are determined to be players here. Albrecht said, "Mobile TV is very important. We are, for example, launching 3G streaming together with Tele2 and we are also running the first DVB-H trial in Stockholm. The question is which technology is going to win at the end of the day. It is all about compression technology and the cost of distribution. Once the network is there, Mobile TV is not that expensive. We know Mobile TV is going to come and we want to be involved and be part of both technological solutions." Albech added, "In partnership with Norwegian TV2 we bought all the football rights for the Norwegian football league. We are working in cooperation with the mobile part of Telenor to offer content on this distribution platform. To view football matches on mobile is not something that we think will be very successful, but service updates on match results and specific clips, like goals, look to be popular. We acquired the rights and we have been co-operating with Telenor to date. At the moment we do not have our own content in markets such as Sweden, Finland and Norway, in terms of mobile."

Overall

However, while both operators are looking at new platforms, new services, and more competition, the main competition will still be provided by each other. Over the last year, Viasat has added more subscribers than Canal Digital and it will hope to continue this, although Canal Digital remains the number-one player in the market. Patrick Clase, a media equity analyst at ABG said "Viasat has done surprisingly well. Boxer, the DTT operator, is taking the vast majority of the subscribers [in Sweden], but still there has been a decent amount of new DTH subscribers, which has surprised me. If you look at Canal Digital, they have not been as successful. However, I do think their offering is better, but they have a higher price, and perhaps they have not been as successful marketing the product in the same period."

In terms of how they see the digital-TV landscape developing over the next 12 months, Albrecht said, "We will have launched DTT in Norway. We own a third of that pay-TV operation. I think it will also be launched in Denmark and there is also competition going on in Finland in terms of DTT. Hopefully, we will also be able to strengthen in our market position when it comes to pay-TV and DTT in Finland. We have approximately 40,000 on pay-TV DTT in Finland. There will be competition in terms of DTT pay-TV in Finland. DTT in Finland is a strong opportunity for us. We compete, but it is an opportunity for us to grow in that market. We will see competition from DTT in the Nordic region."

Albrecht added, "I think one of the fascinating challenges facing us is the changing nature of the telecoms market and the role we will play on it. The second major challenge is to manage growth, as we are growing so rapidly. I think the landscape is changing. It will be more mobile. Consumers will want to get entertainment in a number of different places and that will change the landscape quite dramatically."

Contact, Cathrine Barth-Nossum, Canal Digital, [email protected]

Anton Gourman, Shared Value (for MTG) [email protected]

Patrick Clase, ABG, e-mail, [email protected]