The European broadcast landscape is a hotbed of innovation as operators and broadcasters rollout different strategies to attract customers. With telcos moving into the broadcast sector and high-definition offerings becoming more widespread, the landscape has changed throughout the last few years. What impact will these changes have on satellite players and the broadcasting market overall?

Modern consumers expect greater flexibility in their viewing habits, and broadcasters must respond by making content available practically anytime and for a variety of different platforms. Does this desire for greater flexibility play into the hands of satellite companies, or is satellite’s future in this new broadcast dynamic now more open to question than ever?

HDTV, IPTV Reshaping Market

There is little doubt that high-definition TV (HDTV( and IPTV are the two main trends impacting the TV broadcasting market, particularly in Europe. "After a very slow start between 2005 and 2007, HDTV is now set to soar, and this is on all broadcasting networks, including" digital terrestrial television, says Stéphanie Villaret, a satellite analyst at French media consultancy Idate. "HD is now developing rapidly and has a chance to become the next broadcasting standard. There were 50 HD channels broadcast in Europe in 2007, and we expect another 200 channels before 2013, all of them are broadcast over satellite networks.

"IPTV is gaining some market share, especially in Western Europe," she says. "We estimate that IPTV market shares reached up to 10 percent of TV households in countries such as France and over 6 percent in Italy and 4 percent in Spain at the end 2007. The quick development of IPTV in these countries is mainly based on ISPs’ low-cost triple-play strategy. The increasing number of multichannel IPTV households represents a threat for satellite operators’ growth."

But Nick Thompson, managing director at Arqiva’s satellite media solutions division, sees these trends as good news for the satellite sector, even though telcos entering the TV space could be viewed as a competitive threat. "Cable and IPTV are not necessarily threats to satellite," he says. "In fact, they create quite high demand for distribution services themselves. Additionally, IPTV works best in a hybrid format. For example, you would use broadband to receive some content and satellite to receive other, such as live channels. As a result, it actually partly fuels the growth of satellite. We believe that satellite players do still have competitive advantage, primarily because the incremental cost for a viewer is always less compared to that of cable and IPTV. Furthermore, there is more capacity readily available and it is a lot quicker to deploy a satellite platform than it is a cable or IPTV platform," he says.

"Consumers are now demanding broadcasting services, anywhere, anytime and anyhow," says Cato Halsaa, CEO of Telenor Satellite Broadcasting. "Multiple platforms make it harder to retain market share for any one operator. Key differentiators include content and premium services like HDTV (high-definition), and we are seeing many DTH (direct-to-home) platforms launching a variety of new channels to keep up their market share. The ubiquity of satellite provides technical advantages in covering large areas with fixed capital expenditure as well as the ability to provide bandwidth intensive services like HD. Cable operators and IPTV operators now seem to be following this new trend of starting up combined DTH platforms with headends in the sky. This, therefore, leads the way to more growth in satellite platforms, however, probably not at the same pace we have seen in the past two years. It must not be forgotten that satellite plays a role in transmitting content of both IPTV and cable services via cable headends in the sky."

While satellite players such as Arqiva and Telenor believe there are opportunities for them to help a wide variety of operators deliver content, what are the opportunities for satellite TV operators what does this new landscape mean for other satellite operators that now have telcos, cable and other players competing against them? "There is certainly a realization that the world of television is now more competitive than it was before, and this is driving the satellite operators to launch new differentiated services like HDTV and" personal video recorders, says Roger Bolton, vice president of business development at Tandberg Television. "We have seen that most of the satellite operators have been able to increase their numbers of subscribers in line with their published plans. Certainly, that’s true of BSkyB, Sky Italia and Canalsat, so I don’t think they have been impacted by the launch of IPTV yet. But that’s not to say they won’t in the future and they need to stay ahead in service provision."

"Multiple platforms make it harder to retain market share… and we are seeing many DTH platforms launching a variety of new channels to keep up their market share" — Halsaa, Telenor Satellite Broadcasting

Telcos with next generation networks and flush with cash are entering into this space with triple-play offerings as a way of gaining a competitive advantage over satellite operators, but have decided to fight fire with fire. Nowhere is this more evident than in the United Kingdom, where BSkyB obtained terrestrial broadband infrastructure through its acquisition of Easynet and now is a strong player in the telephony and broadband markets. "We have benefited from having our own telecoms infrastructure because it has given us the ability to offer very fast high-quality broadband to our customer base and be very flexible with the pricing we are able to offer customers," says Steve Nuttall, director of the commercial group at BSkyB. "We are very fortunate that the network that we bought is effectively a 21st-century network. That gives a lot of advantages in the types of things we are able to do but also the cost of actually operating it. By owning the infrastructure, we are not dependent on a wholesale product from other people."

Adding the terrestrial infrastructure to its delivery networks means BSkyB can be more creative than most satellite players when it comes to providing content, says Nuttall. "The next stage is using the infrastructure to deliver content and services that delight consumers," he says. "In the future, when our [set-top boxes] connect into broadband, people will be able to pull content over a broadband network into them as well as have content delivered over broadcast for either live viewing or local storage later. Broadband comes a very important pipe for the delivery of content. We think there will be large demand for live programming and HD programming on a one-to-many basis. Satellite is very cost-effective, very flexible, very fast to deploy in that way. In addition, for less popular content and communications needs, a one-to-one personal broadband connection is very valuable. We think we have both means of delivery in a structure that is very fast and flexible and which is well aligned with what consumers we need."

New Satellite Platforms

Another trend shaping the European broadcast landscape is the launch of new satellite pay-TV platforms, particularly ones aimed at the lower end of the market. Freesat, launched in May in the United Kingdom, provides consumers in rural areas another option to go digital, although there is no subscription charge to the service. In France, BIS launched a low cost satellite pay-TV platform at the end of 2007, and other low-cost satellite platforms could emerge, particularly in Eastern Europe. "Clearly we are seeing more and more satellite platforms launching across Europe and unquestionably there is room for satellite capability in the short to medium term, especially with services such as HD launching all the time," says Bhavneet Singh, managing director and executive vice president, emerging markets, MTV Networks International.

Some established satellite operators are beginning to feel the competitive pressures from the new competitors, such as in Germany, where newcomer ArenaSat is trying to take market share from established satellite pay-TV operator Premiere. ArenaSat owned by Unitymedia, one of the country’s main cable players, emphasizes how operators are looking at a combination of technologies to deliver content services and already has 335,000 subscribers. "I think there is a good opportunity for a satellite platform here," says David McGowan, managing director, ArenaSat. "Premiere’s market domination and premium positioning, clearly opened the door for an alternative offering which is less expensive, less complicated to access and has an overall easier, more consumer-friendly approach."

Simplicity is the key for ArenaSat in terms of its packaging against Premiere, says McGowan. "With our package, ArenaSat Komplett, you get the complete package of ArenaSat entertainment for one price. This is very simple, and you don’t need a Ph.D. to understand the package structure. We think keeping the offer simple is one of our fundamental assets," he says.

ArenaSat also is attempting to take advantage during what has been a difficult year for Premiere, which has seen its platform compromised by hackers — a potential problem for all operators — and a situation that has temporarily stunted Premiere’s subscriber growth. "Our most important concern is, of course, to close the security gap," says Hans Seger, Premiere’s chief programming officer. "We believe that we can attract around 150,000 viewers who are currently watching our programs illegally to become paying customers after we have implemented the new, improved Nagravision system and the new NDS Videoguard encryption system, which we expect to have been completed by the end of the third quarter." However, perhaps in a nod to McGowan’s criticism, Seger admits that Premiere also needs to simplify its offerings. "In the second half of the year we will also be focusing on expanding our sales and marketing activities," he says. "In July, we have introduced a simplified packaging and pricing structure, which should result in higher revenues per customer and enhanced upselling potential."

However, Unitymedia and BSkyB are not the only operators using a combination of infrastructures to deliver services to customers. Telecoms operators such as France Telecom and Portugal Telecom also are looking at the combination of satellite and IP to deliver TV services. France Telecom already has more than 1 million IPTV subscribers, but that has not stopped the operator from using satellite capacity to deliver services where its telecoms network does not reach. "Latest announcements from Orange in France or MEO in Portugal to complement their terrestrial offer with satellite signals is an attempt to increase their coverage have reminded satellite’s main advantage: coverage," says Villaret. "Idate analysts think that this trend is expected to last, as it is too expensive for telcos to connect the remaining households with terrestrial technologies. Wireless technologies such as WiMax could become a threat, but again, capital expenditure for deploying a network in rural areas will be extremely high, and the technology is not mature yet for broadcasting applications. Moreover, a quick development of HDTV would confirm the leading position of satellite as a strong broadcasting network, as the number of HD channels possibly distributed via this technology is quasi-unlimited," she says.

New Habits Offer Opportunity

With a multitude of platform strategies emerging, there are new opportunities for content providers seeking to boost eyeballs and advertising revenues for their channels. "Digital platforms such as IPTV video on demand, mobile video on demand and online video streaming are allowing users to customise their experience of content, creating a ‘locality of one,’ and this shift in consumer behavior is impacting on all content providers," says Singh. "Really making the most of these platforms and leveraging content can be an expensive architecture to make work and increasingly we’re seeing the need for global scale to really pull it off. We are using our global scale to deliver content and services that put the user at the center of his or her experience, giving them great content and global brands with a local feel, embracing platforms that allow the user to take control and making sure we enter into each market in a way that’s most relevant and engaging to the local audience and local market conditions," he says.

The other main trend in Europe is the proliferation of HD services. While take-up may be slower than some expected, the growth in the market definitely allows satellite operators an opportunity to gain a competitive advantage, says Thompson. "Take-up has been very good and has potentially exceeded that of DVD at a similar stage in its life cycle. Takeup of HDTV is running very fast at the moment, with Sky having almost 20 HD channels and strong projections for the rest of the year throughout all of Europe," he says. "We believe that it won’t be long before HD will be the de facto standard for broadcast." Telenor also is seeing this growth, says Halsaa. "We are seeing a strong interest and demand and this seems to be echoed by platform operators who are reporting a good take-up of HD. Our anchor customer, Canal Digital, is well ahead in the HD game and more will come," he says.

Bolton takes a different view but still sees an overall upward trend. "In some countries, I would say, ‘Yes,’ (the take-up of HD has been disappointing)," he says. "In some instances, the purchasing of large screens has accelerated ahead of market expectation. There might need to be an equalization in the price of HD services rather like what happened with the [personal video recorder] services. Once they became a lower-cost option or part of bundled services, consumers adopted them in rapid timescales. Maybe that has to happen in HD before it becomes ubiquitous."

Singh says, "We would characterize the growth of HD in Europe as steady, although there is clearly quite considerable pickup in some countries such as the United Kingdom and France. In comparison to markets such as the United States, it’s clear that the HD growth story still has a long way to go, but given the increasingly keenly priced offerings from operators and great content from broadcasters such as ourselves, we very much think the future is bright for HD," he says.

Long-Term Impact

"Over the next year, we believe that there will be significant growth in the new satellite platforms that have launched in the last two to three years and a steady growth in the number of subscribers," says Thompson. "We also think there will be an increase in the number of channels distributed to Europe, which are variants of United Kingdom-based channels. At the moment this type of channel represents 40 percent of the content going into Europe."

Bolton sees satellite players launching more HD services and linkage between the broadband and satellite operators. "We will see more on-demand offerings from cable operators, following the U.S. trend over the last few years," he says.

"The broadcasting landscape in definitely going to evolve over the next years," says Villaret. "IPTV will continue gaining market share and is expected to benefit from the transition to fiber. [Digital terrestrial television] is also developing rapidly worldwide and starts to be enriched with pay-TV premium programs, whereas cable is also strongly implemented and digitalized. Satellite will suffer from increased competition (an increasing number of broadcasting networks and broadcasters) but again, satellite technology has the competitive advantages of coverage and available capacity to argue. A question remains regarding the satellite positioning as a standalone solution in the mid to long term," she says.

There is little doubt that the pace of change in the European broadcast landscape will intensify. The move to HD and IPTV as well as combinations of delivery networks involving satellite and terrestrial technologies will have a huge impact. Telcos are looking to use satellite as an integral part of their strategies, and traditional DTH operator such as BSkyB are expanding their delivery systems to become stronger triple-play operators.

These trends point to very dynamic markets with a number of new satellite platforms emerging, and despite increased competition, things look positive for satellite operators. The demand for more HD content will fuel growth for satellite capacity, and with its greater coverage, satellite is still in a strong position to provide the next generation of TV services across Europe.