Europe’s VoD sector is in rude health, reflecting the fortunes of pay TV as a whole, with only the worst recession sufferers such as Spain bucking the trend and not even all of them. But for VoD, especially film, success has come at the expense of some rights and regulatory issues that have crept up because of increased cross border service provision.
The data comes from the august European Audiovisual Observatory (EAO), which we have found to be a much more accurate source of analysis across the continent as a whole than the sundry reports that appear repeatedly from analyst firms, often plagiarized from each other so that they do little more than propagate the same inaccuracies. The EAO was established in 1992 by the Council of Europe, which represents the whole continent plus one or two neighboring Asian states such as Armenia that might one day aspire to be part of an enlarged EU, assuming it has not instead imploded by then. In recent years the EAO has increasingly been seen as the best source for information about Europe’s changing audio-visual sector and the impact first of the digital revolution and then multiscreen deployments.
The latest EAO surveys highlight continued quite rapid expansion of Europe’s VoD sector but with little sign of any negative impact on pay TV. Quite the opposite ‘ pay TV continues to flourish, with the 12 leading groups that dominate the fields, such as Sky and Liberty Global, achieving organic growth of 3.9% in 2012, according to an analysis performed by the EAO for the opening of MIPTV this year in Cannes, an annual market for the TV ecosystem.
Then in its 2013 survey of on demand services just published, the EAO reported there are now 3,087 VoD services in the whole of Europe, of which about 2,700 are in the EU. Of the total, 447 VoD services are dedicated to movies made originally for the cinema, with the rest being catch-up TV, trailer services, newspaper video services and film archives. The EU’s largest economies account for the most film VoD services, with 48 established in the UK, 34 in France and 33 in Germany.
Europe’s VoD boom dates back to 2007, which finished with 200 on-demand services according to EAO data, tripling to 600 a year later, hitting 1,000 late in 2009 and then passing 2,000 in 2011. So while percentage growth is tailing off net creation of new VoD outlets is fairly constant. This has been sustained by the continuing proliferation of catch up and on demand services from pay TV operators and broadcasters, along with the invasion from dedicated US players, dominated by Netflix. As a result almost half, 45%, of the EU’s VoD services are now operated by US groups, either directly from the country or via European subsidiaries. This increasing US influence almost certainly lies behind another trend, the proliferation in Subscription VoD (SVoD) services, of which 76 have now been identified by the EAO. This includes YouTube, which recently launched 53 subscription channels, 29 of which are available in Europe and billed in Euros.
Another notable trend is the rise of cross border transmission, with the number of VoD services identified by the EAO as being available in a country outside their point of origin in the majority for the first time, standing now at 52%. The EAO believes this is making it harder for individual states to enforce their own content creation and access rules, as well as for content producers and operations themselves, which have to operate under multiple regimes. An issue here is that the VoD industry, along with connected TV, is struggling to catch up with the regulatory frameworks already prevailing for other conventional Internet services as well as broadcast TV. This applies to rules over availability of adult content and systems for protecting against illegal material such as child pornography.
The same is true for content rights, where in Europe there is a lack of cross border co-ordination or uniform standards. The EAO is calling for harmonization over both illegal content rules and rights to sustain growth across Europe’s whole audio-visual sector. Even so it must be doubtful whether the cross border issue is causing too much consternation for operators. Certainly not for the larger players, which are quite used to dealing with multiple regulatory regimes and employing geoblocking to enforce differential rights across borders.
It is also worth noting that a few smaller European states have set up their stalls as hosts for cross border services, most notably Luxembourg, if not to quite the same extent as in satellite operations, being home to both Inmarsat and Eutelsat. Despite being a very small market itself, Luxembourg has 86 VoD services, including Apple’s iTunes Stores for most other European countries as well as many countries in Africa, the Middle East and Asia. Sweden also punches above its weight through its dominance of the Nordic markets, with 36 VoD services, including SF Anytime and Canal+ Digital, while the Czech Republic is in a similar position in Central Europe, with 31 services, including various language versions of HBO OD. Switzerland also hosts a variety of VoD services targeting surrounding EU states in several languages.
The EAO’s snapshot of 20 major commercial TV distributors, 12 being pay TV operators primarily financed by subscriptions and eight mainly from advertising, also revealed a continuing overall trend to buck Europe’s recession. The EU’s GDP shrank by 0.3% in 2012 and yet pay TV grew by 3.9%. The advertising funded group fared less well but still put on 0.9% in revenues over the year. Putting the two together the TV sector as a whole grew by 2.1% with an interesting wrinkle being that US owned groups increased their share to 43.8% and also accounted for a higher proportion of the total organic growth at 2.9%.
The group largely funded by advertising, including ITV, Groupe TF1 and Modern Times Group, operate general FTA (Free To Air) channels but some have diversified partly into paid or free thematic channels, while mostly offering VoD and/or catch-up TV as well. They are also generally involved in substantial production activities and it is revenues from these, taken partly from pay TV operators as customers, that has helped them outperform the wider economy.
As for the pay TV sector, the EAO’s own verdict seems to be that increasing concentration in the power of a big few has enabled them to move ahead by acquiring and exploiting premium rights, as well as satisfying demand for TV Everywhere services that at least combat churn. The EAO noted Liberty Global’s consolidation of German MSOs Unity Media and Kabel BW, as well as its increased share in Belgian operator Telenet and recently announced take overs of Virgin Media in the UK and Ziggo in The Netherlands. Then in Poland, 2012 was the first year of complete consolidation by Cyfrowy Polsat of the Telewizja Polsat Group, which provides free and thematic channels, while Telewizja Polsat is in the process of taking over the Polskie Media Group, which provides the channels TV4 and TV6. Poland’s satellite pay TV market has also been strengthened by the recent launch of the NC+ platform, as a result of an agreement between Canal+ Cyfrowy, TVN and iti.
The EAO has also analysed the threats and opportunities to traditional broadcasting and pay TV from OTT. This is a two edged sword, since it threatens to cannibalize existing revenues while presenting opportunities for new ones. It threatens the dominance of the big players covered in the EAO’s survey, while also easing threats of anti-competitive action, as happened in the UK where the arrival of Netflix enabled Sky to argue successfully that it was not over dominant in the VoD movie sector. The EAO noted that new OTT offerings accounted for 50% of non-traditional TV services in the US in 2011, but that still the revenues concerned are small, accounting for under 2% of TV revenues in most markets.
There is now a flurry of regulatory activity around OTT in Europe, with the EC (European Commission) producing a green paper on connected TV in the next month or so, and the UK about to publish a white paper, while France has set up a commission to study the connected TV market. Germany’s regulatory bodies published a paper outlining their priorities for connected TV regulation in February 2013, while others, such as the Netherlands, have opened the debate. For the EAO’s ‘big 20’, the best outcome would be sufficient stimulation to ensure there is a thriving independent OTT sector because that could perversely prolong their hegemony.