When one of our Faultline team worked at Dun and Bradstreet, many years ago, the financial analysts there explained that slow growing industries like manufacturing or banking had lower valuation multiples, because they grew only at 4% or 5% per annum. Well we can now include the cable TV industry in that slow growing cluster. This week as the industry welcomed yet another Cable Congress annual jamboree in Brussels, the industry association Cable Europe admitted growth across Europe slowed to 4.6% last year.
The press release crowed that this still represented €1 billion of new revenue, and Cable Europe has a point, right now cellular would kill for the same growth rate. Fixed line Telcos can no longer remember what the growth feels like.
The figures were provided by what used to be Screen digest, which is the tame, pro-operator, IHS-owned, research house, which has access to all the statistics collected via membership of Cable Europe.
But are we sure this is accurate? This annual press release usually compares well with prior years – but not this year. In 2011 revenues rose 7% to 19.9 billion, up 1.3 billion; in 2012 it was up 5.5% to 20.6 billion, although once again Cable Europe said this was a rise of €1 billion, when clearly it was less than that. In 2013 it rose to €21.9 billion, which it claimed was 5.5% growth, when it really was a growth of €1.3 billion once again.
But in 2014 the revenue figures it is giving out actually shows a fall, from €21.9 billion down to €21.5 billion – and yet we are asked to believe this is a rise of 4.6%, up another €1 billion. Well it is not. We’re sure that IHS can do its sums pretty well, and that this can be explained away by re-stating last year’s figures or dropping out OTT revenues or something, but we cannot help wonder if perhaps companies like IHS are too close to their clients and are compromised by saying what their client wants, not what it actually finds.
The famous technology marketing bible, the book Crossing the Chasm, always said “define your competition” and if cable defines its competition as cellular and telcos right now, it shows that despite heavy indebtedness, and the continued analog nature of almost half (certainly a third) of Europe’s cable, if it is at least growing market share in an era of intense platform competition, content convergence and audience fragmentation then things are not that bad. But if that’s not actually true and that the figures are being massaged to imply that cable is doing better than it really is, then cable, like cellular and fixed line ISPs are in the same boat – struggling for growth.
In previous years there has been an almost metronomic rise in cable broadband – up 10% in 2011 in revenue terms, up 8.4% in 2012; up 9% in both 2013 and 2014. The area where Cable Europe gets irritated with questions is when we ask about falling pay TV customers. The release this year simply chooses not to mention them. In our own European research we found that from 2010 to 2012 cable TV homes dropped from 56 million to 52 million, and were forecast to fall to 48.6 million by 2017. The Cable Europe figure for cable homes was 55.9 million, although we know it counts more countries than our research database, so this could well be accurate.
So while we’d like to go along with the idea that Cable in Europe is holding up better than other forms of telecommunications, we are instead suspicious.
IHS said that there was a 9% increase in broadband revenues, a 5.3% rise in telephony revenues and these combined are now more than half of pay total revenues – which suggests that TV revenues have continued to fall right the way across Europe. Going back to 2011 those combined broadband and telephony revenues were just €9 billion against almost €11 billion for video.
Cable Europe says that Revenue Generating Units (RGUs) have gone up by 2.7 million, but that only serves to show that the cable industry, like the cellular industry, is beset by the same problem – more customers, each paying less each year, and their usage calling for more capital expenditure.
IHS insists that despite a net loss (unspecified) in cable TV subscribers, total TV revenues went up by 2%. Every year it shows a graph of the rise of ARPU in digital TV homes, compared to fall of ARPU among analog, not least of which is that analog one way cable cannot access VoD, whereas digital can, and VoD is also on the rise.
In 2014 it says there was a 6% growth in digital TV revenues and a more than 13% uptick in VoD revenues and claims that now almost 75% of total TV revenues are now digital. That doesn’t mean that 75% of homes are digital, just that digital home spend more money.
Here is the inevitable quote from Manuel Kohnstamm, President of Cable Europe, who said, “Our sector is growing through a time of tremendous change, both in terms of the speed of technological development and new market entrants. Over-the-top players delivering services through the internet are reinventing business models and shaking up the traditional competitive scene. Consumers on the other hand expect affordable prices, good quality service and great content. Our smart investments to build superior networks are paying off in the form of state-of-the-art broadband access and a better-than-ever content experience.”
I am sure Kohnstamm would get angry and go red if we were there and asked the same questions we ask every year – how are they going to stop telcos taking over video services? And the five times we have asked him he has never given us a suitable answer yet. Kohnstamm is employed by Liberty Global and struggles to explain cable economics adequately, because he insists on keeping some of it secret.
His own company, by far the largest cable operation in Europe already showed in its February figures, when it announced growth of just 3% in revenues, that cable in Europe is slowing down – which is why, as a company, it has opted to grow by acquisition, not organically for the past few years. The massive rise in his company’s share price shows the effect of these acquisitions rather than the underlying industry. And it is this fact that leads us to the conclusion that cable must wield its WiFi advantage in any market where it has one, and bring Homespot WiFi to bear in an attack aimed at stealing some cellular revenue, and simultaneously embrace OTT and multiscreen video services. Or risk staying ex-growth.