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21 February 2019

China propels IPTV above DTH for first time

IPTV overtook satellite to become the second biggest pay TV distribution platform in 2018, although still well behind cable, if we discount OTT. We noted this at the time it actually happened in April 2018 but now the figures can be counted, confirming also that this is almost entirely down to the rampant growth of IPTV in China which has only recently slowed down. For that reason, it is a different story when it comes to revenues where IPTV is still well behind DTH, accounting for around 22% of the global $230 billion total for 2018, approaching $50 billion. DTH was in fact top on $97 billion and cable about $83 billion for which higher numbers of subs are offset partly by the many low-priced packages around the world.

Counting both revenues and subscribers comes down partly to definition, which is why numbers from different sources vary significantly. The impact of OTT – both SVoD and what is sometimes called subscription linear or SLin – has muddied the waters further because this category includes some skinny multi-channel bundles such as Dish Network’s Sling TV and AT&T’s DirecTV Now in the US, along with Sky’s Now TV in the UK, Ireland and Italy.

Despite this, some analysts use the term “multi-channel” to distinguish traditional pay TV from OTT, assigning those skinny bundles to the latter. The logic for doing that diminishes as streaming quality improves, so that the viewer experiences equalize. Yet calling skinny bundles SLin services is also confusing because the latter often include VoD catalogues as well as linear/live channels.

Nonetheless, if we do accept that multi-channel definition, we find that out of a global total of about 1.07 billion subscribers to those, cable takes almost exactly half, or 540 million, with IPTV a shade above 23% and DTH a whisker below. The trend over the next few years is for IPTV to continue edging ahead of DTH while cable slowly falls, pay DTT accounting for the small amount left over.

But then we have those paid OTT totals to consider. Globally as a broad category that was about 600 million, of which roughly 80% were SVoD and 20% SLin. However, as we have said it makes more sense to call SLin multichannel OTT, because many of those offerings still compete with SVoD services like Netflix through their VoD catalogues, as well as with any linear-only OTT services specializing say in live sport.

But there is also a distinction in the method of funding, between subscription only, advertising only (AVoD) and various forms of hybrid, as well as a few transaction VoD (TVoD). In the new Rethink TV report “The rise in SVoD viewing to swamp traditional TV by 2023,” SVoD is forecast to continue on its rapid growth trajectory and catch up with the total for legacy broadcast including cable, satellite and IPTV by 2023. This equates to a rise in SVoD subs from 478 million as of the end of 2018 to 743 million by 2023. This in turn implies a substantial shift in the business model axis from ad supported to subscription, given that every hour of SVoD viewing is an hour lost to advertising.

The Rethink report also acknowledges the rise of linear OTT, around live sports and to a lesser extent news, which will bring advertising with it but to different viewers and to an extent different inventory.

The question then is where these new SVoD viewers are coming from. As of today, churn away from legacy pay TV has only become a stampede in developed markets oversaturated with bloated overpriced packages, largely the US, Canada, Singapore and Hong Kong. In those countries there has been churn to a combination of SVoD and SLin, with free to air filling in the gaps for some ex-pay TV viewers. This has led to rapid subs growth both for the SVoD players and those skinny bundles, but notably the wheels seem to be coming off the latter just lately.

This can be seen in the very latest figures for DirecTV Now and Sling TV, which are sobering for their respective parents AT&T and Dish. Sling TV did at least post a small rise to 2.417 million subscribers for Q4 2018, up from 2.37 million in Q3. But DirecTV actually shed 267,000 net subscribers in Q4, coming down to 1.57 million overall. Until 2018 both had been gaining subs fast with DirecTV Now in fact closing on Sling TV, so their parents could console themselves that they were mopping up a lot of the churn from their legacy pay TV services. But that is no longer the case and this corroborates the Rethink TV forecast in its view that SVoD more than SLin will be forging ahead over the next few years.

That contrasts with some other analysts such as Ovum which have predicted that SLin will account for a growing proportion of OTT revenue, reaching as high as one third by 2023. The proportion will rise a little but nowhere near that much.

The overall story then is that while the decline in legacy pay TV viewing will accelerate and spread to Europe as well as other regions where the contagion has barely set in yet, the rise in SVoD and to an extent SLin will more than make up for that. When it comes to overall revenues the picture is less clear, especially given this huge swing from advertising to subscription. That will vary between markets with Asia Pacific the major engine of growth.