There are subtle influences at work in the spread of Digital TV planetwide, and a report this week from Informa Telecoms and Media tries to unravel them. Faultline has been at work on its own similar report for some time, and while we can’t agree wholeheartedly with the Informa viewpoints, it’s worth reporting the research company’s thoughts and arguing them through.
The main thrust of the Informa piece is that pay TV continues to shine, in particular cable, and that while other methods of bringing digital TV to the masses may be free, it is largely methods which are based around paid content which the company expects to flourish. We’re not so sure.
The Asia Pacific cable numbers come almost entirely from conversion from existing Indian and Chinese analog cable into digital. But the DTH, which is only in its fledgling state in India and not yet existent in China will mostly be new subscribers to pay TV, and it just happens to be digital. The top line of IPTV numbers are much the same. Japan already has a bunch, Korea is just beginning, with around 1 million at present, China is in low numbers and India has Reliance Communications and precious little else in IPTV, and it has been slow and cumbersome is trialing this software, taking 5 years, and is only in roll-out now. The incredibly low prices that Indians can manage for Pay TV has been a real inhibitor here. So much of the 22 million IPTV homes attributed to the Asia Pacific are probably spread around over many countries, including the ASEAN countries ‘ Brunei, Cambodia, Indonesia, Laos, Singapore, Malaysia, Burma, Philippines, Thailand and Vietnam, mostly led by the 3 or 4 larger ones.
The last 2 figures, 26 million for DTT and 15 million for Freesat are something of a stab in the dark. There may be companies that are planning to launch these services now which Informa knows about, but equally there may not be. DTT only took off once there was a strong installed base in the Western European countries, particularly the UK, to show the way. Since then DTT using the DVB-T protocol, has flourished. Freesat, which has the potential to carry 200 TV channels or more for a relatively small cost, over a huge footprint, suits many of these territories ‘ and once the UK, France and Italy prove that the Freesat concept is viable, then any one of these Asia Pacific regions might suddenly pick the same route. We assume that in the Informa figures many of the DTT services are being attributed to Japan’s ISDB-T broadcast TV or Korea’s ATSC services ‘ but what happens when China comes on stream with its own satellite based DMB T/H technology? Is Informa assuming that this is a paid delivery? Then it should look at the ‘free for a year’ strategy behind the Chinese STiMi mobile TV technology. This will be a form of freesat, combined with perhaps a paid bouquet or two. If it was only paid it might not budge these figures, but as a free service it is going to have millions of users take it up rapidly (assuming it works) and then tens of millions ‘ all within the timeframe of the Informa prediction.
And that’s mostly our point. The proliferation of free services relies on a maturing or rapidly accelerate advertising infrastructure for each country, and on low cost DTT or DVB-S infrastructure costs ‘ not only China, but many of the other Asian countries will find that this fits very snugly into their current economic position. The upshot of which is the Freesat figures could rival the cable figures in no time. And if they do, those customers, if happy, will be self referencing ‘ in other words they will tell all their friends ‘ and it will work as a negative force against some of the existing pay TV services.
Free will grow faster than Informa has realized and that will slow paid ‘ digital ‘per se,’ on the other hand, may well be roughly in line with its estimates. Internet and web TV will also detract from the appeal of pay TV services over that time.
The same pattern will emerge in Western Europe, and we can see this in the DTT figures, likely to be the largest segment of digital TV there, and for the most part free services with some smaller paid bouquets represented. When this is combined with the Freesat numbers it accounts for an overwhelming 75 million Western European homes, almost as large as Informa’s prediction for the three main pay TV technologies.
We have tracked at least 71 million pay TV customers in Europe that already exist, not counting DVB-T free to air and satellite free to air. And yet Informa has digital Pay TV customers at just 85 million by 2013. Now we understand that there’s a lot of analog pay TV customers in places like Germany and even some in the UK, certainly in Benelux and a handful in France. But do we really think that any of these will be left by 2013? Probably not.
Informa clearly thinks that there will be only 14 million new pay TV homes in Western Europe over the next 5 years, so around 2.8 million a year or a growth rate of 4% per annum. So why is the tone of their summary all about growth, when clearly there nothing but stagnation in pay TV.
Importantly here is the fact that total cable customers (not just digital cable) will NOT increase at all during this period over the whole of Western Europe, it is more likely to go down, with all the new pay TV growth being witnessed in IPTV and DTH, which have different economics. Much the same will happen in the US except that pay TV is virtually saturated, and shifting entrenched habits may prove harder in a saturated environment. Interestingly there are zero Freesat homes predicted in the US, as there are in Latin America, and while spectrum costs may legislate against advertising based satellite TV launches in the US, in Canada and in Latin America they are almost certain to happen, and even in the US, where one of the many Mobile Satellite Services operators is sending TV signals to cars from a satellite, how much more imagination will it take to figure out that a free satellite signal may be economic. After all it’s just renting a satellite by a group of existing channels. In the US MSS may not be able to harness all the satellite dish technology already installed if it comes from MSS spectrum as it has in Europe, but then again it may not need to.
Eastern Europe is more like Latin America and Asia Pacific in its profile, in that all of the technologies are doing fine, and we will see growth in cable and DTH as well as the other paid technologies. But they are still inherently poor countries and anything free is going to take off faster. For instance pay TV in Eastern Europe is often on a pre-pay model like mobile handsets. So when DTT and Freesat take off here, with the large populations like Poland and the Ukraine, there are going to be an awful lot of advertising driven customers here, if they can accelerate the improvement of their advertising infrastructure (also advertisers don’t want to reach people who cannot afford their products).
In Latin America cable has been semi-saturated for some years, mostly because terrestrial TV services are strong in terms of local content, and the US content imports all go through their paid cable systems, which have very low and static take up. From 2000 to 2006 numbers actually fell here. Now they are rising again, close to their original highest figures, but every country is on the verge of deciding on its DTT technology, with Columbia deciding on DVB-T last week and Brazil half way through implementing ISDB-T already. These will produce brakes on further pay TV development.
The Middle East numbers should be taken with a pinch of salt, primarily because in the Informa report they only include Israel and Turkey, probably because analog TV services predominate in the rest of the Middle East, and of course Africa is missing despite considerable pay TV strength in South Africa.
Informa is forecasting 67 million households will become digital across the globe during 2008 bringing the worldwide total to 343 million, which is around 24% of the total 1,262 million TV homes it is tracking. By 2013 this percentage goes closer to 50% at 636 million households an addition of some 293 million digital homes between end-2008 and end-2013. While we won’t argue with that, we feel that the entire industry believes that it is a one way street towards pay TV from unpaid TV, and that once you have pay TV you never go back. What is probably true is that once you have HD you never go back, but as viable free to air HD services come into play around the world, we expect to see households falling away from Pay TV especially during a recession, when money is tight, and the only way pay TV operators can fight this is with expensive live sport content, film rights and by giving away integrated Digital Video Recorders and by bundling services with triple and quadruple plays ‘ which effective means pay TV services will suffer savage price erosion and cost accretion. Not an optimistic outcome, but closer to the truth we think.