One of the biggest problems for the entire TV community is fragmentation. And by the community we mean all broadcasters, all content owners, all equipment providers and all pay TV operators, as well as advertisers.
Broadcasters simply have to compete more aggressively on advertising price, and yet, as fragmentation occurs, end up losing market share and having to live on a reducing amount of revenue; content owners, which initially think that this leaves them with more customers, find also that there is more poor content, and it is harder for customers to find their quality content among the piles of rubbish ‘ that’s if they have quality content. Equipment providers obviously get to act as arms dealers if there are more broadcast channels, but in Europe where there are pre-set routes to renting a channel ‘ renting part of a terrestrial multiplex of satellite ‘ it means equipment providers sell the same amount of equipment to companies which are in a worse financial condition, so negotiate harder. Advertisers have to work harder to get the same reach. Right now all those TV channel owners believe that last year’s advertising price should hold, despite the fact that across the market there is more inventory, and so advertisers get a raw deal and a dwindling audience.
And in Europe TV fragmentation is clearly proceeding on a large scale as more and more TV channels are produced, which is shown by a report out this week from the EU’s Mavise database, but also from TV channels spreading around Europe. We’re not saying that this isn’t happening elsewhere, for instance in the US it is further advanced than in Europe, but the effort of the European Community to track TV channel creation gives us a measurable moment when Mavise reports.
During the past year more than 245 new TV channels have emerged in the 29 countries (27 EU members plus two candidate countries) in 2009 taking the total to 7200 European TV channels at the end of 2009.
Just so we are clear on this, back in the analog only days, not counting the pay TV services which came then from cable or satellite, most countries had between two and four free to air channels. That would have amounted to little more than 100 TV channels around Europe. But today it is 7,200. And most of these rely on advertising in some way or another.
This drift to free to air is down to a number of things, not least of which is simply the capability of digital terrestrial technology to support more channels, roughly 6 channels in the spectrum space where before there was just 1. The same 8MHz spectrum slices for 4 channels can now support 24, and using DVB-T2 that will soon go up by 30% plus, and of course there have been more and more channel spectrum segments created as European countries maintain analog but also launch in digital.
Analog TV free to air broadcasting has had 50 years to develop to where it is today, but the new digital TV channels will have barely 3 or 4 years before they are beset by a number of new TV characteristics which will be designed to differentiate TV channels, in order to capture a bigger share of the available TV revenue ‘ whether that be pay TV payments or advertising or both.
HD channels will emerge which will lay claim to better viewing stats, a better platform for advertising and a higher class of viewing customer, rich enough at least to afford a HDTV and HD service. Then 3D will come along, barely 3 or 4 years later, with a large enough demographic to supplant HD as the new differentiator, absorbing great swathes of advertising revenue from the boring old, every day, SD channels.
This is a technology escalation and it will happen at different speeds in different countries. It is the infrastructure operators ‘ broadcast operators and cable, IPTV and satellite and free to air satellite players who will carry the financial cost of creating the platforms to carry channels, and most channel owners will offer HD first and later 3D (a lot later for some)
But they will have to fund this escalation by paying operators more, and they will have to do it on less and less revenues.
The natural move is to try to shift to a delivery process that won’t cost anywhere near so much, such as delivery over the internet. Here the upgrades to infrastructure are paid for not by the TV players but by ISPs, who in turn charge it to the consumers who require more bandwidth. Obviously new technology helps.
Cable operators provide more bandwidth by buying new devices at either end of the cable, new QAM, upgrades to digital cable, converting old analog carried channels to pure digital, or moving to a pure IP core. Satellite uses more spectrum or sends up more transponders, or gets better modulation methods. IPTV buys more fiber or upgrades fiber plant. In some of these the costs can be shared with telephone and broadband requirements, and upgrade costs spread across all three services.
But if it comes over the internet, then a TV channel is sharing its infrastructure with far more services, including simple html pages and business traffic. When a pure broadcaster has to upgrade infrastructure, it ALL has to be paid for by broadcasting.
This moves us all in favor of a distribution model where TV channels will spend the next ten years trying to get as much internet audience as possible and at the same time spend the least amount of money paying for any and all infrastructure upgrades.
Does this in turn support pay TV or undermine it? Well it seems to us that it does a little of both. Weaker broadcasters who cannot afford to go over to HD or 3D will be unable to differentiate themselves or offer an alternative to pay TV services. But if their reaction is to flood the internet with TV channels, and if yet more TV channels emerge purely on the internet, because an infrastructure to delivery them to the TV emerges, then the overall variety of free offerings may undermine pay TV ‘ especially where TV Everywhere approaches are banned (the process where you pay TV sign in is allowed over the internet, and content can be provided freely there).
We have already commented that in the US there are moves afoot to investigate TV Everywhere. We also think that the European Commission will go down the same route as the US, and introduce a directive to prevent it in Europe. Elsewhere we think TV Everywhere approaches, especially in weakly regulated parts of the world, will proliferate.
And all this while there will be more and more channel proliferation going on, until it finally becomes obvious that new players cannot make money out of introducing new TV channels. In turn this could lead to a clear set of haves and ‘have nots’ in content provision, and a widening gap between the best and the rest in TV channels.
We have said in the past this will lead not to the golden age of TV content, but to the worst glut of poor content that the world has ever seen, when TheTube takes on the quality of YouTube. With the exception being those who can invest in differentiation early in HD and 3D.
So let’s take a little more detailed look at the Mavise report. So far digital terrestrial services have been launched in 24 of the 29 countries with around 730 TV channels transmitted on digital terrestrial using DVB-T technology.
The cable market is consolidating while the number of IPTV, satellite and mobile TV operators continues to increase.
Overall there have been more channel launches than closures with 245 new channels including 38 new sport channels, 17 children’s channels and more than 150 new thematic channels on the cable, satellite and IPTV platforms such as Investigation Discovery. There have also been many local channels such as Weo in France or Dresden Eins in Germany.
But as a result of these launches and other competitive pressure some 220 TV channels have ceased transmission in 2009. So the total growth is perhaps not quite so pronounced. But this figure takes into account the closure of 100 local Spanish channels when the Localia network shut up shop. Large corporate failures like that should not be the order of the day, and individual channels should bear the brunt of proliferation most often.
Mavise says that only 100 channels which have a national footprint closed in 2009, so in effect the net growth was 145 channels.
Six European countries have covered their national footprints with DTT and switched off analog signals (Germany, Denmark, Finland, Luxembourg, the Netherlands and Sweden) and regionally parts of Austria, Belgium, the Czech Republic, France, Italy and the UK have switched off their analog networks. The European directive is to switch off analog signals by 2012. Channel proliferation must continue way past then.
New DTT services were launched this year in Latvia, Poland, Portugal and Slovakia and this year Bulgaria, Ireland and Romania will launch.
One of the most interesting graphics is the one below, which shows how many channels each country has established. The UK is responsible for creating over 1,000 TV channels, many of them for the UK, but also about half distributed across Europe. This is because of sharing a common language with the US, both in terms of channels that can be consumed in the UK and the ease with which US companies, such as Disney, can use the UK for a European headquarters.
Following the UK are Italy (388), France (297), Germany (227) and then Spain (195). The concentration of the establishment of channels in certain countries is considerable, since five countries account for almost two thirds of all channels, while at the same time in more than half of the European countries there are less than 40 registered channels.
However, these figures relate to the establishment of channels and not to their availability. For example ten national/international channels are established in Ireland, but there are more than 500 channels available on Irish TV screens.
Today there are more than 730 channels broadcast over European DTT networks, of these more than 300 are local and regional channels. There were only 500 back in April, so we can see that the number is rising rapidly and it is here that most fragmentation is occurring.
There are still over 4000 cable operators in the 29 countries but the number is dropping slowly, through consolidation, the number of cable homes is probably holding or growing slightly.
IPTV operators are naturally proliferating up from 68 a year earlier to 90 now and this represents an increase in the competitiveness of pay TV in the region.
Fragmentation is also occurring across platforms and the introduction of mobile TV has begun in earnest across these countries with streamed and DVB-H services carrying some 114 TV channels
The graph below shows how multichannel platforms sit in Europe at present.
Notice how many more channels are carried on cable, mostly because of the number of different companies offering it. However the number is falling while every other format for carrying channels is rising. And the internet isn’t yet counted here.
About 10% of the TV channels in Europe are public service channels which have stayed quite stable. It is the commercial channels that are more prone to loss of advertising, probably because for the most part public service channels are centrally funded.
Cinema and sport channels represent the two most dominant genres across Europe, with 496 and 419 channels, respectively. This is where the battle for supremacy is really fought in both pay and free to air TV, with both mostly consisting of exclusive content.
It is all of this rising competition that makes for a shake up across European TV. Regulators are under constant pressure to change the rules by which public service broadcasters are given an edge, and to relax regulation on commercial broadcasters. One such move recently, has been suggested by Ofcom executives, speaking publicly about advertising regulation on TV.
The aim is that by not enforcing a ruling that independent TV companies have to offer all of their available inventory, the local companies can put a price floor underneath ad rates. Of course deregulation should go ahead, but such a move would only create an artificial blip in advertising prices, giving them a support level for the briefest of periods. More inventory would come on the market through the introduction of more channels, instead of by having ads appear so frequently within each channel, and pricing, once again, would begin to fall.
What is actually needed is a wider base for each channel brought about through Mobile TV and internet TV, online VoD services and cheaper content creation. Content creation will become cheaper based purely on internet distribution, while less and less content exclusives will see more content commissioned for multiple channels and across multiple territories, instead of being reliant on a single one. There are also natural cost reductions in content creation brought about by new exploitation contracts, using a wider acting talent base, and cheaper cameras and editing suites, which have come through increased sophistication of technology.
When the number of channels in Europe begins to turn the other way, and reduce, this will be a signal for channel and content consolidation, but for the time being the increasing hours that people spend bored, at home, on the road, at work and on the move, will mean more and more channels, most of which are doomed to operate on low margins.