Germany’s pay TV sector is still playing catch up with its European peers as penetration grows by 10% a year, but is still considered to be just 20% compared with a global average of 48%. Our own pay TV numbers show that to be something of a lie, given that 20 million homes have cable TV, and pay for it, but in many cases this is within a housing service contract, paying just €10 a month.
As the sector has grown it has also consolidated into the hands of four major multiplay groups, Sky, Vodafone, Liberty Global and Deutsche Telekom. But there is a fifth force striving to claw its way in, the ISP United Internet. The firm has just over 4 million fixed broadband customers, about 13% of the 30 million total, in its own right, but it has also been eating into cable firm Tele Columbus, which has another 363,000 broadband lines among its total 4.27 million customers. Tele Columbus has itself been contributing to consolidation by hoovering up smaller local cablecos, notably with its acquisition of PrimaCom in July 2015 for €711 million ($800 million).
Now the German anti-trust authority Bundeskartellamt has just given the light for United Internet to acquire further shares in Tele Columbus, bringing the total to 25.11%, making it the largest holder. However, for now the ISP says it will hold off from going beyond a 30% stake since that is the threshold above which it would have to make a mandatory bid to all other shareholders of Tele Columbus. The stated objective is as an investment to benefit from anticipated gain in value, but clearly in the longer term the move is strategic, to gain a multiplay position in the converged broadband/mobile/entertainment arena, given that currently United Internet has no presence in TV and that Tele Columbus is tiny in broadband. They could each benefit one another considerably.
Counting Germany’s broadband and mobile market is relatively easy but for TV it is more confusing because of the distinction between basic and enhanced pay TV subscribers. The result is that two different sets of numbers get bandied about with more than twice as many basic subscribers as enhanced. The distinction is that the former are typically apartments in MDUs (Multiple Dwelling Units) owned by housing associations paying fees just for service access or a set top box, but not the content itself as the latter do.
The meaningful total therefore is the enhanced as that enables comparison with other countries, but to add further confusion some operators have been counting some of the basic subscribers under the enhanced total. At least that is now being rectified as operators reclassify these subscribers back to the basic category, as Unity Media, Vodafone’s brand in Germany, has done. We can now therefore score the German enhanced pay TV market as follows, taking the latest numbers from the operators themselves.
Sky Deutschland, reinforced by its stranglehold over premium sporting rights including Bundesliga football and European Champions League, is number one and growing fastest with 4.5 million subscribers. Second comes Vodafone with 2.6 million largely on account of its 2013 acquisition of Kabel Deutschland for €7.7 billion. Then third is Deutsche Telekom just a whisker behind with 2.55 million and poised to overtake, as it is growing faster at around 12% a year. Liberty Global through its Unitymedia division is fourth and losing some ground with 1.42 million, of which around 340,000 take the advanced Horizon connected hybrid service.
Liberty Global has suffered most from the reclassification since as many as 916,900 customers had been wrongly counted as enhanced until being reallocated to the basic category early in 2015. This resulted in an apparent loss of 884,400 enhanced video subscribers in Q1 2014 even though the actual total was increasing at about 2.5% a year, still well below the country average of 10%.
Liberty Global also has the biggest percentage gap between enhanced and basic subscribers, of which there are over 5 million. That can be viewed as an asset since there is the potential for converting them to enhanced services, which has generally been occurring and contributing to the headline pay TV growth.
Yet the overall German TV market remains dominated by the various public and advertising-funded channels that are free to air, while at the same time OTT only players such as Netflix have arrived to provide new sources of competition. This may choke off growth for those pay TV operators without premium sporting rights, which currently would mitigate against United Internet as well as Vodafone and Liberty Global to a large extent.
Vodafone Germany we may recall threw in the towel over Bundesliga sporting rights back in 2012, leaving the field to Sky and Deutsche Telekom with the latter later conceding as well. Vodafone said then it would go after viewers not interested in football but could find itself being squeezed between the rock of Sky and the hard place of the Netflix brigade.