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Changing channels – pay TV broadcasters targeting the CEE region

As the CEE channel environment becomes more competitive, with new digital launches from local as well as international players, so channel providers have to differentiate through strong content and localization to stay ahead. Stuart Thomson reports.

International channel providers continue to see central and eastern Europe as a significant growth market, despite the well-publicized economic challenges faced by a number of countries in the region. As the market matures, a number of international players are moving towards establishing a stronger local presence across the region’s key markets, creating local offices and launching local production initiatives.

Local presence

The extent of building a local presence depends on the relative strength of the channel provider and on the business model. BBC Worldwide recently opened a local office in Poland and appointed former Polsat executive Jacek Koskowski as general manager. For the BBC, as for other channel providers, Poland, with the largest population amongst the central European EU states, a strong economy and a vibrant pay TV market, is the key market and test-bed for expansion elsewhere.

“Poland is an important European market growing very strongly,” says Ian McDonough, senior vice-president and general manager, EMEA, BBC Worldwide Channels. BBC channels are currently present on two of the major DTH platforms – ‘n’ and Canal Plus Cyfrowy – but lost their position on the third – Cyfrowy Polsat – with which they previously had an exclusive carriage deal. BBC Worldwide also has distribution with the country’s major cable operators. According to McDonough, BBC Worldwide is “realistic and flexible – we very much prefer to have non-exclusive deals”, which gives the channels reach and opens up the possibility to developing an advertising revenue stream, but if exclusivity is preferred by the distribution partner, such a deal will be considered on its merits.

While Poland is the keystone of its presence in the region, BBC Worldwide is beginning to strike deals elsewhere in central and eastern Europe for its portfolio, launching BBC Entertainment in Serbia, and is looking at other opportunities in the Balkan region. Other recent deals include the launch of the BBC HD channel on TTnet in Turkey (where it is already available on Turksat and DSmart). “HD is certainly interesting for the market – BBC Knowledge HD has worked well in Poland,” says McDonough. “It’s the most-watched channel on the ‘n’ platform.”
While major players including BBC Worldwide see central and eastern Europe as a market that offers strong growth (albeit increasingly challenging from a competitive standpoint), for single-channel provider KidsCo flexibility is the key to success.   KidsCo originally launched in the CEE region because it identified a gap in the market. “Having got carriage quickly [when we launched] it’s been a bit slower than in the first two to three years,” says managing director Paul Robinson. However, while KidsCo has been focusing on making headway elsewhere of late (including western Europe), there are still a number of key operators to target in central and eastern Europe, including Cyfrowy Polsat and Cyfra Plus in Poland. The Baltic States and Bulgaria also remain KidsCo-free zones and Robinson believes there may be opportunities for distribution in both those territories. “The other part is Russia, where we now have licences and an agent,” he says. “We are now building our presence there, with Akado, Orion and some smaller operators, but there is a lot of potential. We have had to spend time investing in infrastructure and finding the right partner, but in the next year we will see good growth.”

For more specialist content providers, the CEE region also remains a market characterized by growth. Adult channel provider Marc Dorcel sees considerable opportunities in the region based on multiple revenue streams from linear channels, video-on-demand and magazines. “Historically, CEE has been a very segmented market, with many small-to-middle sized analogue cable operators,” says CEO Gregory Dorcel. “Because of analogue switch-off, they will have to upgrade the networks and that requires huge investments. Quality adult content is a good way to recover these investments as it drives a demanding audience ready to pay. And I do believe that we have the most complete and comprehensive offer on the market today.” The company’s content is, says Dorcel, present on many of the major platforms in the region and it is now focusing on smaller regional platforms and on selling video-on-demand, as well as being present at trade shows including PIKE (Poland) and Tihany (Hungary). “Any country is interesting for us. Our only limit, which we have everywhere, is the legal framework for adult content distribution,” says Dorcel.
One channel provider with a strong heritage in the region is Chello Zone, the international channels arm of Liberty Global’s Chellomedia unit. Chello Zone operates 13 channels: Zone Reality, Zone Romantica, Extreme Sports Channel, JimJam, Food Network, Fine Living Network, Fantasy Channel and (the latest addition to the stable) The Outdoor Channel. The division is focusing on developing its existing brands as well as the launch of Food Network and Outdoor Channel, both of which are available in HD versions. Chello Zone also recently teamed up with Polsat in Poland to launch JimJam Polsat, a dedicated Polish kids channel. The Outdoor Channel is currently available in Russia. “Well positioned channels, with a core target audience and a potentially commercial audience  are important for operators, especially as they are looking for a strong driver content for new SD packaging, VOD offerings and HD packaging,” says Louise Cottrell, vice-president, affiliate sales at Chello Zone. Outdoor Channel is therefore a good solution for platforms and has an important role in helping operators build additional revenue opportunities.” Cottrell says another channel in the portfolio may be available in HD later this year.

“Quality adult content is a good way to recover these investments as it drives a demanding audience ready to pay.”
Gregory Dorcel, Dorcel

Central and eastern Europe as a whole is seen as “a very significant market” by Tom Davidson, managing director of AETN UK, the US channel provider’s joint venture with BSkyB, which distributes a range of brands including History, Crime & Investigation and Bio in the CEE region. While consumer purchasing power in the region clearly has a long way to go before it catches up on the West, the strong growth profile of the region makes it attractive. Davidson says that AETN has sold History across the region and penetration is growing. More recently, the channel provider has pushed its Crime & Investigation channel into new territories across CEE, including Poland, Bulgaria, Serbia and Croatia. “Getting that out into the rest of the territories s a key goal, and in the longer term we are looking to get Bio and Military History into that market too,” says Davidson. He says AETN benefits from Crime & Investigation belonging to a completely different genre of channels than History – allowing it to present it to distribution partners in a different way. “It’s completely different which allows us to access a very different audience,” he says.

Local production

In addition to building an advertising business in key markets such as Poland, Davidson says that local content will be key to the channels’ success.  “The next step is local production and we have started talking to local producers both for History and C&I,” he says. This will enable the channel provider to become more relevant to its distribution partners and to build an audience for advertising too. He says that the obvious first step is to take formats that have worked well elsewhere (such as the group’s American Restoration and Pawn Stars properties) and produce local variants. “The other thing we see potential for is topics that have not really been touched on with real PR value in those territories,” says Davidson. “The feedback we get is that there are topics that people have an interest in covering but lack the money. There seems to be more opportunity in the CEE market because the local production industry doesn’t have the money to take those shows.”

While local production is something that AETN has yet to build in earnest, at the very minimum its channels are launched into new markets fully versioned in the local language. Greater effort towards meaningful localization is given impetus by growing competition in the region as a whole. International players are facing competition from local channel providers as well as intensified competition from each other, as they attempt to expand their portfolio and move into new genre areas. For Davidson, competition comes not only from the big international players but from national channels attempting to build their own channel portfolios, particularly as digital switchover gets under way. “What’s really making a difference and making the market tougher is a big push by local channels to launch additional services. If you talk about competitive pressure, that’s where a lot of it is coming from,” says Davidson. He says must-carry rules implemented by local regulators can push out international players in favour of the digital channels launched by local public broadcasters, for example.

For other players, local production is seen as an important way of differentiating their proposition. For premium content provider HBO Central Europe, it is a way of staying relevant to audiences and justifying the cost of subscription. Last year, HBO produced programming in five of the 14 countries in the region which it operates and won an international Emmy award for Romania-produced documentary The World According to Ion B.
Local production is also seen as a significant opportunity by adult channel provider Marc Dorcel, which aggregates content from over 60 adult catalogues from US and European studios. According to Dorcel, the company produces a significant portion of its content in CEE, using local production crews and actors. VOD and subscription VOD now account for the bulk of the company’s revenues. “Adult non-linear requires special know-how and we propose most of the time to operators to manage their adult non-linear offerings,” says Dorcel. “We proceed with editorial, refresh the titles regularly, localize the interface. This is a real win-win partnership – all operators who have trusted us generate…at least a million euros of revenues each year.”

Localization can also involve, more simply, dedicated feeds with content tailored to a particular market. “In large and consolidated markets we have moved towards making dedicated territory feeds available, or else regional feeds. This allows us to buy programming more specifically for individual territories,” says Chello Zone’s Cottrell. “Localisation becomes more and more important as we take our channels to an ever increasing list of countries, but it is essential to balance localization initiatives with overall channel economics, advertising opportunities and platform or audience requirements.” In Poland Chello Zone has dedicated Extreme Sports Channel and Zone Reality feeds as well as JimJam Polsat; and in Romania it has a dedicated Romantica feed. “We also have regional feeds covering one or two key areas which allows us to acquire programming on a more focused basis – for example Zone Reality has a regional feed covering four major territories, including Hungary and Romania,” says Cottrell.

“The next step is local production and we have started talking to local producers both for History and C&I.”
Tom Davidson, AETN

Regional or territory-specific feeds also open up the possibility of developing new revenue streams, notably from advertising. “We are some way off from advertising sales overtaking subscription revenue, but by having a multi-revenue approach to key markets it allows us to develop the brands and invest in shaping them to individual markets,” says Cottrell. “Advertising spend has increased in CEE markets amongst the multi-channel environment principally in key markets such as Poland and Hungary, also Romania, as in turn audience share to these television channels has grown. Consolidation within the market has also enabled multi-channels to build strong distribution frameworks, which in turn enables ratings systems to develop to include them and advertising sales to become firmly established in this environment.”  According to Cottrell, Poland and Hungary have built strong advertising markets, enabling both domestic and international channels to get involved in ad sales, which also allows new channels to enter the market.
Marketing is also increasingly key to building a channel’s presence on a country-by-country basis. KidsCo, for example, has already engaged in joint marketing initiatives with platforms including Akado, Orion (Russia), Toya (Poland), Romtelecom (Romania) and DSmart (Turkey). For the latter, the channel has made some films with a child psychologist based at the Tavistock Centre in London on the impact of media on child development. “We also launched a breakfast sequence in central and eastern Europe in April taking the key shows based on video game characters and aggregating them into a breakfast show package,” says KidsCo’s Robinson.

In order to give KidsCo greater flexibility, Robinson recently set up an in-house distribution team of five (the channel was previously sold through shareholder NBC Universal). “By having our own team we can focus on achieving our objectives although we will continue to work with NBC,” he says.
Robinson believes that the kids market has become more competitive, with stronger competition from the likes of Disney in particular, as well as from local players and international providers including the BBC. “Our strategy has been to be complementary. We are sticking to our proposition of targeting six-to-ten year-old boys and girls and giving them a safe environment with high-quality programming – it’s a niche that has been underserved by our competitors,” says Robinson. As the channel gains traction its buying power grows, he says – giving an international player such as KidsCo an advantage over local channels that are restricted to one particular market.
One issue that faces the channel in Poland  is a growing requirement for HD. “Poland is a very advanced HD market – more than some western European countries,” says Robinson. “Poland is a special case in that sense but we are increasingly being asked for HD in other markets too.” While kids themselves are not necessarily interested in HD, the demand of operators for HD channels presents something of a dilemma to a programming genre that associates HD with high costs and few tangible commercial or creative benefits.
While some channels seem ripe for localization in depth, other providers prefer to rely on the strength of their existing content libraries. So far BBC Worldwide has held back from local production and acquisition, preferring to market itself on the basis of access to the BBC’s vast library of content. McDonough says the group has “an ambition to do [local production] – but not at this stage”. In the future, he says, it is possible that the company will look at exporting formats that have worked well in the UK and developing them in particular territories.

Non-linear distribution

The impetus towards greater localization is one sign of the growing maturity of the markets of central and eastern Europe. The time when international channel providers could simply pitch up with a proposition and expect to win carriage on distribution platforms is long past, but the degree of sophistication required of content providers’ offerings is rapidly converging with the demands of platform operators in more highly developed pay TV markets. Channels are increasingly bringing not only localized linear feeds to the party, but also local content, joint marketing initiatives with distributors, and non-linear content to complement the main channel.

Led by forward-looking companies including UPC Broadband, video-on-demand has been gaining traction across CEE as cable operators and a few IPTV players try to upsell their subscribers to digital services.
As far as non-linear distribution is concerned, BBC Worldwide has delivered video-on-demand programming to UPC in Poland. While the BBC has yet to announce which international territories will be targeted for its forthcoming international iPlayer service, McDonough says that “over-the-top is not something we are really looking at in this stage”. In central and eastern Europe, he says, the group still has a lot of work to do to catch up with more established international players in securing linear distribution for its channels with pay TV operators. BBC Worldwide is open to launching branded blocks – it has just launched a Cbeebies block on the Canal Plus Family premium channel in the Nordic market – but McDonough says that for much of the central and eastern Europe region, the story will be one of securing carriage on basic cable and on the basic tier of DTH services. “We are still at an early stage in our development and there are lots of basic cable and DTH [platforms] we should be launching on before we get into [premium],” he says.

Like most channel providers, AETN believes that online and non-linear distribution only makes sense in partnership with a pay TV operator. “We are lucky to have a broad rights ownership situation across most of our shows,” says Davidson. “Compared to some of the other entertainment-focused channels we own most of the rights because most of the content is produced by our parent in the US, and we have been able to give consumers a lot more ability to access non-linear content. Demand has increased significantly when it comes to VOD particularly.”
This is also a view taken by KidsCo, which plans to introduce its VOD-based recommendation engine MyKidsCo soon. KidsCo already has one deal in the pipeline with a European cable operator. “It will launch this summer and we are very excited about that,” says Robinson. “I think personalization is a trend that’s not going to go away.” However, he says, the company is currently not actively negotiating to launch this service in central and eastern Europe.
On the premium side, HBO Central Europe is rolling out its recently launched HBO Go service in the region on a market-by-market basis, initially in Poland, followed by Serbia, Slovenia, Bosnia and Herzegovina, Romania and, most recently, Hungary. HBO aims to make its services available across multiple platforms, including tablets and other internet-connected devices as well as PCs.
Adult specialist Marc Dorcel meanwhile has invested significant amounts in developing adult 3D content – ?1.5 million to date – but Gregory Dorcel says that there are relatively few operators in central and eastern Europe geared up for this type of content yet. “We do not believe that 3D suits for a linear consumption. We prefer to reserve it for the premium universe in our SVOD offer,” says Dorcel. “First, for comfort reasons, our clips have a maximal length of 30 minutes. Then 3D remains an exceptional experience.” The company launched its 3D SVOD offer in November 2010 in France for ?30 a month and has attracted few thousands subs on each of the platforms where it is available.

The appearance of 3D services – particularly sports, thanks in part to recent efforts by Eurosport – are one more sign that the more advanced markets of central and eastern Europe (including, once again, Poland) are rapidly converging with those of the western half of the continent. In many cases, providers in these markets are already leapfrogging their peers in western European markets by launching online catch-up, multiscreen and 3D services. It is true that the socio-economic profile of the region remains significantly apart from western Europe, with a much larger proportion of very low-income households for which pay TV services are either likely to remain out of reach or for whom specific low-cost or pre-paid offering must be tailored. Nevertheless there is also clearly a sizeable demographic for which such advanced services are increasingly attractive.