Long reads


Channel choices

Despite the financial downturn of the last two years, central and eastern Europe still provides solid opportunities for growth to pay-TV channel providers. Stuart Thomson reports.

Central and eastern Europe may have lost its glister as a source of high returns to western investors of late. But to pay-TV channel providers the countries of the region still represent a strong growth opportunity, despite the pall that has been cast over a number of them by the financial crisis of the past couple of years.

In 2007 the new kids channel KidsCo (now a three-way joint venture between Corus Entertainment, Cookie Jar and NBC Universal) took a strategic decision to launch first in central and eastern Europe. Summing up the attractions of the region, Paul Robinson, KidsCo’s CEO, says that central and eastern Europe is “very much in growth mode but less developed than western Europe in terms of pay-TV penetration while also having multiple platforms in each territory”.
Those three factors – growth, low pay-TV penetration and multiple platforms – are key to explaining CEE’s ongoing appeal to channel providers. Ian McDonough, vice-president, commercial development for EMEA at BBC Worldwide, shares Robinson’s view. “We still see central and eastern Europe as being a high-growth market,” he says . “They have had a couple of years of not-as-good growth as before, but compared to western Europe, which is rather flat, in central Europe we are still seeing growth of 7-8%, while Turkey has seen double-digit growth.” For McDonough, one of the key distinguishing features of CEE is the fragmented nature of the pay-TV business. BBC Worldwide is still at a relatively early phase of deploying its portfolio of global channels in the region. It recently launched its BBC HD channel in Poland, where it also has distribution for BBC Entertainment. McDonough says the company always aims for basic-tier distribution where possible. “Where the exclusive model works it would be considered but we are looking to get the BBC brand as well-known as possible,” he says. While some operators including Poland’s ‘n’ (the HD-focused pay-TV platform backed by commercial broadcaster TVN), have adopted a thematic approach to packaging, McDonough believes most distributors in the region will continue to follow the tried and tested model of a big basic package with premium on top.

Distribution

KidsCo’s Robinson says that he doesn’t seek to maximise his channel’s distribution at all costs because its business model is based on carriage fees rather than advertising revenue. The channel is found in digital basic or extended basic offers and is competitively priced against competitors, particularly when it comes to the smaller platform operators that are to be found across CEE. “Normally the bigger the platform the lower the price but we have priced ourselves in a way that small platform can afford us,” says Robinson, citing the example of Boom TV in Macedonia, a territory with a digital base too small to be on the radar of a number of channel providers.

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The existence of multiple platforms in a number of countries can have a mixed impact, with price erosion from competition as likely to lead to pressure on carriage fees as the emergence of a local pay-TV monopolist. However, in general, the existence of multiple competitors is still seen as positive for the channel providers, with platforms competing for content in order to match or better the offers of their peers. “It gives you a more dynamic market,” says Colin McLeod, managing director for central and eastern Europe at Universal Global Networks. “We have to expect consolidation in the market at some point and we have lots of experience of consolidating markets so we will be ready for that.”

For Brad Wald, managing director, EMEA at Comcast International Media Group (CIMG), which owns the E! Entertainment and Style Network brands, CEE as a region can be characterised as one of strong and intense competition between platform operators (which can lead to downward pressure on prices). CIMG’s E! and Style channels both have distribution in the region’s key market, Poland, while E! is present in Romania (soon to be joined by Style Network). Both are present in Croatia and Serbia while E! is available on its own in the Baltic states. “For us there is quite a bit of territory still to cover,” says Wald, highlighting the Czech Republic and Hungary as the most obvious blank spaces in the CIMG distribution map. “Those are territories where digital transition is occurring as we speak, and for us it’s quite an investment to enter those markets.”

Turner Broadcast System, which provides news channel CNN, kids channels Cartoon Network and Boomerang and Turner Classic Movies (TCM) across the region, also sees CEE as a continuing source of growth – one that provides the benefits of proximity to western Europe, membership of a large part of its territory in the EU, and a higher per-subscriber carriage fee than emerging markets further afield. “We are pretty much on basic packages in each country,” says Gordana Duspara-Moriarty, vice-president and general manager, central and eastern Europe and Benelux at Turner, which now has offices in Bucharest, Budapest, Moscow and Warsaw. Turner has enjoyed a presence in the region from the early days of multichannel distribution, which means that its channels still have the relative luxury of analogue carriage in many cases. For Duspara-Moriarty, the existence of multiple platforms can benefit channels in negotiations. Competition from other channels, on the other hand, is growing, she says, noting that more kids channels are present in Poland than in many western European markets. (Romania, on the other hand, is still relatively underserved in this genre).

Dramatic change

With a number of platforms now emerging as international players – including not only Liberty Global-backed UPC but the likes of Romania’s RCS & RDS-backed DigiTV – the structure of the industry in the region is clearly undergoing a period of change. In general, the availability of digital-only distribution prospects for new entrants is a handicap in a region where analogue cable remains the dominant distribution technology. “I would obviously like to be on analogue but you have to be realistic about what’s possible,” says Robinson. KidsCo, he says, is prepared to play the long game in the expectation that digital migration will make progress.

CIMG’s Wald agrees that analogue is largely closed to new channels in the more advanced markets. “The opportunities for thematic channels like us are digital,” he says. This can make the decision to launch in a new territory that much tougher to call. “There have to be enough subscribers to justify a fully-dubbed channel,” says Wald. The upside, however, is that it is possible to gain carriage with platforms with high-growth potential, such as Croatian IPTV provider T-Hrvatski Telekom (in that case in a market with no real existing cable competition).
For Universal’s McLeod, all these factors mean that it would be difficult to make a digital-only strategy work: “It’s hard to do a digital-only model. Analogue is essential, although in Poland if you include all three DTH platforms that’s an acceptable business.”

Levente Malnáy, managing director of Liberty Global’s channels operation, Chello Central Europe, agrees, pointing out that “niche distribution means there’s less opportunity for advertising revenue and means that it’s harder to invest in local programming”. For Malnáy, niche distribution must be balanced by higher carriage fees if it is to make any sense. For Chello, being part of the Liberty Global family confers an advantage, even though the company’s channels have to strike deals with UPC networks across the region in just the same way as other channel providers.
The economies of the countries across the region are obviously at different stages of development, and regulatory regimes vary, particularly in the case of countries outside the EU, including two of the biggest markets in the region, Russia and Ukraine.

“This is one of the beauties of the region as well as one of the challenges,” says Malnáy. “The markets are different in size and the level of pay penetration is different, so it’s difficult to find a one-size-fits-all model.” Chello’s approach is to focus where possible on sourcing content and scheduling the channels from the region itself, based on market-by-market research. For Malnáy, Hungary (the base for Chello’s channels in the region) is the most developed multichannel market, at least in terms of the number of locally-produced channels. Being first to market with locally-produced genre channels has been a key factor in the success of the channels now owned by Chello, he believes, with Minimax, Spektrum and Paprika being the first local channels in their respective genres to hit the Hungarian market. Hungary has served as a test bed for the bulk of the company’s channels (an exception is Zone Europa, the Polish film channel created by Zone Vision). For Malnáy, success of a format in one market doesn’t necessarily mean that it can be replicated elsewhere. Chello has also looked to expand in less-obvious territories. In January it launched kids channel Minimax with 20 different service providers in Moldova.

Building distinct channels that are tailored to the needs of the market has become more important in recent years as the media consumption habits of various countries in the region have changed. Universal Global Networks recently rebranded its portfolio of channels and took the decision to focus on five core channels with Universal branding. McLeod says that portfolio of channels with a distinct brand – and investment in content by Universal – can benefit service providers by enabling them to differentiate their offers against free-to-air – something that will be particularly important as consolidation in the industry gathers pace. Universal has focused on Poland as the key market in the region and the most advanced in terms of media and pay-TV. “We want to see Universal Channel in the market as an anchor brand and then build scale around the channel to create an international network,” says McLeod. “We would look to roll out Syfy [formerly Sci-Fi] as well and then look, market by market, at what the affiliates need.” McLeod says that Universal has been careful not to present its new portfolio as one core channel plus a number of satellite channels, pointing out that the company has invested significantly in content for each of the five channels it operates.

Local presence

According to McLeod, a local presence has become crucial to success. “We have seen the business develop from multi-territory feeds down to single feeds, driven by intense competition for content,” he says. This means that channels need to acquire content rights on a per-country basis – something that was not the case a number of years ago. “There are so many options now to choose from in terms of channels – all the studios are in the market and local channels are developing well,” says McLeod. While he agrees that there is still plenty of room for growth in the region, he says that it is now much more difficult than previously for channels to enter the market – even in advanced pay-TV territories such as Poland. Analogue carriage is more or less closed off to new entrants.

Growth, for Turner’s Duspara-Moriarty, could come from the expansion of existing channels to new territories and new distributors within existing territories, with additional localisation (giving rise to additional ad sales revenue), from free-to-air windows (something she says Turner will look at “where appropriate”) and also from acquisitions. “I wouldn’t rule out acquisitions – we are always looking, just like everyone else,” she says. Turner could also bring additional properties to the market, including movie and entertainment channel TNT (which is already present in Spain, Germany and Turkey, where it is available free-to-air) and animation channel Adult Swim. “We are exploring further opportunities with these brands – maybe with a third party,” says Duspara-Moriarty.

In terms of the way in which deals are structured, exclusive carriage arrangements are becoming more rare, but there are exceptions. KidsCo is exclusive to Boom in the Macedonian language but not in other languages within Macedonia, and exclusive to Dsmart on Turkish DTH. “We would rather work with all platforms if we can, but if someone wants exclusivity we will consider it,” says Robinson. “In general we are in kids packages with a half to two thirds of the base and that’s the most common way we are packaged.”
For Turner’s Duspara-Moriarty, exclusive deals are largely a thing of the past. “In the past we have done exclusive deals but not now – it would have to be worth a lot of money,” she says. “These days platforms don’t typically want exclusive deals any more.”

Universal, while also preferring to achieve the widest possible distribution, helped new DTH platform ‘n’ differentiate its service in the early phase of its rollout in Poland by giving it exclusive DTH carriage. In Poland the channel is positioned as a slightly “edgy” entertainment service, featuring shows including Californication, The Sopranos and Dexter, as well as recent hit Rookie Blue, whereas further to the East in Russia it is seen as a more general entertainment channel featuring a large number of theatrical movies.

While the financial crisis of the last two years has obviously had a significant impact on a number of countries in central and eastern Europe (although Poland, a notable exception, remains the only EU member state to have escaped recession altogether).

For KidsCo’s Robinson, the Russian market presents real opportunities for growth, and the company has recently appointed a local agent to handle its business there (KidsCo has also appointed someone to look after Ukraine, the region’s other large – and largely untapped – territory). The channel is currently available on the Orion DTH platform but Robinson wants to extend its distribution. “Building on Russia is a real strategic objective,” he says. This requires a certain amount of effort – channels require local licences to operate in the notoriously bureaucratic and unpredictable Russian market. For Universal’s McLeod, however, having a direct sales force in a particular country (against an agent) confers key benefits.

Going local can involve more than appointing an agent. Chello Central Europe, rare in being a trans-national programmer based in the region, believes in local content and scheduling according to local requirements – an approach that is also increasingly being adopted by premium channel provider HBO Central Europe (see sidebar). According to Malnáy, the trend towards localisation is increasing, with Chello moving to bring Czech and Romanian feeds of its Hungarian-by-origin Paprika food channel up to the level of the Hungarian version, for example. The company also plans to produce original programming for the Polish version of its Zone Club channel. Last year, Chello launched documentary channel Spektrum, and scored a coup with an exclusive interview with a well-known Burmese opposition figure for its On The Spot show, which won it wide coverage internationally. Malnáy also emphasises the role of locally-focused social-responsibility and highlights a campaign to encourage reading organised by kids channel Minimax.

For AETN UK, which localises its History channel in eight languages across the region, a strong local presence – including local acquisitions and co-productions – is one of the keys to success. “We aim to deliver channels which are suited to the market, focusing on language localisation, local on-the-ground support and dedicated marketing,” says Tom Davidson, managing director, AETN UK. “As our distribution continues to grow; we plan to incorporate local acquisitions and co-productions within our schedules.”

Localisation

Over the past year, AETN has invested significantly in localisation efforts, creating local language websites in all countries where its channels are represented. “The online user experience in the market should support the localisation on-air,” says Davidson. “We want audiences to immerse themselves deeper in the brand experience in the online space and for this reason, all schedules, programme information and games are fully localised.” AETN’s distribution in the region is supported by Chello Central Europe, with its network of offices across the region. The company has also hired a PR agency in Poland and plans to grow its PR activities in other territories.
Turner has also sought to include local shows in its mix. Cartoon Network produced a show in Poland called Dance Club, a talent show judged by local celebrities.

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Some channels have sought to acquire programming for country-specific feeds of their channels. Universal took French drama series Clara Sheller to Russia as well as acquiring the rights to show the movies of cult Russian director Timur Bekhmanbetov (Night Watch, Day Watch) on Syfy. However, McLeod is the first to admit that Universal has primarily been focused on exploiting its own content – which lay behind the rebranding of its channels in the first place.
Other channels have a different take on this. KidsCo’s Robinson, for example, sees relatively little demand for local product – at least for kids programming – in the region. This view is shared by CIMG’s Wald. “The good thing about our brand in central and eastern Europe is that they really enjoy our Hollywood content so we don’t have to adapt it much at all,” he says. E! is therefore able to provide only a single multi-territory feed that can be dubbed into local languages.
For channel providers, a factor that can vary is the cost of dubbing into the local language (Poland, with its tradition of ‘lectoring’ or a single voice-over, is different again). “Clearly we would like to have local feeds in all markets but there is a significant cost to fully localise a channel,” says BBC Worldwide’s McDonough. “In some smaller markets it’s not economically viable.” McDonough says he does believe in the power of scheduling according to local tastes, however. In Poland, he cites the popularity of shows including The Real Hustle, Dr Who and  ’Allo ’Allo.

AETN UK views the region as having strong potential for growth and used Poland as the European launch-pad for the Crime & Investigation Network in March. “Across our portfolio of channels we have brands and programmes that appeal to audiences and operators alike,” says Davidson. “History continues to be a brand that incites excitement and awe in all territories, especially in central and eastern Europe. We launched in April 2008 in Poland and Hungary and since then our distribution has continued to grow. ” Davidson believes that Crime & Investigation will provie to be similarly popular. “Crime & Investigation Network has enormous potential in this market,” he says.  “Cyfra Plus, our launch partner in Poland, launched the channel as part of the Entertainment section on the EPG, which is a clear indication of the appetite for high quality true crime content in Poland.” He says that AETN is in discussion with a number of operators across the region and expects to announce further CEE launches imminently.

Video-on-demand

If local scheduling can help bind ties between an international channel and its audience within a particular territory, the bundling of video-on-demand and – especially – catch-up content can take this a stage further, as well as provide an additional anti-churn tool to distribution partners. KidsCo, in common with other channel providers – bundles VOD with the carriage price of the channel. The additional revenue is small, and Robinson is the first to admit that “the bread and butter of the business is still the linear channel”. However, he says, VOD helps to immerse the target audience more deeply in the brand and can play a useful role as a tool to counter churn.

“It’s an area we said we would invest in and help differentiate platforms,” says Universal’s McLeod. “Catch-up TV is a better prospect, and long-running series are useful for catch-up – we do it for 13th Street in the Netherlands for series like The Wire.” However, VOD and non-linear forms of distribution are still in their relative infancy in central and eastern Europe, he says.

BBC Worldwide’s McDonough is broadly in agreement. “I think that operators are mostly looking for catch-up at the moment,” he says. BBC Worldwide is supporting one of the Polish operators with catch-up services. However, platform operators have not typically worked out a coherent VOD strategy yet. “The platforms themselves are still trying to figure it out…if you talk to five platforms there will be five different models,” he says.

Chello Central Europe’s Malnáy sees advantages in his company’s focus on producing content locally, meaning that it automatically owns the non-linear rights to a great proportion of the content on its channels. “TV channels that commission locally have the best opportunities to create spin-offs,” he says.

As elsewhere, HD has provided an opportunity for growth other than by striking carriage deals with new operators. Although HD penetration in the region is lower than in more developed markets it has also grown rapidly. Channel providers have therefore either already launched HD versions of their channels in the region or plan to do so soon. Chello Central Europe, for example plans to launch an HD version of one of its channels as early as the third quarter of this year.

BBC Worldwide, which has launched the BBC HD channel in Poland, is looking to extend its distribution further. McDonough believes that within two to three years HD will become a standard feature for many viewers, as it has in western Europe. Turner is also keen to develop an HD footprint in the region as soon as it can, particularly as distributors are keen to build their HD portfolios. Duspara-Moriarty says she is hopeful that the broadcaster will launch an HD entertainment channel in Europe by the end of this year.

While HD and non-linear distribution offer future sources of growth in territories where channel providers already enjoy a presence, geographic growth in general means looking south to the Balkan peninsula, and east to the large markets of Russia and Ukraine. “We are looking at various business plans and hoping we can identify the right launch strategy, potentially with a local partner,” says CIMG’s Wald of the latter markets. Wald says he is keen to enter the Russian market, where the company already has a successful content licensing business, possibly this year.

For McLeod, Russia is the great, largely untapped, pay-TV market in the region. The market is complex in terms of its often labrynthine regulatory requirements. Universal has registered with the mass-media licensing authority for three channels and is in the process of clearing cable licences. The company is currently present on DTH with NTV Plus and Tricolor.

As the pay-TV markets of central Europe – Poland, the Czech Republic, Slovakia, Hungary, the Baltic states, and to some extent Romania, Bulgaria and some of the states of the former Yugoslavia – more closely come to resemble those of western Europe, so the large untapped reserves of potential pay-TV customers in the remaining countries of the former Soviet Union beckon.

Tags: CEE 2010