Expanding horizons – DTH in central and eastern Europe

DTH players look set to dominate the CEE pay TV market in the coming years. Graham Pomphrey reports on how satellite operators, while mindful of economic challenges, are planning for the anticipated growth.

Satellite pay TV platforms are making inroads in central and eastern Europe, establishing themselves as viable alternatives to cable in many markets and stealing a march on their pay TV counterparts by delivering digital services, including HD. According to Informa Telecoms and Media, DTH is set to overtake cable as the region’s leading platform by 2012.

Some will point to the fact that the cable sector remains extremely fragmented, making it expensive and time consuming to digitise each network, as a reason for the rise of satellite over cable. Cable also suffers from a reputation as a low-cost utility provider, while satellite has a perception of offering premium TV services. Also, while ARPU remains low in almost all central and eastern European markets, some DTH operators have entered the market with low cost offerings, while others, including Poland’s ‘n’, have prospered on the back of differentiating themselves by leading with an extensive HD offering.

The success of DTH platforms has led in some markets to a plethora of services vying for a fairly limited market. In Poland Cyfrowy Polsat, Canal Plus Cyfrowy, ‘n’ and Orange have all established themselves, and consolidation, while anticipated, has yet to materialise. In Romania, the first signs of consolidation appeared this year when telco Romtelecom signed agreements to acquire both the Boom TV and AKTA Satelit platforms, meaning Romania’s five satellite pay TV operators will soon become three. Satellite operators are therefore faced with a rapidly growing market, with platforms still launching and new channels being added to line-ups on an almost daily basis, but at the same time realising consolidation is likely to reduce the number of platforms looking for capacity.

Economic recovery

There are clear signs that economic recovery is underway in the CEE region, with all the major satellite operators signing deals in recent months. Already this year, SES Astra announced deals with Bulgarian operator Satellite BG and Serbian telco Telekom Srbija for capacity. In the case of Satellite BG, it marks an entry into a new market for Astra and proves that business is available from new operator customers. The DTH platform is using three transponders on Astra’s 23.5° East orbital position to broadcast its range of channels that launched in February. The offer consists of more than 70 channels, including some in high definition.  “Growth in the central Europe region has been quite good for SES. When we look at the 23.5° East orbital position, we have made good progress during the year,” said SES CEO Romain Bausch during a first-quarter results conference call.

23.5° East is Astra’s key location for central and eastern Europe and the Benelux, with other customers including CS Link and Skylink for coverage in the Czech and Slovak Republics. Slovak telco and TV transmission provider Towercom recently signed for one additional transponder to strengthen the bouquet of Skylink in Slovakia and the Czech Republic with additional content, giving it a total of four transponders. Another location used for the region is 19.2° East, where Astra recently signed off a deal with Serbian telco Telekom Srbija, which has taken capacity for the DTH transmission of Serbian public channels RTS Sat and Radio Beograd. The channels started broadcasting free-to-air on June 1.
Despite this year’s deals, Bausch warned the industry not to get carried away and said it would have to face consolidation sooner rather than later. “We see good potential but as we always say, no one should neglect the fact that this market is still under development and the consolidation that we have seen happening in the western European markets 10 or 15 years ago will happen in central and eastern Europe in the coming years,” he said. “There will be shakeouts and consolidation and not all of these customers will continue to offer pay TV via satellite. A market like Romania cannot support five or six pay TV operators on satellite, for example. But we see good opportunities and we are ready to find customers that are financially strong, ideally with international experience or those that have a partnership with an international player.”

Nordic-based satellite operator Telenor’s 1° West orbital position has become an established location for central and eastern Europe. Liberty Global’s DTH service UPC Direct broadcasts from here to homes in Romania, Hungary, the Czech Republic, Slovakia and Moldova. The importance of the region for Telenor was cemented earlier this year when it announced plans to launch new satellite Thor 7, which will provide capacity for broadcast services within central and eastern Europe. Thor 7 will join Telenor’s existing satellite fleet including Thor 5 and Thor 6 located at the 1° West orbital position, which currently serves almost 17 million cable and satellite households in Europe. It will be equipped with Ku- and Ka-band capacity. Telenor said the decision to develop Thor 7 was down in part to the growing HD TV market in central and eastern Europe and the fact that 3D TV could become increasingly important in the future.
“One degree West is now a major hotspot for the region. It provides DTH to 2.7 million homes and cable distribution to about a further six million homes,” says Leiv Svenning, head of broadcast services, CEE at Telenor Satellite. “The two major regional DTH operators, UPC Direct and Digi TV, are users of 1° West and satellite will remain a key driver in the TV market. It is considered to offer a superior service compared to the fragmented cable industry. Against this backdrop it is unsurprising that TSBc has chosen to fly a payload for the CEE market on its next satellite.”

Future growth

Telenor’s board agreeing to Thor 7 despite the economic difficulties faced by Europe says a lot about the confidence the operator has for future pay TV growth. According to Svenning, while growth might have slowed in some markets, in others, digitization and the addition of new channels and services continues. “Given the recession and the negative impact upon some exchange rates, the pay TV market in the region weathered the economic storm relatively well,” he says. “Several of the economies experienced considerable drops in demand for goods and services but many of the players in the TV market continued to grow, although those with advertising based business models faced the biggest struggle,” he says. Svenning believes the economic downturn is being mitigated by other factors in the market such as the general drive towards digitization: “There is also a time lag as investments work through the system.”
While consolidation has yet to take a firm grip on the CEE region, Romania is starting to see some signs, with Boom TV being acquired by Romtelecom earlier this year. However, Svenning points out that other markets have not witnessed the same rate of growth as Romania, which was one of the first countries in the region to introduce DTH. “Romania adopted DTH rather early for the region and experienced a large number of entrants; the country is now undergoing a phase of consolidation. But we are also seeing growth in countries that have not grown at such a pace. I do not believe that anybody anticipates a return to the rate of growth previously experienced in the region but that is not to say that new platforms will not be launched.”

Global satellite operator Intelsat also has a considerable business in the CEE region, taking additional capacity at the 1°

West position it shares with Telenor and providing broadcast services to DTH operators including Digi TV and Vivacom. According to Jean-Philippe Gillet, Intelsat’s regional vice-president, Europe and Middle East, despite the economic problems, the company has seen significant growth in the region, and he believes there is still plenty of room left for expansion. “We believe that this market still has a lot of potential for growth, both in terms of programme offerings for existing consumers and for new DTH launches in certain markets,” he says. “Our video neighbourhood at 1° West is a leading orbital slot in the region with a very high penetration, and we are working on strengthening that position.”
Gillet admits that some customers have been more “prudent” in their approach to capacity requirements as a result of the economic downturn, but says there are plenty of operators preparing to launch new channels. He also believes we are likely to see some new platform additions in the short term. “It is clear that the economic downturn has slowed the growth in certain markets in eastern Europe. The markets where we witnessed the highest growth are probably Hungary and Bulgaria,” he says, adding that Intelsat’s customers will only launch more channels when the economic situation allows them to do so. “Which means when their customers are ready to pay for more choices. There are a few markets that still have potential for the launch of one or two platforms as well,” he says.

Already this year, Intelsat closed a deal with Viacom’s MTV Networks for capacity at 1° West. The deal also includes

terrestrial connectivity via the IntelsatONE terrestrial network and uplink service via Intelsat’s teleport at Fuchsstadt, Germany. Earlier this year, satellite services provider Eastern Space Systems Romania signed two new multi-year contracts with Intelsat for capacity at 1° West to enable video distribution to cable headends and DTH platforms in Romania, Bulgaria, Moldova, Hungary, Macedonia and other central and eastern European countries. Last year Intelsat carried out deals with Russian DTH operator Orion Express for capacity on the Intelsat 15 (IS-15) satellite, located at 85° East, and with Bulgarian telco BTC, which operates under the Vivacom brand, via the IS-12 satellite, located at 45° East.

Looking to the future, Gillet predicts that HD will be a key driver for business in the CEE region, which is currently

underserved by the technology. “The development of HD channels is slower in CEE than in western Europe and it will take time for the markets to be at the same level, but there is no doubt that the CEE market will catch up at some point,” he says. “In order to see more HD offerings, you need consumers who can afford to pay more for it. The quicker the economic situation improves, the quicker our customers will launch more channels.”

Digital pay DTH subscriber forecast (CEE), 2010-2015

The CEE region is also an important area for Spacecom and its Amos satellite fleet at 4° West. “Spacecom’s main priorities for the CEE region are to keep on strengthening our EU orbital position at 4° West to enable more variety, more services and more flexibility to our customers,” says Amit Karni, Spacecom’s vice-president sales, central Europe.
The operator recently initiated its Amos-6 launch programme, which will be stationed at 4° West. “This new addition will bring further freedom to our current customers and allow them, as well as new customers throughout the CEE area, to extend their reach beyond the immediate region,” says Karni. The satellite is scheduled for a 2013 launch and will include a dedicated Ku-band beam for CEE.

Karni expects the region to bounce back from the economic crisis in time for 2013, although he admits that the “economic doldrums have left their mark in the region”. Those operators who relied heavily on advertising models felt the full impact, while those with long-term subscriber agreements faired better. “One of the first and primary sectors to be hit was the advertising sector. As a result, pay TV platforms based on advertising fees in addition to subscribers’ fees suffered double and were extremely vulnerable,” says Karni. “On one hand they experienced an increasing churn rate when their subscriber base began cutting their contracts due to economic difficulties, while on the other hand, they endured the effect of shrinking revenues from advertising.” On top of these factors, the sector was hit by a credit crisis that made it more difficult to obtain funding for set-top boxes and to increase growth in subscriber number. Things are looking up, however, Karni says, adding that the industry is seeing more stability and even a rebound in some areas, where TV platforms, channels and their owners are starting to move forward with new plans.  “Opportunities remain for both new platforms and new TV channels throughout the region. Some countries in CEE lag behind in terms of GDP per capita and personal welfare, but the world’s economy is coming back on track. As their economies move forward, those countries will spur economic growth as well and in turn, we will see more channels coming up as well as new pay TV platforms.”

Another corollary of a rebounding economy is that credit should start flowing again, meaning the process of consolidation will start to accelerate. For satellite operators, including Spacecom, this could mean the number of potential platform customers is diluted. But Karni takes a more positive view: “Consolidation means we will see bigger platforms capable of launching new HD and 3D services and thus will consume more bandwidth. Whereas the process of HD uptake in western Europe really picked up a year or two ago, the transformation in CEE has only recently begun with lower priced HDTV sets and flat screen TVs leaving the shops faster than others. We are definitely seeing an increased in demand for satellite capacity.”

“You need consumers who can afford to pay for HD. The quicker the economic situation improves, the quicker our customers will launch more channels.”
Jean-Phillipe Gillet, Intelsat

“Consolidation means we will see bigger platforms capable of launching new HD and 3D services and thus will consume more bandwidth.”
Amit Karni, Spacecom