Western Europe digital TV penetration to reach 99% by 2016

Downward pressure on ARPU sees Western European pay TV operators scramble

Pay TV revenues in Western Europe will not grow between 2011 and 2016 (US$36 billion) according to a new report from Digital TV Research Ltd. Report author Simon Murray said: “This seems extraordinary at first glance considering that 9 million pay-TV households with be added over the same period” – reaching 107 million by 2016 and pushing pay TV penetration up from 58% to 61%.

Western European pay TV revenues (US$ million):

                     2006    2011    2016
                   ------  ------  ------
Digital cable TV    3,585   9,022  10,698
Analog cable TV     7,259   4,228     602
IPTV                  420   2,896   3,950
DTH                13,107  18,484  19,136
DTT                   565   1,677   2,006
Total              24,936  36,307  36,392

Source: Digital TV Research Ltd

The Digital TV Western Europe report forecasts that annual subscription TV revenues will remain flat at about US$34 billion. The UK will contribute US$9.5 billion of the 2016 total, followed by Germany with US$5.4 billion. In contrast, on-demand TV revenues will growth by 39% between 2010 and 2016 to reach US$1.8 billion. Murray added: “On-demand was once heralded as a golden age for pay TV revenues, but buy-rates remain lower than anticipated.”

Pay TV revenues will flatten as TV ARPU (Average Revenue per User) is falling almost across the board. The pay TV arena is becoming more competitive as new platforms (especially IPTV ones) launch and as cable operators merge to become stronger entities. Furthermore, homes are rapidly converting to DTT, which provides households with a similar – but free – channel choice to a basic cable subscription. Additionally, rapid take-up of higher-speed broadband connections allows more online video viewing [over-the-top].

Murray said: “Cable operators now offer cheaper and scaled-down basic packages to retain subs and to attract new ones. The knock-on effect has seen DTH operators also lowering their basic package prices -and reducing channel choice.”

He added: “ARPU is also being forced down as cable operators and telcos convert subscribers to dual-play or triple-play bundles. These subscribers provide operators with higher overall [blended] ARPU than standalone TV subscribers, but lower TV ARPU. Dual-play and triple-play subs are more loyal than standalone ones, thus cutting churn and the related subscriber-retention costs.”

Western European TV households split by platform (%):

                     2010 2011 2012 2013 2014 2015 2016
                     ---- ---- ---- ---- ---- ---- ----
Digital cable subs    16%  18%  21%  23%  24%  25%  26
Analog cable subs     13%  10%   8%   6%   5%   3%   1%
Pay IPTV subs          7%   8%   9%  10%  11%  11%  12%
Pay DTH               17%  18%  19%  19%  19%  19%  20%
Digital free DTH      10%  10%  10%  10%  11%  11%  11%
Analog DTH             2%   1%   0%   0%   0%   0%   0%
Analog terrestrial     6%   4%   1%   0%   0%   0%   0%
Primary FTA DTT       27%  29%  30%  31%  31%  31%  31%
Primary pay DTT        5%   5%   6%   6%   6%   6%   6%

Source: Digital TV Research Ltd

Digital TV penetration will reach 99% by 2016, up from 79% in 2010 – or 172 million homes compared with 133 million. However, only 104 million of the 2016 total will pay for digital signals, compared with 73 million in 2010. “The pay TV sector considers every FTA home – DTT or DTH – as a lost subscriber,” explained Murray.

Despite the onslaught from younger, rival digital platforms, cable will maintain subscriber and penetration levels, with 45 million subs and 27% penetration expected by 2016. However, cable TV revenues will drop US$2 billion between 2011 and 2016, to US$11.3 billion. Digital cable TV revenues will climb by US$1.7 billion during this period to US$10.7 billion, with analog cable TV falling from US$4.2 billion to US$0.6 billion.

By 2016, 78% of digital cable subs will take triple-play bundles, with a further 13% paying for dual-play – leaving just 9% as standalone. This compares with 52% standalone, 13% dual-play and 35% triple-play at end-2006. However, triple-play will take only 68% of digital cable TV subscription revenues by 2016.

The number of homes paying for IPTV will increase by 45% between 2011 and 2016 to 19.5 million – or 12% of TV households. IPTV revenues will grow by US$1.1 billion over the same period to reach US$4.0 billion.

Pay DTH subscriptions will increase by 11.2% between 2011 and 2016 to 31.9 million – or 20% of TV households. However, revenues will remain flat at US$19 billion, though it will still be the largest subscription revenue generator by platform. Our forecasts also calculate 17.3 million FTA DTH homes (11% penetration) by 2016, with German-speaking territories contributing 12.3 million of the total.

By end-2011, 46.5 million homes will be primary FTA DTT (watching DTT on their main TV set) – or 29% of the total. Nearly 6 million more homes will be added by end-2016 (31% penetration). Murray advised: “Only Portugal and Ireland are likely to miss the EC’s recommended 2012 analog switch-off deadline.”

“In addition, we forecast 9.7 million pay DTT homes by 2016 (6% penetration), generating revenues of US$2 billion. With no cable TV and limited IPTV penetration, Italy is the pay DTT protagonist, with 5.3 million subs (21% penetration) creating revenues of US$1.1 billion in 2016.”