Pay-television is an important and growing market. Already worth more than €20
billion in Western Europe, it will more than double this figure by 2008. If T-
commerce revenues are included the figure will triple by 2008 to over €75 billion.
This expansion is being accompanied, inevitably, by increasing competition amongst
content providers. Digital technology has brought down entry barriers and the
competition has intensified between channels and content producers. The cake is
getting larger, but it is being divided among more players.
At the same time, there is a trend towards consolidation and vertical integration on the
distribution side that has led to fewer players and more power for the leading
companies. This had meant a squeeze on channel providers, already under threat from
increased competition. Carriage fees paid to channels are being reduced and
alternative sources of revenue, such as interactivity, have proved illusory.
It has become very difficult for smaller, weaker channels to survive and many have
failed and been forced to close. The advantage is with the larger groups with several
channels than can benefit from economies of scale and well-known brands. They
have the power to negotiate carriage fees, though at lower levels than previous
contracts.
Even they cannot afford to be complacent, however, as competitors from other areas
of the media and entertainment sector enter the market. MTV, for example, is facing
fierce battles across Europe with local services, not least in the UK where publisher
Emap has launched several new channels and BSkyB plans to launch three music
channels in 2003.
Over the past six years there have been more than 30 channel closures in the UK
alone and probably around 150 channels Europe-wide. This represents a tremendous
waste of resources, up to Euros 3bn for Europe and up to £450 million for the UK.
SUCCESS FACTORS
Success has not thus been easy and there are a number of factors that are important in
promoting success. The importance of content is paramount. But superlative content
without distribution and without marketing to promote it will never be king. For any
channel to succeed it must spend as much as it possibly can on content and on
marketing to develop the brand and stand out above the crowd. Technology is
important inasmuch as it eases distribution, making more channels available, and
enhances the content. It will provide opportunities for new entrants, reduce
distribution costs and change the competitive environment. But from the consumer
perspective it is the content that is important not how it gets into the home.
At the same time other back-office costs must be kept to a minimum, which is where
the bigger players have an advantage as they can benefit from shared overheads and
economies of scale as well as wield greater power in negotiations with distributors.
For a new channel launching in today’s climate, it will be very difficult to make
money or break into profit in the short term. Over time if it can build ratings and
develop a strong brand. It can still be a good business to be in as, once established, the
channel will then be able to negotiate better carriage fees, and decent ratings will
generate good advertising revenues.
The key questions is how much investment will be required to break even and how
long will it take. They are difficult questions to answer. There are so many factors
bearing on this, but even the best managed channel with a good proposition is likely
to take a few years as well as several million Euros before it starts to make a profit.
The rewards of pay-television can be great, however, for those that do succeed.
REPORT OBJECTIVES & STRUCTURE
What are the chances for a new channel today? What are the cost and revenue
parameters for such a channel? What are the success factors, the driving forces in the
market and the processes involved in launching and running a successful channel?
What does a channel need to do to survive and grab a share of this growing market?
What alternative sources of revenue are there?
This report aims to answer these questions. The report covers the microeconomics of
the channel: the business planning and management of channels, with case studies to
illustrate. This is focused on the UK, as this is the leading European pay-TV market
and most of the issues raised will apply to other countries.
An introductory chapter covers the basics of pay-television, looking at the economics
and strategic issues facing the sector, as well as the impact of new technologies such
as delivery Digital Subscriber Line (DSL) and the development of interactive
television.
The second chapter considers the process involved with launching and running a
channel. It provides a practical guide to the different business models, the finance,
content and distribution issues, interactivity, marketing and regulation.
In the distribution section, for example, it explains the process involved with
distribution, a key issue for any channel. This includes information on the platforms,
obtaining transponder bandwidth, uplinking, playout, and conditional access. (see:
www.im-reports.com/PTVBP/samples.html). In the finance section it includes a list of
venture capitalists as well as the kind of attributes they are looking for and how to
approach them.
Chapter 3 takes a closer look at the economics and the business of a pay-TV channel.
It provides benchmark estimates for costs and revenues and finishes with draft figures
for a business plan of a low cost independent channel. This chapter is followed by
analysis of a number of channels, examining their strategies and distribution. It also
provides a European list of pay-TV channels, their genres, the platforms on which
they are broadcast, and the countries and languages in which they are received.
The appendix of the report contains details of website addresses for further
information on Conditional access, UK regulation and licensing, European regulation
as well as a glossary