At first sight everything looks rosy: The cable operators in Europe record strong customer growth for their pay-TV, internet and telephony services, both turnover and profits are rising.
"But what's coming up next?" was the question the 6th Luxembourg Leadership Summit on 24 March 2011 focussed on. Cable Holding S.A., the parent company of Germany's largest cable operator Kabel Deutschland, invites each year top executives from the cable, satellite, media and financial industries and regulatory bodies to the conference to discuss the current market situation and future perspectives.
Rüttger Keienburg, director of Cable Holding, made it clear in his opening speech that it would be a wrong conclusion to lean back and ignore the looming changes in the market because of the current solid growth figures. A new wave of competitors is heading towards the cable operators. The irony of fate: For their attack the challengers use the red carpet rolled out by the cable operators themselves: their high-speed internet services.
On these broad motorways, multimedia heavyweights like Google or Apple, TV live-stream providers like Zattoo or video-on-demand portals like maxdome get directly into consumers' residences where they can set up new revenue sources. In Keienburg's view, it is therefore high time for cable operators to start thinking about new business models in order to prevent third parties from occupying the future markets.
Torsten Gerpott, professor at the University Duisburg-Essen, who was the host of the event, warned the cable operators to succumb to the temptation of resting on their laurels because of the current strong growth: There would be new "ricochets" which would bring "clouds to the horizon".
As examples he named Apple TV, Google TV, Netflix and other players which use the cable operators' broadband infrastructure or new hybrid solutions like HbbTV for connected TV sets to get into the viewers' living rooms where they establish their own business models - leapfrogging cable operators.
Alexander Mogg, partner at Roland Berger Stategy Consultants, pointed out that the TV world gains more and more variety, but gets increasingly complex at the same time. While in the old days for cable customers television simply came out of the plug in the wall onto their TV screens, there would now be plenty of reception possibilities, for example computers, laptops, tablet-PCs or smartphones. As an example he mentioned the Sky Sport app for Apple's iPad through which subscribers can take the sports content of pay-TV broadcaster Sky Deutschland with them anywhere they like, putting an end to the historic tie-up with the TV set at home. In 2015, the majority of German households (61%) will have a TV set with an internet connection, 58% will have a tablet-PC and 51% a smartphone, Mogg prognosticated. Television will be a feature on all these new reception devices.
As an indicator for the development Mogg recommended taking a look at the USA which are ahead of Germany. There, the "new kids on the block" would be the driving forces behind the changes in the TV usage and not the established market players. As examples he referred to Amazon, Hulu, iTunes, YouTube and Netflix which would rush into the market with their video-on-demand offers. Facebook also wants to participate and recently closed a deal with Warner Bros. to provide its members with movies from the Hollywood studio. Like mobile virtual network operators in the mobile network industry, there could in future be virtual cable operators not owning their own network, but using third-party networks to supply their line-up to customers. "This will also happen over here," Mogg is convinced. "Cable operators have to counteract, otherwise they will be pushed back into the role of sole infrastructure providers."
Mogg sees three possibilities in reacting to the challenges: To block network access for the new competitors, to simply enable them free access or to actually embrace them and win them for cooperations. He recommends the third option because this would enrich the cable world. Customers would be willing to pay for content. The target for cable operators should be, in his view, to create additional values and participate in the value chain.
In the long run, Mogg sees the cable platforms to develop into department stores for all kinds of TV-based entertainment. For example, there could be an "experience world" compiled by public broadcaster ZDF with real-time TV, "catch up" TV, information portals and teletext 2.0. A commercial broadcaster such as RTL could additionally offer communities, video-on-demand, games and e-commerce. Cable operators could establish revenue sources for example by handling the invoicing of premium services through the monthly cable bill or to guarantee commercial users of their networks certain levels of service quality. Such a "quality of service agreement" has for example been closed in Switzerland between TV live-stream provider Zattoo and telco Swisscom, ensuring that Zattoo's HD streams are always delivered to viewers in highest quality.
The mobile TV and internet usage is seen as a major trend by Martin Herkommer, head of the press and public relations department at Kabel BW, to which cable operators have to adjust. "The content follows the viewers", said Herkommer, who jumped in for CEO Harald Rösch who couldn't attend the conference because of other commitments due to the recently announced sale of Germany's third-largest cable operator to US media company Liberty Global.
As examples Herkommer named watching TV on computers, laptops, tablet-PCs and smartphones. TV content would increasingly be consumed independently of location, time and technology. "Every content on any device," is the new guiding theme. Kabel BW reacted to the increasing interest in mobile internet with offering tariffs for mobile internet access through laptops, tablet-PCs and smartphones. At the same time, technologies get more and more interconnected: Herkommer announced that Kabel BW would create the possibility to programme the domestic DVR while on the go using a smartphone by the end of the year.
Further possibilities of interaction, which were discussed at the conference, are the usage of tablet-PCs as multimedia remote controls for TV sets. For example, during a TV session in the evening, a family member can use the small flat computer to search for interesting TV programmes in electronic programme guides or other sources while the other family members can uninterruptedly watch the current show they have selected on the TV set. Another example for interaction would be a soap opera in which a character posts a twitter message which is sent out at the same in reality time by the TV channel's team. The series' fans can then reply to it - and the team gives a direct response if they have questions, providing a way of creating viewer loyalty.
Thomas Braun, president of the national association of German cable operators ANGA, gave an overview of the state of the German cable market: 19.4 million households currently have a cable subscription which corresponds with slightly more than half of the German TV households (52%). More than one third (38%) of the cable households have made the move to digital television. Braun considers HDTV to be an important driver for digitalisation: Through the increasing sales figures of flat-screen TV sets with large screens viewers' desire for improved picture quality would rise - which HDTV could fulfil in a way visible to anyone.
With regards to the switch-off of analogue satellite television on 30 April 2012 Braun sees the cable operators in an advantageous position as they aren't affected. "We are against a forced digitalisation," Braun stressed. "Our networks offer sufficient bandwidth for anything." Through re-analogising digital satellite signals cable operators want to continue providing analogue television to their customers beyond 2012. The question is, though, whether cable operators actually stand in their own way with their decision to hold onto analogue television as they won't be able to sell lucrative services to analogue households such as HDTV, pay-TV or video-on-demand, thereby limiting their possibilities to tap into additional revenue sources.
Braun, however, doesn't see a conflict of interest as, firstly, also analogue cable customers would be an important source of income and, secondly, the housing industry would have to be provided with an offer to continue providing analogue television to their tenants. Regarding internet access, Braun sees cable operators in a much better position that ADSL providers. While the telephone network, through VDSL, would only enable a data rate of up to 50 Mbit/s, a cable network upgraded with DOCSIS 3.0 would clearly top this with 128 Mbit/s. With reference to Deutsche Telekom having sold its cable network, but keeping its telephone network, Braun said with a smile that some people at the former monopolist now concede: "We have sold the wrong network."
New business models for satellite operators were outlined by Ferdinand Kayser, president and CEO of SES Astra. An important basis would be the creation of a customer relationship with viewers. In retrospective, Kayser said that the decision by the German commercial broadcasters in the 1990s to distribute their digital channels free-to-air on Astra (19.2° East) was an "original sin". Without encryption, it would not be possible to address viewers, the precondition for establishing a direct customer relationship to, for example, provide individualised offers. As a solution, Kayser presented the HDTV platform HD+ which SES Astra launched in Germany on 1 November 2009. In the encrypted package currently 8 German commercial TV broadcasters transmit the HD versions of their channels with viewers being charged €50 per year for reception.
According to Kayser, 1.5 million smartcards have been deployed to hardware manufacturers and retailers so far as well as 400,000 HD+ compliant set-top-boxes (more than 50 models are currently on the market) and 100,000 CI+ modules. New customers will get HD+ at no charge for the first year. When asked about the number of viewers who have signed up after the free year has expired, Kayser declined to reveal details, only hinting that there was a "positive tendency". He said that SES Astra would announce the exact figures in a few months. Industry insiders speculate that this could be the case at trade fair ANGA Cable which takes place in Cologne from 3 to 5 May.
As another new business area for satellite operators Kayser sees hybrid services in collaboration with telecommunications companies. For example, Deutsche Telekom wants to launch a satellite version of its IPTV platform Entertain this summer: The TV channels will get to viewers through Astra (19.2° East) while interactive services such as video-on-demand will be distributed through IPTV.
With the hybrid offer, which will also incorporate HD+, Telekom wants to win new customer for Entertain as, in contrast to the standard IPTV offer which requires high bandwidths, an internet data rate of only 3 Mbit/s will be sufficient. Kayser also confirmed that negotiations are underway with Sky Deutschland regardig a collaboration in the HD area with the goal being that satellite households will in future only need a single set-top-box if they want to receive both HD+ and Sky HD.
Jens Redmer, director business development at Google in Europe, presented Google TV. He stressed that, in contrast to "walled garden" approaches such as from Apple, it would be an open platform for any kind of TV and video content. The core part would be the Google box which will be placed between the TV set and existing set-top-box, for example from Sky or a cable company. In the USA, with Sony and Samsung there are already the first manufacturers incorporating the technology into their TV sets evading the need for a separate box. Like Google's internet search, after entering a key word, the box searches all available sources for example to find a certain movie or films with a certain actor. This includes electronic programme guides, websites like YouTube, Wikipedia and IMDB, the regular Google and the DVR's archive. Additionally, there will be apps on the TV screen which external software developers can contribute. According to Redmer, Google TV is a response to the trend that an increasing number of TV sets contain internet access - and Google wants to be anywhere the internet is.
However, at this stage a conflict emerges which resulted in a heated discussion between speakers and members of the audience: While nobody questions that the internet and its content will find their way into TV sets, there are different opinions on the gateway through which they will get to the TV screens.
While TV set manufacturers upgrade their TV sets for the new internet world through the HbbTV standard, cable operators argue that this would actually not be necessary as their DVRs which are jazzed up into multimedia terminals already deliver the variety of the internet to viewers' TV screens. The TV set manufacturers hold against this by saying that viewers don't really want a separate box and remote control but instead would prefer to navigate through all content and services using the TV set. The third parties involved are external players such as Google and Apple which promise viewers access to the multimedia world through their own boxes.
Independently of the way the internet and its content will get to the TV set in the end: What's clear is that this development will reshuffle all cards. Cable operators wanting to prevent that they will only provide the transport paths in future while others capitalise on the content should already commence creating their own offers and try to integrate the "new kids on the block" into them. This way, all parties will benefit.