Cord-cutting has arrived in 12 Euro markets

Pay TV cord-cutting is now an undeniable phenomenon in a large number of European markets as 12 countries witnessed a decline in overall pay TV uptake in the first quarter of 2014, according to IHS Technology’s latest European pay TV Update.

Six of these markets are seeing their second quarter of decline suggesting a sustained softening of pay TV across much of the region.

Hardest hit are the Benelux and Scandinavian markets along with some of the smaller Central and Eastern European markets were recent strong growth is now reversing.

The 12 markets showing a decline in Q1 2014 are: Belgium, Denmark, Italy, Malta, Netherlands, Norway, Sweden, Czech Republic, Latvia, Lithuania, Moldova, and Poland.

To date, only Italy among the five big European markets has suffered a sustained downturn in pay TV. France, Germany, Spain and the UK are all continuing to grow at above the European average.

Until recently, the cord-cutting phenomenon had largely been confined to the US market where very high pay TV penetration, high monthly cost and the economic downturn created a perfect storm that is now seeing a sustained downturn and the emergence of a new sub-group of ‘cord-nevers’—young households that do not bother taking a pay TV subscription.

Europe has remained largely immune from this trend, in part because the generally lower pay TV uptake leaves far more headroom for growth and because growth from IPTV in the West and low-cost digital satellite in the East has more than made up from losses on cable.

While individual markets like Italy and the Netherlands have had several quarters of decline, a sustained two-consecutive-quarter decline in such a wide-range of markets is a worrying trend for the industry as a whole. In the East, the two-quarter decline is affecting two of the region’s main markets: Poland and the Czech Republic.

Growth has also softened on a pan-regional basis, down 30% on the same quarter a year earlier at just 0.66% in the quarter. The rapid growth of IPTV and low-cost satellite is beginning to level-out, meaning losses on other traditional platforms are not being fully compensated.

While it is easy to point the finger at OTT services as the cause of cord-cutting, there is no obvious relationship between the markets now seeing a sustained decline and the entry of larger OTT players like Netflix. Further quarters will tell, but the current trend is likely a combination of factors including an over-hang from the recent economic downturn and the wider impact of new technology in the home broadening the consumption choices of the average consumer.

European pay TV revenues flatten in 2014

European pay TV revenues will reach $40.35 billion in 2014, up from $36.87 billion in 2010, according to a new report from Digital TV Research. The European Digital TV Databook (covering 39 countries) reveals that the 2014 total will only increase by 0.6% on 2013 as ARPUs are hit by competition and the transition of subscribers to double-play and triple-play bundles (which result in higher overall ARPUs for operators but lower TV ARPUs).

Source: Digital TV Research Ltd

Satellite TV will contribute 45.6% of the pay TV revenues in 2014. However, satellite TV revenues are falling, partly due to greater competition but also due to the growth of cheaper packages, such as Tricolor in Russia, which force down prices for the whole country. Pay DTT revenues are also suffering. However, IPTV will record strong revenue growth. Digital cable revenue growth will compensate for the decline in analog cable revenues.

Pay TV revenues in Western Europe will increase by 5.9% from $31.9 billion in 2010 to $33.8 billion in 2014, with Eastern Europe up by 32.2% to $6.5 billion. The UK ($7.8 billion) and Germany ($4.6 billion) will lead pay TV revenues in 2014. Pay TV revenues in Germany will increase by $945 million between 2010 and 2014 and by $813 million in Russia (nearly double its 2010 total). However, revenues will fall in the Czech Republic, France, Malta, Romania and Spain over the same period.

Top 10 pay TV countries in 2014

Households (000)    Penetration (%)     Revenues ($ mil.)
------------------  ------------------  ------------------
Russia       34.81  Netherlands   99.0  UK           7,845
Germany      22.81  Belgium       96.3  Germany      4,609
UK           16.09  Norway        95.6  France       4,525
France       13.04  Malta         94.5  Italy        4,010
Poland       10.91  Sweden        94.0  Netherlands  2,366
Italy         8.28  Denmark       92.0  Poland       1,823
Netherlands   7.34  Estonia       90.0  Spain        1,757
Romania       5.98  Hungary       89.6  Russia       1,699
Belgium       4.46  Finland       86.2  Belgium      1,572
Sweden        4.37  Switzerland   86.2  Sweden       1,551

Source: Digital TV Research Ltd

Pay TV subscriptions will increase from 154.5 million in 2010 to 171.6 million by end-2014. The Western European total will rise by only 4.0 million to 97.3 million, but Eastern Europe will climb by 13.1 million to 74.4 million. Adding 8.5 million subs between 2010 and 2014, Russia has had the most pay TV subscribers by country for some time. The number of pay TV subscribers will fall in the Czech Republic, France, Italy, Slovenia and Spain between 2010 and 2014.

Digital TV penetration will reach 81.9% of European TV households by end-2014; up from 60.0% at end-2010. Europe will have 240.3 million digital TV households by end-2014, up by 12.7 million during the year and up by 67.2 million since 2010. Free-to-air DTT is the most popular platform, although its growth is slowing. Pay satellite TV is in second place. Digital cable overtook analog cable in 2013 to take third place. The number of homes paying for IPTV will more than double between 2010 and 2014.

Russia will overtake the UK and France in 2014 to become the second largest digital TV nation. Eight countries will have 100% digital penetration by end-2014, but penetration will be lower than 60% of TV households in six countries. Digital TV penetration will more than double in nine countries between 2010 and 2014.

There will still be 53.3 million analog homes remaining at end-2014; down from 115.4 million at end-2010. From the 2014 total, 34.9 million will be analog cable and 18.4 million analog terrestrial. Only 10.8 million of the 2014 total will be in Western Europe, with the remaining 42.4 million in Eastern Europe. Russia alone will have 21.9 million analog homes by end-2014, with Germany and the Ukraine supplying 6.8 million and 7.9 million respectively.