Florence Le Borgne
Head of the TV & Digital content Practice, IDATE.
What potential exists for “everything OTT” distribution?
IDATE’s latest report spotlights premium content right holders’ strategies to tap the new internet territories. It provides a benchmark of OTT services launched by major rightholders. The study also provides the analyses and conclusions on these OTT strategies in highlighting their drivers and hurdles: technology, regulation, consumption patterns. Finally, it addresses the question of viability of an exclusive OTT strategy for Sport, Cinema & TV series right holders.
There is not a lot of audiovisual content that can be designated as 'premium'. Only fiction (films and TV series) and certain sporting events (depending on the country) meet the conditions necessary to merit the description: mass appeal, a certain rarity and desirable enough that consumers will pay for it.
Broadcast by a small number of providers (the importance of rights and the relative scarcity of premium content automatically limits the number of possible candidates), premium content belongs to a variety of players, such as in cinema where production is distributed among a large number of smaller players, although a few big US studios produce a large part of the sector's revenue.
The clear lines drawn with rights (by territory, time, medium) aims to maximize the potential value of the content and thus the revenues generated by the rights holders. Although television contributes significantly to revenues generated by film studios and sports leagues (about 20% on average), its contribution varies significantly depending on the country, the licensing fee model in place and the attractiveness of the content itself.
Florence Le Borgne, Head of Study, notes: “OTT-specific services present an obvious opportunity to premium content rights holders: to add value to content that has little or no exposure on television, to generate additional revenue, and to put pressure on traditional distributors and thus 'raise the stakes'.”
However, the approaches taken so far have differed considerably:
• Release windows, either regulatory or contractual, limit opportunities for fiction rights holders to embark on an aggressive OTT strategy, which would probably compete directly with traditional distributors who provide the bulk of their revenues (cinemas, DVD publishers, TV channels). The biggest studios are adopting conservative approaches, working within the constraints and characteristics of specific geographical markets. Independent publishers favour OTT distribution via existing platforms, due to a lack of financial resources to distribute online content themselves.
• Leagues and sports federations, who are not subject to the same constraints, have invested significantly in the internet to generate more value from redistribution rights of their events, either via a third-party operated platform for sports with little media coverage, or direct distribution for major sports. However, leagues and federations are adopting differentiated strategies per country to favour TV coverage across the board: the more their sport is televised, the less choice offered by proprietary OTT services. Note that the European football leagues focus solely on the sale of TV rights.
As direct distribution via the internet results in disintermediation for some of the players involved in the traditional distribution chain, rights holders could theoretically expect to capture a much larger share of the end market (up to 92% of the value with direct distribution compared with 28% in the current model). However, to date, traditional distribution is still more profitable because revenues from the TV end market are so large and no player has yet exclusively distributed its most premium content. However, models have shown that, for some sports leagues, moving to 'everything OTT' would be a viable option and would generate the same revenues as those of current TV rights.
Apart from the financial risk of moving to 'everything OTT' for rights holders and the lack of internal expertise in broadcasting video services, several obstacles can be identified:
• limited access to broadband internet in some markets as well as the number of active compatible devices (especially connected TVs with large screens)
• regulations that favour traditional distribution in some countries, especially regulated release windows
• the high level of dependence that could involve reintermediation with a dominant web platform
• the potential unwillingness of users to subscribe to every sport followed on an individual billing basis rather than a household package.
Also, in the current context, only some sporting content would be a realistic candidate for migration from a rights holder's perspective (but not TV channels). OTT distribution of fiction would entail a profound upheaval which the various players in the value chain seem unwilling to accept.
The potential for migrating to ‘everything OTT’ for some sports leagues:
Source: IDATE, Rightholders turn OTT, April 2014
Head of the radio technologies and spectrum practice, Idate
In its latest report, part of the Spectrum service, IDATE details existing spectrum allocation for public safety services. It presents the requirements for broadband services and the corresponding spectrum needs of public safety users. The use of commercial LTE networks by public safety users is analyzed and the mobile broadband strategies for PPDR players are evaluated.
Public protection and disaster relief (PPDR) is the general designation given to a range of public safety services broken down into: Day-to-day operations (category ‘PP1’) or routine operations; large emergency and/or public events (category ‘PP2’) for larger events; and disaster relief (category ‘DR’) caused by either natural of human activity. PPDR is not a commercial service.
- Current non-broadband PPDR systems mainly use the 400 MHz and the 700-800 bands worldwide. Spectrum above 1 GHz supports also a variety of PPDR operations for temporary use only.
- Regarding spectrum requirements, PPDR users face the challenge of different interests within countries whether or not spectrum should be reserved for PPDR applications.
- Broadband-dedicated PPDR spectrum is expected to be allocated mostly in the 700 MHz with complementary frequencies below 1 GHz for specific countries (800 MHz) and above 1 GHz (1.4 to 5 GHz frequencies). At 700 MHz, coexistence is mainly with television broadcasting/digital TV and commercial broadband networks in Europe.
- According to PPDR user groups, a minimum of 2 x 10 MHz for broadband PPDR spectrum should be reserved, similar to what was allocated in the USA. Additional country specific spectrum needs to be calculated.
- The question of allocating broadband PPDR spectrum through auctions is also being debated.
PPDR services can be provided through dedicated PPDR systems or commercial cellular networks.
- The challenge is to enhance the LTE and LTE-Advanced standards to meet PPDR requirements. However, in the short term, extended LTE and LTE-Advanced capabilities and standards (Direct Mode, Proximity Services and Group Communications System Enablers, resilience and VoLTE) will not be in operation.
- Dynamic use of shared broadband PPDR spectrum with predictable QoS is also a key potential capability considered through Temporary Licensed Access (LSA/ASA).
In conclusion, we have identified the following options for PPDR players wishing to get access to mobile broadband capabilities :
1. Build and run an own dedicated broadband PPDR network
2. Use a dedicated broadband PPDR network run by a private operator
3. Use a narrow band PPDR network + MVNO agreement for broadband services
4. Use a dedicated commercial mobile network or Use a standard commercial mobile network
5. Use a dedicated commercial mobile network which operates specific PPDR spectrum
Potential candidate bands for broadband PPDR spectrum by region
More information about "Public Safety Report" study.
Head of Research, Telecoms Business Unit, IDATE
Telcos have ambitious Vectoring rollout plans, with some aiming to have between 25% and 30% of VDSL2 lines covered by 2017.
Vectoring and bonding are starting to be deployed in certain countries, even if the technical and regulatory constraints would seem to point to only small-scale rollouts. G.Fast is the next generation standard being examined today. The report we released provides readers with an update on the latest technological developments in VDSL2.
VDSL2 & Co: ever more promising technological developments
VDSL2 has begun to be implemented, and several telcos have based their ultra-fast broadband strategies squarely on copper infrastructure right up to the customer premises. If VDSL can deliver theoretical speeds of around 50 Mbps near the exchange or cabinet, Vectoring, which consists of reducing noise among the lines, makes it possible to double that speed to 100 Mbps. Bonding, meanwhile, consists of using several copper pairs, either to double speeds for users in the vicinity of the exchange, or double the distance at which a 50 Mbps connection is available. In both cases, however, performances are very quickly affected by the subscriber’s distance from the exchange or cabinet.
G.Fast, which is the future standard currently under examination, and due to be approved in
2014, offers a theoretical speed of 1 Gbps, but noise cancellation capabilities are even stronger.
Growth of VDSL subscribers worldwide between December 2010 and June 2013 (million)
Still only small-scale implementation of VDSL2 and its successors
In mid-2013, customers subscribing to a VDSL2 ultra-fast broadband service represented 19% of the world’s FTTH/B subscribers. The vast majority of deployments have been performed by AT&T in the United States, which is reporting 26 million VDSL2-ready households and more than 9 million subscribers. AT&T continues to bank on these solutions, and is now offering pair bonding to eligible customers.
Western Europe is the second biggest VDSL market, accounting for 35% of the world’s subscribers as of mid-2013.
Will this drive a shift in the ultra-fast broadband market?
VDSL2 and its successors have a clear set of advantages, starting with savings on rollouts. Telcos would not need to deploy optical fiber from end to end, and can use the existing last mile of their networks. They would also save on customer premises installations, which cost them a great deal of time and money.
The performances offered by these new solutions appear to be coming more and more in line with those delivered by FTTH (at least in its current iteration), but only under optimal conditions. So this is not a solution that can be made available to everyone. Plus, VDSL Vectoring does not enable physical sub-loop unbundling, in which case bitstream remains the only option for sharing access to the network – something that not all market players want, as is the case in France, for instance.
As a result, even if the development prospects for the VDSL market remain optimistic for the coming years, we do not expect it to cause a major upheaval in the ultra-fast broadband hierarchy, with FTTH/B continuing to be the architecture of choice.
Telecom: Heavyweight manoeuvring in France and in Europe
So Vivendi chose to enter into exclusive talks with cable company Numericable’s main shareholder for the sale of SFR, France’s second largest mobile operator and number three ISP. The deal which, straight away, would reduce Vivendi’s stake in the new operator to 32% and guarantee its future full withdrawal. This option was chosen over the one offered by Bouygues Telecom, France’s third largest mobile operator and fourth largest ISP, which would have resulted in the creation of the country’s largest mobile operator, with close to 50% of customers. Bouygues Telecom had even anticipated the French competition authority’s qualms about the merger by agreeing to sell off its network of 15,000 towers to France’s fourth MNO, Free, which serves 12% of the country’s mobile users.
It is possible that Vivendi was looking for the quickest exit from SFR. Both SFR and Bouygues Telecom have been members of the IDATE programme for a number of years, and we had no part in the negotiations. So we will keep ourselves from further comment.
But three general remarks are worth making:
• The “telecoms war” that has been going on in France for the past several weeks is not a game of Monopoly, or some form of industrial Meccano. At the very least, it is emblematic of a broader economic crisis in the sector. And, unfortunately, this situation – which includes a massive drop in revenue that is weighing heavily on margins, debt rates (debt to EBITDA ratio) and investing capacity – has hit all of Europe’s main markets.
According to IDATE, telecom services revenue in Europe’s five biggest markets has shrunk by 12% in five years. If France has been the focus of market analysts’ attention over the past few days, we have been waiting on the DG Competition decision over the sale of O2 to Hutchison Whampoa in Ireland, and especially over the deal that would allow Telefónica to take control of a merged O2 and E-Plus (KPN) in Germany, Europe’s largest market.
• Market consolidation, which appears inevitable, could take several forms. Given anti-trust authorities’ reluctance to see fewer players competing in the marketplace, it may take the form of infrastructure sharing schemes. These deals have existed for mobile systems in certain countries for years now, and their numbers could grow considerably. Among other things, they allow telcos to reduce their CapEx and OpEx, but do not eliminate any rivals. So in a price war situation, they make a decrease in ARPU more tolerable, rather than stabilising or helping increase margins.
In Europe, then, consolidation tends to focus on putting an end to market configurations of four network operators (in favour of three MNOs plus MVNOs) that have emerged from public authorities’ award of some 20 additional licences since 3G-UMTS launched in Europe – even if a great many of these operators have since closed up shop. The negotiations between Vivendi/SFR and Numericable nevertheless illustrate a different kind of consolidation: fixed-mobile. The impetus behind this consolidation lies both in the potential of quadruple play bundles and the growing overlap of wireline and wireless systems, with the advent of small cells and ultra high-speed mobile.
Not long ago, we saw Europe’s top mobile operator, Vodafone, acquire Cable & Wireless and spend more than 7 billion EUR for Kabel Deutschland. This deal, along with Liberty’s recent takeover of Virgin Media and Ziggo, helped drive up the price of cable assets, which Altice and Numericable were able to capitalise on – as will no doubt Ono in Spain not far down the road. If there appears to be no lack of support from the banks for these mergers, the money may not be so free flowing for a third type of consolidation, namely cross-border deals inside the European Union. Synergies there are less overt, and national consolidation appears to be a mandatory prelude to financial markets supporting offensive strategies that result in the creation of truly pan-European operators. The danger is that, by delaying national consolidations, European consolidation could fall into the hands of outside players.
• And, finally, do we need to choose between operators’ financial health and consumer interests? It seems a bit of a caricature. There no doubt needs to be some assurance that rebuilding margins does not result in unreasonable price hikes and collusion. But this seems unlikely. First, because regulatory authorities in Europe are both well entrenched and experienced. Second, because technical progress in this industry is such that margins which enable cost-effective investments, and a steady rate of equipment renewal are the basic conditions of lower unit prices and improved quality.
Published in COMMUNICATIONS & STRATEGIES No. 93, 1st Quarter 2013
Re-thinking the EU telecom regulation
Summary of this issue: It is in a complex environment combining economic crisis, a growing gap between the performances of European operators and those of the US leaders, questions about Europe'sability to meet its objectives in NGA terms ("2020 Digital Agenda targets") and preliminary signs of the appetite of non-European operators to gain a foothold in the markets of the EU, that the Commission announced the publication of its proposal for a "Connected Continent" Regulation to the Parliament and the Council. This was accompanied by a few key reports, which are well represented in this issue of Communications & Strategies. The papers which have been selected provide a deep insight into the issues of European telecom policy addressed in the current "Connected Continent" proposal of the European Commission and that will be at the core of the forthcoming review of the regulatory framework. They are supplemented by two exciting interviews with key personnalities from Deutsche Telekon and the European Commission-DG Connect.
Interview with Roberto VIOLA
Deputy Director General
Conducted by Giovanni AMENDOLA,
Head of Relations with International Authorities,
& Yves GASSOT
CEO, IDATE-DigiWorld Institute
C&S: Could you explain why Mrs. Kroes' draft regulation aims at accelerating the creation of a single market for telecoms?
Europe desperately needs to tap into new sources of innovation and growth. Today ICT constitutes half of our productivity growth, and every economic sector today increasingly depends on good connectivity to be competitive: the solution lies in applying the single market philosophy also to the telecoms networks that underpin those connections.
The fact is, European telecom companies cannot afford to remain trapped in 28 national markets; and Europe cannot afford it either. Europeans are enjoying single market freedoms, and telecoms are an increasingly important part of that: as businesses want to use new services like cloud computing, connected cars and mobile health.
If we allow those barriers to remain, we starve the digital economy of the raw materials it needs: connectivity and scale. When supported, the digital ecosystem can grow and create jobs fast; 794,000 were created in the app economy alone in just five years, even with a wider economy in recession. And across the economy, digital tools stimulate business, through higher productivity, efficiency and revenue.
Europe needs to recapture its global lead in ICT – a lead we once had, but lost. The missing link in this digital ecosystem is a telecoms single market. The European single market with 500 million customers will be one of the largest and the wealthiest of the world.
What are the likely characteristics of a single telecoms market in Europe?
A genuine single market in telecommunications is a market that looks at the evolution of internet and data services where consumers and businesses can obtain the best services from any EU operator, where operators can competitively offer services outside their home Member State, and market them anywhere in the EU; and where there are no excessive charges for cross-border communications or for roaming. It is where telecoms companies can have the ambition to expand on a continental scale – and every European benefits from choice and seamless data service. The Connected Continent is the underpinning infrastructure of the future European digital economy.
Do you think that the benefits of national competitive markets can be combined with the benefits stemming from the emergence of pan-European operators?
Our vision is for a dynamic, competitive market where pan-European providers compete alongside regional or local players, more local and more tailored. Such a market will promote competition and increase choice for consumers: with fewer barriers and greater economies of scale, companies will only succeed by offering the best deals at the best prices.
Until now in Europe we have had national markets. The result is significant fragmentation and a lack of dynamism: in particular if you compare Europe with its global competitors. As a result we are losing out on growth and jobs. This is not acceptable any longer. Operators should be able to easily provide their services in any country where they see a market opportunity, without facing unnecessary restrictions – that is what a single market means.
The draft regulation introduces a much more Eurocentric model of regulation based on stronger Commission powers. In addition, the Commission has also stressed that a genuine single market will ultimately require a single EU regulator. Can you explain the new institutional model of regulation proposed by the Commission?
The Commission proposal does not establish new bureaucracy or regulatory bodies at EU level: it levers on the existing bodies and keeps institutional change to the minimum necessary to enable the single market. On Spectrum we would like to increase the role of the Radio Frequency Policy Group as an advisor to the Commission and we want to make sure that Member States enhance their cooperation when assigning and licensing spectrum for broadband applications.
Another important element of our proposal is the enhanced role set out for BEREC in ensuring consistency of regulation.
As we explained in the Communication that accompanied the presentation of the legislation, the enhanced cooperation model we have proposed does not preclude a future review of the regulatory framework, considering all options and selecting the most cost-effective one in light of the market scenario as it then stands. In such a future scenario, it is possible that in a completed genuine single telecoms market we would need tighter links among National Regulators by means of an EU regulatory body responsible both for spectrum and telecom markets in charge of interpreting and implementing a harmonised legal framework. But this is hypothetical; and not covered by the proposal now under discussion.
At the same time, a single telecoms market with lower barriers to entry and more effective competition should over time normally lead to less regulation - shifting responsibility from regulatory to competition authorities as is the case in other economic sectors. Some regulatory tasks will always remain linked to the national or local level. It would therefore be important to assess the possible tasks of an EU regulator, as and when this option might be considered in future.
To what extent could the provisions set out in the draft regulation of the Commission be postponed and taken up in the next Telecoms Package Review?
A fully fledged telecom review is a complex task and it could take years to be completed. Apart from some countries, we witness a very slow development of fast broadband and lack of investment in Europe. We cannot wait for the situation to worsen. As our Commissioner, Vice-President Kroes, has put it: with the economy where it is, with technology where it is, with the rest of the world marching on quickly, we need to act, now, urgently. As we have said on many occasions, this cannot be a piecemeal approach: only the package taken as a whole can bring us towards the single market we need.
In parallel with the work on the Regulation – but not instead of it – we should of course prepare the ground for the next Commission and a future review of the telecoms framework. Indeed in September 2013, we set out how we are preparing such a review, looking at issues like enhancing consistency, a single regulator, the level playing field, and audiovisual convergence. It's right to start preparing for that. Such a review will take time. And we cannot wait that long before acting.
How do you interpret the critical reactions from the BEREC, operators and even a number of governments?
When the proposal was presented there were initial mixed signals, which is quite normal considering the issues at stake. This proposal is designed to have a real impact, it is not a minimum common denominator to make every interest group happy. Some operators favour some aspects but combat hard against others: short termism leads to fighting the end of roaming, for example. But we continue to regard all aspects as integral to the objective, not separable from each other. Besides the telecom providers the reactions from all industrial and service sectors have been generally very positive showing how single market counts for the future of Europe. Also the reaction of the investor community was in general favorable.
The immune system of Regulators is programmed to guarantee stability and to be prudent about change. I remember back in 2007 when many National Regulators were initially opposed very vehemently to the idea of establishing BEREC. An initial critical reaction from National Regulators was to be expected. However in a number of points the opinions of the Commission and of BEREC are convergent.
However many things have changed since the presentation of our proposal. Heads of States and Government in the European Council of October 2013 have welcomed the single market proposal. The Parliament is working very constructively and at full speed towards adopting its opinion on the proposal.
Although in some areas differences of point of view remain, we are now engaging in a constructive dialogue with BEREC which I am sure will bear fruits.
What would you say to telecoms operators who consider that there is too much discrepancy between the very strict sectoral regulatory framework to which they have to submit (ex ante and ex post) and the far less formalised OTT environment?
It is a recurring question but is probably not the right question. Telecom operators are infrastructure providers and "over-the-top" internet players ("OTTs") by definition are not. It's the same difference that you can observe between passenger services and transport industry. The telecom world is becoming data centric. The telecom infrastructures have to evolve towards this new paradigm. For telecoms operators, OTTs are an important driver of connectivity demand and consumption. In other words without OTT's there would not be a telecom industry future and vice versa. Recent trends have shown the increasing interrelation between telecoms operators and OTT's. This trend will be continuing in the future. It is also clear that when analysing competitive pressure all service providers have to be taken into account. What counts is the nature of the service not who is providing it. We also have to recall that there are different kinds of OTT services, not only those competing with transmission and communications services but also those which may fall under the audiovisual media services directive.
Now, it is clear that the close relationship between telecoms and OTT players poses opportunities and regulatory and competition issues that need to be examined carefully, also possibly in a future review of the telecoms framework. These challenges, however, are not confined to this framework, but include other issues that will need to be addressed at European and at the international level.
How do you account for the difference in growth of the telecommunications service market on each side of the Atlantic in the last five years?
Investment, investment and investment! The differential in investment for example in 4G networks is rather remarkable and probably explains it all. The size of the market is also an important element. Fragmentation into small national markets means European telecoms operators have little incentive to expand and reach the scale of some of their American counterparts. We want to enable European telecoms operators to find business opportunities across Member States, and reap the benefits of a market of 500 million consumers.
Do you believe that the Digital Agenda objectives for 2015 and 2020 can be achieved by most of the European countries? Do you also envisage a need to reset the objectives by introducing more ambitious targets?
Having clear targets since the DAE was launched in May 2010 has to enable progress in Europe to be measured. Many national and regional authorities have adopted their digital agenda with the same objectives. In the annual Digital Agenda Scoreboard, we make data openly available so everyone can assess and compare performance and progress country by country.
Basic broadband internet is now everywhere in the EU, but data shows that more effort is needed to achieve the 2020 DAE targets. Fast broadband now reaches over half the population – as 54% of EU citizens have broadband available at speeds greater than 30 Mbps. Internet access is increasingly going mobile - 48% of EU citizens can access the internet via a mobile network from their smartphone, portable computer or other mobile device. However, only 2% of homes have ultrafast broadband subscriptions (above 100 Mbps), far from the EU's 2020 target of 50%. This is very alarming. Before setting new targets we have to use every policy instrument to make sure that we can meet the existing ones. If there is a remedy above all for such an alarming situation then this is called the single market.
Roberto VIOLA holds a doctor degree in electronic engineering (Dr. Eng.) and a master in business administration (MBA). He is Deputy Director General at European Commission - DG CNECT, with responsibilities for Electronic Communications Networks and Services Directorate, Cooperation Directorate - International and Inter-institutional relations, Stakeholders cooperation, Coordination Directorate - Growth and Jobs, Innovations and Knowledge Base, Media and Data Directorate. Since 2005 to 2012 he has been the Secretary General in charge of managing AGCOM (Italian media and telecom regulator). He has been Chairman for 2012-2013 of the European Radio Spectrum Policy group (RSPG), he was Deputy Chairman for 2011 and Chairman for 2010. He was in the Board of BEREC (Body of European Telecom Regulators). He was Chairman for 2007 of the European Regulatory Group (ERG). He served in AGCOM (1999-2004), as Director of regulation department and technical Director being in charge of, inter alia, regulation in terrestrial, cable and satellite television, frequency planning, access and interconnection of communication services, cost accounting and tariff in telecommunication and broadcasting services. From 1985-1999 he served in various positions as a staff member of the European Space Agency (ESA) in particular, he has been head of telecommunication and broadcasting satellite services.
Published in COMMUNICATIONS & STRATEGIES No. 93, 1st quarter 2014
- For more information about our activities: www.comstrat.org
COMMUNICATIONS & STRATEGIES
Head of the Telecom Strategy Business Unit
National consolidation in mobile,
and regional in the cable…
Waiting for cross-border mega-fusions.
and regional in the cable…
Waiting for cross-border mega-fusions.
In our latest report dedicated to « Telco consolidation in Europe », we present our analysis and our approach of the deterioration of Europe’s telecommunications services markets is urging operators to consider different means of consolidation, with a view to achieving economies of scale and/or increasing market share.
According to Didier Pouillot, Head of the Telecom Strategies Business Unit: « The latest intentions of mergers in European Telco, Hutchison-O2 in Ireland, 02-E Plus in Germany, and more recently in France concerning SFR, with the two candidates for merger, Numericable and Bouygues Telecom, they all reflect the urgent need for an industry experiencing significant financial difficulties to restructure. The attention around them proves that these projects represent a high risk for the market balance. »
The landscape reshapes under contradictory pressures. In our latest study about the Telco consolidation in Europe, based on a recent experience in the sector in the region and the stakes that the industry faces today, we outline the ways of this transformation, probably deep.
For several months now, the number of merger operations in European telecoms has multiplied. A wave of consolidation, which began to emerge a few years ago, seems to have gathered speed since the end of 2012.
Changes in revenues from telecoms services in Europe (Millions EUR)
Source: IDATE, World Telecom Markets, October 2013
The drivers that tend to accelerate the movement are:
• The deteriorating economy of operators with markets under pressure;
• A relatively fragmented industry;
• The hefty financing requirements for new generation networks;
• Fixed-mobile convergence;
• Several regulatory incentives, mainly promoting infrastructure sharing.
But at the same time, some hurdles are slowing it down:
• Also regulatory in nature, with a particular anti-trust focus;
• governments’ fears of losing a share of operator contributions (taxes and duties, incumbent operator dividends where applicable);
• the fear of destroying value for shareholders;
• Arrangements that may sometimes be technically problematic.
Recent trends in the European market show an increase in the number of network sharing agreements, a shift towards national consolidation for mobile and a regional consolidation for cable. Meanwhile, cross-border mega-mergers seem to be off the agenda.
We anticipate continued consolidation in Europe’s markets which will gradually spread, initially via ever stronger forms of integration at national level, and then extend across borders and eventually Europe-wide.
It will then be a question of whether the wave of international consolidation will take on the same magnitude as in the national markets and whether the two phenomena will develop in parallel or intertwine with one another over time. As far as the latter is concerned, national consolidation is likely to take priority for players in the market since they can reap the rewards more quickly and more easily than with cross-border operations. The successful integration of partners, networks and organizations warrants particular attention, limiting the number of operations an operator is able to manage at a given time. Consequently, we think operators will first seek to reap the rewards from national consolidation before taking more ambitious steps towards international or pan-European concentration.
What is the outlook for consolidation?
Source : IDATE
The result tends to vary depending on the type of operation:
• "loose" partnerships aimed at sharing support services have not generally encountered problems;
• Infrastructure sharing is often more problematic and becomes increasingly difficult as more components in the network are shared, from civil engineering to active equipment;
• Lastly, equity investments and merger operations face a more uncertain outcome, sometimes due the conditions imposed by the authorities but also because of the difficulty in anticipating how the markets will react, both on the supply and demand side.
• More information about Telco Consolidation in Europe study
Head of Consumer Electronics & Digital Entertainment Practice
Just how much has digital changed the music industry?
The music sector, and especially recorded music sales, have been suffering the impact of piracy since the turn of the century. And it is within this crisis mode that the industry has gradually rebuilt itself around segments like publishing, concerts and new consumption, business and pricing models (based on downloading and streaming), and now through related services available equally and simultaneously on connected platforms, both fixed and mobile. If they have proven their ability to attract a large, if not massive audience, and are sketching out the future shape of the industry, the impact of these changes has not yet been enough to erase the accumulated losses of the past thirteen years.
Momentum driven by digital music and the proliferation of channels
The global recorded music market remains stagnant (+0.2%), inching up from 16.456 billion USD in 2011 to 16.481 billion USD in 2012.
Hard copy sales continue their slow decline, generating only 57% of the sector’s revenue in 2014, compared to 74% in 2008. IDATE forecasts that in 2014 this figure will drop below 50%. Digital music gained 13 points between 2008 and 2012, generating 35% of the industry’s total income in 2012. Revenue earned from synchronisation (i.e. royalties on music used in films, TV programmes and games), and from performance and broadcasting rights accounted for 2% and 6% of industry revenue, respectively, in 2012.
Digital music generated a total 5.8 billion USD in 2012. Worldwide, the bulk of this revenue comes from music downloads (72%), followed by unlimited subscriptions (13%), mobile purchases (8%) and streaming (7%).
Switching to a network-centric approach
So the music industry is reinventing itself around new business models and consumer behaviour driven to a large degree by what goes viral, and the sheer scale of the popular sites and platforms that users spend time on, i.e. app stores and social networking sites.
• The mobile phone is becoming a central device for consuming music products (albums, videos, information on the musicians, concert dates, etc.), both when on the go and at home, listened to through ear buds or nestled in a sound dock. A host of music-related applications have been rolled out, such as Shazam, Discovr and MusicWatch. All aim to enhance the user experience for music lovers, allowing them to discover and listen to new artists (Music Beat), find concert dates (Bandsintown) or get the latest news on their favourite bands (Songkick).
• The “socialisation” of music, and the need for artists to build a community around themselves are both phenomena born of the proliferation of social media and the massive success of smartphones. This creates a greater proximity between artists and their fans, which has also proven key in keeping fans loyal. The second effect is that, thanks to social networking sites, fans communicate more than ever before about the artists they like and their favourite songs. The ability of artists, and the companies responsible for promoting them, to make something go viral has become the key to the kingdom. Video is another key ingredient in the socialisation process: YouTube, Dailymotion and Vevo are crucial parts of both users’ discovery of music, and record labels’ strategies.
• Artists have become brands that are deployed, and developed on several media. They sell themselves, or are called on to sell themselves, well beyond just their music. Their image is becoming at least as important as the music itself, and a main selling point for their products. They need to create a community around themselves, nourish it, and help convert that into sales. By the same token, massive community support for a new artist can kick-start a career, and force a record label to reconsider its marketing strategy.
Florence Le Borgne
Head of the TV & Digital content Practice, IDATE.
Electronic distribution poised to become the mainstay
More and more content is being distributed electronically. If music and video are no doubt the two sectors where digital consumption is the most visible, this phenomenon has pervaded the entire content sector. Video games top the ranks of content that has moved most massively to the Internet and electronic distribution, followed by music, video and, well behind them, books.
In 2013, an estimated 51.4% of video game market revenue was generated by electronic sales – i.e. on smartphones, computers, home consoles and laptops connected to the Web – and by online gaming, which includes item selling, subscriptions and commissions on exchange operations. This figure is forecast to have risen to 68.6% by 2017.
In the recorded music sector, electronic sales are expected to account for 38.4% of total sales in 2013 while, over in the video sector, electronic sales and rentals are expected to represent 33.8% of total sales last year. We predict these figures will have increased to 53.6% and 52.2%, respectively, by 2017.
The book sector, meanwhile, has only recently started making the transition to electronic formats. In Europe, for instance, e-book sales will likely account for only 4.5% of total sales in 2013. But the swift rise of tablet penetration rates in households, which of course makes reading electronic books easy, means that e-books could account for as much as 21% of total book sales in Europe in 2017.
The rise of digital starting to offset the decline of the hard copy
Even though digital is widely associated with the destruction of revenue – the music market lost 40% of its revenue between 1999 and 2012, and the video market lost 13% between 2006 and 2012, after having increased by a factor of 3.8 between 2000 and 2006 – we are seeing a growing number of signs that the markets are becoming more stable.
After hitting a record low in 2010, the recorded music market enjoyed a slight recovery worldwide in 2011 and 2012, which will likely carry on through 2013. This has been due in part to a slower rate of decrease in hard copy sales, and to a steadier rate of increase in revenue from digital sales – including downloads, subscriptions, and ad revenue on music sites.
We are also seeing encouraging signs in the video market. The US market has been reporting growth for two years straight (+0.2% in 2012 and +0.7% in 2013), thanks to a steady rise in permanent download sales (+47.1% in 2013), which topped the 1 billion USD mark for the first time last year. The UK market is enjoying the same momentum, reporting 0.5% growth in 2013, thanks to a very healthy increase in digital sales (+40.2%) and a 10% rise in spending on Blu-ray.
The book market in France, where e-books accounted for only 4.4% of sales in 2013, is starting to lose ground (-1.2% in 2012 and -1.3% in 2013), whereas Britain’s book market continues to grow – by 4.9% and 2.5%, respectively, during those two years – despite a decline in printed books sales: -4.7% in 2012 and -5.5% in 2013. The fact that the UK’s e-book and audiobook market kicked off earlier than it did in France, has meant both more readers who have adopted these formats, and a high rate of digitisation for the works themselves (27.5% in 2013). The rise in e-book sales is thus offsetting ailing print edition sales.
Although it is still too early to conclude that digital will open up new growth avenues for the content market, these positive signs in a globally dismal economy do offer some rays of hope.
Deputy Managing Director
Director of TV & Digital Content Business Unit
Like with cloud computing that moves computing power and certain applications to remote servers, the post-production industry is also seeing a growing number of cloud-based solutions coming onto the market.
This trend is a response to the growing complexity of the TV value chain. The production of programmes on the one hand, and their distribution on the other, once represented two sequential processes. But now that video on demand – and the distribution of video programmes on the Web in general – are flourishing, distribution strategies can now retroact on content to produce different versions that are better adapted to a given platform, device or target audience.
Media Asset Management: a key link in the chain
This interaction between production and distribution has resulted in the emergence of media asset management systems that consist of storing, archiving, cataloguing, annotating and retrieving programmes for delivery over multiple networks, of inserting targeted ads, and indexing for search engines and social networking sites. Video solutions providers today need to be able to supply producers with centralised and shared management solutions for their content, where the post-production stage interfaces directly with the process of preparing programmes for distribution.
At the same time, technical industries are suffering from the ever accelerated rate of technological innovation which, although improving the performance of their solutions, also require constant expenditures, and give an advantage to new entrants who acquire the latest technologies available, while the competition is still trying to amortise the last round of investments in hardware. Post-production customers are also under tremendous pressure to lower programming costs, due to increased competition in the TV sector which is operating in a climate of economic uncertainty. In addition to centralising the services, a cloud-centric approach allows post-production companies to pool their equipment and to have variable costs, exchanging investments in hardware and licences for computer or application time.
Cloud-based post-production solutions offer different levels of service, ranging from remote storage to the use of editing applications (via lower quality rendering that can be accessed on an ordinary desktop computer) and, possibly down the line, additional functions like indexing. These solutions offer several advantages:
• costs correlate directly to actual use;
• workflow is generally optimised thanks to the use of a single storage location;
• all of the parties involved have access to the programme in production, regardless of their location, and service providers have access to the latest technological developments.
But there are risks involved as well:
• the content’s security;
• the need for a telecommunications network (between the service provider and the cloud service, and on the service provider’s premises) with a guaranteed level of quality;
• lack of compatibility between the different cloud solutions.
Integrating key functions in the cloud
We are seeing a growing number of post-production solutions, being marketed by companies like Grass Valley, Adobe, Aframe, Sony and Avid. The solution being sold Avid is an ambitious one, offering a service platform in the cloud that combines all of the essential functions of programme production and management. The platform is intended to be employed not only with Avid editing and post-production solutions, but also solutions that help customers monetise their content (producing different versions of programmes, integration of Consumer Analytics) and those that enable the creation and management of metadata. The company also has plans to create a marketplace. Not all of the applications hosted on this open platform will be developed by Avid, as some could be supplied by partner companies. This approach is nevertheless an expression of Avid’s desire to build on its core business, i.e. post-production solutions, to expand into content distribution. In doing so, it hopes not only to generate new revenue steams, but also and above all, to secure the loyalty of its customers who, once they have embraced the platform, will have no need to switch to another provider.
The cloud-based service platform according to AVID
Source: Avid: Avid Everywhere - A Vision for the Future of the Media Industry
Fewer barriers to entry
The development of cloud-based solutions, which are still in their infancy, indeed appears to be in line with customers’ needs for solutions that are both more centralised and more collaborative. It is also an expression of the emergence of media asset management as a key stage in programme production and distribution. Lastly, it is a reflection of the need of technical industries grappling with a tough economic equation to seek out complementary business opportunities along the technical video chain. But these solutions also represent a threat to existing service providers: the cloud lowers the barriers to entry into the post-production market, and so ushers in more competition, based not on the financial ability to acquire the necessary hardware and licences, but rather on creative excellence.