The Broadcast & Media Market in Europe

The Broadcast & Media Market in Europe:

Business Insights & Technology Spending Drivers

IABM Copyright 2016

Broadcast & Media Market

Broadcast & Media Market Overview

Public Broadcasting

Private Broadcasting

New Media

Broadcast & Media Technology Market

Broadcast & Media Technology Market Overview

Digital Transition

Transition from DVB-T to DVB-T2

Transition from linear to multi-platform broadcast

UHD Production and Delivery

Sports Rights

Digital Single Market

Business Environment


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Index

Broadcast & Media Market

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The Broadcast & Media Market in Europe

• The broadcast landscape in Europe is extremely varied, from both a cultural and a technological perspective

• From a cultural perspective, European viewers show different programming tastes and language preferences

• From a technological perspective, different countries have different broadcast infrastructures

• Countries such as Germany and the Netherlands have a varied broadcast infrastructure where cable prevails. Countries such as Italy and Spain are more heavily dependent on terrestrial transmission

Broadcast & Media Market Overview

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Platform penetration in the Netherlands and Italy

7%

60%

10%

24%

The Netherlands

73%

27%

2%

Italy

Terrestrial

Cable

Satellite

IPTV

Source: IHS


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• In Europe, public broadcasting is still relevant. In some instances, broadcasting which started as a state monopoly continues to play an important role today

• However, public broadcasters in Europe are under pressure as competition by new media operators increases and government austerity forces them to implement budget cuts

• In the next slide, we report a list of some public broadcasters in Europe. A full list will be included in the Regional Focus on Europe to be published before IBC 2016

• As of 2015, the largest public broadcast organizations were ARD (Germany) and the BBC (UK), both with over 5bn euros worth of revenues

• According to the latest BBC accounts, spending on technology was £165.7m in 2015, up from £130.4m in 2014

Public Broadcasting


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Public Broadcasting

Country Public BroadcastersGermany ARD, ZDF

UK BBC

France France TV

Italy RAI

Sweden Sveriges Television

Spain RTVE

Portugal RTP

Poland TVP

Belgium VRT (Flemish), RTBF (French)

Netherlands NPO

Austria ORF

Bulgaria BNT

Source: IABM


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• Despite the increasing competition from new media operators, European private broadcasters are still growing revenues significantly

• The prevalent business model of broadcasters in Southern Europe is commercial with an high dependence on advertising to drive revenue growth. In Northern Europe, Pay-TVpenetration is far higher making the subscription-based model the most popular

• The chart on the next slide shows the change in revenues between 2014 and 2015 for some of the main broadcasters in Europe

• In the Regional Focus to be published before IBC 2016, we will include an analysis of the most important broadcast market in Northern and Southern Europe



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14.75%

8.53%

3.23%

3.81%

13.39%

1.04%

-3.80%

2.20%

6.97%

-1.62%

6.27%

-2.52%

9.11%

ITV plc

Atresmedia

Mediaset Group

RTL Group

ProSiebenSat.1 Media SE

Canal+ Group

Ziggo Group

Unitymedia

UPC Holdings

Virgin Media

British Sky Broadcasting

Sky Italia

Sky Deutschland

Revenue Change (2014-2015)

Source: IABM


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• The previous slide shows that linear broadcasting in Europe is anything but dead. All the companies reported on the slide have grown revenues between 2014 and 2015 except from Ziggo Group (Netherlands), Virgin Media (UK) and Sky Italia (Italy)

• Ziggo and Virgin Media are triple play cable operators, both owned by Liberty Global plc

• Sky plc is the largest Pay-TV operator in Europe with stakes in the UK, Germany and Italy

• Canal + Group (France) is owned by Vivendi, which has recently acquired Mediaset’s Pay-TV business in Italy. This move is part of a strategy aimed at creating a pan-European media behemoth to better contain the Netflix presence in the region



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• As opposed to North America, where SVOD services have been successful in competing with traditional Pay-TV operators, the situation in continental Europe remains different

• SVOD penetration in Germany and France, two of the most developed SVOD markets, is around 10%, far lower than the 30% in North America

• The UK is a special case as SVOD penetration in this country is around 20%

• In Europe, SVOD services remain a complement to traditional Pay-TV subscriptions

• According to a new EU proposal, new media operators such as Netflix and Amazon may have to devote at least 20% of their catalogue to European content

New Media


Broadcast & Media Technology Market

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• Given the varied nature of the broadcast market in Europe, it is not surprising that the broadcast & media technology market is dominated by service operators

• In fact, broadcast video must meet the necessary regulatory and technical requirements before reaching an audience in a specific European country. This is the main difference compared to North America

• According to the IABM DC Global Market Valuation & Strategy Report, the size of the broadcast and media technology market in Europe was $21.2bn as of 2015

• According to the IABM Industry Index, revenues in the broadcast and media technology market in Europe declined by -0.9% in May 2016

Broadcast & Media Technology Market Overview


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The major spending drivers that we will analyse in the following slides are:

Digital Transition



UHD Production and Delivery

Sports Rights


Some Opportunities & Technology Spending Drivers


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• In Europe, the transition from analog to digital broadcasting has almost been completed

• However, there still are some countries that are in the midst of transitioning to digital (mostly, Eastern European countries)

• The map chart on the following slide shows which countries have not yet transitioned to digital.

• The Russian Federation plans to complete the transition by 2019. However, doing business in this country is increasingly difficult due to the effects of the economic sanctions imposed after 2014

• The transition to digital broadcasting is a catalyst of demand for infrastructure, transmission and monitoring equipment

Digital Transition


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Digital Transition

Digital Transition Completed

Digital Transition Not Completed

Source: IABM


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• DVB-T2 is the next-generation standard that will provide European terrestrial broadcasters with increased spectrum efficiency, picture quality and interactivity

• Like ATSC 3.0 in the US, this standard is expected to bring considerable monetary gains to European broadcasters

• This transition is expected to drive spending in transmission-related products as broadcasters need to upgrade their current infrastructure

• Some countries such as the UK, Finland and Sweden have already transitioned to DVB-T2. Germany is likely to be the next country to do so with 40 channels expected to be launched by March 2017. Some of these channels should be launched using HEVC

• In other, less developed broadcast markets the launch of DVB-T2 is expected to happen between 2018 and 2020



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• The introduction of global OTT service operators in Europe has started putting pressure on traditional Pay-TV groups such as Sky

• Compared to North America, the evidence of cord-cutting in Europe is still low as OTT services remain a complement to traditional Pay-TV subscriptions

• However, some traditional Pay-TV operators’ new media offerings remain inferior products compared to platforms such as Netflix and Amazon

• Therefore, traditional operators are focusing their investment on improving their new media platforms

• The chart on the following slide is from the IABM End-User Survey. It shows that multi-platform delivery projects are a priority for European technology end-users (EMEA-based share of the sample: 63%)



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0 10 20 30 40 50 60

Multi-platform content delivery (mobile, web, etc.)

File-based workflows

Cloud Computing / Cloud-Based Services

Media Asset Management

4K / UHD Production

Upgrading Operations to HDTV

Connected TV

HD Transmission

Social TV

News Operations

Back Office Systems (scheduling, billing etc.)

3D Production

Analog Switch-off

Index (/100)

Source: IABM


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• Some European end-users are directly investing into new generation technology suppliers to gain technology expertise in new media offerings

• The investment ($10m) of Sky plc in DataXu, a US based provider of programmatic marketing analytics & data management, is a recent example of this trend

• DataXu is working with Sky’s ad sales division to effectively place big data & analytics at the heart of Sky’s platform

• Small innovative companies based outside Europe may find that this constitutes an ideal route into the market



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• UHD adoption in Europe is at an early stage as broadcasters are still reluctant to invest heavily on UHD

• New media operators such as Netflix and Amazon do offer a small part of their library in UHD, but this is dependent on a variety of conditions (see figure below)

UHD Production & Delivery

• The next slide shows that 4K/UHD production is an important priority for broadcast and media technology end-users. However, it is not as important as multi-platform delivery


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UHD Production & Delivery

0 10 20 30 40 50 60

Multi-platform content delivery (mobile, web, etc.)

File-based workflows

Cloud Computing / Cloud-Based Services

Media Asset Management

4K / UHD Production

Upgrading Operations to HDTV

Connected TV

HD Transmission

Social TV

News Operations

Back Office Systems (scheduling, billing etc.)

3D Production

Analog Switch-off

Index (/100)

Source: IABM


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4K TV Sets in the UK, 2015 and 2016

0

200000

400000

600000

800000

1000000

1200000

1400000

1600000

1800000

2015 2016*

Source: GfK


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• The price of sports rights deals has increased significantly in the last decade

• Sky and BT paid £5136m in 2015 for live Premier League rights (2016-2019), up by 70% compared to the previous deal

• In June 2016, Sky Deutschland paid €3500m for live Bundesliga rights (2017-2021), up by 80% compared to the previous deal

• The UK and Germany are now the first and second most valued football leagues in Europe in terms of TV rights (annual value). Spain and Italy follow as third and fourth respectively

Sports Rights Inflation


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• The inflation in sports rights has been driven not only by their exclusivity but also by their immunity to the threat of OTT (similarly to the US)

• Live sports is a product that dramatically falls in value when viewing is time-shifted. In fact, Netflix executives have often declared that they are not interested in broadcasting sports on their platform

• In a world where the price of sports rights becomes increasingly high, their monetisation by Pay-TV operators is essential

• Conditional Access (CA) Digital Rights Management (DRM) technologies have a role to play in this regard. Protecting operators’ investment from copyright infringements has become an uneasy business as piracy attempts are now much more sophisticated

Sports Rights Inflation


https://www.statista.com/chart/4447/top-100-live-tv-programs/

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Sports Rights Inflation in the UK (£m)

191

670

12001024

1706 1773

3018

5136

0

1000

2000

3000

4000

5000

6000

Netflix streaming business starts growing in 2010

Source: BBC


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• In May 2015, the European Commission (EC) set out its proposal to reform the “Digital Single Market” with the aim “to tear down regulatory walls and finally move from 28 national markets to a single one”

• According to the EC, the single market could contribute €415bn a year to the European economy

• The proposal of the EC contained 16 initiatives to be delivered by the end of 2016

• What does this mean for the broadcast & media sector?



http://europa.eu/rapid/press-release_IP-15-4919_en.htm

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• Initiatives 5,6,7 and 10 will all directly influence the broadcast industry in Europe. In summary, these reform include:

The end of unjustified geo-blocking: a subscriber to the Italian Sky Go will be able to watch its programming while in another European country

An harmonisation of the national laws on copyright

A review of the Satellite & Cable Directive: to allow its scope to be enlarged to online transmissions

A review of the audiovisual media framework: to adapt existing rules to new media operators such as Netflix and Amazon



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Source: EC


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• As part of the Digital Single Market strategy, the EC presented a proposal in February 2016 to use the 700 MHz (UHF) band for mobile services due to the rampant growth in mobile internet traffic

• The Commission proposed to assign the 700MHz band to wireless use in all European Countries by 2020

• Single countries will have to make public their national plans to release this band by June 2017. Afterwards, European broadcasters will need to move out of the 700MHz band

• This is similar to what is happening in the US with the Spectrum Auction - The IABM Market Intelligence Digest (June 2016) contains an extensive discussion of the FCC’s Spectrum Auction and its impact on the broadcast technology market. The difference is that, in the case of Europe, each country will have to decide the process through which spectrum will be relinquished and re-assigned



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• The EBU Head of European Affairs, Nicola Frank, said of this proposal: “Moving DTT services out of the 700MHz band by 2020 is a major challenge, in particular for those Member States where DTT is the main platform to receive television. In Europe, 250 million people receive their television services through DTT”

• “Broadcasters will need to make costly changes to their infrastructure. Member states should clearly be able to provide for compensation for both consumers and broadcasters in order to cater for the investment needed to implement the change”

• This plan should drive a wave of investment in broadcast technology as broadcasters will need to adapt their equipment and infrastructure to a new frequency band

• The details of the plan remain to be confirmed; however, by 2017 we should know how the repurpose process will look like




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• The business environment in Europe has been sluggish since the 2008 Global Financial Crisis

• Since then, the European Central Bank (ECB) has been trying to reinvigorate the European economy through monetary stimulus

• In 2014, it launched a Quantitative Easing (QE) Program to prop up business activity

• This has contributed to weakening the Euro against US Dollar and the British Pound

• The following slide shows that the largest depreciation suffered by the Euro in the last five years followed the build up in expectations for a QE in September 2014



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EUR/USD Nominal Exchange Rate, Monthly Average, last 5 years

1

1.1

1.2

1.3

1.4

1.5

1.6

Expectations for ECB Quantitative Easing build up


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• If you are a US supplier selling into the European market, a depreciation of the Euro against the US Dollar may hurt your revenues and profitability

• This foreign exchange effect can be attenuated through hedging measures but it is often difficult to predict currency movements

• Large companies may consider open a second headquarters in Europe if the impact of currency movements is crucial

• Finally, M&A activity can be another route to minimize this impact



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• Demand for broadcast technology products and services is also driven by other factors related to general economic conditions

• In the case of Europe, advertising revenues have been negatively influenced by subdued economic growth. This may have translated into lower broadcast technology spending

• In the specific case of Southern Europe, increased difficulty in getting financing for technology projects has also negatively influenced technology spending




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• The IABM is a trade association representing the broadcast and media technology sector. It offers its members a variety of services including business intelligence, training, technology research, discounts, events, networking opportunities and other resources

• As part of the overall membership package, you will have access to a wide range of bespoke market research on the broadcast & media technology sector

• Our market research includes both sector and regional insights to make your company more knowledgeable about the industry and facilitate entry into the European market



As an IABM Member, you will be able to access our free Market Intelligence offering

This includes:

• IABM Industry Index• IABM Benchmark Report• IABM Industry Trends Survey• IABM End-User Survey• IABM Market Intelligence Digest• Regional Reports

For more information visit http://www.theiabm.org/business-intelligence

http://www.theiabm.org/business-intelligence

The only chargeable report in our Market Intelligence offering is the Global Market Valuation & Strategy Report (GMVR)

For more information visit http://www.theiabm.org/business-intelligence/gmvr

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The Broadcast & Media Market in Europe