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European Subscription Online Video 5-Year Outlook

Fiber Route Mile Leaderboard

M&A: A New Year Resolution For The South Korean Multichannel Market?

Global Multichannel Market Up 3.1% In 2018 As IPTV Subscriptions Overtook Direct To Home Platform

2019 Outlook Turbulence But Cards To Play

Technology, Media & Telecom
European Subscription Online Video 5-Year Outlook

Highlights

Revenues from the subscription over-the-top market in Europe are expected to double over the next five years.

In 2018 Netflix and Amazon Prime Video were behind 72% of the total paid subscriptions and 71% of the total revenues generated by the 18 markets included in our analysis.

Feb. 25 2019 — Revenues from the subscription over-the-top market in Europe are expected to double over the next five years, reaching $12.7 billion in 2023, according to Kagan estimates. This growth is due to a number of different factors, including the expansion of international media players in the region as well as new service launches by local players, both by incumbents and smaller media groups. Formed alliances in the United Kingdom, Germany and France among broadcasters will further intensify the competition in the OTT landscape.

Netflix Inc. is the leading service in paid subscriptions in all markets but Germany, Poland and Russia after having spent $12 billion in cash on content globally in 2018. Currently, Amazon.com Inc.'s Prime Video is still ahead of Netflix in Germany, having capitalized on the initial success of Amazon Prime. In Eastern Europe, where the language barrier is more prevalent compared to that of Western European territories, the local and regional services attract the most subscribers with transactional video on demand and electronic sell-through options also available as part of their offerings.

Looking at the wider picture, in 2018 Netflix and Amazon Prime Video were behind 72% of the total paid subscriptions and 71% of the total revenues generated by the 18 markets included in our analysis.

The ratio of the number of online video subscriptions to the population aged 16-64 is a good indicator of how popular streaming services are in a given market, taking into consideration the demographic most likely to purchase a subscription. Streaming services are especially popular in the Nordics with Denmark, Norway, Sweden and Finland showing penetration rates between 47% and 73% in 2018, followed by the U.K. with 41%. OTT is popular in the Nordic countries partly because of the high percentage of English speaking population, high speed and reliable broadband, a large selection of services — many of which offer livestreaming TV networks — and a number of partnerships between online and traditional players.

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European SVOD Revenues To Reach $6.8 Billion By 2022 Driven By Growth In Two Markets

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Fiber Route Mile Leaderboard

Highlights

Our analysis of fiber networks held by U.S.-based companies found telcos in control of the three largest fiber networks.

Verizon has been the fastest-growing network over the past two years by fiber route miles, adding nearly 200,000 to end 2018 with more than 1 million globally.

Mar. 04 2019 — Optical fiber, long the backbone for broadband internet, will soon take on additional workload in the form of data backhaul for 5G wireless traffic. That has spurred the two fiber titans among U.S.-based companies to build out even further.

Our analysis of fiber networks held by U.S.-based companies found telcos in control of the three largest fiber networks. AT&T Inc. and Verizon Communications Inc. alone combine for more than 2.2 million route miles, more than half of the total in our survey of publicly available data.

Verizon is jockeying with AT&T to lead the 5G charge in the U.S.

Third on our list is CenturyLink Inc., which nearly doubled its fiber route miles in 2017 with the acquisition of Level 3 as it sharpened its focus on large-scale business functions.

Broadband and multichannel providers Charter Communications Inc., Frontier Communications Corp., Windstream Communications, Inc. and Comcast Corp., take up spots four through seven on our list. Their publicly available data on fiber route miles has been relatively static in recent years, perhaps because they are not under pressure to deliver next-generation wireless networks.

Our analysis is based on recent company filings or data found on corporate websites and is, consequently, an incomplete picture.

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Technology, Media & Telecom
M&A: A New Year Resolution For The South Korean Multichannel Market?

Feb. 25 2019 — The South Korean multichannel market should see a year of upheaval as the three incumbent telcos look to acquire some of their cable competitors to accelerate growth in 2019. LG U+ is already in discussion with CJ Hello while KT Corp. considers acquiring D'Live through its direct-to-home arm KT Skylife. Likewise, SK Broadband expressed interest in acquiring both t-broad Holdings Co. Ltd. and D'Live.

This is not the first time a telco has proposed a cable MSO acquisition in South Korea. SKB's proposed merger with CJ Hello in 2015 was banned by the South Korean Fair Trade Commission, which prohibits any operator from monopolizing the multichannel market with subscribers over one-third of the total subscriber base. Should the government have no intention of modifying the existing rule, KT would fail to acquire any other operator while SKB's plan to boost subscriber share to 30% would unlikely be approved. Given its relatively small subscriber base, LG U+ stands the highest chance of success from a regulatory perspective if it were to acquire any of the cable MSOs.

Cable has been the dominant multichannel platform in terms of subscriber share in the market and yet IPTV is expected to take over from 2019. As of December 2018, Kagan estimated cable and IPTV made up 43.8% and 42.9% of the total multichannel households, respectively. By the end of 2019, IPTV's share is expected to reach 45.3% as cable's share drops to 41.9%.

Ever since the launch of IPTV in 2008, telco-owned IPTV operators have successfully gained traction in building their respective subscriber bases. A key factor has been the bundling of IPTV with the telcos' data, fixed voice and/or mobile services at affordable prices. Therefore, many of the cable TV subscribers are willing to take IPTV as a secondary multichannel connection. This also explains why the market has maintained a multichannel penetration rate of over 100%. As of year-end 2018, the market's multichannel penetration was estimated at 167% and is expected to reach 177% by 2023.

In terms of subscriber share, KT is currently dominating the market with its IPTV service branded Olleh TV and DTH-services branded KT SkyLife and Olleh TV SkyLife. KT's subscriber share as of June 2018 was 31.07%, followed by SKB with 13.8%, CJ Hello with 12.83% and LG U+ with 11.49%. The potential tie-up of LG U+ and CJ Hello would secure about a quarter of the market's subscribers, superseding SKB's existing share and posing a threat to KT's long-term dominance.

In response to the potential threat, KT is considering the acquisition of D'Live, the third-largest cable MSO with 2.4 million subscribers as of June 2018. SKB, on the other hand, is interested in buying both cable MSOs Tbroad and D'Live to secure a subscriber share of over 30%. The telcos aim to quickly boost and retain their subscriber bases and hope to accelerate revenue growth in the long run through the potential M&A deals.

Low average revenue per user has always been a challenge to South Korean multichannel operators, especially cable MSOs, which can hardly raise the price due to churn concerns. As of December 2018, IPTV's average blended ARPU was $15.15 per month while cable's average blended ARPU of both analog and digital was significantly lower at $8.69 per month. Cable operators had a hard time fulfilling their digitization commitments while not shifting the cost to subscribers and facing significant churns for six years until 2016. Merging with one of the telcos could be a surviving opportunity for operators of the declining platform.

The potential wave of M&A would consolidate the market into fewer players. The telcos would secure a bigger subscriber share and further dominate the market while the remaining cable operators would find it even harder to stay relevant. Yet it is uncertain if the growth of the country's multichannel subscriptions can be sustained. Many multichannel households that currently have both cable and IPTV connections would likely cancel cable service if it were offered by the same company, and the cable platform would further shrink as a result.

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Global Multichannel Market Up 3.1% In 2018 As IPTV Subscriptions Overtook Direct To Home Platform

Highlights

With year-over-year growth of 14.3%, IPTV was the fastest-growing of the three major pay TV platforms in 2018

Number of multichannel subscribers worldwide is modelled to grow at a 2.4% CAGR over the next five years from 1.07 billion in 2018 to 1.21 billion in 2023.

Global multichannel economy generated $230.06 billion in video service revenues in 2018, which are projected to increase to $245.41 by 2023.

Feb. 18 2019 — In 2018, IPTV overtook direct-to-home as the second-largest multichannel platform in the world by subscribers after cable, accounting for 23.4% of the total market of 1.07 billion. With year-over-year growth of 14.3%, IPTV was the fastest-growing platform in 2018, driven by large subscriber additions in Asia-Pacific and, to a lesser extent, Western Europe. Over the next five years, IPTV is projected to post a 7% subscriber CAGR, second only to pay digital terrestrial television with a projected 8.5% five-year CAGR.

While cable remains the dominant multichannel platform globally, cable subs are modeled to continue declining over the next five years at a 0.3% CAGR, largely due to migration to IPTV in Asia and Western Europe.

China, India and the USA remain, by far, the largest multichannel markets, collectively claiming 57% of the global subscriber total in 2018. China and India alone are expected to account for half of the global market by 2023.

The global multichannel economy generated $230.06 billion in video service revenues in 2018, a 1.1% year-over-year increase, while multichannel penetration breached 60% by year-end. North America remains the most lucrative multichannel region accounting for over half of global revenue.

The effects of cord cutting are only observed in North America where multichannel subscribers, revenue and penetration are projected to decline in the foreseeable future, as well as in a handful of oversaturated markets, including Singapore and Hong Kong. In Europe, the biggest threat to traditional multichannel services is posed by free-to-air DTT and lies in the integration of over-the-top and catch-up TV services into DTT platforms as well as the ability to stream channel packages via hybrid boxes.

Global multichannel market overview

Kagan estimates that in 2018, the global multichannel market grew by 3.1% year over year, down from 3.9% in 2017, as rapid subscriber growth is slowing down in China. After the global multichannel market breached 1 billion subscribers in 2017, 32.3 million new homes adopted pay TV services in 2018 to reach 1.07 billion multichannel homes by year-end. We project that the global multichannel household growth will continue to decelerate in the foreseeable future with most markets across Europe, North America and advanced multichannel markets of the Asia-Pacific reaching saturation. The global market is forecast to post 2.7% year-over-year gains in 2019 with a 2.4% 2018-2023 CAGR.

Global multichannel video subscriptions are forecast to increase to 1.21 billion by 2023, adding 136.3 million net subs over a five-year period, while multichannel penetration is forecast to increase to 61.2% in the next five years, up from 60.1% in 2018.

Global multichannel subscribers by platform

While cable TV is expected to remain the largest platform on a global scale in the next five years, its share is forecast to decline from 52.3% in 2018 to 45.8% by 2023, largely due to analog subscriber churn and market share gains by IPTV operators. IPTV, the fastest-growing of the three major pay TV platforms, is modeled to capture a 23.2% market share by 2023.

Global multichannel revenue

The global multichannel economy generated $230.06 billion in video service revenues in 2018, a 1.1% year-over-year increase, with more than half earned by North American pay TV providers. The region's pay TV operators, however, lost 2.4% revenue year over year due to steep subscriber declines, despite growing average revenues per user. Western Europe remained the second-largest multichannel economy, accounting for only 17.7% of the global total in 2018. Latin American multichannel revenues expressed in U.S. dollars declined in 2018, mainly due to exchange rate fluctuations in most of the region's markets.

Given its comparatively high video service ARPUs, North America is expected to remain the most lucrative multichannel economy in the coming five years, despite being only the third-largest by subscribers and experiencing subscriber declines. The region is modeled to account for 43.2% of global video service revenues by 2023. Despite having the lowest multichannel ARPUs among the six regions analyzed, Asia is projected to overtake Western Europe as the second-largest multichannel economy by 2023, due to the sheer size of its market accounting for 18.8% of global multichannel revenue.

IPTV remains the fastest-growing multichannel platform, except in North America and the Middle East and Africa, where increasing pay DTT rollouts are driving revenue growth. Pay DTT is the only platform in Western Europe that is losing revenues, largely due to falling ARPUs. Although cable experienced overall subscriber declines in Western Europe and Asia in 2018, revenues increased on the back of digital subscriber and ARPU gains.

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Global Multichannel Market Up 3.1% in 2018 as IPTV Subscriptions Overtook Direct-To-Home Platform

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Global multichannel market up 3.1% in 2018 as IPTV subscriptions overtake DTH

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Technology, Media & Telecom
2019 Outlook Turbulence But Cards To Play

Jan. 24 2019 — Multichannel faces headwinds in 2019, including persistent cord-cutting, a maturing broadband market and the launch of high-profile subscription online video services backed by media heavyweights. With the next 'big thing' continuing to elude the sector, debt levels and the possibility of additional Federal Reserve rate hikes could weigh on share prices.

Maturing wireline penetrations and the emergence of 5G promise to slow the reliable broadband growth engine while the internet of things further embeds the role of connectivity as a basic utility. Choice is a watchword for the upcoming year, but next-generation content bundling approaches run the risk of consumer aggravation from re-aggregation.

Kagan, in its 2019 outlook listed the top areas to watch along with the possible impacts and repercussions. Below is sample of the full outlook.

Launch of AT&T, Comcast, Disney online subscription bundles

  • Additional pressure on legacy multichannel subscriptions.
  • Possible long-term disruption of content licensing deals, particularly with direct competitors in the streaming video universe.
  • Consolidation of global home video entertainment market with the top U.S. providers dominating worldwide.
  • Pressure on incumbent subscription video on demand services' growth.
  • Increases in budgets and production of exclusive original content.
  • Bloated online subscription marketplace with $10-$15 offerings piling up, crowding the field.

5G rollout

  • Negligible impact on wireline broadband in 2019 due to limited deployment initially and belated entry of leading U.S. mobile handset maker Apple.
  • Restrictions on wireline broadband rate increases with wireless looming larger.
  • Smooth, reliable streaming of live events on the go, notably sports, which could boost virtual multichannel value proposition.
  • Enables mobile viewing, notably among millennials and younger generations.
  • Democratization of wireline 1-Gig broadband with lower rates on high-end tiers.

Wireline broadband maturity

  • Cable market share gains in areas with belated/slow telco transition to fiber and possibly vice versa.
  • Limited upside and fierce competition — including 5G rollout — for existing customers likely a strong deterrent for widespread implementation of usage-based billing.
  • Subscriber slowdown to weigh on market valuations accustomed to broadband growth in last 10 years. 
  • Net neutrality debate rekindles with Democratic Congress but lacks firepower.
  • Telcos to focus on fiber deployment to support fiber to the home and 5G backhaul.
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5-Year Virtual Multichannel Revenue Forecast Underscores Segment's Opportunities

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Broadband Only Homes Log Record Gains In Q3

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