Strategic analysis of the commercialisation of Pay Television

Transcription

06 509
Strategic analysis of the
commercialisation of Pay
Television in Spain
Josefa García Mestanza
Rafael Ventura Fernández
Department of Economics and Business Administration
University of Malaga
Abstract
In our country, new technological conditions and the deregulation of the
television industry have led to the emergence of companies that are using
commercialisation formulas of their services that condition access to consumption, giving rise to two types of different services (one paying and the
other open), which, in turn, use different sources of financing (advertising
or pay per view).
In view of these changes within the national context, we have analysed the
characteristics of the pay television service and its main determining factors in the immediate future. To that end, we have described the main market agents of this type of television, the commercial formulas used, the
contents distributed and future market trends.
In this respect, we have considered the possible development of the business map, progress in the different distribution networks and consumption
trends of television services and others of added value which are currently
commercialised with the others via broadband networks.
Key words: Television, media, consumer behaviour, commercail distribution, strategy, strategic analysis.
may · august 2006 · esic market
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strategic analysis of the commercialisation
of pay television in spain
1. Introduction
The television industry has undergone considerable changes in view of
new technological and legal conditions that have arisen throughout the
decade of the nineties. Digital technology has made it possible to design a
much broader television service thanks to the techniques of image compression and the transport capacity of the new broadband networks. On
the other hand, the liberalisation of the telecommunications sector in
Europe has created new opportunities in the television industry. Although
this liberalisation has been slower than that of other services, and even
limited, the monopolistic system in force in the majority of European
countries has been eliminated and broadcasting by distribution systems
such as satellite, cable, digital terrestrial television or ADSL has been regulated.
The television service has increased considerably in the new digital
environment. In Spain there is currently a supply distributed via the different signal transport networks. In addition to the traditional analogue service, we now have digital television by satellite, digital terrestrial television
and cable television. The limited nature of the advertising market, new
operators’ need to differentiate the service and segmentation and supply
trends have facilitated commercialisation of the television service using
different formulas that condition access to consumption. In this way an
emerging pay television market has arisen.
This study analyses the characteristics of the pay television service in
Spain and the main determining factors in the immediate future.
Therefore, in the first part there is a description of the main market agents
of pay television in Spain, the commercial formulas they use and the contents they distribute. In the second there are details of what future market
trends may be. In this regard, we have considered the possible development of the business map and consumption trends of television and value
added services that are currently commercialised together with the television service via broadband networks1.
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2. The Pay Televisión Market
2.1. Open Television and Pay Television
In Spain the provision of the public television service was regulated in
1988 via public limited companies with private capital. Since that date, the
open and pay television service has multiplied. The phenomenon has further increased with the emergence of digital satellite television, digital
terrestrial television and cable television, leading to a transformation in
the audiovisual sector in the nineties, whose main consequence was the
increase in supply and competition.
This development has led to changes in the financing of television2,
which enables operators to be differentiated depending on the sources of
financing they use. In this way, we can distinguish between two large
groups: those that broadcast open television, whose financing comes from
the sale of advertising slots, and the operators of pay television, whose
financing comes from the payments made by its subscribers (CMT; 1999,
p. 70).
At the moment, the television service in Spain is formed by:
– Open television service.
In our country there is public and private television offering open
audiovisual signals. Radio Televisión Española (RTVE) manages the two
national broadcast channels that are publicly owned. On the other hand,
there is a public television service that covers certain autonomous regions3.
Private television was established pursuant to Law 10/1988 dated 3 May
and it has enabled the indirect management of the public television service by public limited companies with private capital by means of administrative concessions. In this respect, Antena 3 Televisión and Getevisión
Telecinco manage two national television channels.
– Pay television service.
Canal Plus was the first television operator supplying a service subject
to payment of a subscription. This operator used analogue technology. In
addition to this analogue service is the one supplied via the digital plat-
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forms Vía Digital and Canal Satélite Digital. In the last three years digital
terrestrial television (DTT) and cable operators have been emerging at different rates. There is only one DTT operator, Quiero TV, connected with
the AUNA group. Furthermore, there is a series of cable operators operating in the different demarcations created as a result of Law 42/1995 of
Cable Telecommunications. These operators are mostly connected with
the global operator AUNA and with the Cableuropa group (Ventura, R.;
2001). The transport capacity of these media leads one to assume that the
number of programmes available has increased considerably.
In Spain, since 1993, after a period of economic recession, advertising
investment has increased steadily, with an accumulated growth of 15.9%
(Díaz Nosty; 1998, p.303). Nevertheless, if we limit the analysis to the
audiovisual industry, the growth figures are more modest in recent years4.
Furthermore, the multiplication of media resulting from the liberalisation of the telecommunications sector makes it increasing difficult to capture advertising revenue5. This circumstance lessens the attractiveness of
advertising for the types of television that may condition access to their
programmes6. Therefore, the possibilities offered by the distribution of
cable, satellite or digital terrestrial television have encouraged the emergence of different commercial formulas associated with the sale of the television service. There have even been other factors that have promoted new
access types, such as the extent of the programme supply and the increasing diversification of tastes and preferences among consumers.
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Illustration 1. The Pay Television Market
Functions
Multichannel television
Customers
Digital satellite
television
Digital terrestrial
television
Cable networks
Alternative technologies
Source: Own.
In this way a pay television market7 has been formed, which would be
represented three dimensionally (Illustration 1): service (access conditioned to television contents), customers (a wide range of users making multichannel programming possible) and technologies (cable, satellite or
terrestrial).
On the other hand, the use of subscription to finance television is increasing among European operators8. The ratio between income from advertising and the fees paid by the subscribers is very favourable to the second
method of financing in the case of digital television (Table 1). However,
the ratio between advertising income and payment charges is expected to
be reversed as a result of stopping analogue broadcasting, which is expec-
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ted to finish in the first decade of the 21st century. In this way, income from
paying for the service may account for 71% of the income of operators in
20099.
Table 1. Income sources in the Television Market (Millions of Euros)
1994
1995
1996
1997
1998
1999
1329
1382
1478
1686
2075
314
385
393
421
447
0
0
0
9
19
24
Subscription 0
0
0
89
331
430
1329
1382
1478
1705
2100
314
385
482
753
877
Analogue Television
Advertising
1276
Subscription 243
Digital Television
Advertising
Television Market
Advertising
1276
Subscription 243
Source: IDATE (2000).
In Spain, data on the sources of income of operators indicates the
importance that pay television is acquiring. Indeed, income from subscribers’ payments have made up 26.3% of the total income in the television
market in 2000. This figure was only 19% in 1999. Similarly, the percentage of income from advertising has decreased from a rate of 59% to
51.7% (Illustration 2).
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Illustration 2. Distribution of income in the audiovisual sector
100%
0,3
7
80%
51,7
60%
59
40%
20%
26,3
Other
Advertising
Pay TV charges
Grants
19
15
21,7
0%
1999
2000
Source: CMT (2001).
The number of subscribers to pay television services was 2.9 million
people in 2000, a figure that represented growth of 29% with regard to
the previous year, in which an increase in comparison with the previous
year had been recorded of 18.5%. Subscribers are distributed among
Canal Satélite Digital (35.25%), Canal Plus (29.68%), Vía Digital
(21.22%), cable operators (10%) and Quiero TV (3.8%).
On the other hand, pay television turnover is increasing at a higher rate
than the number of subscribers. In 2000, operators had a turnover of
1,122 million euros, 19.1% more than in 1999. From comparing this date
we can deduce a change in consumers’ behaviour, becoming more willing
to pay for their television service (CMT; 2001, pp. 95-163).
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2.2. Pay Television Service: commercialisation formulas and contents
A user’s willingness to pay for the television service is in line with qualitative and quantitative criteria. Both types of criteria make it possible to produce different commercialisation formula of television services. Roca
(1995; p. 147) differentiates four10:
– Basic channels. The user subscribes to a broad package of channels
that meets a varied range of his requirements. These channels are
supplied in their basic version. This method is valid for cable, satellite or terrestrial television.
– Pay channels. The customer subscribes to one or several channels
not included in the basic service.
– Pay per session or pay per view (PPV). The consumer chooses to see
a programme that is broadcast coded at a fixed time, paying only
for what he sees.
– Near Video On Demand (NVOD) and Video On Demand (VOD).
In the first case the user can decide which programme he wants to
see, after paying a charge. The programmer repeats the broadcast
of the programme at certain intervals, so the user joins the beginning of the broadcast immediately after his request. In the case of
VOD the level of interactivity is greater than in the case of NVOD.
In VOD the user decides when he wants to see a specific programme. In addition, the service offers all the functionalities of a video
player. Bearing in mind the large number of subscribers that a cable
network may have, this service would need a great investment in
contents. This method requires sophisticated technology and it is
basically designed for cable television.
In Spain, Canal Plus commercialises its contents in only one analogue
channel. Accessing it requires the installation of a decoder. Later, the
satellite digital television platforms Canal Satélite Digital and Vía
Digital designed their services on the basis of basic channel packages,
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payment channels and pay per view. This formula is also used by cable
operators. The DTT operator Quiero TV, as a result of technical and
legal limitations, offers a basic service of 14 channels and pay per view
services.
It is foreseeable that the pay television service will shortly incorporate
VOD on the basis of experiences in other European countries. The forecasts made by Kagan World Media (2000) show a considerable increase in
the rate of penetration of VOD in European homes (Table 2).
Table 2. Forecasts on the penetration of VOD (%)
Countries
2000
2001
2002
2003
2004
2005
2006
Denmark
0.0
2.1
5.4
21.5
45.0
57.2
67.3
Germany
1.2
4.5
13.6
26.0
35.8
44.2
52.3
Ireland
0.0
5.4
24.2
42.8
62.3
67.0
69.2
Poland
0.0
0.1
0.9
8.9
23.2
29.2
35.1
Portugal
0.0
4.4
8.5
15.5
26.9
36.7
43.8
UK
3.0
7.5
16.7
24.2
30.9
36.6
42.4
Source: Kagan World Media.
The different payment methods in television promote a consumer’s
rational choice in accordance with his preferences and tastes. Therefore,
quality, and not quantity, of the audiovisual contents has to be the main
variable to take into account to define a digital television operator’s service, besides determining the use of different payment formulas that discriminate access to the service. In this respect, it is important to analyse the
audiovisual content market.
Independently of the media possibilities, there are content requirements to be transported via the new communication media. The increase
in the television offer in our country results in pressure by demand on the
content industry. As far as the contents industry is concerned, it is in an
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adaptation process, and momentarily there is a shortage of them and consequently an increase in prices.
In principle, it is possible to differentiate the interests that open and payment television have as far as contents are concerned. Open television bases
all its financing on advertising. For that reason, it is interested in general
TV contents and those that are capable of providing very high audience
shares. Pay television contents justify viewers’ financial payment. The
audience share is not as significant as the number of subscribers interested
in paying to receive the service. In this respect, the specialisation of the television service is an alternative to the general contents of open television.
Specialisation can be defined according to different socio-demographic
and geographic variables. On the one hand, there are local programming
services aimed at a very specific audience from a geographical point of
view. On the other, services centred on profiles of very specific consumers,
theme channels, need a very broad geographical coverage to reach the
thresholds of profitability. Broadband networks are an ideal medium for
transporting theme and local channels, since the cost of distribution of a
new channel is very low. Nevertheless, the differentiation of contents
according to broadcasting methods is not absolute, since, in the short term
at least, general TV contents will be present in the entire television service. The composition of general and specific contents defines the type of
television and its cost.
The contents can also be classified according to the price contracting
them involves for the broadcaster. The price fundamentally depends on
two variables: the degree of replaceability of the contents and the importance of the broadcast time.
– Contents for which broadcasters are prepared to pay very high prices, whose degree of replaceability is very limited and where the
broadcast time is an essential factor. This includes certain sport broadcasts or premiere showings of films.
– Contents for which broadcasters are prepared to pay a certain
price, which from the point of view of the customer are relatively
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replaceable and the time when they are broadcast is not crucial. In
this group we could include the films of certain American production companies, television series, news channels, etc.
– Contents for which broadcasters are hardly prepared to pay, whose
level of replaceability is very high and where the broadcast time is
not a key factor.
The contents included in the first two groups are going to differentiate
the pay television service and the different commercial services of the television service that operators use in Spain.
High value contents are supplied with the pay per view formula and
worth mentioning among them are sport broadcasts and films11. In a very
competitive framework the dominant position is derived from the broadcast of these contents. Nevertheless, the increase in the prices of contents
has promoted cooperation relations to acquire them. In this way, the
current situation is not much differentiation compared with this service
among the different pay television operators12. Every operator offers his
subscribers a pay per view service to access the broadcast of football matches, film premieres, etc.13
Besides high value contents, operators offer a series of pay channels
optional to the basic service. They are average value contents and the broadcast time is not decisive, and they meet the tastes of specific consumer
profiles. The pay channels service is formed by:
– Theme film channels: Canal Cine Palomitas, Adult Channel, Canal
18, Canal Cine 600, Canal Clásico, Cine Classics, Cine Palomitas,
Cinemanía, Cinemateca, Disney Channel, Playboy, Showtime
Extreme.
– Football channels: Canal Barca, Canal Real Madrid, Canal Fútbol
Total.
– Professional and leisure channels: Canal Campero, Canal Cocina,
Medicina, Canal Seassons.
Added to this service are pay channels that appear associated with a
successful programme in the programming of general channels and some
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autonomous region or local channels. Nevertheless, the latter are commercialised normally in the basic service.
The basic service is formed by channels that can be classified into the
following categories: film, sport, music, documentaries, child and teenage
programming, news programmes, international channels, leisure and
national, autonomous region and local general channels. These contents
are supplied by all the platforms (Table 3).
Table 3. Basic service of the main Pay television operators
Vía Digital
Canal Satélite
Digital
Auna Cable14
ONO
Quiero TV
Sport
Eurosport,
Teledeporte
Eurosport,
Sportmanía
Eurosport, Sportmanía
Eurosport,
Sportmanía
Teledeporte
Music
Canal Clásico,
40TV, MTV,
Canal Ritmoson, VH1
MTV, Sol Música,
VH1
40TV, Canal Fiesta, Canal Solo
Tango, Planeta Música, Sol
Música, VH1
40 TV, MTV,
Music Choice,
Musicam and
Música
E-music
Film/Series
Canal Alucine,
Cine Paraiso,
Canal Nostalgia,
Cine Palomitas,
Gran Vía*,
Cinematek*,
Factoría de
Ficción,
Hollywood,
Hallmark,
Showtime
Extreme*
Calle 13, Canal AXN, Cinematek*,
Cine Palomitas*, FOX, Hallmark,
Hollywood, Paramount Comedy,
Showtime Extreme*, TCM
Calle 13,
Cinematek*,
Cine Palomitas*,
FOX,
Hollywood,
Paramount
Comedy,
Showtime
Extreme, TCM
Calle 13, Cine
Palomitas
Cinamateka,
Estudio
Universal,
Factoría de
Ficción, Gran
Via, Paramount
Comedy, TCM,
Showtime
Extreme
Leisure
Canal Ella, Canal Viajar, Canal
Hilo, Canal Punto Arte/People,
de Venta, Canal
Moda, Fashion
Cocina, Cultura,
Canal Campero,
Cosmopolitan
Child
Teenage
Buzz, Locomotion, Canal Muzzik*, Buzz, Cartoon Network, Club
Panda, Megatrix, Cartoon
Super3, FOX Kids, Locomotion,
Club Super3
Network, FOX Nickelodeon
Kids,
Nickelodeon
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Calle 13, Canal
AXN, FOX,
Paramount
Comedy, TCM
Vivir, Viajar, Canal Ella, Canal
Viajar, Canal
Hilo, Canal Punto de Venta,
Cocina, Estilo
Canal Arte/People, Canal Cocina, Moda
Canal Salud, Cosmopolitan, Estilo
Moda, Fashion TV, Vacaciones TV
Canal Muzzik,
Cartoon
Newtwork,
Nickelodeon,
Panda
Buzz, Cartoon
Network, Club
Super3, Planeta
Junior
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Canal Satélite
Digital
Auna Cable14
ONO
Quiero TV
Documentaires Canal
Hispavisión,
Natura, Odisea
Discovery,
Documanía,
Canal Historia, Discovery,
Documanía, Natura, Odisea
Canal Historia,
Discovery,
Documanía,
Odisea
Beca,
Geoplaneta
News
programmes
BBC World,
Bloomberg,
Expansión
Financiera
Bloomberg,
Canal CNBC,
CNN Plus,
Euronews,
Meteo*
BBC World, Bloomberg, CNN
International, CNN Plus,
Euronews, Expansión Financiera,
Meteo
CNN
International,
Euronews,
Expansión
Financiera
International
BBC Prime,
Galavisión
DW Germany,
RAI 1, RTV
Portugal,
TV5 France
DW Germany, Galavisión, RAI 1,
RTV Portugal, TV5 France
General
Antena 3,
Telecinco
Canal Plus
TVE1, La Dos, Antena 3,
Telecinco
TVE1, La Dos,
Antena 3,
Telecinco
Autonomous
Local
Andalucía TV,
ETB, Telemadrid,
TVC, TV de
Galicia
Andalucía TV,
Canal Canarias,
Canal Sur TV,
ETB, TVC
Andalucía TV, Antena Aragón,
Barcelona TV, Canal 33, Canal
44, Canal Canarias, Canal DGA,
Canal Municipal, Canal Sur TV,
Telemadrid, TV3, TV de Galicia,
ETB, Zaragoza TV
Andalucía TV,
Canal 2
Andalucía,
Canal 33,
Canal 9, Canal
Sur TV, Punt
Dos, Telemadrid
TV
Vía Digital
* They are channels supplied as pay channels.
Source: Operators’ webpages. Own production.
3. Market trends in Pay Television
In the European context, Spain has been distinguished as being a country
that has quickly adopted a favourable behaviour towards the consumption of pay television. The percentage of homes with digital television in
2000 reached the figure 15.5% (Table 4), a percentage that was only exceeded by the United Kingdom15. Similarly, the number of digital pay television subscribers is likely to increase to the figure of 5.4 million homes in
2005.
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Table 4. Digital Television in Europe
Number of suscribers to digital pay
television (in millions)
Austria
Belgium
Denmark
Finland
France
Germany
Greece
Ireland
Italy
Luxembourg
Holland
Portugal
Spain
Switzerland
United Kingdom
EU 15
2003
2004
Percentage of homes with
digital television
2000
2001
2002
2005
2000
0.13
0.22
0.23
0.08
3.24
2.53
0.04
0.1
2.1
0.01
0.37
0.13
1.82
0.24
6.53
17.8
0.2
0.4
0.34
0.15
4.04
3.68
0.08
0.15
2.31
0.01
0.66
0.21
2.26
0.38
8.42
23.2
0.3
0.4
0.51 0.63
0.57 0.75 0.94 1.12
0.46 0.58
0.7
0.81
0.23 0.32 0.42 0.53
4.91 5.85 6.81 7.87
4.93 6.25 7.59 8.92
0.13 0.19 0.27 0.36
0.2
0.25 0.32 0.38
2.66 3.05 3.51 4.04
0.02 0.03 0.03 0.04
0.96 1.26 1.56 1.83
0.3
0.42 0.55 0.69
2.87
3.6
4.42 5.24
0.52 0.66 0.85
1
10.02 11.08 12.38 13.56
29.07 34.7 40.84 47.03
4.1
5.5
9.5
3.3
14.4
8.2
1
8.5
10.3
4.3
5.8
3.2
15.5
6
27.4
Source: IDATE (2001)a.
The influence the digitisation of television has on the financing model,
mentioned in the previous heading, makes strong growth of pay television
likely in our country.
The development of this market will be conditioned to a large extent
by the development of the different distribution networks, the business
structure of the sector and consumer behaviour.
A) Distribution Networks: Cable, Satellite and DTT
The conditions in which the different distribution systems of digitised television signals are going to be developed were designed in Spain at the end
of the nineties: cable, satellite and digital terrestrial. Solving how the
national audiovisual market is going to be divided among the three abovementioned distribution systems has been the lot of the beginning of the
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21st century, since at the moment there is great uncertainty and enormous
difficulties to ensure the supremacy of one of them16.
Fibre optic is a communication channel that has characteristics that
differentiate it positively from the rest of broadband communication systems. In the first place, the bandwidth is superior and therefore the transport capacity is greater, since it has almost unlimited possibilities with
regard to the transport of television channels. In second place, the broadcast quality is superior and it is not subject to possible interferences.
Thirdly, the return channel allows for the provision of services with maximum interactivity. Lastly, fibre optic uses physical media, whose availability is absolute, while satellite uses the radio electric space whose availability is limited and becoming more and more reduced.
In spite of the technological supremacy of cable, there are obstacles
that can halt its development. Due to their importance, the following are
worth mentioning: the inadequate equipping of people’s homes and the
high cost of infrastructures, the prior development of satellite television
services, the uncertainty that affects regulations17 or the pioneering nature of our judicial framework with regard to the regulation of ADSL or
digital terrestrial television18.
Contrary to what has happened in the majority of European countries,
satellite television developed prior to cable television in Spain. This situation has granted advantages in contracting contents to a system whose
cost of implementation is considerably less. On the other hand, although
the technological advantages of cable over satellite are considerable, we
have to realise that solutions are being looked for that will enable bi-directional communication via satellite. This possible situation would eliminate one of the main competitive advantages of cable over satellite.
At the moment, a trend contrary to the one occurring in Europe is being
observed. If we look at the data in Table 5 and Illustration 3, we can see
that the least widespread technology in both scenarios is going to gain market share on the dominant technology. In this respect, in the European area,
a standardisation of the use of the different technologies is likely, where
satellite, cable and DTT are going to have significant market shares.
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Table 5. Pay Television suscribers according to distribution
systems in Europe (Millions of homes)
Cable subscribers
Satellite
45.3
46.1
46.1
48.0
4.7
14.6
27.7
48
11.2
13.3
15.8
22.6
7.8
11.1
14.9
22.6
5.1
5.8
7.1
10.2
0.6
1.0
1.8
8.8
61.5
65.3
68.9
80.9
DTT
Total pay TV
suscribers
Source: IDATE (2001)b.
Illustration 3. Percentage distribution of the number of suscribers to pay television
in Spain
100%
80%
35.9
33.4
60%
4.9
9.7
59.2
56.5
1999
2000
40%
20%
0%
Satellite
Cable
Hertzian
Source: CMT (2001).
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B) Business Structure of the Sector
The digital technological environment has encouraged the formation and
competitiveness of multimedia groups. The convergence of networks
encouraged by the use of digital technology makes the distribution of contents on different media possible, This fact has laid the foundations for the
generation of economies of scope and justifies that specialised communication groups (television, press or radio) will very probably have to join
multimedia groups to be competitive. Telecommunications operators have
also taken part in this process. These companies have the infrastructures
and distribution systems required to supply broadband services.
In Spain there are three large multimedia groups related to the pay television market: Telefónica, Auna and Sogecable. The first has a significant
presence in analogue television operators (Antena 3), digital satellite television (Vía Digital) and the possibility of acting in each one of the cable
demarcations (Telefónica Cable)19. The Auna group, via Auna Cable,
offers cable television in Madrid, Catalonia, Canary Islands, Aragon and
the majority of Andalusia. It is also the main shareholder of the company
Onda Digital, the concessionaire of the of digital terrestrial television and
which commercialises the service of Quiero TV. Lastly, Sogecable is the
owner of 83.25% of Canal Satélite Digital and of 100% of Canal Plus.
These two companies have 77.7% of the pay television turnover in Spain
(CMT, 2001; p.156).
These companies generate a pay television service that means that the
majority of the country has access to two satellite platforms, one DTT
platform and a cable operator. The duopolistic structure existing in satellite television and cable television is noteworthy. In the first case there is
natural duopoly and in the second case it is established by the judicial framework.
Canal Satélite Digital and Vía Digital currently compete for the digital
satellite television business, after the first three years of activity have gone
by without fulfilling the expectations forecast in 1997 on the number of
subscribers (Castejón, Feijó, Juanes and Pérez, 1997; CMT, 1999).
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In the case of cable television, the Cable Telecommunications Law passed in 1995 designed a territorial and duopolistic structure for the sector.
The country was divided into 43 demarcations20. The characteristics of the
demarcations condition the feasibility of the two operators in a climate of
concentrating the sector towards a monopolistic structure. The fragmentation of the Spanish territory also prevents the possibility of cable operators obtaining economies of scale21.
If we take the current division of the market into account, the stages in
a liberalisation process described by Eakin and Faruqui (2000) are likely
to develop. According to these authors, we can notice three phases that an
industry goes through after deregulation. The first, the participation of
many new agents and an oversupply of the service that involves strategies
based on the price, whose objective is the capturing of new users. In the
second phase, the number of agents decreases as a result of the supply
being in line with demand, some of the companies that started their activity disappear and there are horizontal integration phenomena under the
premise that there is not enough market to be shared. In a third, with a
consolidated business map, the companies’ strategies are aimed at differentiation in the market and there is no price war.
In accordance with the forecasts made (Castejón, Feijó, Juanes and
Pérez, 1997; CMT, 1999) and commercial strategy based on prices that
the different platforms have developed, we deduce that the market situation is characterised by oversupply and it is in a position to enter into the
second phase of horizontal concentration.
On the other hand, in contrast to the decreased dimension of the markets, there are trends in consumption that would enable the increase in the
available market to be deduced. In the first place, a decrease in the general television audience in the future would make a shift of consumption
towards cable and satellite service possible. In spite of this, a drastic decrease in consumption of open television is not probable, at least in the short
term. In the second place, there is still a part of the television market covered by former community cable or video operators. Growth strategies that
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06 527
the main television operators follow are aimed at taking over or merging
with local operators. This will be the situation in those cases in which the
customer base or the infrastructure quality are attractive. Otherwise, the
former operators may simply change to being distributors of the new operators or they will disappear.
C) Consumer behaviour
Despite the multiplication of the television service and the increasing
transport capacity of the distribution systems, there is a maximum television consumption time that TV viewers do not wish to go over22. In Spain,
television consumption is in a state of stagnation or saturation (Díaz
Nosty; 2000, p. 211). The Comisión del Mercado de las
Telecomunicaciones (CMT – Telecommunications Market Commission)
(2001, p. 165) estimates that the average television consumption per person per day in our country is 210 minutes. This figure is similar to the one
recorded in 1997 (209 minutes), the year when the increase in the television service started. Consumption recorded in 2000 is even less than in
1996 (214 minutes).
As a result, the contents of the television service of television operators
must be centred on meeting consumers’ demands, both in quantity and
quality, also considering that the amount of television channels that meets
consumers’ demand is not more than fifteen channels and a service that is
too broad can demotivate the TV viewer that has to choose which programme he wants to watch23. Nevertheless, markets will develop towards
more segmentation and differentiation of consumer profiles. Due to the
wide range of consumer types, television service must include more channels to cover different market segments. In short, the number of channels
available should be very high, but the services offered to consumers should
have fewer channels.
As far as the quality and attraction of the contents are concerned, this
depends to a large extent on high value contents. With reference to differentiating contents of the different audiovisual services, sport will be the
[235]
528 06
most important. The production of different programme packages and the
possibility of paying differently by channels and events is a formula that
will be used to adapt contents to the demands of the different market segments. The financing of television by means of pay per view is likely to see
a strong growth. Even so, we cannot rule out the financing capacity of
advertising, although it has to adapt its forms to the new television.
Nevertheless, high value contents are currently present in all the services commercialised. This circumstance means that they are not capacble of
differentiating companies in the market. This situation has been reached
for two reasons. Firstly, due to the defence actions of the competition,
both nationally and in the European community, which have forced property rights over certain contents to be shared. Secondly, the pressure of
demand on these contents has generated a rise in prices and therefore the
need by the operators to share the investment that this acquisition involves. In this respect, companies find differentiation in average value contents and new interactive television services.
The multiplication of the television service has led to a very importance rise in the contents industry that will meet the demand of the new
media. In addition to the market opportunity that has arisen, there is a
political willingness to support the contents industry. The European
Commission considers that it is important to protect and defend the cultural identity of European countries24. For companies supplying television
services, the standards are an obligation as far as the contents they supply
are concerned. In addition to the competition to supply the best contents
from the USA, there is also a need to supply top quality European contents. In this market, entrance barriers are much more accessible and there
is not such a noticeable share of exclusive rights as in the case of broadcasts of sport or American films.
In this context, television companies in our country can opt to acquire
contents from independent production companies or to finance the productions themselves25. The use of this financing facilitates financial sufficiency for Spanish production companies and at the same time ensures ave-
[236]
06 529
rage value contents for television channels. In this kind of market, new operators have a wide range of options, since there are production companies
independent of the already established television companies26. This makes
participation in Spanish film and series production possible, providing new
television services with quality27. On the other hand, removing the obligations of open broadcasting, which affect some high value contents, could
open up new markets and, consequently, encourage a decrease in prices.
This situation would not only extend the supply of contents, but it would
also open up an important source of revenue for pay television.
With regard to the new interactive services, the likely future environment for television operators is a strong development, based on consumption in homes. People’s homes are therefore considered as the great centre
of future consumption and purchase. As a result, the supply of products
and services will have to access the home. This situation is ideal for the
implementation of interactive services via broadband networks.
Nevertheless, there are two possible obstacles. Firstly, the increase in consumption from home may be more significant at the end of the first decade in the 21st century. Secondly, Spanish culture and the habits of the
population encourage consumption outside of the home.
The new interactive services respond to the phenomenon of convergence between Internet and television products. In this regard, the production of interactive television services or Internet portals with more television contents are proliferating (VECAI, 2000). The first aspect is typical
of operators using satellite or digital terrestrial television (Broadcaster).
The second will be the formula used by ADSL or UMTS operators
(narrowcaster). Vis-à-vis these operators, cable companies have a network
that improves the possibilities of creating products that meet the convergent trend between television and Internet contents.
The convergence of services in Spain will be conditioned by the relation
of users with the terminals. Although a very high level of penetration of
digital television was observed in Spain in the illustration, these figures are
inverse to the Internet penetration rate in Spanish homes and the percenta-
[237]
530 06
ge of homes with a personal computer. According to the European
Commission (2000), the percentage of homes with a personal computer in
our country is below that of the European average, and there are only fewer
homes connected to the Internet in Greece and Portugal (Illustration 4).
Illustration 4. PC and Internet penetration rate in european homes
70
60
50
40
30
20
10
PC
UK
Switzerland
Spain
Portugal
Holland
Luxembourg
Italy
Ireland
Greece
Germany
France
Finland
Denmark
Belgium
Austria
0
Internet
Source: European Commission (2000).
[238]
06 531
The scenario described is favourable for television operators to take on
an important role in the supply of interactive services in Spanish homes.
In this respect, broadband networks offering pay television services have
a capacity to supply global telecommunications services, with fibre optic
offering the largest interactive capacity. Nevertheless, satellite is undergoing technological improvements that make it possible to offer interactive services with satellite television. Furthermore, digital terrestrial television was the first to offer the Internet access service via the TV set.
Therefore, the economic feasibility of digital television operators will not
depend exclusively on television supply, although it is very possible that it
will be an attraction for the sale of the other services.
In Spain, digital satellite and terrestrial television operators are already
commercialising a wide range of additional services to the multichannel
television supply (Table 6). In the case of cable, the television supply is
complemented by the possibility of offering Internet and telephony.
Nevertheless, in the case of cable, high speed Internet access has to be
through a personal computer.
Table 6. Interactive services supplied by Pay Television Platforms
Interactive Services
Telebanking
Electronic Commerce
SMS
Stock Market Info
Weather
E-mail
Internet Access
Traffic Information
Games
Interactive Advertising
Entertainment Guide
Football Results
Other Sports
Wireless Keyboard
Vía Digital
Canal Satélite Digital
*
*
*
*
*
*
*
*
*
*
*
*
*
*
Quiero TV
*
*
*
*
*
*
*
*
*
*
*
Source: CMT (2000).
[239]
532 06
Illustration 5. Impact of Internet on the comsuption of other services
Source: European Commission (2000).
The possibility of supplying Internet together with television services
will be more important if a shift in consumption from television to the use
of the Net is confirmed. According to the European Commission (2000)
the impact of Internet on the rest of the leisure activities is greater in the
case of television. Therefore, 73% of the people using Internet consider
that this consumption time affects the time they spend watching television
(Illustration 5). In this respect, the additional service of television operators decreases the negative impact of the distribution of consumers’ time
in view of the new digital offer.
4. Conclusions
The liberalisation of the telecommunications sector and the new technological possibilities have led to an increase in the television service in Spain.
[240]
06 533
One of the consequences has been the change in the operators’ financing
models. The multiplication of media makes it increasing difficult to capture advertising revenues. For that reason the use of commercial formulas
that involve paying for television consumption is on the increase. The digitisation of television will emphasise the use of this type of financing in future yeas and therefore there will be growth in the pay television market.
In our country, there is a pay television service formed by analogue
operators, digital satellite television, digital terrestrial television and cable
operators. Companies are connected on the whole to the business groups
Telefónica, AUNA and Sogecable. The first has a significant presence in
analogue television operators (Antena 3) and digital satellite television
(Vía Digital). AUNA telecommunications group is present in cable (Auna
Cable) and the concessionaire company of digital terrestrial television
(Quiero TV). Lastly, Sogecable is the main shareholder of the companies
Canal Plus and Canal Satélite Digital.
At the moment, the supply of operators is formed by packages of basic
channels, premium channels and pay per view. It also includes contents
that can be classified into high value, average value and low value contents. The main characteristic of the high value contents is that the broadcast date conditions its value on the market. Average value contents are
relatively replaceable and the time is not a crucial variable. Lastly, low
value contents are replaceable in the programming.
Operators’ basic service includes low and average value channels with
contents of film, leisure, news, sport, music, child and teenage programming, documentaries, international, general autonomous region and local
channels. Premium channels are average to high value as they are formed
by theme film and football channels on the whole, but they are not dependent on the broadcast time. Lastly, the pay per view formula is used for
high value contents when the broadcast time is a fundamental characteristic, such as football and film premieres.
The consumer’s decision to pay for the television service depends on
qualitative and quantitative factors. High and average value contents jus-
[241]
534 06
tify paying for television consumption. However, at the moment there is
not enough of these contents in view of the explosion in the demand by
new operators. In the future, an increase in the production of contents is
likely. Lastly, cooperation agreements in the acquisition of higher value
contents is a strategic alternative that will be used in view of the increase
in the prices of high value contents.
The number of channels that meet the needs of the consumer is not
more than fifteen. However, the segmentation of the market requires operators to be able to offer a very high number of channels or programmes.
The interactive nature of broadband networks means that a global telecommunications service can be offered. Therefore, the operators’ economic feasibility will not depend exclusively on the television service.
Nevertheless, this is probably going to be the main commercial argument
that enables the sale of contents less well-known for the user. Fibre optic
is the network that is best equipped to create a global supply of telecommunications services, which includes television, Internet access, telephony
and interactive services. In spite of this, the competitive difference based
on technological characteristics can be eliminated in a future scenario in
which the rest of the distribution systems acquire the capacity to offer interactive services.
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CASTEJÓN, L., FEIJÓ, C., JUANES, R. and PÉREZ, J. (1997): “La regulación y el mercado de la televisión digital por satélite”. Recogido en
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NOTES:
(1) The market analysis is based on the results obtained from applying the Delphi technique and the collaboration
of 53 experts in the telecommunications and social media sector (Ventura, R.; 2001).
(2) We will not consider levies, a traditional manner of financing public television.
(3) As a result of the coming into effect of Law 46/1983 dated 26 November, regulating the Third Television
Channel, the following television channels were created: Telemadrid, Televisió de Catalunya (TV3 and Canal 33),
Televisión de Galicia (Galicia TV), Televisión Valenciana (Canal 9 and Noticias 9), Euskaltelebista (ETB1 and ETB2),
Canal Sur and Canal Andalucía.
(4) Specifically, in 1999 there was a rise in advertising revenue obtained by private and public television, of 10%
and 13.6% respectively, in comparison with the previous year (CMT; 2000, p. 140). On the other hand, in 2000, the
above-mentioned annual increases were 13.3% and 4.5%, respectively (CMT; 2001, p. 161).
(5) The competition for television operators with regard to capturing revenues for advertising services comes from:
Different media. Television has been increasing its share of the advertising market in our country. In 1997 it took
up 40.5% of advertising revenue in the key media, a figure that was 37.9% in 1990 (Díaz Nosty; 1998).
Nevertheless, the increase in its advertising revenues has been obtained by decreasing prices for advertisers and a
parallel rise in the amount of time set aside for advertising.
Different channels. The proliferation of specialised channels that have enabled the broadband infrastructure makes
it easier for advertisers to choose among a large number of possibilities. Similarly, advertising is more efficient in
specialised media.
Direct ways of marketing and promotional expenses of products. These commercial formulas have captured part of
the advertising budgets due to a decrease in costs, encouraged by technological advances.
(6) Nevertheless, the fact that pay television services are not very profitable in the first years justifies using additional sources of financing such as advertising. For example, Canal Plus obtained an approximate figure of 4,400
million pesetas in 1999, which meant an increase of 30% with regard to the previous year (CMT; 2000, p. 136200).
(7) Market understood as the supply of functions covered by certain products to a certain group of customers,
including all the replacement technologies that enable these functions to be provided (Navas and Guerras; 1996).
(8) In the 1994-1999 period, the amount of income from the payment of a subscription multiplied by 3.6 while
income from advertising grew 160%.
(9) The estimate has been made by Kagan World Media and published in the February and July/August issues of
Euromedia in 2000.
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538 06
(10) The Telecommunications Market Commission (2000, p. 131) records the same type of services according to
the classification in which it differentiates: channel package in a minimum or basic supply, basic package with premium channels and audiovisual services using the pay per view technique. Within this last category it differentiates three types of services: NVOD (Near Video on Demand), events and IPPV (Impulse Pay per View).
(11) Nine out of the ten most seen slots in 1998 were broadcasts of football matches (Díaz Nosty; 2000, p. 238).
(12) Broadcast rights of football matches in the championship in Spain were owned by public, state and autonomous region television companies as well as pay television companies (Canal Plus, Canal Satélite Digital and Vía
Digital) to 2000. The digital platforms reached a cooperation agreement in the joint acquisition and exploitation of
the rights in view of the increase in prices that caused the dispute for these rights. However, the intervention of the
European Commission has opened up access to football rights as a guarantee of the development of new television
operators. In this way, cable and digital terrestrial television operators will be able to supply football matches in the
Spanish championship by pay per view, at least until 2003.
As far as films are concerned, digital platforms have established exclusive agreements on the contents of the main
audiovisual content distributors in the first years of their activity. Cable operators have started their activity without
exclusivity agreements of this nature. However, they have used two ways to obtain broadcast rights of their audiovisual contents. In the first place, negotiating with the platforms that own the rights. In the second place, pooling
the negotiation capacity of the different cable operators. In this respect, the company Estreno Digital, owned by the
operators of the Asociación de Operadores de Cable (AOC - Association of Cable Operators), was established in
order to negotiate the purchase of these contents jointly.
(13) The operator Vía Digital offers the “palco” service. Canal Satelite Digital has the product called “Television a
la Carta”. The cable operators connected with Auna Cable offer “Mirador” so that their subscribers pay for films or
football matches. ONO operators have a similar supply known by the trade name Fila ONO. Lastly, Quiero TV allows
contracting events with its Quiero Club product.
(14) Auna Cable commercialises the supplies of Supercable, Cabletelca, Menta, Madritel and Able. Not all the supplies coincide and the channels offered in at least one of the supplies commercialised by Auna Cable are shown.
(15) The European Commission (2000) provides similar figures to the IDATE study with regard to the percentage
of homes with digital television in Europe.
(16) The Delphi study carried out on 53 experts states the impossibility of deducing a differential evaluation on any
of the three distribution systems (Ventura, R.; 2001).
(17) The European Union has promoted an updating process of the regulatory framework of the telecommunications sector which should end this year, with the adaptation of national legislations (Pérez, J.; Pérez, H. and Pérez,
S.; 2000, p. 3).
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06 539
(18) In both cases, Spanish regulation has been one of the first in Europe. Besides, it has been published at a critical time for the development of cable and with the moratoria period of Telefónica still in force. The early regulation of ADSL technology is especially worth noting.
The new technology has not covered a significant demand because it has been met with scepticism by the majority
of user associations, who consider that the rate is not aimed at residential users (CMT Report; 2000). Users’ doubts
have been endorsed by market data, which has not reacted favourably to its introduction (seven hundred subscribers in 1999). “The implementation of ADSL technology and the flat rate for the Internet have created many expectations and unmet uncertainties” (p. 197).
With the above-mentioned data, we could argue that the introduction of ADSL and the high speed Internet access
supply has created more uncertainty than real competition in the Internet access market. Therefore, the damage for
cable operators results in the level of doubts during the period of investment in cable.
(19) The presence of Telefónica in the communication media is more extensive. In addition, the internationalisation of their business has also led to important investments in the television industry in South America, especially
in Argentina (Ventura R., 2001).
(20) In spite of the fact that the Cable Telecommunications Law was repealed by the General Telecommunications
Law, the demarcations established are still in force in the cable television business.
(21) The possibility of being able to act in the entire Spanish territory and consequently enjoying economies of
scale is highlighted by the company Telefónica itself. Among the reasons put forward by the telecommunications
operator to justify the extremely low level of activity of Telefónica Cable it mentions the fact that the moratoria period
is still in force in some demarcations. This fact stops the activity being started on a national scale and obtaining the
advantages derived from a more extensive area (CMT; 2000, p. 156).
(22) In fact, whether there are cable networks or not in a country does not have a fundamental impact on total television consumption or average listening time (Luc, J.; 1994, p. 21). In Belgium, the average consumption time did
not develop significantly from 1973, the date when the expansion of cable television started, to 1991 (Pascale, L.;
1992).
(23) As Cebrián states (1996, p. 382) “our capacity to choose is small, much smaller than the options technology
offers us. And it is not certain whether we want to be constantly choosing”.
(24) The different view Europe and the United States hold about the audiovisual sector is maintained. In Europe,
the way in which the audiovisual sector has been dealt with has gone beyond guaranteeing the operation of the market and free competition of companies. The socialising effect of the sector and the impact it has on a population’s
culture have been recognised. In the USA, the audiovisual policy has not been as interventional and free competition has been promoted in the sector.
[247]
540 06
(25) In fact, in the transposition of the Television without Frontiers directive to the Spanish legal framework (BOE
–Official Gazette of the Spanish State–, 08/06/99) the obligation to allocate 5% of commercial income from television channels to European film production was included. The effects are considerable, since the investment of television companies in film productions has gone from 3,330 million pesetas in 1997 to 13,375 million pesetas in
1999 (Díaz Nosty; 2000, p. 247).
(26) In recent years, the success of Spanish series has made a decisive contribution to the consolidation of independent production companies.
(27) Rafael Ventura Fernández
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Strategic analysis of the commercialisation of Pay Television

Transcription

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