Cord cutting spreads across Europe

Latest findings from research firm Strategy Analytics in its report, European Pay TV Index, indicate a net decline in UK pay TV households of 424,000 in 2018, the largest in Europe. Other countries registering smaller falls in linear TV subscriptions include Denmark, Switzerland and Germany.

However, traditional pay TV is still expanding in markets that are less mature or where penetration is lower, including Russia, France, Poland and Spain. Indeed these gains just outweigh the losses so that the number of pay TV subscriptions across Europe as a whole rose slightly by 1.3 per cent in 2018, to reach 128.5 million. That growth rate though has been declining, having been 2.2 per cent the previous year, leading Strategy Analytics to extrapolate that within two years European legacy pay TV will enter a sustained decline. Surprisingly the report fails to take account of SVoD providers like Netflix, as well as hybrid OTT offerings from the pay TV operators themselves, which are the beneficiaries and also instigators of cord cutting.

Despite the regional differences, Europe’s cord cutting seems to be following a somewhat similar pattern to the US in its distribution among pay TV sectors. In the US it began with cable operators such as Comcast and then the contamination spread to satellite and IPTV, as eventually AT&T’s Uverse and Verizon’s Fios TV started to shed subscribers. In Europe the cord cutting has started with cable operators such as Liberty Global and Sky as the continent’s leading cable and DTH providers respectively, while Telcos like Orange and Deutsche Telekom have been unscathed so far. In fact Telco TV subscriptions rose 5.4 per cent in 2018, while the others between them declined by 1.3 per cent.

Despite that, Comcast and Liberty Global remain for now Europe’s leading pay TV providers, accounting respectively for 14.9 per cent and 13.8 per cent of the market.

“We have seen the cord-cutting trend for several years in the US, where the pay TV business is more mature,” said Michael Goodman, Director, TV & Media Strategies. “Now it is starting to hit major markets in Europe, and this spells trouble for pay TV operators which cannot adapt to the needs of today’s viewers. The threat of falling subscriber revenues and stronger OTT rivals will also increase pressure from investors for further consolidation across the industry.”

Over in Spain, where Strategy Analytics found that cord cutting has yet to bite, the leading OTT operator Telefonica through its Movistar brand is pushing to extend its customer base and target competitors, including linear pay TV service providers. Movistar sees an opportunity to accelerate cord cutting among competitors, although hoping to avoid cannibalizing its own DTH service in the country, which has 3.9 million subscribers.

So Movistar will in June 2019 launch a new OTT service including a selection of Movistar Plus pay TV offers aimed specifically at inducing churn from competitors. This will include a catalogue of 300 TV series and 270 films, among other content. Movistar is also aiming to entice higher spending customers by differentiating its offering more, introducing an exclusive customer service platform for those who spend the most on services, even with dedicated telephone support. This highlights how OTT is moving up market as service providers anticipate the inevitable cord cutting that will decimate their legacy linear offerings. They want to set the bar higher as soon as possible to minimize the impact on ARPU and consequently revenues, as well as profitability.

Meanwhile over in the US cord cutting is now even afflicting OTT services from legacy operators, with losses at DirecTV’s NOW skinny bundle wiping out gains made last year. DirecTV NOW reported on April 24th that it had lost 83,000 customers since January 2019, taking total losses from the mid 2018 peak of 1.5 million subscribers to 350,000 clients.

This may partly reflect DirecTV’s owner AT&T taking a similar line to Telefonica in targeting high network customers in an attempt to raise ARPU at the expense of subscriber numbers, but with the risk that it will end up with an ageing customer base that will then erode. The fate of DirecTV NOW also reflects the impact of the big SVoD providers like Netflix and Amazon Prime, which will only get worse as Disney and Comcast’s NBCUniversal enter the fray, as well as AT&T’s own Warner Media. It looks like DirecTV as a whole could be sacrificed on the altar of streaming.