M&A continues to be a key theme across the U.S. pay-TV market. European pay-TV operators proved their resilience amid rising competition in 2015 as industry video losses were contained and the slowdown in broadband net additions was limited.
M&A, wireless, Apple’s Web TV are key cable issues
M&A continues to be a key theme across the U.S. pay-TV market.
Record deal-making occurred in 2015, with Charter’s announced
acquisition of Time Warner Cable and Bright House, and the entry
of European operator Altice into the U.S. Altice is taking a pause
to integrate recently purchased systems but may return for more
M&A in 2016.
Cable operators may make a foray into wireless for a potential
quad-play offering as they build out Wi-Fi hotspots. Apple may
intensify competition with a launch of its live TV service.
Cable charts comeback; Faces AT&T, Sling TV, Apple
Cable operators including Comcast, Time Warner Cable and Charter
are showing improved video metrics, partly driven by aggressive
promotions and a focus on customer retention. The companies have
benefited from AT&T being distracted with its DirecTV deal. However,
cable operators may face pressure in 2016 as AT&T integrates its
lower-cost DirecTV platform.
Apple’s potential launch of its live online TV service, which was
delayed from 2015, and a growing popularity of Dish’s Sling TV may
also intensify competition.
More M&A likely from Altice; Charter-TWC await nod
While Altice plans to keep expanding its U.S. cable business, it has
slowed down its deal-making to integrate systems. Altice bought
Cablevision for $17.7 billion after acquiring a 70% stake in Suddenlink,
making it the fourth-largest cable operator (3.7 million subscribers).
Cox, with 4 million subscribers, may entice Altice to return to M&A
in 2016. Charter is awaiting regulatory approval on its Time Warner
Cable and Bright House deals, which will make it the third-largest
operator with 17 million subscribers.
Comcast may move forward with a hybrid wireless service, using its 12
million Wi-Fi hotspots in combination with Verizon’s mobile network,
and potentially sell a quadruple-play service. The company has said
that it’s planning trials for a wireless product. While Comcast said it
doesn’t need to own a wireless system to make a profit, it may go
Liberty Broadband Chairman John Malone said that all cable
operators will add wireless for quad-plays, which are common in
Europe and have helped reduce churn.
European Pay-TV to preserve resilience amid risks
European pay-TV operators proved their resilience amid rising
competition in 2015 as industry video losses were contained and
the slowdown in broadband net additions was limited. Conversions
to advanced set-top boxes, investment in premium content and
expansion of online services will be critical to fend off competition in
Converged bundled services will gain prevalence, potentially
punishing laggards in mobile. Cable operators will need to invest in
broadband speeds to maintain their lead over telecoms.
European Pay-TV consensus preserves status quo
Consensus estimates for European pay-TV operators call for low- to
mid-single-digit growth with stable margins and capital spending
in 2016, suggesting a preserved cash flow profile for operators.
Telecom operators’ focus on converged bundle offers will continue
to pressure revenue, with competition in Germany and the U.K. likely
heating up most next year.
Cost-cutting initiatives may be able to offset the competitive
pressures on Ebitda margins for Liberty Global and Sky, which are
expected to expand margins.
Set-top, online, content to deflect Pay-TV risks
The much-feared substitution of pay-TV subscriptions by online
services did not take place in any significant way in Europe during
Pay-TV operators’ efforts to upgrade set-top boxes with functionality
and connectivity and their launch of online services will help limit the
risk from over-the-top players. Sky’s continued TV net additions this
year also highlight the role of premium content. Substitution risk in
Europe may remain modest structurally given low pay-TV penetration
and subscription fees.
Convergence to drive M&A, mobile launch for cable
Convergence, or the bundled sale of mobile and fixed-line products,
has regained prominence among Europe’s integrated telecoms
carriers as they seek to differentiate their offers. This is prompting
cable operators to expand into mobile services or engage in M&A.
The EU’s quad-play take-up varies, averaging 4% in 2014. Nordic
countries, which have fragmented broadband coverage, have the
lowest penetration, while southern Europe leads. Convergence
competition looks set to rise most in the U.K. and Germany.
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