ARPU under pressure as triple play shapes digital future

By Adam Thomas

Having just completed our latest research on Central and Eastern Europe, a picture is emerging of fairly rapid digital TV growth. The good news is that this looks set to continue over the next five years. Having ended 2008 with 32 million digital homes, the region is expected to close 2014 with 87 million, so pretty much a three-fold increase. This growth will see well over half of the region’s TV households being digital by 2014, up from 21% now. Only Russia and Ukraine are expected to fail to reach 50% by that time.

Digital cable is starting to make progress in some of the key territories like Romania, Hungary, the Czech Republic and Poland. As competition increases, operators are increasingly being forced to find compelling reasons to encourage their subscribers to upgrade, or face the prospect of losing them to rival services.

So far this need to upgrade to keep pace with the competition has been somewhat limited to the major territories. But our research indicates that this will become a widespread activity across the region in the medium term. An increase in merger and acquisition activity is also anticipated in the next few years, leading to an increasingly positive business environment.

For the first time, we’ve carried out some research on how the move towards multi-play bundles is affecting the market. The results, we think, are interesting. The growing necessity to push upgrades means that by 2014 only 27% of digital cable subscribers will be TV-only subscribers, with the other 73% signing up for their TV in dual- or triple-play bundles. The bundled subscribers will be attracted, in part, by lower rates for the TV component of the services, meaning the 73% of multi-play subscribers will generate only 44% of revenues – with standalone TV subscribers accounting for the other 56%.

This trend means that while ARPU is expected to increase in the short-term, it will start to slow towards the end of the forecast period and in some sectors go into decline – as the impact of dual- and triple-play bundles pushes down prices.

Meanwhile, the situation for IPTV varies a great deal from country to country. In markets like Slovenia and Croatia it is already making good progress and is starting to emerge as a strong platform in its own right. The circumstances for IPTV are, of course, most positive where broadband capacity has been upgraded to provide sufficiently-robust networks to handle the technology. Where this is coupled with attractive content rights, IPTV has a realistic chance of attracting subscribers away from cable and satellite.

While IPTV can succeed as a standalone TV business, this will be the business model in only a minority of cases. More common will be for IPTV to be increasingly seen as a customer retention tool forming part of a bundle of attractively-priced services. This, too, will keep ARPU fairly low, as IPTV will only rarely compete head-on for premium pay TV subscribers.

Find out more about the Eastern European TV report