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Satellite TV market in Russia

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The last year left the situation with DTH in Russia without any surprise. The market had been saturated, operators had been moving from the race of connections to the race of offers. Nevertheless, the government keeps abreast, and the industry is under the heavy influence of the regulatory authorities.

General situation

In late January the 18th International Exhibition and Forum CSTB Telecom & Media 2016 was held bringing together the major players of the television and telecommunications industry. According to the unanimous opinion of the participants, the satellite TV showed the best results in the industry in terms of growth and revenue. Amidst the interactive TV and IPTV, which have been still developing and waiting for the advanced technologies, as well as the cable TV, which can not offer anything fundamentally new, the satellite TV operators managed showing a steady development. Even amid the crisis.

According to expert estimates, the whole pay-TV market in Russia showed a growth of 3.7% up to 39.5 million subscribers. A year before, in 2014, the growth was 8.6%. IPTV takes the lowest share of the total audience, just 14%. The industry leader is the cable TV, as it has 46% of connected households. The satellite TV is left behind it, but not so much and takes a market segment of 40%. At the end of 2015, the revenue per user on the satellite market averaged 140 rubles per month.

The penetration rate of satellite TV in Russia is already high enough, and it will reach 70% at end of the second quarter of 2016. The experts at the “TMT Consulting” believe that the maximum penetration of services in Russia will not exceed 75-78%, and that is about another 4.5 million households.

Further on, it is expected a competition on the content market, i.e. who provides more HD and sports content, and who is faster and better in coming to Ultra HD broadcasts.

The development could be more intensive, and it was prevented not only by a significant increase in dollar. There is a traditionally high insurance risk in Russia, i.e. unpredictable changes in the market rules proceeding from legislative initiatives. Last year, the operators faced an unexpected initiative of the State Duma that amended the “Law on Advertising” in the way that all pay-TV channels lost the opportunity of making money on advertising. Those changes affected near 150 companies, and harmed mostly local TV channels.

The TV channels were significantly “thinned” due to a new requirement to restrict the share of foreign capital. Some channels resulted closed, while others were hastily restructured with regard to those new requirements.

Today, experts are more cautious in their forecasts, announcing frequent concerns that 2016 will also bring some restrictions, which are hard to explain reasonably or predict. For example, they say that the politicians may oblige operators to transfer broadcasting exclusively to domestic satellites, justifying it by present situation requirements. This suggestion does not actually seem extravagant, as it has recently became known that the TV channels like “Tricolor TV” and “NTV-Plus” started their broadcasting from the Russian satellite “Express-AMU1” after having moved from the European satellite Eutelsat. The new vehicle started its operation on February 10 and covered the European Russia, as well as Sub-Saharan Africa. The expected satellite life is 15 years. The reasons for such a “migration” are unknown.

Another deterrent for the satellite pay-TV is the operation of the second multiplex, as the pay-TV operators are obliged to broadcast its ten channels at their own expense. As a result, the residents of the Russian Federation gained an opportunity to receive channels for free without digital terrestrial broadcasting. Many subscribers have TV as the only entertainment, and against reduced income and increased spending, free broadcasting becomes the single and non-competitive one.

However, there are also non-economic trends. For example, almost all operators have increased the number of sports channels, trying to update their thematic packages to attract TV viewers and justify tariff escalation.

The satellite pay-broadcasting market of Russia is shaped by the TV operators like “Tricolor TV”, “Orion Express”, as well as the companies like MTS and NTV-Plus. In 2014, two satellite operators “Rikor TV” and “Raduga TV” abandoned the market due to their failure to obtain satellite broadcasting licenses.

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Largest indeed

The crisis disturbed in no way the operation of the National Satellite Company, known under the “Tricolor TV” brand. But, as remarked by Alexei Kholodov, CEO at “Tricolor TV”, the major threat to the pay-TV market is piracy. He urged not to agree and not to compete with the “black market”, but to destroy it.

In spite of piracy, another 881 thousand households joined the impressive subscriber base of the company in 2015. The total number of subscribers to the “Tricolor TV”’s services amounted to 11.8 million, and the number of subscribers connected to the high definition television (HDTV) increased by 45% compared to 2014. Totally over 6.6 million subscribers have access to HDTV channels, and this is almost 56% of the “Tricolor TV”’s total base. The company also carried out a mass exchange of receiving equipment supporting the standard definition television (SD) for HDTV receivers.

The financial indicators increased by 42.7% compared to 2014, i.e. from RUB 10.4 billion to RUB 14.85 billion. The average revenue per user also increased from 998 rubles in 2014 up to 1315 rubles in 2015. This is due to the introduction of HD content and the option of watching TV channels on two screens for a single subscription. In 2015, the operator completed the new package “Ediny” (Integral) by multiple channels broadcasting cinema, radio, music and sports, which were previously available under an individual subscription. The broadcasting grid was considerably expanded as well by adding 30 SD-quality channels, about ten HD-quality channels, including Discovery Channel HD, CNN, Eurosport HD, TLC HD, “Match TV HD”, “KHL HD”, “Live Planet” and the children’s TV channel “Ryzhiy” (Red-haired) with the sign language interpretation.

The subscriber base growth was also due to blocking free access to some TV channels. As a result, the residents of small localities lacking any alternative to satellite TV were thrown into a dilemma whether to pay 100 rubles per month, or lose the option of watching TV broadcasts. This initiative of the company drew a particular attention of the Roskomnadzor, which held an unscheduled revision of the National Satellite Company. Based on its results the supervisory authority ordered to return free access to the public TV channels, or to remedy the violation by any other means.

Despite the Roskomnadzor’s revisions, the National Satellite Company strengthened its position in the Urals, Siberia and the Far East. Traditionally, these regions have been neglected by telecom companies, as a huge territory and low density of population made the business development marginally profitable there. But thanks to putting a new space vehicle “Express-AT1” in service, the satellite TV operator managed providing a wider range of TV channels, including the HD ones. Due to increasing transponder capacity, the number of broadcasted channels increased several times. So, before putting the satellite in service, the broadcasting on the territory was carried out via the vehicles Bonum-1 and DirecTV-1R, and the total number of available TV channels did not exceed thirty. Now the residents of these regions have about 200 channels available, including near 30 radio stations and 30 high-definition channels.

According to the company’s representatives, the number of real users of the “Tricolor TV”’s HD-content is much greater than the number of user subscriptions. Those users who activate the option of watching HD channels also prefer activating multi-screen services. In the Central Russia these are near 30% of all new contracts and in the Siberian Federal District this figure is up to 50%.

As early as at the end of the reporting period, in November 2015, the company was first in Russia to start broadcasting in Ultra HD format. As of December 31, 2015, its “portfolio” included two Ultra HD TV channels, 30 HD channels, 165 SD channels and 35 radio stations.

In total, the company offers its subscribers five main packages apart from the “Basic” one with 20 free public TV channels, which is included in the package “Ediny”. The packages “Ediny” and “Ediny Multi” offer 199 channels, 30 of which are the HD ones, and 35 radio stations. The first package costs 1200 rubles per year, and the package with the prefix “Multi” allows watching programs on two screens and costs 2000 rubles per year. There is a package “Detskiy” (Children’s) with 15 channels, which costs 1200 rubles per year, or 200 rubles per month. The package “Nochnoy” (Night) is aimed at adults (18+) containing eight channels and costs 1200 rubles per year, or 200 rubles per month. The package “Nash Futbol” (Our Football) is the official channel of the Russian Football Premier League containing two channels, common and HD, and its price is 219 rubles per month. And the package “MATCH! Football” broadcasts live international football events. It incorporates three channels specialized mainly in highlighting games of the English, Spanish, Italian, German and French leagues. The package price is 380 rubles per month.

In addition to satellite broadcasting, the National Satellite Company developed own federal retail network. By the end of the year, there were already 202 sales centers and branded salon stores operating in a hundred cities all over the country. The company has been implementing projects promoting customer awareness of the company’s activities and digital TV. The attention is paid both to B2B and B2C audiences. The corporate blog “Press Club” also functions accumulating all news about the “Tricolor TV”, as well as the digital magazine www.tricolortvmag.ru works for all digital network viewers. The company also plans to shift from the classical satellite TV to broadcasts in all digital media.

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New Look of “Orion Express”

After rebranding in 2015, the “Orion” Group incorporates “Orion Express” Ltd, “Telecard” Ltd and “Vision” Ltd (Kyrgyzstan). The rebranding affected visual design, i.e. the orange was replaced by magenta; the logo was renewed; and in addition, the positioning of various activities was adjusted. As stated by the company’s representatives, the brand was essentially simplified in terms of perception, for clients not to be lost any longer between “Telecard”, “Orion Express”, “Orient Express” and “Continent TV”. These changes were made without any massive advertising campaign, i.e. there was just a “smooth” update of web site, retail outlets and all handouts.

The satellite TV services are offered to individual subscribers of “Orion” under the “Telecard” brand; the “Orion Express” brand is now responsible for the business segment dealing with content production, signal upload to satellite, services package of 24-hour TV broadcasting (playout), content delivery to consumers via satellites and over cable networks.

In 2015, the company’s subscriber base amounted to 2.8 million households. The growth was 9% against 2014, while the entire market evidenced a growth of just 5.4%. It is noteworthy that the highest growth rate was shown by the regions of Siberia and the Far East. Thus, in the Chelyabinsk Region the growth was 19%, in the Chukotka Autonomous District it was 16%, in Buryatia it was 15%, in the Zabaykalsky Krai, the Sakhalin Region and Bashkortostan it was 14% in each of them, and in Yakutia it was 13%. The total revenue amounted to RUB 3.38 billion. The largest growth was shown by the activity “Service Package for TV Broadcasters”, i.e. 26%. Apart from this activity the “Orion” provides services of DTH and distribution of TV channels.

Totally, the subscribers are offered over 300 channels. In addition, the company delivers TV content to the networks of over 350 cable operators with total audience exceeding ten million households.

In one of his interviews Kirill Makhnovskiy, CEO at “Orion”, said that the pay-TV market was close to saturation, its growth slowed down, so for further development it was required to search for new niches, offering TV viewers exclusive quality content and introducing advanced and convenient services. However, the CEO stays positive pointing out that during the crises the share of low-cost entertainment market grows.

Similar to the industry leader, the “Orion” has been also developing own dealer network for equipment sales. The network consists of 28 regional offices covering the entire territory of Russia. The company has carried out significant arrangements to improve the quality of offered packages and it has introduced new services for subscribers becoming the very drivers of revenue growth. In 2015, more than 50 TV channels were added to the operator’s basic packages. It developed the mobile “Telecard” application for smartphones based on Android and iOS, which allows enjoying services with a smartphone screen, i.e. activating additional services, revising account details, reading messages, reviewing existing promotions and crediting account. The “Telecard” was downloaded by over 10,500 people during the first month. Another interesting solution is the “Telecard Online” application, which allows satellite TV subscribers to watch TV channels on their mobile devices. According to the company, the number of installations exceeded 7,500 for the first month. To use the service there is no need for connecting the satellite, as the broadcasts will be carried out over the Internet. At that, it will be enough to have even a low connection speed, as the minimum requirement for speed is 350 Kbit/s. The platform is adapted to the network speed and sets an optimal image quality. The content selected by user is stored in the “cloud”, enabling subscribers to create their own program samples, store history, go back to postponed broadcasts. It is also possible to share links to video fragments in the social networks. This move will allow introducing service to a wide range of users. It is also implemented the “Parental Control”function, which allows arranging a set of children’s programs and excludes access to the “adult” content. The price of using that service will be 99 rubles per month for three connected devices.

Another innovation is the “Film Week” service, which allows choosing a thematic collection of ranked movies to watch without any advertising on the dedicated channel “Telecard Cinema”.

Now the “Telecard” offers two packages to its users. The first one is “Standard”, which incorporates over 100 channels, and the fee is 1200 rubles per year. The second one is “Unlimited”, which includes over 170 channels, and the fee is 3600 rubles per year. In fairness it must be remarked that some channels are duplicated, for example, users can watch the “Channel One”, “Channel One +2” and “Channel One +4”, which represent one channel in fact, but with a time shift. This means that the real number of channels is somewhat less. In addition, subscribers can activate additional channel packages like sports, children’s, adult and educational.

The project “EGE-TV” has been developing as well, providing for the operator to supply equipment for viewing the eponymous satellite TV channel to some 200 Russian schools in remote areas. The Ministry of Education supported the project, as it would assist in delivering high-quality educational content for schoolchildren and teachers to get prepared for the unified state exam. The project started in the spring of 2015.

Inside the “Orion” Company’s plans there is a task to monetize existing customer base. It will be performed not due to a trivial tariff escalation, but by introducing new technologies and services based on them. For instance, it is worked out the idea of hybrid equipment that will allow subscribers to receive signal from a satellite and go online. The company believes that this will take the subscriber communication to a new level. The company’s interest is also generated by OTT, i.e. providing video services over the Internet. This is a very promising activity, but so far “Orion” has been just exploring the capabilities of that new segment. The fact is that the industry, as opposed to satellite television, is not virtually regulated by the government. As the company believes, it is very risky to invest heavily in OTT now, as the government may establish special operating conditions in this field at any moment.

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NTV-Plus wins positions

Despite the fact that the “NTV-Plus” was the first satellite pay-TV operator in Russia, the company failed to become the most successful or the largest volume business. It is not very useful the fact that the company’s shareholder and owner is the “Gazprom-Media” holding.

According to the TelecomDaily’s estimates, the company’s subscriber base is near 1.1 million households, including contracts in Ukraine. The regional centers and customer service points operate in 55 cities over the broadcasting territory. Despite the fact that the “NTV-Plus” positions itself as the first DTH operator in Russia, it is still about to enter the Far East, as well as to find a more fundamental lodgement in Siberia.

The company rarely reveals exact data relative to its subscriber base. For several years running, the number of subscribers was kept at the level of 650 thousand subscribers, which was made possible to increase only in 2013 after the appearance of the tariff “29 rubles for 80 TV channels”.

The reduced tariff is a questionable move, as previously the company positioned itself as the “premium” one and available only to the upper middle income people. The low tariff had its effect, as the number of subscribers increased and the company actually plans to go on expanding its base. First of all, it is due to building competent relationship with operators. So, the “NTV-Plus” has already restarted affiliate programs and started increasing the number of regional warehouses. The “OTT satellite” project also looks promising, and the company has been intending to launch it periodically since 2013, so that the “hybrid” would affect the increase in number of the operator’s subscribers.

The prices for packages of channels were also adjusted upwards. The “Basic West” package now costs 149 rubles per month and offers 171 channels. The price for additional packages sorted by topics like movies, sports, children’s, HD and others, a total of 11 packages, ranges from 59 to 399 rubles per month.

The “Light East” package costs 149 rubles, but contains only 89 channels. For the Eastern region there are available only four additional packages like “VIP-Cinema”, “Supersport”, “Children’s”, “Nochnoy” (Night). The price varies from 49 to 199 rubles per month. In bulk, it will be 649 rubles per month. The total company’s arsenal includes over 240 different content channels, including the HD ones.

Mikhail Demin, CEO at “NTV-Plus”, said at the exhibition CSTB Telecom & Media 2016 that all satellite TV companies waged a “price war” resulted in reducing the package average price. As a result, the services of satellite operators became cheaper than the fee for communal antenna. This is despite the fact that the satellite operators provide more channels and pay for content in currency.

In 2014, the “NTV-Plus” showed a loss of RUB 1.8 billion, and the figures of 2015 have not been made public yet. Nevertheless, the company launched a project of switching TV channels to the MPEG-4 broadcasting format in order to replace the outdated MPEG-2 one. The company promises that all broadcasting will be switched to the new standard by late June 2016. This is done in order to improve the quality of services and to move to more advanced equipment. As stated by the “NTV-Plus”, only 20% of subscriber equipment does not support MPEG-4.

In March, the “NTV-Plus” opened a free access to the service, which allows premium sports packages’ subscribers to watch 16 thematic channels on mobile devices based on Android and iOS by using a special application. The promotional offer will be valid until May 1, 2016. For other users the service is available for a subscription fee of 499 rubles per month.

There are also company’s offers for the business segment. The company has recently presented a professional conditional-access module SmiT PRO CAM for arranging cable TV networks in hotels and inns. The special solution allows avoiding excessive technical devices and optimizing satellite TV access costs. The “NTV-Plus” emphasizes that it has offered an extremely transparent pricing on the “one number for one screen” basis, which makes the offer more attractive and allows winning new customers on the HoReCa market.

In January this year, in order to reduce operating costs the “NTV-Plus” decided to divide its business and focus only on the operator’s activities. The production of sports TV channels passed to the TV channel “Match TV”, while the distribution and production of cinema channels were commissioned to the company Red Media.

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From cellular to satellite

The MTS Company is a new entrant to the satellite TV market. Its plans for entering new market were announced by the company only in late 2014. Just at the same time the satellite operator “Raduga TV” gave up broadcasting, and its subscribers were invited to reconnect to the MTS satellite TV on favorable terms. The target audience of the MTS new service is residents of small localities lacking fixed Internet and cable TV and hostile to wired infrastructure building.

According to the Telecom Daily, by the third quarter of 2015, the satellite TV by MTS was enjoyed by over 2.8 million subscribers. The company plans to become one of the leaders of the satellite TV market in three years. Technically it is possible, because the launched satellite ABS-2, used by MTS for broadcasting, covers 95% of Russia with 99% of its population.

The fundamental distinction from competitors is that the company is aimed at offering subscribers technologies that make the satellite TV interactive. The MTS Company combined cellular capabilities with satellite broadcasting potential. For instance, subscribers can receive video on demand, pause on broadcasts, and rewind them. For the time being, MTS has over 130 channels, i.e. a large collection of sports, music, children’s channels and channels for fans of extreme sports and travelling, including in HD quality. The main offer is the “Basic” package, which includes 128 TV channels. The annual subscription fee is 1200 rubles, and the monthly fee is 140 rubles. There are four additional packages that offer adult content (four channels for 150 rubles per month), children’s content (seven channels for 50 rubles per month), sports content (one football channel for 219 rubles per month) and the Amedia Premium HD package with current TV series and movies produced in the United States and Europe (two channels for 200 rubles per month).

The experts point out that in spite of prospects, as, for example, MTS has an interesting OTT-service “Stream” available to be accessed by satellite TV subscribers, the probability that the satellite segment of MTS becomes the industry leader in three years is rather low.

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