25% of European pay TV on OTT by 2027: will the industry maintain its value?

Traditional pay TV accesses in Europe have been stagnating over the last few years and are expected to reach just above half of the region's households in the next 5 years. This foretold decline can be largely attributed to an ever rising number of cord cutters among European TV audiences, switching off traditional pay TV accesses at the benefit of cheaper OTT plans. But this general trend that is observed across the whole continent conceals a wide variety of situation in a market that is known for its fragmentation.

Cable TV and pay DTH will likely take the harder hit in the next years, losing respectively an estimated 16% and 10% of their subscriber base by 2027. Historical actors of those segments are already addressing those challenges by diversifying their offers beyond their legacy accesses. Sky, the European satellite TV leader, has been expanding its portfolio with a new product since last year: the Sky Glass connected TV sets. On the other side of the continent, a similar approach has been taken by the Russian cable and satellite operator MTS, which announced last month the launch of their own line of Smart TVs, branded after their streaming service Kion. DTH will nevertheless keep on progressing slowly in some Central and Eastern European markets where satellite still often remains the only way to access TV in remote areas.

On the cable TV side, growth opportunities seem to be definitely extinguished. Historical market leader Liberty Global has been selling off its cable assets across the region, the latest at date being the acquisition of their Polish service UPC Polska by Illiad earlier this year. Apart from a handful of cases in the German speaking markets where cable has historically dominated both broadband and pay TV accesses, the vast majority of European cable operators will likely move forward with optical fibre networks, switching their coax premises for FTTH and migrating their legacy TV offers on IPTV. In Benelux, where cable is still clearly dominating TV distribution, Liberty Global already announced at least a partial transition towards fibre and is being pushed by a quick, albeit rather late, rollout from its local competitors.

IPTV on the other hand will keep on growing, driven by 3Play bundles as a growing proportion of European households newly subscribes to fiber broadband plans. France alone currently accounts for more than a quarter of the region's total IPTV subscribers. Local telecom operators have taken over the market with cheap TV and broadband bundles, and rolled out their boxes across close to 60% of French households. With the expansion of fibre networks across the continent, coupled with a growing trend towards network consolidation, regional telcos like Orange, Deutsche Telekom or Altice will see their market share on the pay TV distribution ecosystem surge in the next 5 years.

But the most significant uptake in volume is clearly led by OTT pay TV offers. By 2027, linear OTT plans would represent close to 19% of the total number of pay TV plans in Europe and represent more than 60 million subscribers. Increasingly, we see a distinction being drawn between the infrastructure side and the service side within telecom and pay TV operators' organizational structures. Despite being traditionally closely linked together, both aspects are now more often treated as two distinctively separate branches. With more and more DtoC streaming offers available to viewers, content delivery becomes network agnostic, set-top box less and relies mostly on the nature of the content aggregated on one platform and the way it is presented to viewers. On the other side, a growing number of European network operators are picking up wholesale business models to make their infrastructure available to third parties which purely act as service providers.

Pay TV is increasingly an IP based market, with network agnostic offers set to catch up with IPTV in the next decade. If OTT as a TV access seems to get everyone on board, new entrants and legacy actors alike, a big challenge that they should all be aware of is the potential downsizing effect that OTT could have on the industry's revenues. OTT pay TV monthly ARPUs in the region are almost 3 times lower than traditional pay TV accesses and this will have a strong impact on the upcoming market transition.

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