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Pay TV Rules While Digital Comes of Age
While OTT VOD and electronic sell-through services continue to explode in popularity across Europe, live programming still gives pay TV services the edge

As Europe's markets transition from packaged media to digital content consumption, pay TV operators  hold the trump cards, according to a fresh report from analysts Futuresource Consulting.

"We are still watching digital come of age, and in the interim 3-5 year period pay TV has a very crucial part to play," stated analyst Carl Hibbert, presenting "The Drive for Digital" report today.

Hibbert will be among the speakers at this year's Streaming Forum in London in June. The full programme will be announced next week.

The research found that the UK and Nordic regions were hotbeds of digital spend in Europe. The UK's consumers, for instance, register the highest spend on entertainment in Europe, at £10 per month per head, although the bulk of this still comes from pay TV.

Across Europe, the analyst noted that packaged media still dominates video buying habits despite clear declines in packaged disc sales. Standard VOD and electronic sell-through (EST) services like iTunes are only at around 19% of overall spend.

"There is still a huge affinity toward buying packaged content," added analyst David Sidebottom. "Making consumers connect to a digital ownership model is the key issue for the video industry."

The UK is pinpointed as Europe's leading "hotspot for digital media uptake." Last year UK consumers spent £900 million on (digital) games, £500 million on digital music streams or downloads, and £330m on online video.

The reasons for this, believes Futuresource, include the fact that over half of UK broadband lines run at speeds of 15Mbps or more, while 2013 saw the first commercial 4G roll out.

"This is not necessarily a driver for digital consumption because of the current price of consuming over 4G, but in future people will be more willing to pay for this data, while operators will adopt more flexible pricing," said Sidebottom.

The UK consumer's "huge appetite" for digital is identified with a statistic that one in three persons owns a tablet, while smartphones (some 60 million) are at saturation point (the UK's population is 65 million), not even factoring that many people own more than one handset.

Some 10 million UK households own a games console—"easily the highest number in Europe"—while 6 million have a connected TV in use and 1.5 million have a digital media adaptor like a Roku or (BSkyB) Now TV box.

"People want fast broadband in order to access more video and more media," said Sidebottom. "Netflix and Spotify have raised the bar in terms of premium media services and awareness of them is very high.

"In UK retail we've witnessed a vicious circle. Blockbuster video stores have gone from the high street and HMV stores have halved in number. This decline is partly because of competition from digital retail, but is in effect driving more people to digital. All of these reasons contribute a bedrock for further consumption of digital content."

Europe's markets are not uniform when it comes to digital uptake. The UK spent 24% of total entertainment spend on video last year. By contrast in Italy it was 13%. Over half of games are now consumed online in the UK; the figure is 32% in France. Nearly three quarters of the spend on music in Sweden is digital (Spotify, for example) but in Germany the comparative figure is 27%.

Nonetheless, across Europe payTV retains the upper hand: "The importance of the remote control is still key for a number of years to come and is a hugely important way to access content," said Hibbert.

"Multiple media service packages are commonplace," he said. "We are starting to see people cut the cord with more people taking payTV and OTT services like Amazon Instant Video (recently with Lovefilm folded in). Over 50% of pay TV subscribers are likely to take Netflix than free TV-only users."

Pay TV accounts for over 50% of total consumer spend in the top five markets (Germany, France, Italy, UK, Spain) with operators "continuing to push the boundaries of technology to maintain their relevance in fast moving and transitional world," noted Hibbert.

One of the reasons pay TV remains significant competition to services from Netflix and Amazon is that pay TV players are perceived by consumers to offer a wide choice of channel content combined with exclusivity of movies, drama, and sports.

Initiatives from Canal + in Spain with Yomvi, Sky with Now TV, and Canal Digital and Viaplay in the Nordics show that pay TV operators are keen to go head-to-head with VOD services and are making the most of a key advantage—the ability to also offer live broadcasts.

"The average consumer may watch a handful of VOD content per month but live is still a crucially important factor for TV so the ability to provide this over OTT is a key differential," said Hibbert.

Futuresource Consulting's Carl Hibbert will be among the speakers at this year's Streaming Forum in London in June. The full programme will be announced next week.