Is this the end of triple-play offers?

Developing closer ties with the media sector has been a key strategic question for telecom service providers since the early 00s with the deployment of the earliest triple play bundles. Recently though the topic seems to have gained a new momentum, with significant M&A transactions happening:

  • Altice is particularly active in the matter, having announced at the beginning of the week that it plans to acquire Media Capital, a company that owns a number of Portuguese TV and radio channels. The company had also spent more than 1 billion euros in 2016 for the TV rights of Champion’s League and Europa League in France.
  • After acquiring DirecTV in 2015, AT&T announced in 2016 that it had reached an agreement to acquire Time Warner (among others HBO, CNN and Warner Bros). The operation could be closed by the end of 2017, and is expected to help AT&T grow its long-term revenue.
  • In 2016, the cable operator Comcast completed a $3.8 billion acquisition of Dreamworks Animation (via NBCUniversal, a media subsidiary).
  • The interest is reciprocal as can be seen with Vivendi’s move to –once again– up its stake in Telecom Italia at the end of last year.

These trends tend to comfort the idea that even with an ever-increasing number of screens in households, TV remains king. Or at least that this is what service providers are betting on: the integration of TV content is seen as an opportunity to increase their ARPU or their market share.

Pushing a convergence between networks, media and advertising by strengthening one’s live content portfolio is however a risky strategy. The French public organization Centre National du Cinéma (CNC, French national centre of cinematography) recently published some interesting figures regarding the state of catch-up TV in France in March 2017, which provides some useful insights regarding the evolution of TV content consumption:

  • More than 23,500 hours of TV content was available in March 2017 in France, which accounted for a yearly growth of 18%. Only about 16% of it was available for less than 7 days, while around 75% was available for more than 30 days.
  • 587 million videos were viewed on catch-up TV services, i.e. close to 19 million videos viewed every day. The catch-up TV consumption rose by 2.4% yoy.
  • If you take into account all online TV content consumption online (live TV on other devices, catch-up and potential bonuses), close to 700 million videos were viewed in March 2017, an 8.1% growth yoy.

While these figures are not sufficient to understand the reasons and consequences for the evolution of content consumption, they clearly show that consumer behavior is changing rapidly regarding access to video content (even though, as the CNC points out in its study, this change is not even across different populations: young people and upper middle class tend to use more catch-up TV). These changes happen at a time when some TV channels are trying to renegotiate the terms under which their content is distributed by ISPs, mostly to make the latter pay for it. That is for example the case of the French TV broadcaster TF1, who threatened in April to pull the plug on distribution of 5 of its channels if it doesn’t receive transmission fees. And catch-up TV services aren’t expected to support a potential telco empowerment in the matter: the balance of power doesn’t seem to be at their advantage, as rights owners already managed to make providers pay to include these services in set-top boxes.

These elements contribute to put the media / telecom integration model under pressure, while the explosion of ‘over-the-top’ platforms already undermines it (Netflix has more American subscribers than cable TV), be they for on-demand videos or for live TV. The M&A activity may very well be the sign that telcos are desperately trying to maintain margins in content distribution, in a context where the economic equation of providing TV content is eroding. In the end, the question ‘what’s in TV content distribution for service providers?’ is more relevant than ever. A likely scenario is the emergence of a growing divide between providers choosing TV content distribution, and others who may stop their IPTV services to focus on naked broadband products.