The challenges of delivering a pay-TV service in smaller markets can be significant, in a capital-intensive business where scale is so critical. Smaller markets, with fewer households, mean fewer paying customers you can use to amortize your investment as an operator. That makes it more difficult to find that ideal balance between new technology, consumer demand and practical financial planning.
Slovakia is an interesting example; with a population of just 5 million and a GDP per capita rank of 47th, the market is a little different from such large economies as the US, UK and Germany that we tend to look at, but also from some emerging markets in Asia that we have written about previously.
The Slovakian pay-TV market is a mix of satellite operators (mostly targeting rural areas with limited or older wired infrastructure) cable, IPTV and OTT services. Interestingly, Slovak Telecom itself offers pay-TV services on each of these infrastructures.
Telco Transformation met up with Luana Alexe, senior product and service development manager at Slovak Telekom, who is responsible for product development/innovation for digital video services (IPTV, satellite, web, iOS, Android) and addresses issues such as monetization, UI development, integration with third parties and overall roadmap development and delivery for the operator.
In the first of a two-part interview, we discussed the Slovak market for pay-TV services, the services that Slovak Telecom is currently offering, its strategy for doing so and the benefits of collaboration with parent company Deutsche Telekom.
Telco Transformation: Can you give us an overview of the pay-TV market in Slovakia?
Luana Alexe:The Slovakian market is not very big. It's about 1.5 million households, 5 million people. So, as you can imagine, we face certain limitations. But pay-TV penetration is quite high. Basically, today, whoever can afford to pay for a TV subscription and has any interest in TV is paying. There are no real prospects for growth [in terms of new households subscribing.]
But what we are seeing is migration from one technology to another. This was also visible during the digital transition, when we had the analog switch over for broadcast transmissions. We also saw substantial growth in cable and in satellite, including the launch of Magio Sat, which we continue to use, although we are focusing more on IPTV now.
We [Slovak Telecom] are number one for IPTV but there are other providers as well. Orange (NYSE: FTE) is in Slovakia, and they have an IPTV service and an OTT platform as well. And there is Skylink, which offers satellite services. It is part of the M7 Group [a major European satellite and IPTV service provider based in Luxembourg], and it is the largest satellite TV provider -- very aggressive with its pricing.
We also have cable competition -- UPC is here, and has launched its Horizon platform. And there are several regional players, usually just in one city. Some have consolidated their local markets and are now expanding beyond.
TT: How are your TV operations structured?
LA: Slovak Telekom sells its TV services under the Magio brand. So that includes the main Magio TV delivered via IPTV but also Magio Sat, delivered over satellite, and our Magio Go service, which is an OTT service.
But also, in 2013, Slovak Telecom acquired Digi Slovakia from Romania's RCS & RDS group and is continuing to run it under a separate brand. The goal is to use it to target more mass-market customers while the Magio brand is positioned as a more premium service.
TT: Why have so many networks in a comparatively small market?
LA: For us, IPTV is the key product and that is also where we are seeing most of our growth. But there are regions which are unwired, in rural areas, where it is more practical to offer the service via satellite.
The OTT service was originally launched as a value-added service for subscribers and offered free to them. But now we are also offering it as a standalone.
TT: Do you charge for the standalone OTT service?
LA: Yes, we charge a monthly fee of €3.99 for 12 channels and €5.99 for 50 channels. There's no on-demand, it's all live streamed. And it's all local content.
So if you compare it with Netflix, that's priced at €8.99 to start with and then there are higher tiers. So Netflix is quite a bit more expensive, and right now there isn't very much content, certainly not much that is local.
TT: Deutsche Telekom acquired the remaining interest in Slovak Telecom last year, now it is 100% owned by the German operator. Has it been an advantage being a part of Deutsche Telekom?
LA: Yes, it has. I think that [relationship] has also been shifting a bit, and we have moved towards closer cooperation more recently. It used to be more of a corporate parent role, as with other DT properties, initially. But in the past few years we have become much more involved with other natcos [national telecom companies owned by DT], working on products together, maybe even taking a product from one market and introducing it in another.
Initially the cooperation was driven by technology and platforms, but now we are also talking about commercial and strategic initiatives. There are more and more projects.
Obviously, this has helped. If we just look at the TV service, pulling together eight or nine countries will be stronger than just our market of 1.5 million homes. Of course, there are complexities as well -- each market is different, every country has its own cultural issues. So that is also part of it.
Look out for Part II of our discussion in a few days, which will address the development of OTT services in Slovakia and the strategy behind Slovak Telecom's own OTT service.
— Aditya Kishore, Practice Leader, Video Transformation, Telco Transformation