Why is the size of Turkish Pay-TV market relatively small?

It’s fair to say that Turkish Pay-TV market is saturated. There are basically 5 major players :

  1. Digiturk – DTH + OTT (beIN Media Group) -> 2600K subs
  2. KabloTV – Cable + OTT ( by government owned Turksat ) -> 1195K
  3. D-Smart – DTH + OTT ( Dogan Media’s DTH company) -> 934K subs
  4. Tivibu – IPTV + OTT (by incumbent telco Turk Telekom) -> 894K subs
  5. TV+ – IPTV + OTT (by leading incumbent mobile operator ) –> 436K*

In addition to these, there is another independent DTH operator called Filbox that is relatively small compared to the major players ( 50K subscribers ). In total, there are 6 million 110 thousand subscriptions. Let’s imagine that 20 % of the households have at least 2 subscriptions ( i.e. both Diguturk & TV+ or KabloTV & Tivibu) Hence the number of households with Pay-TV subscription is around 5 millions. That is to say out of 20 millions households in Turkey around 25% of them have Pay-TV subscription.

This ratio is relatively small compared to the developed Western markets where in average more than 50 % of the households have Pay-TV subscription. From my point of view, there are basically 2 main reasons of this difference:

  1. The purchasing power of the Turkish consumer is not at the level of Western countries. On top of this, The piracy is extremely common and consumers are avoiding to pay for the TV service and they are quite capable of consuming digital content illegally.
  2. Due to the significant loss in the value of Turkish Lira against USD, Pay-TV operators failed to deliver the best user experience due to the limited HW capabilities of STBs. Generally speaking, overall TV watching experience is weak and consumers had many quality issues which resulted them to be discouraged to continue to pay.
  3. On the contrary of developed Western countries, cable TV infrastructure is weak in Turkey. State-owned Kablo TV is not investing enough to penetrate and should be privatized for further growth.
  4. Greatest player Digiturk had one of the worst customer satisfaction scores in service industry in Turkey and the value of Turkish Football League is in decreasing trend. Also, the status of the ownership of Digiturk has been suspended quite long time and Digiturk’s management was not in a position to make strategic decisions. The number of Digiturk’s subscribers is stabilized around 3 million and going down in the past quarters.
  5. Last but least, the second largest DTH operator D-Smart is owned by Dogan Media Group. The company is owned by Media mogul Aydin Dogan. Dogan had significant conflicts with the government mostly due to the other businesses of the holding and had financial setbacks. As a consequence, D-Smart ceased to invest to Pay-TV business and lately loosing part of the customer base.

In short, the total size of pay-TV market in Turkey is stable and not growing. Actually, there are still 2 players those are constantly adding new customers :

Herebelow you can see in a consolidated manner the number of TV subscribers of Turkcell’s TV+ and TT’s Tivibu over the course of last 3 quarters starting from Q4 of 2016 to Q2 of 2017. As you would quickly notice Tivibu is growing massively on Tivibu Home segment (around 100K net addition per quarter) while TV+ is booming in OTT base (more than 250K net addition on last quarter). Basically Turkcell is focused on OTT vertical and TT is investing in new Satellite TV business. It seems reasonable to assume that in a few years Tivibu could be the second largest player following Digiturk and leaving D-Smart and Kablo TV behind. Well, at this point there are 3 key questions:

  • What is the driving force of the growth of TV+ and Tivibu?
  • While calculating the overall market size should one include OTT only subs as well or the home subscribers should be the reference ?
  • What could fuel the growth of the overall Pay-TV market that seems lately saturated and not moving much  ?
TT & TV+
TT & TV+

 

What is the driving force of the growth of TV+ and Tivibu?

Actually the answer to this question is pretty simple. The driving force behind the massive growth of these 2 platforms is basically ‘bundling‘.

Both Turkcell and Turk Telekom groups are bundling TV packages together with mobile & broadband tariffs. For instance, if you subscribe to any of the Turkcell Platinum tariffs that covers 12 GB+ of mobile broadband and 2000+ minutes, TV+ package is also included in your plan together with other Turkcell’s digital services. Similarly, if you are one of the Turkcell Superonline fiber broadband customers, TV+ IPTV service is offered to an attractive upcost on top of your broadband package. On the other hand, TT is running even a more aggressive campaign since some time. If you are subscribed to one of the Turk Telekom’s mobile packages, depending on your package TT’s DTH service fee is just starting from 5 TRY ( ~1,5 USD) per month. This is clearly what they call an impulse price. This also explains why TT’s DTH service net adds are increasing  around 100K on the last few quarters . Considering all the STB,  installation and other related costs TT group is obviously losing money here. This is also confirmed by the Tivibu ARPU figures. While it was 19,2 TL in Q4 of 2016, it has come down to 17,4 TL as of Q2 of 2017. I assume TT’s overall strategy is to ramp-up the installed base very quickly and develop innovative business models to leverage the base down the road.

While calculating the overall market size should one include OTT only subs as well or the home subscribers should be the reference ?

Even though it’s a tricky question my view is YES, OTT subscriptions should also be considered as part of the total Pay-TV customer base. The rational behind my position is that OTT subs are also paying money for the TV service. Furthermore, in today’s OTT driven world one should also take into account customers of Pay-lite services while looking to the big picture. For sure, this is only my perpective and this is a subjective discussion. Nevertheless, I think it’s worth to have look to the renewed figures and market size based on this assumption. Revisiting the numbers I’ve shared on my previous post:

  1. Digiturk  -> 2600K subs + Digiturk Plays subs (not public)
  2. KabloTV -> 1195K (There is no all-access type of OTT service)
  3. D-Smart  -> 934K subs ( same as KabloTV )
  4. Tivibu  -> 894K subs + 1418K (OTT subs) = 2312K
  5. TV+ > 436K + 1111K (OTT subs) = 1547K

From this point of view, the players in the market are sorted as Digiturk, Tivibu, TV+, KabloTV and D-Smart in terms of number of total subscribers. In order to figure out the total size of Pay-TV Market let’s assume that there are around 400K Digiturk Play customers. Hence there are almost 9 million (8988K) Pay-TV subscribers in Turkey of the 5 major players. In addition to these, there are Filbox (50K), BluTV and Netflix (not public) customers. The underlying technology consumers are benefiting to get the TV service is really diversified. While satellite is the dominant medium, IPTV and OTT are also getting very common. Cable is also present. In Turkey, the only missing element on paid TV services is digital terrestrial broadcasting. Doing the same algebra to calculate the overall Pay-TV penetration ratio, we end up at around 7,5 million Pay-TV customers. ( 37,5 % of the households ) Please bear in mind that this is only a simple math and there are 2 points to consider before going further on the analysis:

  • While the subscription to big TV services like Digiturk and KabloTV is in household segment, OTT subscriptions are personal and the total space should the whole population as opposed to the number of households.
  • While it seems feasible to assume the households with more one Pay-TV subscription at the neighborhood of 20%, the same ratio should be higher when OTT subscription is concerned. That’s to say the ratio of households having any of the OTT type of services on top of a big TV screen subscription  should be assumed to be more than 20%.

What could fuel the growth of the overall Pay-TV market that seems saturated lately and not moving much  ?

I guess this is million dollar question. Let me share my two cents on this quite complicated discussion.

  1. Undoubtedly, the most valuable content in Turkey is Turkish Football League. As being the owner of the broadcast rights, historically Digiturk has not been very keen on licensing the content to other players. Also, the terms and conditions of the contract signed between Digiturk and Turkish Football Federation  doesn’t have any obligation for Digiturk to licence the content to others. I think if TT or Turkcell manages to build and maintain a partnership with Digiturk to licence the games, there might be a significant interest from the market. As a result, people those who had bad experiences with Digiturk for any reason could opt for subscription to one of the other players and market could get bigger and bigger.
  2. Alternatively, KabloTV should be privatized in order to continue to invest and increase the homepass. Due to the heavy bureaucracy, things are moving slow on that vertical and growth seems not a priority. I believe if a private company acquires KabloTV a nice growth story could unfold.
  3. If Vodafone that is the other major telco joins the game things might change a lot and Pay-TV market could arrive to a new horizon. At the end, one of the fundemental requirements for the penetration of a new service is to have an already existing customer base, a strond brand and a significant marketing budget. Vodafone has them all.

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