Market Insight

OTE makes €300 million bid for Greek pay TV service

June 30, 2014

Constantinos Papavassilopoulos Constantinos Papavassilopoulos Associate Director, Service Providers & Platforms, IHS Markit

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Greek incumbent telco OTE has made an offer to acquire the Nova pay TV business from Forthnet. The offer, confirmed this morning by Forthnet, values the business at €250-300 million in cash. Forthnet said the offer is ‘based on certain assumptions and’ that it would evaluate the offer and ‘inform the investing public accordingly’.

Forthnet acquired Nova in 2008 from the South Africa-based Naspers, paying €490 million. At the end of 2013, Nova reported 452,340 pay TV customers in its home market, a healthy 14% increase on the year before. Pay TV revenues also showed a healthy increase, rising 15.6% to €152.7 million in 2013. However, Nova is facing mounting competition from OTE’s pay TV service, which reported 256,000 subscribers at the end of 2013, up from 120,000 the year before. 

News of the OTE takeover bid emerged as Forthnet plans to shut down its pay digital terrestrial (DTT) service Nova Terrestrial. IHS Technology has learnt that the DTT service will be switched off by the end of the summer. Nova Terrestrial subscribers, which IHS technology estimates at 22,000 as of Q1 2014, will be offered a free satellite dish and installation. In addition, subscription fees will not be increased.

Nova Terrestrial was launched in June 2012 in the two major cities, Athens and Thessaloniki, offering two DTT channels. The service was later extended to 20 cities, covering 75% of the population. Every Nova Terrestrial subscriber needed to purchase Nova’s satellite set-top box (NovaBox HD 831), with a free DTT USB dongle bundled in.

Our take

OTE's official bid for Forthnet is the last one in a string of offers for the acquisition of Nova during the past few months. Articles in the Greek Media have disclosed an interest by Vodafone to became the largest shareholder of Forthnet. The articles were fueled by the fact that the Emirates Telecommunications Corporation, which controlls 44% of Forthnet' shares through the fund Forgendo Ltd, have expressed their willigness to sell provided the price offered is the right one. A possible takeover of Nova by OTE, however, will necessarily have to obtain the approval of Greece's Competition Commission because the new entity that will result from the merger will have a significant market power in the pay TV business of the country especially in reference to  the acquisition of sports rights and other premium content (movies).

Forthnet’s decision to switch off its pay DTT service is sound. In 2009, it was awarded half the capacity of a multiplex (the other half was allocated to the public service broadcaster ERT). Having only half a multiplex Nova was able to provide just two channels: Nova Cinema 1 and Nova Sports 1/Disney XD (transmitted for 12 hours daily each). The cost of transmitting just two pay TV channels over DTT is high, especially in the case of Greece where the mountainous geomorphology necessitates the installation of more than 200 transmitting towers to cover 90% of the population. In February 2014, a private company, Digea, was given the licence to operate as the sole DTT network provider, except for the two multiplexes operated by the public service broadcaster. That decision means that Nova had no option but to do a deal with Digea in order to continue offering its pay DTT service. 
Apart from the cost of transmitting the DTT channels, another reason that contributed to Nova’s reluctance to continue its pay DTT service is the regulatory framework. Nova was expecting that the government would have redrawn the DTT licensing rules favouring a pay DTT offer. Such a solution could have brought more money to the state coffers for cash-strapped Greece, let alone the fact that, due to the economic crisis, there are not enough free-to-air channels to fill eight to nine multiplexes. It was rumoured that the government was planning to award one or even two full multiplexes to a pay TV operator, but no change of the law was proposed.
Nova’s decision was also influenced by the poor performance of pay DTT in recent years all over Europe (with the exception of the Nordic countries). According to IHS Technology data, pay DTT made up just 4% of the total pay TV market split by platform or 3% of the total digital TV market in the continent (including FTA). The rather limited offer of channels due to the scarcity of spectrum resources, the even more limited offer of HD channels and added-value service like video-on-demand (VoD) and the fact that the European consumers, in general, have connected the terrestrial television with a free offer of content have sealed the fate of pay DTT in many European countries. The failures of On Digital in the UK and of Quiero in Spain in the early 2000s were an early indication of the limited attractiveness of the platform and it is telling that in the five biggest TV markets in Europe (UK, Germany, France, Italy and Spain) only in Italy has a pay DTT service been able to survive.

Organization
Forthnet
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