Market Insight

BT switches off 35,000 TV customers as part of YouView migration

July 31, 2014

Fateha Begum Fateha Begum Associate Director, Connected Devices & Media Consumption, IHS Markit
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UK incumbent telco BT lost 35,000 IPTV customers in Q2 2014, as it exchanged legacy set-top boxes for newer YouView boxes. BT ended the quarter with 1.007m TV customers, up from 1.002m in Q1 2014.

BT ceased offering TV services on the first-generation Vision set-top boxes in June 2014, having only warned customers of the impending exchange in April 2014. The exchange also requires customers to re-enter an 18 month BT Broadband contract, resulting in high customer churn in TV. By ceasing operation on the legacy set-top boxes, BT TV lost 35,000 inactive customers - these were customers who were not paying for a subscription nor using the box-office service. When including this inactive base, BT TV would have seen net additions of 40,000 in the quarter, taking its total TV base to 1.042m.

BT has now fallen behind IPTV rival TalkTalk in terms of TV customers, making TalkTalk the third largest pay-TV operator in the UK, following Sky and Virgin Media. TalkTalk added nearly 0.19m IPTV customers in Q2 2014, taking its total TV base to more than 1.1m.  However, only a small proportion of TalkTalk’s TV customers pay for additional content, both in terms of linear channel packs and transactional on-demand.

Our analysis

BT TV (formerly BT Vision) was launched in 2006 as a free-TV service, offering access to linear Freeview channels via DTT, and on-demand content via IPTV. The free TV offer, used as a broadband loss-leader, was subsequently removed as customers were churning from the service upon receiving a free set-top box, and replaced with the requirement of taking one of two sVoD packs. The 35,000 inactive TV customers represents those who were not paying any direct fees to the telco for TV services, via both subscriptions and transactional content.

Over the past two years, BT has improved its TV offer through multicast upgrades allowing it to offer linear TV channels from 2012, the launch of the YouView set-top box in 2013, BT Sport and the UK’s first buy-to-keep movie service.  The launch of YouView made little impact on its TV uptake initially, unlike competitor TalkTalk which reversed its downward subscriber trend. One of the key factors in hindering TV growth was the availability of three set-top boxes with different content and packages, and network requirements.

BT has shown increased interest in higher revenue generation from TV services, in addition to improving value perception. The move to close down the legacy set-top box helps to eliminate those that were using BT TV services, yet not generating any incremental revenue for BT, therefore do not equal to a direct loss for the TV business. Assuming none of the inactive customers migrated to the YouView set-top box – though unlikely –would suggest that at least four per cent of BT’s TV base in Q1 2014 were not contributing to TV revenue, and were likely to have been a cost to the telco.

Though the move to shut off older customers has dwarfed net additions for BT TV in Q2 2014, it is likely to have increased the number of paying TV customers, eliminating free-riders. At first glance, the short notice given to customers to switch the set-top box seemed like a hasty move, however, upon closer analysis it should help BT to boost its TV revenue in the long-term and reduce the costs of supporting legacy equipment and services.

Geography
UK
Organization
BT Group
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