One particularly striking contrast I noted at the IP&TV Eastern Europe and Eurasia conference in Istanbul last week was between the business models of Topfun and Skylink, two video/TV providers in the Czech Republic.
Topfun is an online video provider that offers transactional and subscription video on demand and also has deals to offer managed video-on-demand (VoD) on the IPTV platforms of some smaller fixed-broadband operators.
Skylink is a very different beast. Its business model capitalizes on next month’s analogue switch off in the Czech Republic by offering users DTH with HD channels and a wider channel offering than that offered via the DTT platform. Customers pay a one off fee of €80 [to] either watch the channels for free or take a pre-paid selection of channels for a low cost.
Not only are the business models of these two companies completely different but their results have differed wildly. By June 2011 Skylink had managed to tempt over 900,000 households - around 17% [of which] are taking the pre-paid service. Topfun, on the other hand, has had little success in garnering revenue. In fact Trade and Technology, the former owner of Skylink, was also a shareholder in Topfun and funded the over-the-top player with a significant loan.
I think this difference reveals a number of important points.
For all the talk of OTT in the Istanbul conference, making this business model work in Eastern Europe is proving tricky to say the least. In large part that is down to the lack of attractiveness and flexibility in acquiring content. Operators can show content only in release windows that occur long after films have been widely viewed via pirated means, and face difficulties in negotiating rights for multiple devices (and then providing DRM across all those devices).
There are also limitations on pricing placed on providers by content owners. You might argue this situation will change in the long run and therefore it’s better to enter the market now in preparation for the day when content rights become more attractive. But as [economist] JM Keynes once ironically and immortally noted, “In the long run we are all dead”.
The contrast with Skylink is stark. Skylink is not a business based on new technology. While Topfun offers its content on Samsung connected TVs and via the browser, Skylink offers no VoD at all, just plain SD and HD channels. There were rumors that Skylink was working on a hybrid DTH/OTT set top box which could have meant a collaboration with Topfun through…Trade and Technology. These rumors have come to naught, however. But by offering a simple service for a one off price with the lure of HD and attractive Slovak channels, Skylink has had success.
But is this business model anything other than completely short term? Whilst Skylink has been able to rely on the one-off…fees from new customers switching from analogue terrestrial, this option will disappear after analogue switch-off takes place next month. Converting more subscribers to its pre- paid model and getting them to pay more will be imperative but it certainly won’t be easy.
No doubt there are other avenues the company could pursue, such as acquiring smaller ISPs using Wi-Fi/FTTH/B as Skylink has looked at doing in Slovakia. Consolidation will also help. Skylink has recently been acquired by the M7 Group, already the owner of CS Link, another DTH operator with a very similar model in the Czech Republic. There is also the possibility to offer wholesale DTH as Skylink is doing with T-Mobile Czech Republic. But the long-term strategy remains far from clear.
Just how far ahead are investors the region looking when they make their business decisions? Certain technologies such as connected TVs may be ‘hot’ but that doesn’t mean that customers will adopt them anytime soon. The studios will prefer to maximize their short term revenue through the still growing linear pay TV market in Eastern Europe. But maybe business models can be based too much on the short term. No doubt Skylink has been able to bank a tremendously large number of €80 from the explosive growth in customer numbers, but what now?
The challenge for these two companies is one that all companies operating in this market face – how to balance short term opportunities with a longer-term vision. Companies can’t only focus on new platforms that have yet to be adopted widely – for all the hype, the revenue isn’t there yet. But, equally, companies that focus only on the next quarter of results will struggle to remain relevant.
Stephen Wilson is a senior analyst in Informa Telecoms & Media’s Broadband & Internet team.