2009-02-24
Against the backdrop of a global recession, pay-TV operators' revenues are being protected from a decline in advertising spend through subscription income. However, while subscription levels remain robust, the biggest threat to profit in 2009 is an expected increase in piracy. As a result, conditional access providers in developing nations may need to invest in more robust systems.


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The broadcast industry is believed to be relatively sheltered from the economic downturn, as consumers are opting for home-based entertainment rather than going out. Indeed, while commercial free-to-air broadcasters are suffering from a fall in advertising spend, state-funded public service broadcasters and pay-TV operators have a relatively more secure income stream derived from license fees and subscriptions.

However, Datamonitor believes that while consumers are more likely to use home-based entertainment to save money, this driver also makes them less inclined to consume media content through legitimate channels. The dynamics of pay-TV piracy differ between the developed and developing nations; the latter providing the biggest opportunity for conditional access providers with proven, robust products.

In Western Europe and North America, where broadband penetration is high, internet piracy is much more of a threat than in the developing nations, where the principal medium to deliver pirated content is through the TV set. Indeed, in developed nations, consumers are able to access pirated video content from a number of file-sharing and live streaming sites on the internet.

However, this is not to say that efforts to circumvent pay-TV operators' conditional access systems in the West are declining. For example, in Ireland, it was estimated in 2008 that 20% of UPC's nearly 550,000 cable customers were using illegal decoders to unscramble all content broadcast on the service.

Datamonitor believes that the recent redundancies announced by pay-TV operators in Western Europe and the US add a further risk into the equation: sacked employees may seek to augment their redundancy cheques by using their industry knowledge to assist organized pirates to cheat their previous employers out of revenue.

While the risk of piracy is increasing in Western Europe and the US, it is in the developing countries where the pay-TV operators' revenues are most at risk. The principal drivers for the increase in piracy are the expected growth of digital TV in these developing regions, the large potential market for pirated content, and the relatively less secure conditional access systems. From Russia through the Middle East to China there is a widespread cultural ambivalence toward the illegality of pay-TV piracy among consumers.

For example, in Russia and the Ukraine, Datamonitor expects subscribers to digital pay-TV services to grow 28% year-on-year to 8.7 million households in 2012; without the implementation of effective conditional access systems, Datamonitor expects the growth in piracy-related losses to grow nearly 37% year-on-year to E273m.

With far lower revenues per user than in developed countries, pay-TV operators have tended to implement cheaper, less robust conditional access solutions. While this increases the margin earned from each legitimate subscriber, Datamonitor believes that, in some cases, profits will become impaired due to loss of revenues from piracy more than capital costs will be saved by implementing cheaper conditional access systems.

A case in point is the Philippines, where piracy is almost endemic. The Cable & Satellite Broadcasting Association of Asia valued pay-TV piracy in the Philippines at $94m for the end of 2008. While many broadcasters have been compromised by piracy in the country, NDS has made great capital from its Philippine client Mediascape, which so far claims to be piracy-free.

While pay-TV piracy is a huge, worldwide problem, Datamonitor believes that the biggest opportunities for conditional access vendors lie in the developing world. While robust, proven technologies are more expensive, Datamonitor expects that further increases in piracy will see a shift away from cheaper alternatives to protect revenue streams. As a result, 2009 will be the year that pirates make or break conditional access companies.

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