Kate Bulkley, Media Analyst.

All Eyes Turn to ARPU

By Kate Bulkley

Cable & Satellite Europe

April 2001

We've had our EPG and we all understand DTT. DSL doesn't phase us any more and DTH is old hat. But now there's a new acronym in cable and satellite land and it's not just one of the latest, it's also one of the most important. It's ARPU - average revenue per unit.

It's not as if we've never thought about how much money is coming out of each cable and satellite subscriber, it's just that now that pay-TV penetrations have reached what some call "critical mass", the game has changed. It's not just about signing up subscribers and keeping them loyal. It's now about how many pounds, francs, or soon Euros, that each subscriber is willing to part with on a monthly basis.

We've seen ARPU before. When pay-per-view (PPV) came on the stage, pay-TV operators saw getting cash for a single movie, sports match or event as a panacea for their business. It seemed a perfect way of increasing the money earned from each subscriber. However, PPV didn't take off as fast or as lucratively as early expectations. In UK cable, subscribers early on became "revenue units" to account for the fact that they could be paying for TV, telephone and, more recently, fast Internet access as well. Canal + (the largest pay-TV operator in Europe) has 10.9 million subscribers, but 15.3 million subscriptions. This means that for every subscriber, there is nearly one and a half subscriptions to different services. The challenge for the French giant and all of its bretheren is to up that ratio. And the new panacea is interactive services, be it shopping, banking, betting or paying for media-rich information.

The pay-TV operators are hopeful that they will earn incremental revenues out of their subscribers by offering compelling reasons to buy, gamble and access more things more often. One of the biggest players in this arena - Jean-Marie Messier who runs Vivendi Universal - wants his services to be available anytime, anywhere and on every delivery platform, from a television set to a PC to a mobile device. Messier says that Time Warner /AOL and News Corporation also seem to have the same battle plan of having direct access to their customers all the time. So, Vivendi Universal has, on one hand, content from its music labels and film studio, and, on the other hand, has distribution platforms from Canal + to Vizzavi, its mobile phone portal venture with Vodafone. "I don't want to spend years trying to know what content will work or which distribution is best. I just want to keep as much in my group as possible," Messier told said the FT Media Conference in London last month.

Adam Singer, CEO of Telewest, agrees with the Messier message. His company has cable operations, but it also owns content assets because of its merger with Flextech. Singer believes in the idea of the "30-megabyte home" - that's an awful lot of capacity compared to the 56 kilobytes that is the size of most home PC modems right now. His company already has a very healthy ARPU - pounds 38 per month, the highest in Europe, according to Singer. The delivery of television signals today equals only 25% of Telewest's revenues, the rest comes from selling telephone services, high-speed Internet access, pay-per-view and from the 150 stores in their cyber mall. Several thousand of of Telewest's 1.7 million subscribers pay in excess of pounds 65 per month for four megabytes of capacity. "This will grow as we charge for centralised services, be it VOD or storage of a customer's data," says Singer.

Telewest is not alone. The UK's other cable operator, NTL, achieved ARPU of pounds 36 per month from its subscribers and CEO Barclay Knapp expects ARPU to reach pounds 60 per month per month by 2005 across all his subscribers. Of course, all this depends on growing what the industry is now calling IDTV services - interactive digital television services. BSkyB has had some early successes with interactivity, particularly with betting. It has set an ambitious target to increase its ARPU to pounds 400 by 2005, a rise of 40 per cent on its present level of pounds 286. According to Richard Freudenstein, COO of BSkyB, pounds 50 per customer per year of that increase in ARPU will come from interactive services.

However, a lot of these positive predictions may be flawed. A study by the Henley Centre in London states that 50% of consumers polled only go to interactive services "when there is nothing else on TV" and only 25% turn on the TV specifically to go to interactive services while the other 25% do so only during an ad break. The study also says that just because consumers can shop differently, doesn't mean to say they will. "Build it and they might not come" is one of the study's many phrases to undermine the general atmosphere of optimism from M Messier and company.

So who's right? Maybe going down to the store, waiting in a queue of people, being given a cheery hello by the newsagent isn't so bad. I can exchange views on the weather with the cashier at the supermarket and happily browse the shop windows for bargains. Is this more pleasurable than sitting alone in front of my screen? The Henley Centre says that 60% of people will research on-line before purchasing off-line. But so far at least pay TV operators aren't charging for research. To get it right, the pay-TV operators not only have to have compelling content and services, but they also have to create an environment that is attractive so that people will want to go there and want to spend.

Sky is moving in the right direction when it says it will be integrating more of its interactive services into the mainstream television experience rather than sending people outside to a new environment. Once a real amalgamation of TV and interactivity has been achieved, then the pay-TV operators may be able to graduate from ARPU to a new acronym, WMOF - We Made Our Forecasts.

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