01 Oct 2007

Turkey has long desired to be part of Europe. But in one respect, Turkish television has suddenly become a leader, not a follower, offering a lesson in how to operate a satellite-delivered TV service with a new and interesting twist.

Dogan Group, a conglomerate that over the last two years has shed interests in financial services and insurance to focus on media and energy, has entered the field with a unique approach. Called D-Smart, the new service is encrypted (using NDS technology) but it does not charge its subscribers a monthly fee. In fact they aren't really subscribers at all - they are viewers in traditional free-to-air TV mode. A proportion of its channels - about 30 - are only available with the NDS smart-card and to gain entry to the D-Smart club viewers have to buy a D-Smart set-top box at a cost of TRY300 (€174) and register their details.

Dogan pays a carriage fee to the channels it licenses (so far there are 11 of these including five Discovery channels, Turner's CNNI and Cartoon Network, and the new Sparrowhawk/NBC Universal channel KidsCo, among others) but the service itself will be free at the point of use to registered viewers. The business model is dependent on achieving scale and attracting advertising.

To get scale, Dogan hopes to entice some of Turkey's 17m TV homes to sign up for the service. Once there are enough registered users, the company hopes to leverage its understanding and contacts gained through its newspaper and terrestrial TV businesses to attract a significant portion of Turkey's US$2bn (€1.4bn) advertising market. The target is to attract some 3% of the total ad market in the first year but executives say they hope to increase this to 10% as soon as possible.

D-Smart's competition, the established pay-TV service Digiturk, after seven years of operation reportedly has about one million paying subscribers. The problem is not with Digiturk's channels: it broadcasts a mix of Turkish and foreign channels and holds the rights to Turkish Premier League football (Super Lig). The problem is one that those operating in Germany know too well: there are already too many free TV channels and so the number of people willing and able to pay for subscription TV is much fewer.

Dogan decided to approach the problem from a different angle. Instead of launching another pay-TV platform and bidding up the rights to attractive content, it decided to take a leaf from the internet (free content supported by ads) with a little of UK's Freeview TV service and Mediaset's digital-terrestrial service in Italy thrown in. The result is a plan to tap into the Turkish advertising market by offering a user-base that advertisers want to reach.

Advertising spend in Turkey is growing rapidly, with an increase of 30% forecast this year, but there are already seven million satellite dishes in place, and Dogan's new set-top boxes can receive transmissions from both Eutelsat's Hotbird and Turkey's own Turksat. The D-Smart EPG lists some 300 channels, but the idea is to keep the most attractive part of the package behind a registration wall. Dogan is spending US$20m on a marketing campaign for D-Smart and so far it seems to be working. Since May the company says it has sold 250,000 set-top boxes with registrations for D-Smart. In August (typically a slow month for TV) it sold 70,000. The goal is to have 600,000 sold by the end of the year, says Yaman Alpata, director of marketing and product development at Dogan TV Holding.

Foreign channels like the business model. They get a minimum guarantee, with extra if targets are met. Sony, HBO and Fox's FX are all in the midst of signing deals and NBC Universal has already committed Hallmark's Movies 24 as well as KidsCo to the platform.

Taking a cue from Mediaset, Dogan is also putting in place a scratch-card system for premium content with cards available for sale at 7,000 retail outlets. And to keep costs down Dogan has secured a revenue-share deal with smart-card vendor NDS.

One fight on the horizon could be over the rights for Turkish Premier League football. Dogan is interested, having secured Turkish second league and UEFA Champions Leagues games rights (excluding the games of Turkish teams). The current package is reportedly worth US$100m but Dogan is reported to have approached the League offering US$180m per annum over 2008-2011.

Dogan's plan is bold but it has resources and the contacts that could make it work. And the model need not be restricted to Turkey. Interestingly, publishing giant Axel Springer of Germany bought a 25% stake in Dogan's TV arm last year, shortly before Dogan itself became a bidder in the sale of German broadcasting group ProSiebenSat1. The German broadcaster had previously been in Axel Springer's sights, but a direct approach was shot down by German regulators. In the event Dogan was outbid and ProSiebenSat1 merged with SBS Broadcasting, but Axel Springer still holds its stake in Dogan. There could be more to this story to come.