2014/08/19 Digital terrestrial television in Italy: market investors should be ready to exploit opportunities

Digital terrestrial television in Italy: a leading platform that is looking ahead

Several recent events have highlighted the central role that the digital terrestrial television (DTT) platform continues to play in Italy's TV market, including:

• Telecom Italia Media Broadcasting (TIMB) and ReteA merging their multiplexers (MUXs) to form a new company
• the award of a new national MUX to Cairo Communication (owner of the DTT channel La7) – EI Towers will roll out and manage its network
• public service broadcaster (PSB) RAI announcing the sale of a minority stake in Rai Way, the subsidiary that operates the group's broadcasting towers.

DTT retains more than a 70% share of primary TV sets in Italy1 – the highest rate in Europe – and average viewing time is 253 minutes per day, compared with an average of 217 among the EU5 countries.2 Italy's DTT market boasts 19 national MUXs, which are managed by 7 players, compared with a maximum of 8 MUXs in other European countries.3 Italy has a significantly greater number of MUXs because many of them are single-frequency networks.

Italy is also striving to be at the forefront of DTT innovation. It was among the first to launch a DVB-T2 multiplex in 2010. Moreover, the government mandated that all TV sets sold from 1 January 2014 must at least be compatible with DVB-T2 and MPEG-4. Consumer association Adiconsum described this move as premature, and other stakeholders are lobbying to leapfrog directly to the HEVC encoding standard.

DTT has a stronger competitive position in Italy than in the rest of Europe

DTT's share of primary TV sets has decreased in many European markets through competitive pressure from other platforms (such as cable TV, satellite and IPTV), which can typically support more channels than DTT and are more likely to host premium content. The market conditions in Europe vary: there are some DTT-centric markets (such as France and Spain) that are similar to Italy and some non-DTT-centric markets (such as Germany and the Netherlands). However, Italy's DTT market has some specific characteristics that put the platform in a stronger position than in other European markets (see Figure 1).

• Satellite is the only strong alternative TV platform because IPTV has not been central to telecoms operators' strategies and cable TV is not present in the market at all.
• The main free-to-air broadcasters are vertically integrated from content production to physical infrastructure operations and, therefore, have an active interest in continuing to invest in DTT.
• There are two broadcasting tower networks with national coverage (EI Towers and Rai Way) and seven MUX operators.
• Unlike other European countries, Italy has a competitive pay-DTT platform (RTI's Mediaset Premium) which had a more than 18% share of the pay-TV market in 2013, according to our latest forecasts of the pay-TV market in Western Europe.
• The main DTH operator, Sky Italia – which from 2015 will also resell content via IPTV through a partnership with Telecom Italia – has recently signed a deal with TIMB to launch five new channels on DTT.
• It has a favourable and stable regulatory environment, because market 18 ('broadcasting transmission services to deliver broadcast content to end users') is not regulated in Italy.

Figure 1: DTT platform comparison: Italy and other markets in Europe [Source: Analysys Mason, 2014]

The challenges that DTT faces – the decline of advertising spend, the reduction of the PSB's budget and growing take-up of over-the-top (OTT) video services – are common across Europe and mainly affect the demand side (that is, broadcasters). The major threat to DTT network operators is the potential reduction of DTT MUXs, following the likely allocation of the 700MHz band to mobile services. All MUXs in the 700MHz band would have to be moved to other bands, which may result in the loss of one or more MUXs, depending on frequency availability and spectrum planning (for further details, see our presentation on redefining a long-term plan for the whole UHF band, which was delivered at the annual European Spectrum Management Conference in Brussels).

We believe that the DTT ecosystem will continue to enjoy a strong competitive edge in Italy. Investors should keep monitoring this market in search of potential opportunities, such as the sale of stakes in Rai Way, the merged ReteA/TIMB entity or Mediaset Premium.

Source: Analysys Mason