European Cable Subscriptions Slip, Revenue Grows as Analyst Touts Netflix Integration Deals

John Malone - H 2015
AP Images

John Malone - H 2015

A new report discusses cord cutting and consolidation in the European cable scene, similar to big industry acquisitions in the U.S.

Cord cutting, the bane of the U.S. cable industry, has yet to wreak havoc in Europe.

That's the broad conclusion of a new report unveiled Monday, which finds that while cable subscriptions have slipped across Europe, revenue for cable companies continue to grow. It also highlighted consolidation and integration deals with Netflix, similar to the trends seen in the U.S.

The annual European Broadband Cable Yearbook, the definitive guide to Europe's cable business, was released by European cable trade association Cable Europe and research firm IHS Markit. It found that despite increased competition from such streaming companies as Netflix and Amazon Prime, cable industry revenue for 2015, the last full year for which figures are available, were up 5.7 percent to $23.4 billion (€22.4 billion) from €21.2 billion a year earlier.

This came even as cable companies lost subscribers, with Cable Europe counting 55.1 million cable TV subscriptions across the continent by the end of 2015, down 1 percent from 55.7 million a year earlier.

Cord cutters, subscribers who cancel their cable subscriptions in favor of online offerings from Netflix and company, have done damage to cable companies and channels in the U.S. Since Walt Disney has seen subscriber losses at sports juggernaut ESPN, its stock and other cable TV networks giants have been under pressure.

Monday's Cable Europe report provides some reason for optimism on the other side of the Atlantic.

For one, European cable companies are trading up: rolling out premium services, such as ultra high-speed internet and HD TV, as a way of getting subscribers to pay more. The report points to Virgin Media $3.7 billion (£3 billion) investment in Project Lightning, a massive expansion in the U.K. company's broadband infrastructure that should see Virgin extend its reach from 13 million homes to 17 million by 2019.

Cable operators across Europe, similar to their U.S. peers, are upgrading their networks to be able to offer internet download speeds of up to 1Gbps, improving the rollout of data hungry services, such as Ultra HD television and mobile streaming of video.

“In response to challenges posed by other platforms, 2015 saw a determined effort by many operators to invest in infrastructure and significantly improve their offerings,” said Maria Rua Aguete, research director at IHS Technology and the author of the report. As a result, while cable subscriptions slipped last year, revenue from internet and digital services more than made up the difference. By the end of 2015, close to two-thirds of cable homes in Europe opted for digital TV. And internet revenue jumped 9.7 percent to $7.5 billion (€7.2 billion).

Aguete points to the recent deal between cable giant Liberty Global and Netflix, which will see Liberty make Netflix content available to its cable subscribers across Europe and in more than 30 countries worldwide after a similar deal in the U.K. on Virgin Media. The agreement, she argues, shows that cable and SVOD platforms, such as Netflix, can work together instead of competing.

“Our research concluded that the integration of Netflix into pay TV is having a positive impact on cable operators’ key performance indicators, generally benefiting their business while co-existing well with more traditional parts of the bundle,” Aguete said.

But increasing competition in the European cable business is squeezing margins, resulting in consolidation across the industry, with major mergers in Germany, France, Spain and the U.K. That mirrors dealmaking in the U.S. in recent years, such as Charter Communications' acquisition of Time Warner Cable.

“Further consolidation in the sector can be expected, with cable remaining fragmented compared to the platforms it competes with,” Aguete said.