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SKU: Intel Paper Author: Michelle Abraham Migrating to Mobile and Multiscreen Video Email:
[email protected] Phone: 1.602.472.3103 Small and Independent Pay-TV Operators VP of Global Research: Norm Bogen SKU: XXXX Email:
[email protected] October 2012
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Executive Brief
Revolutionizing the Capabilities of the Set Top Box
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Revolutionizing the Capabilities of the Set-Top Box SKU: Intel Paper
The History of Free The pay-TV market in France is very competitive, particularly in IPTV. The telco and broadband providers have been competing against the traditional cable and satellite operators, Numericable and CanalSat respectively, for about a decade. Free began its broadband offering in 2002 for €29.99 per month. The availability of video content over the DSL network came next in December of 2003. France Telecom began rolling out TV over its DSL network in 2003. Neuf began its TV service in 2004, and Telecom Italia France, which operated under the Alice brand, launched a TV offering in 2006. In this comparatively crowded environment, the French broadband market underwent some consolidation a few years ago. Club Internet was bought by Neuf Cegetel in 2007. Neuf was later bought by SFR, which continues to compete in IPTV. Alice was bought by Free in 2008. About the same time that the consolidation was taking place, Bouygues, a wireless service provider, entered the fixed broadband market in 2008 and began marketing a quadruple play service in 2009. With so many competitive forces, Free has had to continuously improve its broadband offering, adding new services at a competitive price in order to continue adding subscribers. In 2004 Free began upgrading its network to ADSL2+ to offer greater broadband speeds of 20 Mbps. In April 2006, Free began offering HD programming via the new Freebox HD two-box solution. Features of the Freebox HD included a 40 GB hard drive, powerline communications, a DTT tuner, and Wi-Fi 802.11n. While adding these features, Free kept the basic triple play service price the same at €29.99 per month. In 2007, Free began offering its triple play broadband service via the FTTH network it is building in France. When Free acquired Alice in 2008, the service had 850,000 subscribers. However, the number of Alice subscribers declined each quarter through 2010, by as many as 50,000 subscribers per quarter. From the second quarter of 2009, the number of subscribers Free was adding each quarter had slowed down to 100,000 per quarter or less. By the end of 2010, Free’s added subscribers were barely more than the lost Alice subscribers. While Free added 231,000 total subscribers in 2009, 158,000 Alice subscribers were lost. Finally, in 2010, the number of subscriber additions dropped to 78,000 after the Alice losses as quadruple play offers from competitors took subscribers away.
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Revolutionizing the Capabilities of the Set-Top Box SKU: Intel Paper
Figure 1. Free’s Subscriber Activity Prior to 2011
300,000 250,000 200,000 150,000 Change in Free subscribers 100,000
Change in Alice subscribers
50,000
0 -50,000 -100,000 Source: Free
Free’s ARPU had stalled at about €36 per month from 2008 through 2010. Free needed to take action to reverse its subscriber and ARPU trends.
Enter the Freebox Revolution In December 2010, Free introduced the Freebox Revolution, its sixth generation gateway solution for reception of its triple play services. The Freebox Revolution is actually two boxes, the Freebox Server and the Freebox Player. It comes with a new interface, an integrated Blu-ray player, 250 GB network attached storage, a gyro remote control, Wi-Fi 802.11n 3x3, a DECT handset base, and a 4-port Gigabit Ethernet switch. The server contains the storage, two loudspeakers for listening to music stored on the device, and the DSL and fiber modems. Using the included Freeplugs allows the Freebox Server and Player to be connected to each other using powerline home networking technology. The Freebox Revolution components are easily self-installed due to the Universal Plug & Play function, pre-associated Freeplugs, and Wi-Fi pre-activation.
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Revolutionizing the Capabilities of the Set-Top Box SKU: Intel Paper
Figure 1. The Freebox Revolution (Player – left, Server – right)
Source: Free
The Freebox player is built on Intel’s Atom CE4100 processor. The interface allows access to all content stored on the NAS. A web browser allows full browsing capability from the TV, offering access to YouTube, Facebook, and Twitter from the TV. The Flash player allows the viewer to watch Flashformatted video from the Internet. In September 2012, picture-in-picture capability was added to the Freebox Revolution via a software update. Free has its own applications store where third parties can distribute applications for the Freebox called the Freestore. The Freebox Connect application enables other Wi-Fi devices in the home, like smartphones and tablets, to connect to the server to access content stored there. Partner Gameloft offers downloadable games that can be played on TVs connected to the Freebox. Free promoted the Revolution by touting the fact that it could provide a gaming experience similarly to a game console. The box comes with a game controller and 2 HD games. In February 2012, Gameloft introduced its first 3D Massively Multiplayer Online Role-Playing Game for set top boxes which was available only for the Freebox Revolution.
Growth After Freebox Revolution Continuing to promote its value for its customers and adding more services to the current offering is part of Free’s strategy to keep current customers loyal and to attract new subscribers. Making sure these additional services are easy to find and simple to use is necessary. The Freebox Revolution is one way to achieve this. After the Freebox Revolution was introduced at the end of 2010, Free added more net subscribers in 2011 than it did in 2009 and 2010 combined. Free added 185,000 subscribers in the first quarter of 2011, more than it had added in a single quarter in over three years. While not at the same level as Q1'11, subsequent quarters in 2011 recorded much higher growth than in 2010. With the launch of mobile services in 2012 the additions each quarter have been even higher with Free adding 259,000 subscribers
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Revolutionizing the Capabilities of the Set-Top Box SKU: Intel Paper
during the first quarter of 2012. Subscriber additions for the second and third quarters of 2012 were also higher than additions in the same quarters of 2011. Figure 2. Free's Quarterly Subscriber Activity after the Freebox Revolution Launch 300,000 250,000 200,000 150,000 Change in Free subscribers 100,000
Change in Alice subscribers
Migrations from Alice to Free 50,000 (50,000)
(100,000) Source: Free
Free has also been able to keep more of the Alice subscribers by offering to migrate their service to the Freebox Revolution. So while the Alice subscriber numbers have continued to decline a number of them have now become Free subscribers. In 2011, about half of the Alice subscribers lost each quarter were migrated to Free. In 2012, the percentage of subscribers migrated to Free has been more than 60%. In 2011, Free gained a 35% share of the 1.3 million new broadband additions in France (excluding the subscribers that migrated from the Alice branded service). The greater share of new broadband subscribers increased Free’s overall share of France’s broadband market. At the end of 2010, Free had a 21% share of France’s broadband subscribers and its share grew to 22% at the end of 2011. In 2012, Free estimates that it had more than a 50% share of broadband subscriber additions in France during each quarter. Free’s overall subscriber ARPU (Average Revenue Per User) was €35.5 per month during 2011, while ARPU of those subscribers with Freebox Revolution systems is above €38 per month. The higher ARPU
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Revolutionizing the Capabilities of the Set-Top Box SKU: Intel Paper
stems in part from the higher subscription fee charged to subscribers who opt for service with the Freebox Revolution. The fee for Freebox V5 is €29.99 per month while the Freebox Revolution costs €29.99 per month plus €5.99 for the telephone line. Even with the higher fee, there is no shortage of customers willing to migrate to the Freebox Revolution. There were also 1.6 million game downloads to the Freebox Revolution in the first half of 2011, which also increases ARPU. Figure 3. Free's Monthly ARPU
2011 Monthly ARPU 40.00 € 38.00 € 36.00 €
34.00 € 32.00 € 30.00 € Free Overall ARPU
Freebox Revolution ARPU
Source: Free
Free also experienced a 4% growth in revenue in 2011, due to the aforementioned rise in subscriber numbers along with the higher ARPU. In the first nine months of 2012, Free’s broadband revenues were up 9% over the same time period in 2011. Free offers over 400 TV channels, some part of its basic package, while others require additional subscription fees. Free did have to absorb higher costs for the Freebox Revolution, some of which came from the addition of a Blu-ray drive as well as a larger hard drive to the media box. Freebox HD systems cost Free about €180 as compared to the Freebox Revolution which cost €300 upon its introduction. By the end of 2011, Free was able to reduce the production cost of the Freebox Revolution to €275. The depreciation period was also increased from 4 to 5 years. Free’s success has continued in 2012. In January 2012, Free became a quad play operator with the introduction of a mobile phone service. Their €19.99 plan with unlimited voice, text, and data to 40 destinations has set a new expectation in pricing of mobile services. By the end of June 2012, Free had 3.6 million mobile subscribers. In the first half of 2012, Free added almost 300,000 net new subscribers, over 60% more than were added in the first half of 2011.
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Revolutionizing the Capabilities of the Set-Top Box SKU: Intel Paper
Competitors in France have reacted to Free’s success with the Freebox Revolution by also offering new boxes based on Intel processors. Numericable’s LaBox, which was launched in January 2012, is based on the Intel CE4200. In June, 2012, Bouygues Telecom launched the Bbox Sensation based on the Intel CE4200, which won the Broadband World Forum’s Best Broadband Experience award. In November 2012, Orange announced the Livebox Play also based on the Intel CE4200.
Conclusion Just as cable and satellite providers proved during the last decade with the introduction of the DVR, adding additional features to set top boxes, resulting in a higher cost set top box, can help to increase subscriber additions and ARPU and reduce churn in even the most competitive pay-TV environment. This in turn leads to an increase in revenue. Free has shown that the Freebox Revolution with all of its features and capabilities has similarly enabled the service provider to grow its subscribers, ARPU, and revenue. Their success has continued in 2012. Free summed up its success best in a press release dated May 15, 2012:
“This is the best quarter ever in the Group history in terms of market share: 213,000 new subscribers to the Freebox HD (V5) and Freebox Revolution offerings (net of terminations and excluding migrations from Alice). This success testifies to the powerful attraction of the Free brand and to the Group’s capacity to stand out and innovate, particularly with its Freebox Revolution offering.”
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Revolutionizing the Capabilities of the Set-Top Box SKU: Intel Paper
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