French media company Vivendi has formed a joint venture with Echostar to launch a hybrid satellite-IPTV service in Brazil through its subsidiary in the country, DTH operator GVT. Both partners will be looking to take a bigger chunk of the potentially lucrative and fast-growing Brazilian pay TV market which, thanks to a regulatory change, was opened up to IPTV at the end of 2012. For Echostar the deal will be about boosting its revenues and diversifying its customer base, given its current high dependence on Dish Network in the US.
Vivendi entered the Brazilian market in 2009 when it bought local telephone company GVT. In September 2011 GVT launched its first satellite TV package in a market already crowded with three players: cable operators Net Servicos and TVA and satellite operator Sky Brasil. Since then a number of other satellite players have launched and recently Brazil's Oi and Telefonica Brasil have both launched IPTV services.
At the end of 2012 Brazil had 16.2 million pay TV subscribers representing 28 percent of the TVHH in the country. We forecast that this will grow strongly to 45 percent by 2017. Of the 16.2m pay TV homes, 9.8 million are satellite and 6.3m cable. Operators are banking on two upcoming big sport events that should boost pay TV demand in the country: the FIFA World Cup in 2014 and The Olympic Games in 2016.
Overall there are now nine DTH operators in the country but by far the largest is Sky Brazil with 5 million subscribers representing more than 50 percent of the satellite market. Sky Brasil is owned by DirecTV (93 percent) and Brazilian media group Globo Comunicações e Participações. The other main satellite players are Claro TV (Via Embratel) owned by Embratel/Telmex, with 3.1 million subscribers; OITV with 0.7 million; Vivendi's GVT with 0.4m subs; and Telefonica's DTH service VIVO, also with 0.4 million subscribers. On the Cable side the main operator is Net Servicos with 5.4 million subscribers (33 percent of the pay TV market). Embratel/Telmex also own 42 percent of Net. In January 2012 Embratel bought Globo's share of NET so combining the cable and DTH services. As a result, Embratel/Telmex have more than 50 percent of the total Brazilian pay TV market.
The new service from GVT and Echostar will face fierce competition from this big leaders in the country: Embratel and Sky Brasil but with an attractive triple-play IPTV offer, they can still get a piece in the growing Brazilian Pay TV market.
For Echostar the deal is also important. It has struggled to grow its traditional set-top box (STB) and satellite services business since it's separation from Dish Network in 2007. Ignoring its 2011 acquisition of Hughes Communications, annual revenues for Echostar's traditional business have fallen by 3.9 percent a year on average, from $2.1 billion in 2007 to $1.7 billion in 2012. This decline is due to its continuing dependence on Dish Network, to which it supplies set-tops and technical services. In 2007 this deal represented 75 percent of Echostar's revenues. While this is down from 77 percent in 2007, the contraction is due to revenue from Dish Network declining by 4.6 percent a year from $1.6 billion to $1.3 billion, rather than diversification of its customer base.
However, Echostar's strong links with Dish Network have also hindered it expanding its customer base. Operators - particularly in the Americas - have been reluctant to spend money with a company that is so closely tied to potential competition. Echostar's only significant new STB and satellite services customer since 2017, has been its Dish Mexico joint venture, but this operation has so far required mostly basic low value STBs. The Brazilian pay TV market is not only bigger in scale than Mexico, it's more competitive, with operators deploying high value and margin STBs to support differentiating HD, multi-room and multi-screen services. Echostar's high-value Hopper multimedia home gateway STB could prove a good fit for the Brazilian market, and a joint venture between Echostar and a local operator is its most secure route to deployment in the country.