There are many reasons why Poland is an attractive market for the products and services that the Group currently provides or the ones it plans to provide in the future. The most important ones are presented below:
Low penetration of multi-play services, especially in non-urbanized areas
According to European Commission’s report entitled “E-Communications and Digital Single Market,” published in May 2016, in October 2015 the penetration rate of multi-play services (defined as more than one service within the offer of one operator) in Poland amounted to 37%, while in the European Union the average penetration reached 50%, and in the Netherlands and Malta it amounted to 87% and 78%, respectively.
In the face of low penetration of multi-play services as well as poor quality of fixed-line Internet access offered in non-urbanized and poorly developed areas, Cyfrowy Polsat Group, with its smartDOM offer, has an opportunity of becoming the leading provider of high quality multi-play services in Poland.
Poor fixed-line Internet access offers an opportunity for mobile technologies
Based on the data published by UKE, in 2015 101.6% of households in Poland had access to the Internet, which translated into a penetration rate of around 35.7% for the entire population. At the same time, while referring in its report to the Digital Agenda Scoreboard dated June 2015, UKE disclosed that fixed-line Internet access penetration was merely 18.8% in Poland. It was the lowest rate among European Union countries, where the average penetration was 31.6%, while in the case of selected countries (Denmark, the Netherlands) it exceeded 42%.
Low penetration with fixed-line broadband Internet access services in Poland, together with the progressing development of mobile technologies, makes mobile data transmission the fastest growing telecommunication market segment at present.
According to PMR estimates, in 2016 there were nearly 16.3 million users of broadband Internet access, out of which almost 55% used mobile connections. According to PMR, by 2021 the number of broadband users is supposed to grow by ca. 21%, with the number of mobile broadband users growing by approximately 31%.
The main drivers for growth in the number of mobile Internet users in the long term will include: increased speeds of data transmission, increase in the number of mobile devices i.e. laptops, smartphones, tablets, as well as relatively low cost of mobile infrastructure covering low urbanized areas.
Development of the market of new technologies and devices, coupled with the growth of access to audio-visual content and consumption of such content
As the market for innovative technologies is growing at a fast pace, the number of mobile devices owned by consumers, such as notebooks, tablets, smartphones or Smart TV sets, is on the rise as well. This has spurred a sharp increase in access to video content, and hence in video viewership.
According to Ericsson Mobile Report dated November 2016, video content is the biggest and fastest growing segment of the mobile data transmission. It is expected that in the years 2016-2022 consumption of data for watching video content will grow by 50% per year on average, reaching ca. 75% of the entire mobile data traffic in 2022.
Consumers expect service providers to offer them the possibility of watching TV on any screen, anywhere and at any time. We perceive this group as a prospective customer segment for television services, opening also the opportunity for the monetization of our audiovisual content. At the same time, the above mentioned trend will translate into an increased demand of our customers for data transmission services on mobile devices, which will result in a growing stream of revenues from the sale of these devices to our customers.
Growing popularity of smartphones
Replacement of traditional handsets, used mainly for voice communication, by smartphones designed for communication via data transmission is a universal trend on the mobile telephony market. The share of smartphone users in Plus network increased from 26% at the end of 2012 to approximately 63% at the end of 2016. At the same time, according to the forecasts of emarketer.com, published in February 2015, the number of smartphones used in Poland will grow by ca. 64% between 2014 and 2018 (from 12.7 million to 20.8 million units). The continuous growth of popularity of smartphones, along with their technological development, will drive up the demand for mobile data transmission packs purchased by the users of our network, which in turn should have positive impact on the level of ARPU generated by our customers.
Development of advertising market in Poland
Demand for advertising air time is to a great extent dependent on the general economic outlook. Zenith media house forecasts that total net TV ad spending in 2017 will grow by approximately 0.7%. Bearing in mind that television remains an effective advertising medium, and given the relatively low level of advertising expenditures in Poland, as a percentage of GDP and per capita, in comparison to other European markets, we believe there is still a substantial growth potential for TV advertising in Poland in the long term. It is worth noticing, that despite the growing importance of new media, it is forecasted that television will remain an attractive and popular pastime, primarily thanks to the new technical opportunities which include an increasing number of HD channels and VOD, as well as thanks to the growing number of smart-TVs.
The Internet advertising market is characterized by dynamic growth. According to the IAB AdEx report, online advertising expenditures increased at a rate of 17.0% y/y and reached the value of over PLN 2.5 billion in the first nine months of 2016, while the expenditures in the video advertising segment, which is the direct source of our revenue, increased by 25% and represented 10% of the total expenditures on online advertising (growth by 1 pp compared to 2014). According to PwC, forecasts (Global entertainment and media outlook: 2016-2020) the online video advertising in Poland will grow by 15.1% (CAGR) in the years 2015-2020. We believe that thanks to the leading position on the online video market (through IPLA internet television,) we can benefit from the growth of this promising advertising market segment.
Growing importance of thematic channels
A key trend emerging on the TV market in Poland over the past several years has been the increasing importance of thematic TV channels. Thematic channels are TV channels distributed mainly through cable and satellite platforms (pay) and terrestrial multiplexes (free) that specialize in a particular genre of programming, such as children's programming, films, sports, lifestyle, news or weather. The thematic channels’ market segment in Poland gained an audience share amounting to 48.6% in 2016 compared to 47.4% in 2015 (NAM, all 16-49, full day, all channels except Polsat, TVP1, TVP2, TVN, TV4, TV Puls, TVN7). Broadcasters with access to thematic channels and integrated media platforms (such as Cyfrowy Polsat Group) can potentially leverage the niche channels by targeted, and hence more effective, advertising.
Key market trends impacting our business
The main trends which we believe to be likely to have a material impact on Polsat Group’s development prospects, revenue and profitability in the nearest future include:
- Bundling of media and telecommunications services, as well as services from other sectors, such as electric energy or financial and banking products;
- Growing smartphone penetration among mobile network users, which entails the development of the mobile data transmission market;
- Dynamic development of non-linear video content, distributed via VOD and OTT services;
- Growing sales of smart-TVs, i.e. television sets with integrated Internet access capability;
- Development of the programming offer of digital terrestrial TV;
- Development of data transmission market, both in the fixed-line and mobile segments, expressed as growth of number of data transmission users;
- Growing demand for data transmission and high-speed broadband connectivity resulting from growing complexity of data transmission-based services;
- Growing number of mobile customers and users, driven by, inter alia, gradual fixed-to-mobile substitution and the growing popularity of machine-to-machine solutions;
- Pressure on revenue from traditional mobile telecommunications services caused by the intensifying competition on the mobile services market, and by traditional mobile telecommunications services being driven out by data transmission-based communication;
- Pressure on revenue from roaming services, resulting from the next stage of regulation of roaming charges in the European Union;
- Growing spending on video advertising in the Internet;
- Slowdown of growth on the TV advertising market;
- Further fragmentation of the television market (growing share of thematic channels in terms of audience and advertising revenue).