The online way to profitability

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If the industry needs proof that IPTV can be a good business, they should look to Fastweb, the Italian alternative broadband provider.

While not the world’s biggest broadband television deployment, it is probably the most profitable. On average, each video customer spends an additional €315 a year beyond the company’s base revenues of €887 per broadband subscriber. A third of TV revenues come from video on demand (VOD) services.

Fastweb has more than 160,000 video subscribers. The take-up rate for IPTV has remained fairly constant at close to 30 per cent of the customer base. And 20 per cent of broadband customers do not own PCs, choosing Fastweb purely for the television offering. Fastweb TV offers 20 free channels, 40 premium channels and a wide range of on-demand services. Programming from Italy’s main broadcasters can be time-shifted via network-based recording, a service used by a quarter of video subscribers on average 10 times per month each.

VOD content is divided into 14 thematic channels and the catalogue includes 700 films from Hollywood as well as thousands of other on-demand programmes. Fastweb customers now view 1.5m on-demand programmes each month, and the current rate is more than double that of just six months ago.

Recently, Fastweb signed agreements with RAI and Mediaset, Italy’s two national broadcasters, to gain on-demand access to free-to-air shows up to three days old. The company is confident that IPTV penetration will increase over the next two years. “Many of our customers are still unaware of our TV service,” says Stefano Parisi, chief executive of Fastweb.

But competition is likely to change this. Late last year, incumbent Telecom Italia announced its own IPTV service. Rather than fearing the competition, Mr Parisi believes it will help drive adoption of Fastweb’s service. “We are counting on Telecom Italia’s advertising campaign to promote IPTV generally,” he says.

Telecom Italia expects to have up to 30,000 IPTV customers by the end of the quarter.

Interestingly, Fastweb has seen its customers’ taste in content change. Initially, the momentum behind its IPTV sales was driven by exclusive Serie A football programming. But now, film viewing weighs equally, and some older TV series are viewed as much as more recent hit series.

And now Fastweb is using its on-demand platform to offer other kinds of content.

Last year, the broadband provider launched a music service that offers on-demand videos as well as longer-run compilations. About 500,000 videos are now viewed each month. “This is where we have seen our greatest spending increase,” says Mr Parisi.

Online gaming is also becoming significant, he says. The service costs €5 per month and users are logging 500,000 games per month.

Mr Parisi believes consumers will also start to ask for more flexible on-demand programming. “Up to now, Italians have been used to passive TV, not to making their own programmes. But video on demand also means using your available time as desired, such as watching a 15-minute short film,” he explains.

Besides emerging competition from Telecom Italia, Fastweb could also face a threat from premium digital terrestrial television (DTT) offerings. “Mediaset is being very aggressive with DTT, and Sky is promoting services as well,” says Mr Parisi. Since Mediaset launched an inexpensive pay-per-view football service, football content has lost value for Fastweb, he concedes. But Fastweb already offers RAI’s DTT content through its normal IPTV service, and they are now negotiating a similar agreement with Mediaset. Also, Fastweb’s new set-top boxes are DTT compatible.

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