New threat for KPN: rising content costs

Wednesday 1 July 2015 | 14:46 CET | Background

KPN is gathering momentum for a new attack on the content market, while the Liberty Global associate Discovery has just acquired the European rights to the Olympics. This has the potential to be a major threat for KPN. Ziggo is the Dutch operator's biggest risk on the broadband market, while the OTT sector forms the greatest threat in the communications market. All that remains is the content market. Given the growing portfolio of Liberty Global and its associated companies, there is a real risk of a sharp rise in content costs. 


KPN's efforts in the content segment are gathering pace, with the upcoming launch of KPN Play the main attraction. The projects include:

  • Lekker Gaan with mobile video content.
  • Music State, a free online magazine for discovering music.
  • Commissioning new content from Endemol Shine, Mojo, Eredivisie and other partners to show exclusively on KPN platforms (iTV, iTV Online and Play).
  • KPN Play: 22 live channels, catch-up and VOD over any broadband connection, for a yet to be determined subscription fee. 

KPN is in the process of testing Play, and this will help determine the price. The technology needs to work seamlessly and the content must be attractive, but without a good price, it will be difficult. The offer will include HBO, which costs EUR 15 per month on a standalone basis. There are limited opportunities for cross-subsidising the service with broadband, as the service will be available on any internet connection, even at rival ISPs. This further affects pricing, as the service must remain competitive with OTT providers and a basic broadband plan.

KPN could also follow Apple's lead with its recent Music service launch that comes with an affordable family subscription. A discounted price for adding more users could prove popular.

Play offers an interesting weapon to fight off the cable companies. The service is not especially attractive to cable broadband subscribers, as they are already forced to pay for a TV subscription (none of the Dutch cable operators offer broadband-only subscriptions). Play can be combined with broadband from KPN or with an internet-only plan from a wholesale customer on KPN's network, such as Vodafone or one of the many smaller providers. In short, anyone who wants to use Play could better cancel their Ziggo subscription.

In the US, Verizon is developing a similar OTT service, focused on mobile. Verizon is looking to use LTE-Broadcast to support its mobile services, something KPN has already tested. In combination with Play this could offer a good replacement for Digitenne, KPN's DTT service.

John Malone

At the same time, John Malone is not sitting still. His influence extends to Liberty Global, Liberty Media and Discovery Communications. The latter owns Eurosport, which has just bought the rights for multiple Olympics in Europe. HBO, which for KPN Play is an important factor, is not part of the Malone empire - it's owned by Time Warner.

Liberty's recent content deals include:

  • Acquisition of production company All3media (Liberty Global with Discovery).
  • Minority stake in British broadcaster ITV of 6.4 percent leads to recurring rumours of a full takeover. Liberty Global is also reported to be looking at the Irish broadcaster TV3.
  • ITV acquired Talpa. The Weinstein Company was also reportedly a target, but no deal has emerged.
  • Formula One. Liberty Global and Discovery hold a stake in the rights and reportedly want to expand this.
  • Liberty Media is looking at consolidating its portfolio (merging Lions Gate and Starz) and considering takeovers (AMC, Scripps). Universal Music (Vivendi) is also thought to be on Liberty Media's radar.
  • Eurosport acquired the rights in around 50 European countries for the Olympics in 2018-2024.

There is limited overlap - KPN offers local content, while Malone focuses on international productions and major sporting events. But Malone's content is worth much more.

The competition is shifting to content, now that communication has become a commodity. The uncertainty is huge for the broadband market, as it's questionable whether the upgraded copper network can keep up with cable broadband, especially if Ziggo starts ramping up its speeds.

John Malone's investments are creating a new threat for KPN: sharply rising content costs. Will the companies in Malone's orbit be allowed to provide cheaper prices for Ziggo than KPN? It's certain KPN will be lobbying to ensure that doesn't happen. 

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