Swedish investment group East Capital Explorer has agreed to buy 51 per cent of Estonia's largest pay TV player, Starman, for €24m. At the same time Starman's co-founders increased their shares in the company after investing an additional €5m: Peter Kern-owned OU Com Holding increased its stake to 34.3 per cent (from 20.9 per cent), while Indrek Kuyvallik's OU Polaris Invest increased its stake to 14.7 per cent (from 11.3). The transaction is now subject to approval by the Competition Office. The shares were sold by Starman's former owner, Xalto CDO II BV owned by Bancroft Group.
Straman is Estonia's largest cable TV operator, with about 130,000 cable TV and about 60,0000 broadband subscribers. Since 2006 it has also been providing a pay DTT service, Zoom TV. In 2012 the company made €28m revenues with EBITDA €13m. East Capital Explorer is listed on Stockholm Stock Exchange. The company was established in 2007 and it focuses on Eastern European markets, investing primarily in the financial, utility, and industrial sectors.
According to Starman's 2008 annual report, which was the last report it published while still listed on the Tallinn Stock Exchange, it ended 2008 with 137,000 cable TV and 54,000 Internet subscribers. Since then the operator's TV subscriber base has shrunk, and the number of Internet customers has grown only slowly. Moreover, in spite of investments rolling out digital TV on cable, a considerable part of Starman's cable subscriber still prefer analogue TV.
These rather unimpressive results are primarily due to fierce competition in the Estonian TV and telecommunications markets. Starman competes with the incumbent telco, TeliaSonera-owned Elion, providing telephony, Internet and a growing IPTV service, as well as Viasat's satellite TV platform, its only competitor in rural areas, as well as other cable TV operators, with country's second largest cable TV player, STV.
As the pay TV market in Estonia is close to saturation, the competition is getting even fiercer. After switching off analogue terrestrial TV in 2010, pay TV continued to grow, but during 2012 it increased only about one per cent, exceeding 90 per cent of homes.
Under such circumstances, with the growth in terms of subscribers becoming much more difficult, the pay TV players will be focusing on strengthening their offers,lowering churn and increasing ARPU. Funds from the new investor should help Starman to move all of its subscribers to the digital service and make its offer more competitive. Among the likely developments are the launch of more HD channels (currently 10), extending the VOD offer and adding multiscreen service to its portfolio.
The transaction is another example of the interest that International investment groups are showing in Eastern European cable TV. Recently Warburg Pincus acquired a minority stake in Poland's sixth largest cable TV player, Inea; in March this year, Mid Europa Partners, owing among others Serbia's largest cable TV service, SBB, and a cable operation in Bosnia (both under the brand Telemach) continued acquisitions in Bosnia by buying a local service called Art-Net. Other investment groups active in the region include: Advanced Broadband, Argus Capital, AXA, BKS Capital Partners, Contaq and EQT.