Canal Digital banks on Nordic World Cup success

By | January 16, 2002 | Feature

The Oslo Court of Execution and Enforcement has thrown out claims by Canal Plus relating to payment issues concerning the sale of Canal Digital. The ruling made on January 11 had been expected. The dispute relates to the sale of Canal Plus’s stake in Canal Digital back to the Norwegian carrier Telenor. Telenor argued successfully that the transaction could not be carried out until the European Union (EU) approved the agreement. Canal Plus felt the sale agreement could be concluded without EU approval.

The agreement sees Telenor take control of Canal Digital. There is also a long-term distribution agreement in place for Canal+ television channels to be present on the platform. Erik Nord, vice president of Telenor Plus, told Interspace after the ruling: “In the contract linked to the transaction, it is written that all necessary regulatory approval was needed before the transaction can be finalized. That is the deal, and so far we have got approval from Norway, Sweden, and Finland. We are just waiting for the EU Commission. This is really the next stage.” Nord also said he was not expecting Canal Plus to appeal the ruling.

In July 2001, Telenor agreed to buy Canal Plus’s 50 percent stake in Canal Digital, giving it sole ownership of Canal Digital. The fact Canal Digital has racked fairly high losses and is still some way from profitability was seen as the reason behind Canal Plus’s exit.

Canal Digital is set to get interactive this year. Canal Digital has exclusive pay-per-view rights to show matches from the football World Cup in the Nordic region and it believes this coverage will be a significant revenue generator in the Nordic region. It has sole rights in Norway, but will share coverage with public broadcasters in Sweden and Denmark. The interactive features could be a key differentiator in terms of coverage. In Norway, the operator could be set for rich pickings.

Despite the fact that Norway failed to make the World Cup, the demand to watch matches should be high. Canal Digital expects to charge around 1.25 euros per match. It will also give Canal Digital potentially a number of lucrative spin-offs such as magazines and quizzes to supplement their coverage.

Ole Bjorn Darrud, the CEO of Canal Digital, told Interspace in an exclusive interview, “We will exclusively enhance all 64 matches for Norway, Sweden and Denmark. We will do this with what we call a superfeed, which means the viewer can choose camera angles and the viewer can have complete re-runs after working hours. This will be made available to Canal Digital subscribers in Norway, Sweden and Denmark.”

The World Cup will signal the first time that pay-per-view events are available in the region. Darrud is confident that Canal Digital will reach breakeven numbers and that it will generate more subscribers for the Canal Digital platform. Darrud says, “This is new to Canal Digital and new to pay TV in Scandinavia, at least in this case. We expect this will be an eye opener for event driven services as such. This will confirm that the digital platform is here to stay.”

Sports coverage will form a key part to Canal Digital’s packages going forward. It has also got pay-per-view rights for Swedish Ice Hockey and Formula One motor racing. The operator expects these events with a mix of interactive features will become major components of its service in the Nordic region.

As well as bringing pay-per-view events to the Nordic region, the conclusion of the Canal Plus deal is likely to be the other main event this year. The sale also leaves Telenor with a number of challenges to turn the fortunes of Canal Digital around.

Anna Virkola, a media equity analyst at Handelsbanken, told Interspace: “The reason why Canal Plus wants to exit out of the Nordic region is because they didn’t see it ever gaining profitability. It has been loss making for quite some time and their cost base is too big.”

Jakob Iqbal, a telecoms equity analyst at ABG Securities, said that Canal Plus’ “main challenge is to move the operation into profitability and I have not really seen anything from them showing them how they would go from today’s high losses to profitability. I would say the Pay TV market is quite immature in Norway.”

Darrud believes it is realistic for Canal Digital to be breakeven in 2003. He concedes that the cost base is too high at the moment. He says, “We are in a very tough phase as regards our fixed operating costs. This involves everything from transmission to normal operating costs. We expect we will come out of the first half of next year with a slimmer or smaller cost base so that we are able to meet our requirements to breakeven.” Virkola adds: “There is no price pressure in the market at all at the moment. So, if they can raise their subscriber base, they should be able to at least break even.”

The change in ownership structure should have other benefits. Its parent company, Telenor, will aim to try and integrate its digital TV and broadband services over the longer term in order to gain synergies. One such possibility is spreading the costs of sports rights so they can be distributed on more than just one platform giving Canal Digital the opportunity to improve services, but lower costs.

Yet, some are sceptical that Telenor can make Canal Digital a profitable operation. “Telenor’s broadband activities are not viewed positively at the moment. Most investors are sceptical in that area. Basically, they did not have success in their pan-European Internet ambitions and there are some fears that [the] broadband area [is] going to be another kind of cash strain,” noted Iqbal.

But there are some positive signs. Canal Digital added 69,000 new digital subscribers in the third quarter. It is operating in a market where there are 10 million households and a DTH population of 3.18 million homes connected. Darrud believes aside from the sports rights, Canal Digital is a content leader in the region. “We have much broader content as part of our traditional pay TV service. We have the premium service with Canal Plus (sports and movies). We have a very broad package with all the top brands available. We cannot afford to lose the advantage of being the largest PayTV operator in the Nordic region, otherwise some of the content providers would be able to go on a different platform.”

–Mark Holmes

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