Sogecable Struggles Through Second Quarter

Canal Satelite Digital (CSD), the satellite pay-TV satellite platform of Spain’s Sogecable, gained less than 80,000 subscribers during the fiscal year ended June 2002. The poor performance of Canal Satelite gives further evidence of the need for Sogecable to merge Canal Satelite with rival Via Digital.

Jesus Gomez, a media equity analyst at Banco Santander, told Interspace: “The results in terms of subscriber numbers were fairly weak. If you see the net additions in the last quarter, comparing with March 2002 with June 2002, Canal Satelite Digital lost 2,000 subscribers. It was disappointing. We were expecting flat growth in terms of subscribers. It was a bit lower than we expected.”

CSD’s recent numbers have not been impressive. Yet, despite what appears on the surface a poor performance, there are a number of factors at work. Consumers are aware of the merger between the CSD and Via Digital and could be deciding to wait until this has taken place before signing up for a pay-TV service.

The main reason for CSD’s poor performance, however, lies in the aggressive performance of Via Digital. Via Digital had the rights to broadcast the football World Cup, which is likely to have led to a lack of new subscribers for CSD. Football does appear to be the key factor behind the CSD’s performance over recent months. The Spanish league also ended early this year. That, combined with Via Digital’s aggressive promotions and World Cup coverage, made it difficult for Sogecable in the last three months.

CSD ended up with 1,255,578 subscribers by June 30, 2002. It had a year-on-year subscriber growth rate of 6.7 percent, down from 30.1 percent the previous year. So, there has been a drop off in subscriber growth rates, mainly due to the aggressive competition by Via Digital, which has adopted an aggressive pricing strategy.

There have been some encouraging signs. Over 92 percent of CSD’s customers subscribe to premium channels, compared to 84 percent in June 2001. Average revenue per unit (ARPU) quarter-over-quarter increased 0.5 euros to 40.5 euros ($39.7). Churn in the second quarter was 13 percent, compared to 11 percent in the first quarter.

CSD’s performance is especially interesting when compared to one its Western European peers, BSkyB. BSkyB added over 210,000 subscribers in the last quarter alone, where as CSD managed less than half of that over a 12-month period. BSkyB does not have the competition that Sogecable does in Spain, especially now that ITV Digital has gone to the wall. But it also seems to indicate that there is stronger demand for pay-TV in the United Kingdom than in Spain.

The comparisons between Spain and the United Kingdom make interesting reading. Nicolas Gindre, a media equity analyst at Credit Lyonnais Securities, told Interspace: “When they did their promotions last year, Sogecable was growing at a very healthy pace. I think Sogecable’s poor growth is a sign of the negative effect that can emerge from a duopoly. When we look at the satellite penetration rate of Spain and UK – in the UK, you have a 40 percent penetration rate; in Spain, you have 24 percent, so there is the potential to catch- up.”

A final decision, whether taken by the European Union or the Spanish authorities, is likely to be taken by the end of the year. Sogecable’s recent results indicate that the merger cannot come quickly enough for the operator.

–Mark Holmes