Spain Gets Ready For Digital+
The Spanish pay-TV merger between rival satellite platforms Via Digital and Canal Satelite Digital (CSD) is expected to finally be completed this month. Via Digital will be integrated into Sogecable [SGC: MC], owner of the CSD platform. Sogecable has announced that the new platform will be called Digital+.
While the merger gives Sogecable an enviable position in the Spanish pay-TV market, its financial position means there is very little room for error. A media equity analyst who requested anonymity told Interspace: “Debt levels in the new company are of concern. Digital+ will kick off with slightly more than 1.3 billion euros [$1.5 billion] in net debt. After, Digital+ could increase this debt to 1.6 billion euros [$1.9 billion] by burning out an existing 325 million euros [$382 million] loan in restructuring its business. It is likely going to take a couple of years for the company to reach breakeven, unless a successful restructuring takes place. The main challenge for the company will be to create sufficient synergies to compensate for its fast cashburn.”
Digital+ will start its life with around two million subscribers. Via Digital ended the first quarter of 2003 with 734,000 subscribers. This represents a fall of over 74,000 subscribers compared to the same stage in 2002. It also represents a drop of over 9 per cent in subscriber numbers over 12 months. CSD has fared a little better. It had just over 1.2 million subscribers at the end of March. It lost over 56,000 subscribers in the previous year. Combined, the two operators have lost over 130,000 subscribers since the end of March 2002. This is a 6.5 per cent fall in the combined subscriber number. The challenge initially for the management of Digital+ will be to get the subscriber numbers back on an upward trend.
Sogecable announced earlier this week that it initially was going to work with both SES Astra and Hispasat for at least another year. CSD’s operations had been based on Astra’s platform and Via Digital’s had been based on Hispasat. It had been speculated that Sogecable would ditch one of the satellite platforms this year.
One of the keys will be to negotiate favourable content deals. In terms of football rights, Sogecable is already looking to negotiate a more favourable deal. AudioVisual Sport (AVS), the company that owns Spanish football rights, is looking to refinance an existing 300 million euros ($354.4 million) loan, which matures this month. Via Digital and Sogecable both have a 40 per cent stake each in AVS and so when the merger goes ahead, it will have an 80 per cent stake in AVS.
AVS also wants to secure exclusive TV football rights with most major Spanish football clubs until 2007. Deals have already been struck with Spain’s two most prominent football clubs, Real Madrid and Barcelona. However, this may be easier said than done. Reports in the Spanish press have indicated Spanish football clubs are considering the possibility of not starting the season until the broadcasting rights issue is resolved.
The Spanish pay-TV market is proving one of the toughest in Europe. Where as most markets are seeing an increase in subscriber numbers, Spain has not. Interspace’s anonymous source added: “Over the last few quarters, we have seen a decline in subscriber figures in Spain. Whereas 2002 has been a peculiar year, with uncertainties over the potential merger having a negative impact on new additions, the Spanish pay-TV market is not showing a healthy underlying growth trend.”
The main competition for Digital+ will likely come from cable alternatives such as DTT (digital terrestrial television). Jose Maria Martin Guirado, executive director of Net TV, one of the DTT channel providers, expects a DTT alternative will not exist in Spain for a while yet. He told Interspace: “It is very difficult to get commitments from the government. We think it will take at least 2-3 years before there is DTT in Spain. There is nothing to propose right now. There are elections here in Spain and I think before next year we may get a new commitment in order to promote DTT. But, it is difficult to know when.”
Guirado hopes Spain can learn lessons from the UK, where Freeview has emerged as a successful TV alternative to cable and satellite alternatives. In the UK, viewers pay an upfront cost of around GBP100 ($163.9) for a set-top box and then they are able to access around 30 TV channels and various radio channels for free. It has been very successful, with estimates indicated it may well have over 500,000 users, but it is hard to gauge whether the success of Freeview is impacting BSkyB’s ability to pick up new subscribers. On the DTT model in Spain, Guirado comments: “We are encouraging the Spanish government to look at the Freeview experience in the UK. We think we can do something broadly similar. We think the leaders of this initiative should be the public broadcasters. I don’t think we can do things in Spain like this for at least 12 to 18 months because we need to find ways of bringing different companies and interests together.”
In terms of cable, ONO represents the most credible alternative. The Spanish cable operator is scheduled to launch a digital TV service in the next month as it aims to put pressure on Digital+ in its cable franchise areas. ONO has over 310,000 cable television customers. It hopes the launch of its digital TV service in Spain will lead to an increase in its TV subscriber base. ONO’s major growth has been in the broadband area in the last 12 months but it has high hopes for its digital TV product. Michael Vorstman, ONO’s CFO, told Interspace: “We will launch digital TV first in Valencia. We are finalising the last few things on that initially. It will be basically mean more channels and more frequent PPVs. That is what it will mean initially. We will launch in Valencia and then extend it to the rest of the franchises like we do with all of our products. All our new customers will only be offered digital [service]. Commercially, we will introduce it into the different franchise businesses. The network will be completely ready in the summer everywhere.”
(Contacts: Sylvia Carrasco, ONO, email: firstname.lastname@example.org)