Sogecable Cagey On Digital+

With the merger of the two Spanish satellite platforms – Via Digital and Canal Satelite Digital (CSD) – completed, the new merged platform called Digital+ was launched with much fanfare on July 21.

Sogecable, owner of the newly merged platform, is “very optimistic” that Digital+ will be a success. But company executives are reluctant to predict how many subscribers the platform will have at the end of the year.

CEO Javier Diez de Polanco said he expects to offer subscriber forecasts in the next three to four months. He announced during a conference call that the advertising campaign being used to launch Digital+ will cost 12 million euros ($13.8 million). Speaking two days after the launch, de Polanco said the take-up was already showing encouraging signs. With the new football season just around the corner, Digital+ could get a welcome early surge.

While Sogecable is unwilling to give short-term take-up figures for Digital+, it hopes the platform will reach close to 2.4 million digital DTH subscribers in 2005. Digital+ will have a total of 75 television channels, as well as some radio and interactive channels.

In 2002, both CSD and Via Digital lost subscribers, proving that succeeding in the Spanish pay-TV market is not easy. Javier Marin, a media equity analyst at Morgan Stanley, believes that despite the fact there will be less competition, Digital+ spells goods news for the consumer. He told Interspace: “What has happened had to happen. From a subscriber point of view, it will be much easier to be part of an economically solid platform where the discussions with the content providers are done on a longer-term basis and on a different level. Sogecable will have access to better content at a lower price. Users will enjoy greater quality rather than greater quantity with no added quality.”

Quality

The emphasis will be on greater quality. CSD really struggled, partly due to Via Digital adopting an aggressive pricing strategy, which made it difficult for CSD to grow its subscriber numbers. Now, the dynamics seem to be very much in favour of Digital+. Packages will range from 22 euros ($25.3) to 49.80 euros ($57.2) a month and are far more segmented than before. The top package includes everything except pay-per-view and is around two euros more than the previous package Sogecable offered through CSD. But with better content across the board, Sogecable is hoping this doesn’t have too much of an impact on existing subscribers.

The segmented approach is perhaps best seen in the new range of channels being offered – Canal+ Deporte (sports focused) and Canal+ Cine (cinema focused). The best of both will still be broadcast on the Canal+ premium channel, but the split is an indication of Sogecable’s thinking in terms of segmentation. In terms of cinema, two new film channels will be added to the offering, meaning subscribers will have access to more than 1,000 films a year.

Sogecable CFO Ferdinand Martinez told Interspace in an interview last year (Issue 748): “We see there being a wider range of offers on the markets. We want to grow in all different lines of subscribers and not limit ourselves to the top quality ones.”

Morgan Stanley’s Marin believes the new pricing packages have been cleverly targeted at both the low-end Via Digital subscribers as well as higher-end CSD subscribers. “You have much more segmentation in terms of the offer. In the past, you had an option to buy lower quality content at a cheaper price. They are changing that and offering much higher quality but you will have to pay a little more. That is the message being targeted at Via Digital subscribers.”

In terms of the existing CSD subscribers, Marin added: “For the Sogecable subscribers, they are saying there is not going to be a major increase in prices, but if you want all the sports, you will have to pay for it. The movies will be better. But, there will be a slight price increase.”

Digital+ launched this month with 1.85 million Spanish households subscribing to the service, although this figure does not take into account cancellations from overlapping subscriptions. Sogecable executives will want to get through the 2 million barrier as soon as possible.

Digital+ could be profitable in 2005. It will be interesting to see what the demand for pay-TV services will be in Spain. There can be no more excuses now for Sogecable’s management. There is no longer a price war. Sogecable will have greater power in terms of content negotiations. The lack of growth in satellite pay-TV in Spain contrasts sharply with some of other European markets. So it is up to Sogecable to tap that market.

One analyst who requested anonymity believes that despite more favourable market dynamics, it will still be tough for Digital+ to succeed. “The Spanish pay-TV market in general is not proving very healthy. It is firstly a cultural thing. Secondly, the regulatory environment in Spain basically allows people to see football without paying for it. I can see one game per week. In the medium term, there will be the possibility to download and buy movies from the Internet.”

He continued: “In the short-term, I think with the aggressive marketing campaign they will be able to increase additions after four quarters of negative figures. I am really concerned about what will happen after a couple of quarters. I am sceptical. I am not very confident about strong figures beyond the next two to three quarters.”

Pivotal Role

While there is a competitive threat offered from cable pay-TV, Digital+ should play a pivotal role in dramatically increasing pay-TV penetration in Spain. Marin observed: “The fact today is that there are a growing number of people in Spain, who want to have an option compared to free TV. They do not have other options other than satellite. We are expecting cable to pick up part of that demand but there is a great need for investment. The cable providers, Auna and ONO, are pretty much regionally positioned. They don’t have a national story to tell. I also don’t think they want to put the capital expenditure in to grow the business.” –Mark Holmes

(Contact: Carlos Cerqueiro, Sogecable, e-mail: [email protected])