France’s Canalsat, TPS Face Post-Merger Operation Questions

The impending merger of France’s two satellite-TV providers — Canalsat and TPS — has raised the question about which fixed satellite services (FSS) company will inherit the combined companies’ business, along with other marketing and technology issues that the surviving operator will have to address.

In December, Vivendi Universal, owner of Canal+ Group, and TF1 and M6, which own TPS, signed a draft agreement to combine the pay-TV businesses. The transaction has been approved by the French government and is expected to be completed in the fourth quarter.

France has been the lone European country to still have two satellite pay-TV providers, and the end of this competition has raised concerns, but Florence LeBorgne, a media analyst at Idate, said the combination was inevitable.

"There was strong competition between the two," LeBorgne said. "In theory, this competition was a good thing for consumers because prices were quite good, compared to say, BSkyB in the U.K. The strong competition between Canalsat and TPS was a good thing for French consumers. But, it was probably not sustainable for the different operators. It was logical that the platform merged."

TPS has had its operations based on Eutelsat, and Canalsat has been using SES Astra. Maxime Saada, Canal+’s vice president of strategy, admitted it was uncertain as to whether they would continue to use both FSS operators.

"We are currently in the process of examining the situation," Saada told Satellite News. "We are soon going to announce a bidding process. We are not necessarily going to go with one operator. We are considering every option, and that includes keeping both. That is what happened in Spain, and they were still able to drive costs down. In the United States, they rely on two platforms to address capacity need."

In 2003, Spain’s Canal Satelite Digital and Via Digital combined their direct-to-home operations but retained the use of both Hispasat and SES Astra to deliver the service.

The merger likely also will bring an end to the TPS brand as a whole, though the name will remain attached to individual channels, said Saada. "At this stage, we don’t believe the TPS brand counts as a strong motivation factor for customers," he said. "I do believe the TPS brand counts for the channels themselves. The flagship of TPS is TPS Star. We will keep the TPS brand with TPS Star. For the key TPS channels, they will keep their identity and brand. In the case of TPS, the customer is very much attached to the name of the channel and not the multichannel brand."

Some redundant channels likely will be eliminated but can be replaced by new niche channels, Saada said. "Because TPS and Canalsat have been competing head-on and spending money on acquiring customers, both operators have basically been developing channels that cover the same themes," he said. "In movies, we have the case of similar movie channels on both sides. In the kids’ content market, we have very similar channels. You could go on. We haven’t taken the time to address specific segments with specific niche channels. Now we intend to develop that so we can grow the market. It is about identifying niches that we have not addressed so far, and helping other channels in the market develop."

The more difficult merger efforts will be in the technology area. The companies must reconcile their respective set-top box (STB) strategies, as both operators have made huge investments in different technologies.

"I think the key thing is that a unified box is overly ambitious but more rational and cost-effective and driven by innovation," Saada said. "It will take some time, but it will get there. We don’t want to be spending development costs for both boxes. The focus will be on keeping the customers. We know they don’t like change unless they know it is for the better. You don’t want to be changing the STB unless you are adding a lot of value. We are not going to seek unification for unification’s sake. We are going to try and focus on the customer and what they want. If we need to change the STB we will do it, but if we don’t, we won’t. The priority is keeping the customer."

Saada believes the combined Canalsat-TPS will be able to be much more efficient in combining their respective high definition (HD) and personal video recorder (PVR) operations, an area that also touches on the FSS provider decision.

"Combining our spending on HD compared to what we did separately will make us more efficient," he said. "Both of us were spending on our own solutions for STBs and for production equipment when we produced our own content. We were both trying to get some third-party channels on HD, so prices were driven up. We were both spending on satellites. A lot of the costs of HD are about the capacity that you use on the satellite network, ourselves with Astra and TPS with Eutelsat. By being more efficient, we hope to bring more HD content to our customers, and quicker."

Once the combined Canalsat-TPS is running smoothly, the next step will be to look outside of the satellite arena and establish other relationships, such as a setting up a partnership or acquiring telecoms infrastructure.

"As the costs of unbundling decreases and the business model’s more tested, I am sure it is something they would look at," said Bridie Barrett, a media equity analyst at ABN Amro. "Right now they are giving away quite a big part of their margin. Alternatively, if DSL rollout is done on a very accelerated basis, and they try and acquire a platform, there would be more question marks as to whether that would get through. But I think any self-respecting platform is looking to expand into other platforms as the whole landscape changes."

–Mark Holmes