A wave of digital concentration is taking place in the international DTH market. Spain may be the next on the list, writes David Del Valle

“United we stand”. This seems to be the latest fashionable slogan in the international digital satellite TV market. A wave of concentration is travelling across Europe and the United States as digital platforms put their interests together and create new broadcasting giants. The first of these digital mergers is happening in Italy and Poland. In Italy, Canal+ controlled Tele+ and News Corporation-backed Stream decided to merge to set up a single Italian DTH platform with a combined base of more than 2.5 million subscribers. More recently, in August, UPC and Canal+ signed an agreement to merge their Wizja TV and Cyfra+ digital platforms in Poland. The new company, TKP, in which Canal+ will hold a 75 per cent stake and UPC 25 per cent, counts more than 700,000 subscribers. Other countries are also moving with the tide. In the United States, Rupert Murdoch’s News Corporation has been seeking a deal with General Motors/Hughes Electronics, owner of DTH platform DirecTV, for the past 18 months. Talks with arch-rival Echostar bring a third-player element to the US equation. Murdoch’s logic is inescapable and he is pushing to bring DirecTV (around 10 million subscribers) into his planned Sky Global operation. Back to Europe, in France, Canal Satellite and TPS are reportedly being in merger talks. Speculation is mounting about a possible deal, despite denials from both parties who prefer to talk only of an entente cordiale. If a merger does follow, the new company would have around 2.8 million subscribers in a country of more than 24 million TV households – and a chance of turning losses into profit. Similar consolidation moves are also taking place in the Nordic market, where Norwegian telco Telenor has taken control of their previous joint-venture with Canal in Canal Digital.

Destined to merge

A similar solution would make perfect sense in Spain where two digital DTH companies, Sogecable-owned Canal Satelite Digital and Telefonica-led Via Digital, are fighting for the same market. For many, both parties are destined to understand each other and will be impelled to reach an agreement sooner or later. In all these European countries, the local digital DTH business has similar features. All the platforms involved – with the exception perhaps of Canal Satellite in France – are burdened with massive debts. Via Digital incurred losses of E252.4 million last year, up 12.2 per cent on 1999. Its rival Canal Satelite lost E15.9 million – admittedly an improvement on the previous year’s figure of E41.2 million. Canal Satelite, nevertheless, expects to reach break even later on this year, whereas Via Digital will have to wait until 2003 at least. In Italy, for example, Stream lost E400 million last year and Tele + around E220 million. All these platforms are going through a chaotic financial situation mainly caused by the high price they are paying for sports and movie rights. In Spain, both platforms initially engaged in a fierce fight to sign exclusive contracts in a strategy that finally backfired and now find themselves facing such consequences as having to annually pay E240.4 million for Spanish Football League pay-TV rights. This bidding war for rights has benefited the US majors at their financial expense. They have nevertheless managed to secure output deals with a number of US majors including, among others, Columbia TriStar, Disney and Time Warner in the case of Canal Satelite, and Universal, MGM and Polygram in Via Digital’s one. So, merging appears to be the best solution to save costs and maybe to avoid bankruptcy in the future. Another common feature is that all these platforms seem have reached -or will have reached in the near future- their ceiling in terms of subscribers. This is the case of France, Italy and even Spain. Currently, in Spain there are 1,915,000 million digital DTH subscribers (Canal Satelite Digital, 1,175,000 and Via Digital, 740,000).

Merging to survive

It is estimated that every new client costs Via Digital around E601 and Canal Satellite E385. Spanish platforms are now strongly relying on their football offers – even giving some football events free – to foster subscriptions. Via Digital´s goal is to reach 800,000 subscribers by the end of the year. But, these marketing strategies and rights acquisitions require a vast sum of money from the companies, investments that platforms cannot afford. A merger or an alliance is needed to tackle huge losses and face future challenges. First to make the point very recently was Gustavo Cisneros, the president of Group Cisneros, which is a 6.9 per cent shareholder in Via Digital. He called for a merger -or at least an agreement- between them (Canal Satelite and Via Digital) to make their respective businesses profitable. Cisneros said that the investment his company had made in Via Digital “has not gone well”. In his opinion, if no agreement, “an investment like this will lose interest after a wait of many years to see it (becomes) profitable”. The best example for it is the Spain’s DTT Quiero. Some 18 months since its launch, in May 2000, the digital terrestrial company (and just 210,000 subscribers) is haemorrhaging red ink due to its “aggressive” marketing campaign to capture clients. Several shareholders – publishing house Planeta, British Carlton Communications and two savings banks- have risen in revolt by refusing to inject more money into the loss-making platform (in the first five months of this year it lost E68.5 million). Several of Quiero’s top executives were dismissed and 60 jobs will go out of the total 280. Despite their losses, digital DTH is riding out the storm for the time being, but a consolidation is now likely to come sooner or later. As in other countries, Spain is regarded as being too small a market (11.7 million households) to be home to two different digital DTH platforms, based on two different technologies (CSD, MediaHighway, and VD, Open TV) and with different encryption systems within the set-top box (CSD, MediaGuard with simulcrypt, VD, Nagra with multicrypt). Maybe, the future migration to the MHP, which has only just been fully specified, might help the integration of the two companies into one platform. The two have already announced that they will adopt the MHP interactive middleware platform for their set-top-boxes in the near future (they announced the launch of new STB by the end of this year or the beginning of next one).

Canal+’s digital realignment

But, digital concentration in Spain might be fostered by the international plans of Canal’s new owner’s Vivendi to realign its European pay-TV operations. Digital mergers in Italy and Poland have followed the same pattern: as a result of the digital concentrations Canal has strengthened its position as a pay-TV operator in both markets. In Spain, should it take place the merger would give the leading pay-TV company Sogecable, owner of Canal Plus and Canal Satelite Digital in the Spanish market, a extraordinary control of the sector, above all concerning contents. Via Digital would contribute to the venture through the latest technology of telco giant Telefonica. The president of Sogecable, Jesus de Polanco, has publicly been in favour of a merger or any kind of agreement with Telefonica, owner of Via Digital. This is the only solution, in his opinion, to put an end to “nonsense” marketing campaigns that are contributing to increase the price of TV rights. Speaking at the latest annual shareholders’ meeting, he said: “We are willing to enter into all kinds of negotiations for the benefit of consumers and our own companies”. In his opinion, “in the short term good sense will impose its rule in this sector, which up until now has been too subject to political pressures”. From the very beginning, the Spanish Government has been interfering in the digital DTH market. Back in 1997, when both platforms launched, the central administration put pressure on both parties to come to a merger agreement. However, the two digital platforms got involved in a disastrous war to gain clients. Then, they tried to reach an agreement on several occasions, but negotiations never bore fruit as in Italy (until very recently). “I am convinced that if the Government had not interfered in the market, both platforms would have reached an agreement”, said a Sogecable source.

From Via Digital it is said that the Telefonica-led platform is now not interested in negotiating with its counterpart. But, its financial situation is crying out for an immediate solution. Via Digital has become a heavy burden to Telefonica Media, its main shareholder now subject to a far-reaching re-organisation of its media interests to turn around its losses. Cesar Alierta, president of Telefonica, wants to realign Telefonica’s media companies to prepare its media holding, Telefonica Media, for floatation on the Stock Market. Via Digital is one of the companies to be realigned. Telefonica does not want to lose more money through its digital platform, so an unexpected move to rescue Via Digital from financial chaos cannot be ruled out.

Another factor that will foster a possible digital merger is the massive introduction of digital terrestrial channels in Spain next year. In April 2002, the existing terrestrial broadcasters – RTVE, Antena 3 TV, Tele 5 and Canal+ – should start operating their digital channels. Two months later, in June 2002, another two digital terrestrial channels with a national coverage, Veo TV and Net TV, should start digital transmissions in order to comply with the Government-imposed deadline. In addition, further regional digital channels will be launched across Spain and, perhaps, even a fourth national digital channel. These channels will be added to Quiero’s 14 channels and combined around 200 channels distributed by Via Digital and Canal Satelite Digital.

A deal between the two digital DTH platforms would strengthen their position in the fight against DTT and advanced and integrated cable networks. However, as an insurance, Canal Satelite Digital is also taking positions in Spain’s DTT market. The platform has entered into negotiations with telco holding AUNA to become a content provider to the DTT platform. Moreover, Canal Satelite would be negotiating to become a leading shareholder in the DTT platform with a stake of 29 per cent. Spain’s digital TV market will see how competition will intensify over the next months. Digital satellite platforms have taken the lead in the digital market but will they keep it? Will both platforms be able to survive by their own? A realignment in Spain’s digital satellite TV landscape will come sooner or later, taking the example of other European countries. Never is too late.

Via Digital

• Connection fee: Pta15,000 (E90.1)
• Decoder rental cost: Pta1300 (E7.8)

  Basic package: 45 TV channels and 30 audio services at a monthly fee of Pta2995 (E18) plus the decoder rental cost.

  Premium packages:

• Basic/Cine Tematico (four cinema channels) at Pta3,990 (E23.9) per month plus the decoder rental cost.
• Basic/Premiere (four channels dedicated to cinema, sport events, live programmes and Gran Hermano) at Pta4,990 (E29.9) per month plus the decoder rental cost.
• Supervia: Basic/Cine Tematico/Premiere at Pta5,595 (E33.6) per month plus the decoder rental cost.
• Via Estrella: Basic/Premiere/Futbol Total at Pta5,595 (E33.6) per month plus the decoder rental cost.
• Via Total: Basic/Cine Tematico/Premiere /Futbol Total at Pta5,995 (E36.0) per month plus the decoder rental cost.
• Canales a la carte (channels a la carte): Canal Barca at Pta750 (E4.5), Futbol Total at Pta1,495 (E8.9), Playboy TV at Pta1,495 (E8.9) or at Pta995 (E5.9) if subscribed to a premium package, and Ludy TV at Pta700 (E4.2).
• Palco (pay-per-view channels): Cinema films at Pta600 (E3.6) each one and on Wednesdays at Pta400 (E2.4); football matches at Pta1935 (E11.6)

Canal Satelite Digital

• Connection fee: Pta15,000 (E90.1)
• Decoder rental cost: Pta1250 (E7.5)

  Basic package: 42 TV channels and 43 audio and radio channels at a monthly fee of Pta4,995 (E30) plus the decoder rental cost.

  Premium packages:

• Canal+ Digital: Four digital versions of Canal+/Disney Channel at Pta4995 (E30) per month plus the decoder rental cost.
• Premium Plus: Basic/Canal+ Digital/Disney Channel/National Geographic at Pta6495 (E39) per month plus the decoder rental cost.
• Premium Plus Familiar: Basic/Canal+ Digital/Disney Channel/Cinema (five cinema channels) at PtaE7590 (E45.6) per month plus the decoder rental cost.
• Formula Cine: Basic/Cinema (five cinema channels) at Pta5995 (E36) per month plus the decoder rental cost.
• Options: Music channels at Pta750 (E4.5); Real Madrid TV at Pta750 (E4.5); Infobolsa (a stock market channel) at Pta1000 (E6); Seasons at Pta750 (E4.5).
• Pay-per-view events: Football matches at Pta1995 (E11.9). Cinema films at Pta600 (E3.6)

Quiero

• Connection fee: Pta9950 (E59.8)
• Decoder rental cost: Pta1200 (E7.2) per month

  It offers a single package of 14 channels at Pta3750 (E22.5) per month plus the decoder rental cost. The company also markets a wireless keyboard to access Internet and interactive services at Pta4950 (E29.7).