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Sogecable Open To Consolidation Opportunities In Spain

By | March 27, 2002

      Sogecable CFO Fernando Martinez believes that probability of consolidation in the Spanish pay-TV market in the near term is “very high.” He told Interspace: “It is very high because all the companies are here to make business and if there is no business to be made, the rules will change. Sogecable is perhaps the most comfortable player in the way things stand today. The others ones are perhaps more likely to consolidate than us.”

      The question of consolidation is nothing new in the Spanish market. The problems of Quiero TV have only highlighted the difficulties of running a successful pay-TV business in Spain. Martinez is confident that Sogecable and its pay-TV platform Canal Satelite Digital will remain a vibrant part of the market. “It is clear as of today, there is not room for us, Via Digital, Quiero and cable companies. It seems that there is not enough room for all four players. What we can say is that we are already on track for profitability. There is definitely room for us. I wouldn’t be sure if there is room for all the rest,” he said.

      Both Canal Satellite and Via Digital, Spain’s two largest platforms, have been consistently linked with Quiero TV. Martinez says: “What we hear in the press is that Queiro’s shareholders would be trying to find a buyer. According to the Spanish legislation, we cannot be buyers in to that platform. That is a possibility we should rule out. It has also been suggested that we could enter into a content deal with them. We will study content deals whenever they arise. It is a possibility to do a deal with Quiero.”

      Yet, it seems likely that Sogecable will be involved in some kind of consolidation in the medium-term. Both Quiero and Via Digital are clearly struggling in the market and, while Via Digital has been gaining its fair share of subscribers, it has been attracting customers at low pricing levels, hardly a recipe for success. Telefonica Chairman Cesar Alierta, the main shareholder in Via Digital, has recently denied that talks are taking place concerning a merger between Canal Satelite Digital and Via Digital. Interspace also understands from a high-level source familiar with the situation that no recent discussions have been held.

      “The big question is how many players can exist combined with profitability. I would say of course we are interested. We have been and remain as open as we could to any possibility that would make Sogecable a better business. If we receive proposals, we would definitely consider them,” Martinez says.

      Disappointing Results?

      Sogecable, while one of the stronger players in the market, had a difficult 2001. While it returned to profitability for the first time in three years, its results have not found favour with analysts.

      Merrill Lynch has already cut its forecasts for Sogecable’s 2002 overall revenues. Ignacio de la Torre, a media equity analyst at UBS Warburg, told Interspace: “The market sentiment is now focusing on net debt. Sogecable maintains that the current net debt level of 614 million euros ($537 million) is the peak, and it should begin to come down from 2002 onwards. This will be a critical data to assess the cash flow generation potential of the business.”

      While its debt level is perhaps a little higher than expected, Martinez believes the financial position of the company is good. “In real terms, the company is well-funded as of today and the debt is not due in the short term. According to our prospects for this year, and the coming year, the company is almost there. We are as funded as we need to be. We don’t feel we have any big restrictions in that sense,” he says.

      Yet aside from the inevitable consolidation issues, Sogecable is also facing an increasingly tough Spanish pay-TV market, where Via Digital has been using bold pricing promotions to gain subscribers. De la Torre says: “Over the last year, Via Digital was able to significantly increase its penetration on the basis of heavy promotions and lower prices. Sogecable’s focus is to be a quality operator and make people pay more for quality content. I think it is the right strategy, but in the short term it is a very difficult one in which to gain customers when competitors are using a deep pockets strategy. Most of the new pay-TV subscribers are going to Via Digital, but it will be key to see if they stay once free promotions have expired.”

      Yet, despite the fact Sogecable increased its prices last years, average monthly revenues per subscriber (ARPUs) were still disappointing. De la Torre adds, “Sogecable increased their prices aggressively in 2001, yet their ARPU figures increased zero percent. The only answer I could find for this is piracy.”

      Sogecable starts its digital packages at 30 euros ($26.2) a month. Despite the aggressive nature of its competitors, Martinez is not a big fan of a cheap pricing strategy. “We have not done that because we want to grow in a profitable way and bring in profitable subscribers. Because we hold a significant advantage in terms of content, we can make this type of policy. This business as not sensible to price very cheap content being offered to subscribers if ultimately they have no interest when it becomes more expensive,” he says.

      –Mark Holmes

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