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Digital+ Makes Steady Progress In Spain

By | March 1, 2004

      Sogecable, the owner of Digital+, is bullish about the prospect for pay-television in Spain. Executives from Sogecable recently gave an upbeat presentation about the prospects for pay-TV in that country.

      Digital+, the new satellite pay-TV operator in Spain, was formed from the combination of Via Digital and Canal Satelite Digital (CSD). After beginning service in July 2003, Digital+ so far has made steady, if not spectacular, progress. In its full-year results, Sogecable announced that Digital+ had close to 1.8 million subscribers, a respectable result.

      Both CSD and Via Digital subscriber bases were able to enjoy the complete channel lineup of Digital+ until the end of September 2003 without any price increase. At that point, subscribers had the option of going back to their existing contracts (and package lineups) before the merger was completed or they could upgrade to Digital+.

      As a result, it may still take a little time before the performance of Digital+ can be evaluated. Via Digital had gained a number of subscribers with low-priced monthly packages, so it remains to be seen whether a number of these consumers will be willing to pay extra when their contracts are up. More than 50 percent of subscribers already have moved to the content provided by Digital+.

      Early signs for Digital+ are encouraging. Average Revenue Per User (ARPU) figures are particularly impressive. In December 2003, the figure was $58.70 (46.4 euros), an increase of $6.33 (5 euros) from the previous quarter. This figure is made up of both subscription revenues and PPV charges.

      “Optimistic” CEO

      Javier Diez de Polanco, Sogecable’s CEO, said during a conference call the operator was in line to beat its own forecasts for subscriber growth during the next year. He also said that the company had gained many more premium subscribers than it had forecast. Polanco acknowledged his company’s December 2003 ARPU figure was higher than expected. However, Polanco is “cautiously optimistic” that Digital+ subscriber growth will be sustained. “We are in a good position for the future. We are on target to reduce costs and develop the company over the next year,” Polanco said.

      It has been a busy few months for the operator. In November 2003, it reached an agreement with Astra and Hispasat to continue broadcasting Digital+ through both satellite operators until 2017.

      Analysts have viewed the results favorably. Mark Harrington, a media equity analyst at Bear Stearns, told Satellite News, “The results … were pretty much in line with expectations, so I don’t think there were any surprises there.”

      The market appeared to react positively to comments from company officials. Harrington says he believes the company could beat several of the financial targets it announced last year.

      “There are also smaller things that the market was not fully factoring in,” Harrington says. “For example, this tax credit, which looks as though it might be quite a bit higher than what they had originally communicated, clearly translates into additional value for the company.”

      Javier Marin, a media equity analyst at Morgan Stanley, also believes the outlook is bright for Digital+. He told sister publication Inside Digital TV, “The performance of the company is clearly indicating that the merger and the prospects of the company are positive. The numbers we have seen were right in line with our expectations, but that is good news because we were assuming that Via Digital is no longer running as a contributor in the terms of margins to the business. That is a really good sign of the benefits of integration.”

      He adds, “Secondly, the migration to the new Digital+ offer is going at a good speed and is resulting in an increase in ARPU, which I think is driving the balance sheet performance of the company. But, because of the migration of Via Digital customers, it is going to be difficult to assess the company’s performance until the middle of 2004 and beyond. Roughly 200,000 low-paying Via Digital subscribers remain on board. In the second half of the year, a clearer picture of the market dynamics in Spain will emerge.”

      Subscriber Growth

      Harrington believes subscriber growth is unlikely to be dramatic in Spain’s pay-TV market. “I think that within Spain, relative to most other markets in Europe, the penetration of pay-TV as a percentage of TV households is quite a bit lower than some of the other countries like France, the UK and Germany,” he says. “As a result, we are not necessarily going to see Sogecable move from the current penetration rates of around 25 percent pay-TV (17 percent DTH) up to where the UK is at 41 percent pay-TV penetration (27 percent DTH).

      “I think there is room for slightly higher growth than comparable markets. I am forecasting single-digit growth rates in pay-TV penetration and that Sogecable should maintain a consistent market share,” he says.

      Marin adds, “I would not expect large developments on the subscriber base, but I do expect the revenues and the EBITDA to go up. The offer is now simplified, and you get more value for money. I don’t think we are seeing a dramatic swing in terms of content. What we might see is the company trying to attract some segments of potential users with specific offers in due course.”

      With the new packages in full swing, the challenge will be to consolidate a strong start Digital+ has had. Polanco spoke about the company “enriching its marketing mix” and having more varied and segmented marketing. One other interesting area to look at is Personal Video Recorders (PVRs). A number of satellite pay-TV operators in Europe, including Canal Satellite in France and BSkyB in the UK, already are deploying aggressive PVR strategies. Polanco would not share his own company’s plans for PVR, but that is an area that Digital+ is giving serious analysis, he confirmed.

      –Mark Holmes

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