With close to 30 million households now subscribing to some form of digital television (DTV), France is the only major European market to support two satellite pay-TV operators, Canal Satellite and TPS. The market, however, is undergoing some significant changes with digital terrestrial television (DTT) set to launch next year and a move toward high-definition television (HDTV) already underway.

In 2005, a free-to-air (FTA) DTT offering will launch in March, followed by a pay-TV DTT element in September. The new offering will consist of some 30 channels, split equally between FTA and pay-TV. Isabelle Parize, Canal Satellite’s soon-to-be-former CEO who is leaving the company to become the executive vice president in charge of international operations and development for the Canal+ Group, thinks the adoption of DTT will be slow because there is quite a lot of confusion about how the set-top box (STB) will be configured and whether MPEG2 or MPEG4 will be used.

In terms of how successful DTT will be in France, Nicolas Gindre, a media equity analyst at Kepler Equities, commented, “Free DTT in France will need incentives to witness the same success as in the U.K. Freeview has been a success in the U.K. because it was built onto the ruins of ITV Digital. One million subscribers swapped their ITV digital STBs for a free Freeview STB. So without STB subsidies, at least at the beginning, the takeup of DTT should be very slow.”

In the longer term, Gindre believes the takeup could increase quicker with the rapid extension of the French territory’s coverage, with projections totaling 35 percent in March 2005, 60 percent in December 2005 and 85 percent by December 2007. In addition, STB prices should drop to less than their current $180s range.

Similar to Freeview in the UK, Gindre believes DTT could be a threat to French satellite pay-TV. “The DTT offer is, in our view, a further threat to Canal Satellite and TPS,” he said. “Sixty-three percent of French households do not yet subscribe to cable (15 percent penetration rate) or satellite TV (22 percent penetration rate). They are aware that, as of September 2005, 15 prime channels will be available.”

Satellite Competition

Yet, while DTT is still yet to happen in France, competition between the two satellite pay-TV operators remains intense. During the last year, it would appear that Canal Satellite has had the better of it, adding considerably more subscribers than did TPS during the last 12 months. Said Parize, “We have been outperforming TPS for the last three years, gaining more than 60 percent of subscribers. It is linked to the strategy to give always the best in terms of quality. We have easy-to-understand packages, and we have been on top for a number of years.”

Between the two operators, there are close to four million subscribers. Both are targeting the tough-to-crack TV- over-DSL market. According to Parize, it will be at the beginning of next year before anyone can reflect on how Canal Satellite is performing in this area.

“This is a really emerging market, and it is extremely interesting for us strategically because it is complementary to our satellite offering,” she told us. “As you may know, in France, it is extremely difficult to get the satellite dishes on buildings in the center of cities. We started the service in Paris at the end of June, which as you know is the worst time to launch a business on pay-TV. We are waiting (until December) so we can assess the temperature of the market.”

TPS has also struggled in terms of gaining subscribers for its TPSL service, but the holiday selling season is coming.

Contact Nicolas Gindre, Kepler Equities, [email protected]; Benoit Liva, Canal Plus, [email protected]