French pay-TV operator Canalsat is beginning to gain a significant amount of customers via non-satellite channels as the company bids to increase its subscriber numbers in France, a company official said.

The satellite pay-TV operator has around 3 million subscribers in France but is beginning to see a surge of customer numbers via DSL. Only 80 percent of Canalsat’s new subscribers are coming via the direct-to-home satellite platform, said Guy Lafarge, CEO of Canalsat and executive vice president for distribution at Canal+ Group.

“If you look at the volume we have, we are very happy with being on DSL, because you can reach new customers which we cannot reach with satellite or other solutions,” Lafarge told Satellite News. “It is a new market. I see it as very important for our growth. If you look what has happened with Canalsat, we have around 20 percent of our new customers arriving via DSL. For this reason, we have decided to have contracts with telcos, France Telecom, Free and Neuf Telecom/Cegetel.”

The rapid growth in subscriber additions via DSL is being triggered by growth in cities and urban centers. Canal+ Group’s offers on DSL — Canal+ Le Bouquet and Canalsat — exceeded 100,000 subscriptions this summer, Lafarge said. Continued popularity of the platform could lessen the importance of satellite in generating new subscribers for Canalsat. “DSL is a strategic tool to get into cities and address new consumers,” he said.

New Market Dynamics

In markets across Europe there now are more platforms than ever to distribute content. It is no longer as simplistic as satellite versus cable. There is now digital terrestrial television (DTT), IPTV, and even something like mobile television, which is competing for customer dollars. While this is good news for content providers, the competition for satellite pay-TV providers is increasing in all areas.

Canal+, which has a 66 percent stake in Canalsat, also is pursuing other delivery methods for its content which could further reduce the strategic importance of the company’s satellite offering, Lafarge said. The group plans to bid for WiMAX licences in France, a process which will be completed in early 2006. “We want to be a competitor in this new market. WiMAX technology can be implemented for Internet and interactivity, which is necessary to define new business models close to broadcasting,” he said.

The new market dynamics where content is about to be delivered across multiple platforms is good for Canal+ but maybe less so for Canalsat, said Yannick Mathieu, a media equity analyst at Standard and Poors. “The value of Canalsat relative to Canal+ has decreased a little bit just because Canal+ now has more strategic opportunities,” he said. “The advent of DTT and IPTV allows it to distribute its content in new ways and to better leverage it against its competitors. This is particularly significant in that it has about twice the number of subscribers than Canalsat has. In terms of acquisition of premium content, this puts Canalsat at the same competitive disadvantage relative to Canal+ as TPS is relative to Canalsat.”

The pressure will be on satellite. Mathieu said, “Canalsat is like BSkyB. It is a distributor, not really a content provider. Distribution becomes less valuable when it is more fragmented. The reason Sky is so strong is because most people do not have cable or other ways to get pay TV, but his is changing. So suddenly these satellite providers, which used to have a quasi-monopolistic situation, are now facing more competition. So content providers have got a stronger hand. If you have a movie, you don’t have to sell it to TPS or Canalsat, you can sell it to other distribution platforms.”

Canalsat has not yet looked to do content distribution deals with telcos, but Lafarge does not rule out the possibility that Canal+ may look to acquire a telco player similar to what BSkyB has done with Easynet in the United Kingdom. In theory, the Easynet acquisition will enable BSkyB to become a triple-play provider and negate one of cable’s key competitive advantages over satellite TV operators. The acquisition could also mean targeting homes where gaining satellite services is not a good fit, such as in apartments in urban centers. Other advantages include more flexibility in terms of offering on-demand services, playing in the lucrative broadband space, as well as a better mode for executing interactive services.

“It is necessary for satellite platforms to reach all customers with new types of platforms,” Lafarge said. “In France, we are ready to launch on digital terrestrial television (DTT). We have launched on ADSL. We look at all platforms. We want to promote our content and be number one in this market. For that, it is necessary to reach all the customers. In some cases, we can find arrangements with telcos and the operators, and in some areas, it is necessary to take control of the market. If you look at something like video on demand, it is clear we are in competition with telcos. If we consider that these markets can be new areas of growth, perhaps it is necessary to have more control of the operation and have a stake in some companies.”

Florence Leborgne, a media analyst at IDATE believes telco relationships of some form will become more critical for Canalsat’s success going forward. “The question for Canalsat is the same for BSkyB in the U.K.,” she said. “Their subscribers are still growing, but more growth is expected to come with DSL. Canalsat, like TPS, needs this new technical platform to develop their number of subscribers. They want be able to gain many satellite subscribers so they have to develop this multi-platform approach to maintain their growth.”

Canal+ also is looking to be more of a player in the developing mobile television arena. Earlier this year, Canalsat and SFR announced a deal where SFR would carry a Canalsat bouquet of channels on its service. In its latest deal, Canal+ has done a deal with Orange where users can gain unlimited access to Canal+ content for 5 euros ($5.90) a month. For SFR, it costs users 7 euros a month ($8.20) to access Canalsat channels. Lafarge sees a similar business model here to satellite.

“We consider pay-TV for mobile similar to what it is on satellite,” Lafarge said. “So you have a monthly fee for access to all of the content. The business model is based on revenue sharing between the wireless operator and us based on this monthly fee.”

Competition

While Canal+ continues to expand its content distribution platforms, Lafarge does not believe the entrance of DTT services into the market poses a significant threat to Canalsat’s large subscriber base. “In July, Canalsat recruitments were up 40 percent compared to July 2004. I think the market is growing and, as the leader, we want to reinforce our position. Some consumers will discover multi-channels offers, and I am sure that lots of them will want to discover the leader one day. We also recently showed our new set-top box, which allows the reception of the satellite channels of course but also the free DTT channels.”

Canalsat’s satellite pay-TV competitor in France, TPS, does not pose much of a threat either. Canalsat’s acquisition of blue-chip French premier league soccer rights should help the operator maintain a subscriber base of more than double TPS’s number, Leborgne said, “What we have noticed in the last month is that Canalsat has performed quite well in comparison to TPS in terms of subscribers and in terms of financial results,” he said. “Canal+ and Canalsat have bought the football rights. This acquisition has been a very interesting point for Canal+ and Canalsat and the premium channel and the satellite platform have both benefited from this acquisition.”

Canalsat also has been working hard to boost its content in other areas as it bids to keep the pressure on TPS. Recently, Canalsat announced its new line-up with 14 new channels and services, offering brands exclusively to its subscribers such as Discovery Real Time, Fox Life, Sci-Fi, two new MTV channels, Playboy TV and Private Gold. Canalsat also has enhanced the subscription offerings with new packages and pricing formulas. It has offered subscribers the new Mediasat+ set-top box that integrates a digital satellite receiver and a DTT adaptor which enables Canalsat subscribers to receive all satellite channels and free-to-view DTT channels via a single set-top box and remote-control.

Canalsat has reduced the monthly charges for its personal video recorder service, Pilotime, from 15 euros ($17.53) per month to 10 euros ($11.69) per month in an attempt to increase its uptake among subscribers, Lafarge said, Currently, only 100,000 of Canalsat’s 3 million subscribers use the service.

Canalsat also is gearing up to launch high-definition (HD) services in 2006. Since June, Canal+ has been broadcasting a demonstration HD loop by satellite, broadcasting premium contents such as movies, sports, documentaries and shows. In March, the company demonstrated the first football league match fully produced in HD in France, and the full launch of an HD channel is scheduled for April.

“We want to be the number one player in terms of content, premium content, innovation, etc.,” Lafarge said. “HD is one of the parts of this new element of quality. How successful we are will depend on how many TV sets we can reach. It is clear we are ready to launch HD content on Canal+. It is necessary to have HD MPEG-4 components. We are working strongly on this platform.”

–Mark Holmes

(Benoit Liva, Canal+, Benoit.LIVA@canal-plus.com; Florence LeBorgne, IDATE, f.leborgne@idate.fr; Yannick Mathieu, Standard and Poors, Yannick_mathieu@sandp.com)