Consolidation is vital in European pay-TV; neither Italy nor Spain is large enough to support two satellite operators. The Italian deal has collapsed due to a clash between Vivendi and News Corp, but it’s still needed in the long term. Meanwhile, the Spanish deal between Sogecable and Telefonica looks extremely sensible, easily justifying the challenge of integration.
Italy’s satellite operators look unlikely to merge, but their Spanish counterparts might.
Following three digital TV operators’ bankruptcies last month – the UK’s ITV Digital, Germany’s Premiere and Spain’s Queiro TV – the much-needed merger between Italy’s two satellite operators has begun to fall apart, while the two remaining Spanish pay-TV operators have agreed to join forces.
Last year, Vivendi Universal’s Canal+, Europe’s largest pay-TV operator, announced the acquisition of Italy’s second largest satellite operator, News Corp-controlled Stream, to be merged with the leading operator, Canal+ controlled Telepiu. However, Vivendi has now pulled out of the deal.
Part of the reason is the Italian antitrust authority’s severe conditions, particularly concerning Serie A football. But the move is also related to the worsening financial and management situation at Vivendi.
If the deal collapses, Italy will remain a costly problem for Vivendi and News Corp. Italy is not large enough to sustain competing satellite platforms, so completing the merger is the only sensible course of action.
However, the long-discussed merger between Spain’s two satellite operators, CanalSatellite Digital and Via Digital, has moved closer to reality. Telefonica will quit the pay-TV industry by selling Via Digital, which has over 800,000 subscribers, to CanalSatellite’s parent Sogecable. The combined platform would have over two million subscribers, bringing economies of scale and removing profit-damaging competition.
As with the Italian deal, this merger looks set to be a lengthy process. Since the Spanish cable market is still tiny, and following Queiro’s collapse, the merged group would effectively be the country’s only pay-TV operator. Until recently, this would have been unthinkable for the European competition commission – but recent developments should convince them that it is an economic necessity.
The operators’ differing business models will also prove problematic. CanalSatellite charges far higher subscriptions than Via Digital, so moving existing subscribers could be difficult. The company’s revenues per subscriber look set to fall in the short term – but it will have an enlarged base on which to grow revenues and profitability.
Related research: Datamonitor, 2002: iTV Revenue Streams and Business Models