Fox parent News Corp. and French pay-TV giant Canal Plus announced yesterday that they would be teaming to develop new TV services in Europe.

The partnership between these two former rivals signals a huge consolidation of power in a market that is still in its infancy.

Canal Plus is already No. 1 in pay-TV in Europe, with 4.5 million subscribers through its operations in France, Germany, Spain, Belgium and Western Africa. News Corp., through its 50% stake in BSkyB, is the pay-TV leader in Britain and Ireland. BSkyB’s seven-channel service of news, entertainment, sports and movies reaches 3.4 million households, about 19% of the total population of the U.K.

There are only 8.2 million pay-TV subscribers in all of Europe as of June 1992, according to Kagan World Media.

Though pay TV penetrates less than 6% of Western European households, the sheer size of the Canal-News Corp. partnership, along with their extensive film and sports rights, is likely to make it difficult for a competitor to take them on in individual country markets.

Moreover, the dynamic duo also will be seeking out a major national partner to distribute pay-TV services in each European country, according to a statement released by News Corp.

What’s left for the competition? Time Warner, for example, which has been actively shopping for a European alliance, has been in discussions for some months to become a partner in the Greek pay-TV channel TV Plus. Time Warner also is talking with Canal Plus about combining efforts in Turkey.

In Sweden, Time Warner and Canal Plus are investors in TV 1000, the pay-TV channel there, and are rumored to be in discussions to merge that entity with FilmNet, the other major pay-TV supplier in Scandinavia.

Of course, the Canal-News Corp. combination is in its early stages. Terms of the partnership were not released, although the thrust of the agreement suggests first a powwow between top guns. A press release said that “a working group involving senior executives of the two companies has been set up to work out an extensive agreement on programming, technology and strategy.”

Ideally, the strategic partnership would allow the companies to take advantage of future technologies in satellite transmission, digital compression and encryption. Rumored to be part of the new technology is a CD system that would receive a satellite feed that automatically self-erases after the property is viewed.

Wall Street investors, who listened to News Corp. topper Rupert Murdoch’s pitch for fresh cash yesterday in all-day meetings, looked favorably on the synergy of the combination as a sign of Murdoch’s clout in lining up an influential partner in a strategic growth market, according to sources.

But the news wasn’t enough to move the company’s share price. News Corp. ADRs closed at 34 7/8, unchanged from Wednesday.

“It’s a natural fit between what the two companies are doing,” said John Field, a cable analyst with Hanifen, Imhoff Inc. But the impact won’t be felt for some time, since technology remains the major stumbling block for expanding pay-TV in all markets, he added.

Canal Plus and News Corp. also noted that their partnership will start operations “as soon as these technologies are available.”

This suggests the companies are prepared for a long haul. For example, the U.S. market is at best months away, Field noted, from developing the technology for digital compression of films and TV programs for satellite transmission. Europe not only is playing catch-up in technology, but faces marketing problems as well because of divergent cultural tastes and attitudes toward pay-TV.

However, the combination does set the stage for additional distribution of programs and films produced individually by each company. Both companies already have film libraries.

News Corp. is the parent of 20th Century Fox. Canal Plus also has been active in Hollywood, financing stakes in films such as “JFK,””The Mambo Kings” and “Under Siege” through its Studio Canal Plus subsidiary as a way to feed its pay-TV output.

Canal Plus produces TV programming abroad and is involved in producing films with several other companies as well. It also is actively pursuing the development of thematic channels distributed by cable and satellite in France and elsewhere in Europe. It already operates sports and movie channels in France.

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