Endemol con Internet

Spanish telco giant Telefonica makes $5.3 billion play for Dutch co.

Spain, with its irrepressible cultural energy and its access to Latin America, has long threatened to breed a media titan fit to compete on the global stage. Now it’s got one.

Telefonica’s $5.3 billion takeover bid of Endemol, Europe’s largest production company, marks the first major move by the giant Spanish telco outside its Hispanic backyard.

The deal, unveiled March 17, will marry Telefonica’s massive telecom, Internet and broadcasting interests in Spain and Latin America with Dutch-based Endemol’s production presence in 15 countries.

It’s a classic distribution-meets-content play designed to be uploadable to the Internet, echoing the AOL-Time Warner merger or, on a smaller scale, last week’s UPC hook-up with SBS.

The deal also effectively catapults Telefonica onto the A-list of Euro media players — the companies that Hollywood heavyweights have to pay attention to.

Backed by Endemol co-founders John de Mol and Joop van den Ende, who control 52% of the company, the proposed merger may also mark one leap by Telefonica toward the crea-tion of a Euro major whose tentacles stretch into film, TV, Internet, e-commerce and broadband delivery.

Endemol will operate as a stand-alone content division, forming part of Telefonica as a whole rather than Telefonica Media. Its integration in the group will be handled by a committee led by de Mol, Jose Antonio Rios and Abel Li-nares. De Mol will step down as chairman of Endemol to become its chief creative offi-cer.

As with AOL before it, Telefonica has struck while its stocks are hot.

Since 1996, its market value has shot up fivefold. Powered by acquisitions and cell-telephony, its market value by May will be nearly $135 billion. Its revenues ($13.1 billion) and profits ($1.8 billion) for 1999 made it comparable in size to Rupert Murdoch’s News Corp.

Telefonica will pay some $5.3 billion for 100% of Ende-mol. For Europe’s TV sector, that’s a huge figure. But for Telefonica it’s middle-fry: in January, Telefonica launched a $22.5 billion buyout of four Latin American telco affiliates, the biggest deal ever for a Spanish company.

But while analysts are ap-plauding the neatness of the operation, it is the wider agenda — personal, economic and strategic — that proves particularly beguiling.

Spain’s No. 1 basic, mobile and web operator, Telefonica owns telco subsids throughout Latin America and, by its own estimation, does 60% of the Internet business in the region.

“If anyone wants to be in the Latin America telecoms market, they will have to deal with Telefonica,” says Roger Heale of brokers Raymond James Argentina after the telco’s Latin American subsid buyback this January.

Some two-thirds of Telefo-nica’s revenues still come from telephony. Yet from 1997, Telefonica has driven harder and faster into film and TV than any other telco in Europe, acquiring controlling stakes in satcaster Via Digital, private broadcaster Antena 3, its top pic producer Andres Vicente Gomez’s Lolafilms, and Argen-tina’s Nos. 1 and 3 TV stations, Telefe and Azul TV.

If content is king, Telefonica has now bought a European monarch. Posting revenues of some $480 million a year, En-demol owns more than 300 formats, most of them less than 10 years old, a growing catalog of TV series and a burgeoning Web business, energized by its TV formats

Its “Big Brother” TV real-ity format is the hottest thing on both sides of the Atlantic.

At their joint press confer-ence March 17, both Telefonica chairman Juan Villalonga and Endemol’s de Mol emphasized that this was not just a TV deal. Telefonica’s interest in Endemol is as a broadband, not broadcast, provider, said Vil-lalonga.

Endemol has chosen Tele-fonica rather than Deutsche Telekom or France Telecom as its parent company because Telefonica has more multi-platform outlets than the other telcos, de Mol added.

Once snoozing under gov-ernment control, but privatized in 1997, Telefonica has emerged from seemingly no-where as one of the most ag-gressive film and TV predators in Europe.

Its new dawn broke in June 1996, when, following the gen-eral election triumph of Jose Maria Aznar’s conservatives, the 47-year-old former Bankers Trust exec Juan Villalonga was tapped as president of Telefo-nica.

As Spain’s leading daily El Pais brayed at the time, Vil-lalonga was a school chum of Aznar at Madrid’s exclusive Colegio del Pilar. Per pundits, he was just Aznar’s puppet.

Events were to prove Vil-lalonga’s detractors wrong. Mop-headed, bearing a passing resemblance to the young Orson Welles, Villalonga is a high-roller and a rock ‘n’ roller.

He was also one of the world’s first telco honchos to recognize the importance of content for multi-platform distribbers such as telcos.

Telefonica’s nabbing of En-demol may also underscore the way business is going in Europe — abroad. As the world’s TV and film business converges with telephony and the Internet, for the top multi-media players the major ob-stacle to expansion may not be financial resources — as they roll off bull markets — but outdated regulation.

The Spanish government, ever more wary of Telefonica’s power, has already fired two shots across Telefonica’s bow, insisting that its Internet joint venture with the country’s second-largest bank, the BBVA, contravenes trust regulations. The government also announced the creation of two new free-TV operators, which could cut Antena 3’s ad revenues.

Having won the biggest ab-solute majority of any govern-ment in Europe at Spain’s general elections March 12, it seems Aznar can now dictate new statutory regulations at will.

The only way to avoid such limitations is to seek a more rather than less competitive environment. The acquisition of Endemol marks a quantita-tive change in Telefonica’s status.

But the deal is not without its problems.

In Endemol, Telefonica has bought not only into content, but into the creative talent of its co-founders. Yet the acqui-sition has come just as Joop Van den Ende has signaled what looks like his definitive exit from Endemol, for reasons of health.

Still, it’s a moot question whether de Mol will want or be able to replace Van den Ende as the driving creative force of a Telefonica-owned Endemol. Endemol’s new chairman has yet to be announced and most probably has not yet been decided.

Both Pearson, and Hicks, Muse, Tate & Furst have complained in the past of cul-ture clashes while dealing with Telefonica.

Villalonga and de Mol insist that they have “great chemis-try,” that de Mol likes the Spanish climate, and Vil-lalonga, the Netherlands.

Only the future will reveal whether Endemol, having adeptly adapted so many for-mats for other cultures, will now have to go through the more telling process of adapt-ing itself.

Adam Dawtrey, Emiliano de Pablos and Liza Foreman contributed to this report.

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