Spain’s feevies feel the heat

Strategic alliances expected

MADRID — During Spain’s sacred August recess, the figures that any self-regarding TV topper normally studies are walking past on a beach.

One of Spain’s three pay TV operators, Quiero, has just spoiled that.

After a considered look at its corporate bottom line, it has announced a string of layoffs, including that of its well-known buyer, head of contents Gino Nattalicchio.

And media group Planeta, a 15% shareholder in Quiero, has said it will not meet its part of a Pta12 billion ($63.2 million) capital increase at the pay box.

With the accounts of some feevee operators looking as sturdy as sandcastles, could Spain, following Italy and Poland, be in for a pay TV merger?

Things are not that simple. But expect a round of rights or strategic alliances between Telefonica Media, which controls satcaster Via Digital, and pay TV market leader Sogecable’s Canal Satelite Digital, owned by Spain’s Prisa and France’s Canal Plus.

The feevee pain in Spain is plain. Germany and Italy have one major digital TV platform each; Spain still supports three: Via Digital with 700,000 subs; Quiero, which claimed 200,000 customers in January; and Sogecable’s Canal Satelite Digital with 1.2 million subs.

While Sogecable turned net profits of $6.6 million, Via posted losses of $220 million last year. Quiero showed a pre-tax $79 million deficit. Per Sogecable general manager Carlos Abad, Spanish digital TV operators, including nascent cable MSOs, lost $499 million last year, twice the figure for 1999.

Late July, Vivendi Universal chairman Jean Marie Messier told Dow Jones, “My feeling is that one possible option is that our partner (Prisa) will want to exit, and it will allow us to look at that time at a merger with the other digital platform (Via).”

Messier may have been giving investors a whiff of further cost-cutting at Vivendi Universal’s still debt-tense pay TV operations. A full-blooded merger between Canal Satellite Digital and Via presents as many problems as advantages.

Prisa, which runs the show at Sogecable, does not show any immediate intention of quitting — in fact it has just extended its Sogecable shareholder pact with Canal Plus to December 2002.

No sweat, no debt

Having sweated to build a viable pay TV business for 10 years, Sogecable will be loath to assume a huge accumulated debt from a fusion with Via.

Spain’s conservative government is likely to object to any merger that leaves the socialist-sympathizing Sogecable controlling Spain’s only major pay TV platform.

Anticipating Messier, Sogecable’s Spanish management has insisted for years that Spanish digital TV needs some pretty desperate medicine.

Spain’s digital TV market “requires across-the-board restructuring … rational accords, which allow players to buy at prices which the Spanish market can afford to pay,” says Sogecable CEO Javier Diez de Polanco.

No talks yet

There have been no Sogecable/Telefonica negotiations to date. But Sogecable “is open to contacts to discuss alliances with competitors,” Diez de Polanco adds.

Both Sogecable and Via have a lot to offer — and this could be bad news for Spain’s soccer fat cats.

Sogecable, as Diez de Polanco points out, has yet to license its hugely profitable sports/movie premium service Canal Plus Espana to any rival.

Via reportedly paid an arm and two legs for exclusive rights to next year’s World Cup soccer games and will be looking to offset potential losses by on-selling games. While Sogecable already shops its technological/subscriber management know-how to other digital companies, Telefonica has huge plans for ADSL content delivery, which could interest Sogecable.

Narrowing the list

Both Sogecable and Telefonica Media, which co-own a loss-making local soccer rights broker, must renegotiate select soccer rights for Spain from the end of the 2002-03 season. They will want to renegotiate downwards.

“A merger is difficult. But there could well be movements in the sector in the last quarter,” predicts a top pay TV exec. After a hot summer, Spanish digital TV can expect a steamy winter, too.

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