Overhaul at paybox Canal Plus rattles the biz

PARIS — It seems like only yesterday that execs at Universal were nervously brushing up their French in anticipation of a Gallic takeover by swaggering Euro pay TV giant Canal Plus.

For a few bewildering months, CP topper Pierre Lescure was Ron Meyer’s boss, for heaven’s sake.

But today the loudly trumpeted merger of Vivendi and Universal to create a French-controlled global media conglom couldn’t be a more distant memory — and Canal Plus is a pale shadow of its former self.

As the indebted Vivendi Universal empire began to crumble, it emerged last year that, after years of mismanagement and overspending, the paybox was bleeding subscribers and sinking under debt of $6.5 billion.

Things have changed a bit since then and, under new management, the company is starting to put its house in order.

For 2003, it will post an operational profit for the first time in seven years, and the subscriber losses have been stemmed. As a reward, VU has written off $3.8 billion in debts that Canal Plus owed it.

But getting this far has involved a painful 18-month blitz that has transformed the paybox, wiping out nearly two decades of a unique corporate culture, the so-called “esprit Canal.”

The bigger changes are up ahead, and will be reflected in Canal Plus Group’s future relations with the film and TV industry — both in France and in Hollywood. Expect the paybox to be much more nit-picking about what it buys — and at what price.

Programming costs were kept to around $1.3 billion in 2003, and an output deal with Warner Bros. was not renewed, ending one of the Gallic paybox’s key Hollywood relationships.

The scorched earth policy is the work of new Canal Plus Group prexy Bertrand Meheut, who, appropriately enough, was in pesticides before switching to the media biz. The bespectacled topper, who dresses soberly in a suit and tie, can’t help cutting a more conventional figure than his flamboyant media-savvy predecessors.

Meheut is damning of the group’s past excesses, exemplified by a real American diner that sits incongruously overlooking the River Seine outside one of the group’s office buildings. It was bought and shipped back to France by some impulsive execs in the days when money seemed to be no object.

L’esprit Canal for subscribers was one thing,” Meheut tells Variety, “but I’ve got the impression that for employees it meant not taking care of management and of the group’s interest. It was heading the company straight for the wall.”

In a recent interview in his seventh floor office — the same one occupied by Lescure before his tumultuous ouster nearly two years ago — the topper goes on: “The group had been losing considerable amounts of money since 1996 and in just over a year we’ve completely turned the situation around. You don’t achieve results like that without a revolution. We’ve let a lot of people go and broken the old habits.”

But although Canal Plus has earned brownie points with Vivendi for its performance so far, analysts are cautious about just how much progress has been made.

“There is still a lot to do before confidence in the company will be restored,” says one.

For most of his tenure, Lescure’s inner circle was made up of people who’d been around since the web launched in 1984 (when French TV consisted of three terrestrial channels) — stalwarts like programming topper Alain de Greef and Michel Thoulouze, head of the loss-making Italian paybox Telepiu. Thoulouze was the first head to roll shortly after the VU merger in 2000.

Today fresh-faced execs like group exec VP and premium channel COO Rodolf Belmer, 34, a former marketing exec at Procter and Gamble, general counsel Olivier Courson, 37, and financial topper Eric Pradon, 40, typify a younger generation of managers armed with business school degrees and a background in other industries.

Do they know anything about television?

Former TF1 no. 3 Guillaume de Verges, recently shifted from responsibility for the channels to become Meheut’s advisor on cinema, is one of the few new hires who really knows the TV biz.

“The old guard only knew what it was to run a broadcasting monopoly,” one Gallic media expert says. “The new people come from industries where they’ve always had to compete. For them Canal Plus is a product of mass consumption and they have to sell it to as many people as possible at the right price. It’s the approach needed today.”

Although Canal Plus group is still France’s pay TV heavyweight (its premium channel boasts 4.9 million subs and its digital platform Canal Satellite 2.7 million, compared with 1.2 million subs for TPS) the commercial battle is unrelenting. Subscriptions are on the decline in a French market where dozens of thematic channels have undermined its uniqueness.

But before tackling how to successfully remarket Canal Plus, first there were the group’s debts to deal with.

In a fire-sale mirroring Vivendi’s, Meheut and company have sold off loss-making assets outside France — Telepiu in Italy, its pay TV units in Scandinavia and Belgium. The Netherlands business is expected to be finalized shortly.

This has shrunk Canal Plus from a company with pan Euro dimensions, marked by the ill-judged 1996 merger with Euro pay TV player Nethold, to an essentially French operation. Only Canal Plus Poland is left.

In France the company has also sold the “non strategic” and unprofitable Canal Technologies and, in a deal expected imminently, the TV production operation Expand. The sales have slashed the group’s debts, contributing $1.6 billion in enterprise value by the end of 2003.

But Meheut is more proud of the operational savings made at the group’s French ops, some $250 million a year.

“People have always said that the group’s French activities were doing fine, but that’s false,” he says.

Around $126 million has been saved by downsizing — at least 450 jobs have gone — and slashing running costs across the board.

Another $126 million comes from savings on programming.

Canal Plus used to lavish money on soccer rights, even paying $57 million a year to top French clubs pre-emptively in case they decided to handle their own rights deals.

That contract has been nixed, and Canal Plus has also halved the amount it pays for Champions League soccer. It has ditched Formula 1 motor racing and obtained better deals on sport and cinema rights for Canal Plus Poland.

However, the group intends to “bid the maximum to gain the maximum,” says Meheut, when France’s hotly contested First Division soccer league rights come up for grabs in the third quarter of this year.

Does Canal Plus feel equally passionate about exclusive cinema rights, the other selling point of its premium channel?

When TPS last year nabbed one of Canal Plus’ multi-year Hollywood output deals, with Warner Bros. for more than $30 million, media folk were left wondering.

“We were not prepared to increase costs by more that 50%,” says Meheut, adding dismissively, “it’s just 15 films. When you show 400 films a year, including 320 new films, fifteen is a small number.”

However, Canal Plus has renewed its deal with Working Title, which was inked in December, and earlier signed exclusive multi-year output deals with Miramax, Spyglass and New Line. With a range of other Hollywood deals in place until 2006-2007, the group has time to map out its game plan for the next round of negotiations.

For those Hollywood dealmakers who thought they had Canal Plus all worked out, it will be back to the starting block.

First of all, the folks sitting around the table will have changed.

In a far-reaching shift, Hollywood habitué and long standing acquisitions topper Evi Fullenbach ankled recently, to be replaced by former M6 senior exec Nathalie Drouaire.

Drouaire showed her smarts at the terrestrial channel by buying U.S. series like “Ally McBeal” and “Sex and the City” long before other webs realized their potential, and so she knows her way around the Hollywood majors, but pay TV deals are a new departure for her.

Wasting no time, she and channel topper Rodolf Belmer recently spent a few days on the West Coast introducing themselves as the new team at Canal Plus.

And when it comes to negotiating, the paybox’s intentions will be harder to discern.

“It’s not that we will reduce the quantity of American cinema but we also intend to play on the diversity of American cinema,” Meheut says cryptically.

Asked if Canal Plus could afford to lose another deal with a major, he replies: “Yes, of course.”

While Hollywood dealmakers might believe they can eat a newcomer like Meheut for breakfast, the Canal Plus topper vows he won’t let himself be dazzled by showbiz.

“The danger in this business is that people are so in awe of the media and cinema and sports worlds that they think the rules of the game are different,” he says. “Fortunately, I’ve enough experience in other fields not to fall into that trap.”

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