Pay TV company moves to boost subscribers

MADRID — Spain’s dominant pay TV player, Sogecable, is getting into broadband and voice telephony in an aggressive move to bolster its subscriber base, not to mention the country’s lagging pay TV sector.

Starting Nov. 30, the Prisa-managed company will join forces with giant telco Telefonica to offer triple-play package Trio Plus, which includes its satellite service Digital Plus.

By late September, Sogecable also will launch iPlus, the next-gen decoder and DVR capable of storing more than 80 hours of shows.”Both are bets to get into Spain’s technological vanguard,” says Alex Martinez Roig, Digital Plus director of content.

Trio Plus will sell Sogecable’s Digital Plus alongside broadband and voice telephony from Telefonica in the nearly 50% of the Spanish market that Telefonica IPTV service Imagenio doesn’t reach.The deal sticks a Sogecable toe in the broadband biz, compensating for Digital Plus’ lack of interactive services.

The partners also will team to acquire content for Imagenio and Digital Plus, with Sogecable handling acquisitions.

“We’ll join client bases on VOD and niche channel deals with the studios,” says Luis Velo, Telefonica general director, multimedia projects.

“The alliance is a symbiosis,” adds Deutsche Bank analyst Luis Fananas. “Telefonica needs to hit back at triple-play competition, and at Sogecable any sub-base hike is marvelous.”

That’s because Sogecable faces ever-fiercer competition. Digital Plus has 54.4% of the pay TV market, cable has 35.7% and broadband TV 9.9%. But Digital Plus sub growth is slowing: Over July 2006-June 2007, it only upped subs by 3.3% to 2.06 million.

Growth looks better in broadband. Launched in 2005, Imagenio had 450,925 clients by June 30, taking nearly 50% of net new pay TV clients in the prior 12 months.

“We don’t aim to be pay TV market leaders; we want to lead triple play,” says Velo.

But without pay TV, triple play doesn’t happen.

Imagenio’s main triple-play rival, cable operator ONO, boasts shareholders General Electric, Caisse de Depot et Placement du Quebec, Thomas H. Lee Co., Bank of Santander and Multitel.

Since 1998, it’s invested x9 billion ($12.2 billion) in a 45,000-kilometer (about 28,000-mile) optical fiber net, covering 6.3 million homes.

ONO’s TV service has 922,254 clients and registered a slow 2.3% growth rate for the July 2006-June 2007 period.

It’s just restructured its triple-play offer, adding three new channel packages.

“ONO’s most difficult market is probably TV,” says Chris Ucko at Credit Sight. “For starters, the cost of content makes television the lowest-margin business and makes it harder for the company to compete aggressively on price.”

And ONO has other competitors.

New IPTV triple-play companies include France Telecom’s Orange TV and Yacom TV (adding 302,000 subscribers), Jazztelia TV and Superbanda.

Estimates Screen Digest senior analyst Maria Aguete: “In the next five years, Digital Plus will keep its dominant position but drop to a 46.3% market share. Most growth will go to IPTV, with 16.7%. Cable will stay stable.”

The challenge for Sogecable isn’t just rivals: It’s Spain’s pay TV market itself.

With 3.9 million subs from 14.03 million TV homes, Spanish 27.8% pay TV pales before Germany (64.2%), the U.K. (47.7%) and France (40.6%).

Another problem is piracy. “It’s very difficult to maintain pay TV when the average user in Spain downloads from (free peer-to-peer file-sharing program) eMule,” says Gema Solana, head of contents at telco Jazztel, which operates IPTV Jazztelia TV.

And yet another issue is policy. “The approval of TV sports regs 10 years ago limiting sports pay TV transmissions prevents soccer from driving pay TV, as in the U.K. and France,” Martinez Roig argues.

But soccer is still pay TV’s motor. Of the 8 million first-quarter pay TV program buys, 5.6 million were soccer matches, 2.1 million movies.

Traditionally owning sports pay TV rights, Sogecable now has a new large challenge after rival Mediapro snapped up rights — at a huge price — to Spanish soccer.

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