MADRID – Telefonica, Europe’s second biggest telecom, will expand pay TV services across Latin America in 2016 as it continues to invest in content to drive higher-value customer base upgrades, Telefonica suggested Friday at a full-year 2015 results presentation in Madrid.
Featured in a bullet-point presentation, the plans were not explained in detail at an analysts’ conference call. The confirmation comes, however, a week after Paris-based media giant Vivendi announced it was in advanced discussions with Telefonica to launch a mobile first video services across Latin America this fall.
“Telefonica’s content presence remains limited still so its needs a partner to complement what they need and Vivendi looks like a logical fit,” one analyst said.
Underscoring continued recovery in sales, Europe’s second biggest telco saw total consolidated 2015 revenues hit €47.2 billion ($52.2 billion), up 4% on 2014.
Full-year Telefonica core profits were €11.4 billion ($12.6 billion), an increase of 3.6% on 2014 but dragged down by depreciation of local currencies in Latin America. Net profits fell to €2.7 billion ($3.0 billion), hit by one-off costs.
The Latin American pay TV rollout is consistent with Telefonica’s content drive in Spain, one of its three key markets, along with Germany and Brazil, and a centerpiece to its digital age strategy.
In December, Telefonica paid $830 million for a weekly Spanish Liga soccer game featuring either Real Madrid or Barcelona soccer club, to slot into its El Partidazo primetime slot. It has coughed up €2.4 billion ($2.65 billion) to pay Spanish conglom Mediapro rights to European Champions League soccer matches and Spanish Liga games from September for the next three soccer seasons.
Asked if its content drive diluted margins, Telefonica CSFO Angel Vilá answered that the company’s convergence process in Spain dates backed to 2011, when it drove into fibre optic network deployment to create speed and capacity. “The second wave of data monetization, when you have in place this robust fibre structure, is about value-added services, and the main value added service is video. It’s the crucial component to drive up data consumption in this new world.”
Content costs would be offset, also, by regulation-required wholesale sales of much content to rivals, and cost-containment at Telefonica in Spain via a voluntary early retirement scheme, Vila added.
Telefonica can point, however, to what could be seen as promising early results of convergence. Pay TV subs rose from 730,300 in March 2014 to 3.67 million year-end 2015, after the integration of Canal Plus from May 1, plus discounted offers for Fusion multi-play and the launch of quad-play offers with Canal Plus, including its Yomvi VOD service. Telefonica’s pay-TV subs rose 75,800 end-of-June to end-of-year. Fusion revenues per client increased 7.3% to €74.4 ($82.2) per month in the last quarter 2015, though it is unclear how much of that comes from possible high-paying Canal Plus customers migrating to Fusion.
53% of pay TV customers contracted TV add-ons, said Sala.
2015 Telefonica results underscored its strength in valued added services, thanks to not only mobile data monetization – a mantra for Alierta – but Fibre-To-The-Home deployment and pay TV, said one analyst.
In Brazil, Telefonica captured 100% of pay TV market growth in 2015, the company said Friday. Peru is already goosing Telefonica revenues, and Mexico its profits.
“What macro investors think has nothing to do with reality,” Telefonica chairman-CEO Cesar Alierta said about Brazil at the analysts’ conference call.
“The region will have tremendous growth in our sector in Latin America. Million of businesses will have to be digitized in Latin America. Who is going to do that? Telefonica,” Alierta added.
Much Telefonica business in Latin America is still with low-revenue pre-pay cell phone customers. A content service would offer the chance to upgrade the client base.
The key question is, for Latin America, where the content for a pay TV service could come from. Via Telefe, Argentina’s top free-to-air broadcaster, Telefonica has seen outstanding results with Argentine movies, invested as a minority partners and promoting them forcefully. But movies can’t lead a VOD service. Little wonder Telefonica is driving into series production in Spain while Telefonica Studios is exploring production opportunities in Latin America. The giant telco needs content fast, as does Vivendi in France – which makes it a great age to be a major content supplier in both countries.