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Lost in digital merger maze

Rumored Sogecable-Telefonica link a complex deal

MADRID — The rumor mill has been mulling a golden oldie — a possible merger of Sogecable digital platform Canal Satelite Digital (CSD) and Telefonica’s rival Via Digital.

Merger musing may dominate tittle-tattle for much of 2002 because it’s far easier said than done.

It has taken the smallest of moves to get journos jawing. On Dec. 22, Spanish newspaper El Mundo suggested that Telefonica film and TV subsid Admira will buy 100% of sports/movie feed Gran Via, premium channel of Via Digital, in which Admira holds 49%.

The buy-up hasn’t happened, and even if it were to take place, it looks like a classic internal accounting move. It would allow Admira to cut losses at Via, which hit 34.9 billion Pta ($188.4 million), January-September 2001, and consolidate any sales of Gran Via to other operators straight onto its profit-and-loss accounts.

It’s subtler, solons insist. If Admira owns all of Gran Via, it can bundle it with Sogecable’s ultra-popular premium channel Canal Plus Espana, into an uber premium feed to dominate the pay TV market.

Five can’t survive

Solons jaw on about a digital merger for another good reason. Spain has five main pay TV operators: CSD with near 1.3 million subs; Via Digital with 770,000; digital-terrestrial-television Quiero with some 150,000; and cable outfits ONO and Auna Cable, boasting 300,000 and 400,000 respectively. The last four will lose an estimated $540.5 million combined this year.

At 29% of Spain’s 12.9 million households, Spanish pay TV take-up still shows growth potential as penetration is lower than the U.K. or France.

But there’s not a market for three digital players. “A merger between CSD and Via Digital makes sense — I think all the players would agree to do that,” says Glen Spencer Chapman, an analyst at Ibersecurities.

However, Spain’s conservative prime minister, Jose Maria Aznar, is said to oppose a tie-up between Sogecable and Telefonica because it would give Sogecable’s 21% managing shareholder, the socialist-friendly Prisa, a key role in the combo.

So subtler solutions are called for. A variant comes with the apparent blessing of Vivendi Universal, which also has 21% in Sogecable. This would see Vivendi U buy Prisa’s 21% in Sogecable but allow Prisa to retain its 21% in the Sogecable-owned sports-movie channel Canal Plus Espana, which becomes the premium feed in fused platforms.

Prisa problem

It might just pass Spanish antitrust authorities but might not pass muster with Prisa. It and Vivendi U have agreed that neither partner can raise its stake in Sogecable before December of this year.

“Prisa would have to be paid a lot of money,” observes Manuel Torres, also at Ibersecurities. “In 2002, Sogecable should post net profits without recourse to extraordinary income. An exit would also destroy Prisa’s across-the-board media presence. It’s complicated, though not impossible.”

But given its difficulty, some observers, led by the Prisa-bating newspaper El Mundo, are betting on a premium package.

This could just be making trouble. Why Sogecable would allow the weaker Gran Via to piggyback off its hugely popular CSD, which has 2 million subs, is an intriguing question.

The huge shadow cast across business by politics in Spain is a legacy of its dictatorial past. As far as a digital TV merger is concerned, it could fire rumor-mongering for years to come.

(Emiliano de Pablos contributed to this report.)

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