Canal Plus rebounds

Cabler shifts focus from vanguard to market

MADRID Canal Plus Group chief executive Bertrand Meheut, one of Europe’s least expansive TV execs, is making waves.

On Dec. 8, the Vivendi-owned feevee refused to play ball on a new French Soccer League rights auction — seemingly a brave move for a platform with soccer-mad subscribers.

Three days later, Meheut’s vague expressions of interest in buying foreign payboxes stoked rumors that Canal Plus was kicking the tires at Teutonic satcaster Premiere and Spanish pay giant Sogecable.

Shares at Premiere and Sogecable spiked 7.6% and 8.2%, respectively, as a result of the speculation.

Both events prove one thing: Europe’s second biggest pay TV operator after Blighty’s BSkyB has regained its mojo.

After laying out e1.13 billion ($1.65 billion) to swallow its only major Gallic rival, TPS, in January, Canal Plus is in a far better place than it has been for 10 years, and can look forward to consolidation at home and expansion abroad.

Along with Sogecable, Premiere and the News Corp.-backed Sky Italia, Canal Plus spent an exasperating, loss-making decade fighting off rivals to become the sole platforms in their countries.

Under the flamboyant Pierre Lescure, Canal Plus ran-up $7.3 billion in debt by 2002.

Meheut took over in 2003, and since then, Canal Plus has morphed from a glamorous vanguard of France’s cultural establishment into a market-driven biz.

A bespectacled, quiet engineer who ran chemicals giant Aventis, Meheut cut staff, stripped assets, controlled costs and ditched content, including Formula 1 racing and Warner Bros. pics.

“BSkyB’s success is driven by innovation. But on continental Europe, the key to pay TV operators’ greater financial health has definitely been consolidation,” says Sarah Simon, at Morgan Stanley.

And soccer rights. In 2004, Canal Plus paid an already over-the-top $2.6 billion for four soccer league packages — but only to force TPS merger talks.

Now, with that deal ending, the French Soccer League (FFL) wants another big payday. It has split the rights up into 12 packages spanning four seasons from 2008 though 2012 instead of three seasons as in the past. However, under antitrust terms imposed by the French government during the TPS merger, Canal Plus cannot make deals for soccer rights that run more than three years.

The company appealed the auction with France’s State Council and First Instance Court. The appeal, the FFL blusters, is “obstructing competition.”

According to an Ipsos survey, 24% of Canal Plus’ soccer-watching subscribers would “certainly” cancel if Canal lost soccer rights.

However, the revitalized Canal Plus knows that the FFL has few other places to sell its soccer matches.

The paybox doesn’t want new players building sports bizzes, like the risk-equity backed Setanta, which took two packages in last year’s English soccer tender.

But the Canal Plus-TPS merger has neutralized big competition by turning broadcasters TF1 and M6 into Canal Plus shareholders. Lagardere, an ambitious conglom, also holds 20% in Canal Plus.

“Apart from public broadcaster France Television and France Telecom’s Orange, it’s difficult to see who might enter the field against Canal Plus,” says Tim Westcott, at Screen Digest.

Even if a wildcard emerges — ESPN, for example — the difficulty of monetizing soccer rights from a standstill was demonstrated by Germany’s Arena.

The cabler bought Bundesliga rights in 2005 for $322.4 million per season to drive digital cable, only to end up sublicensing them to Premiere, because it could not get enough subscribers on its own to recoup investment.

The French soccer auction “may create some volatility, but real competition’s muted,” says Paul Reynolds, at Deutsche Bank.

With 7.3 million of France’s 11.3 million multichannel subscribers, Canal Plus wields unprecedented power. Despite merger costs, the company turned $108.4 million operating profits last year.

So with the prospect of success on the pitch, where can Canal Plus go next?

At 37%, French pay TV penetration leaves plenty of room for growth, Meheut maintains.

Germany’s Premiere offers upside — Teutonic pay TV penetration runs at 14%. But overseas expansion could be a question of sentiment as much as fundamentals. French president Nicolas Sarkozy has a penchant for national champions: French firms leveraging domestic dominance into foreign conquests.

Imperious at home, Canal Plus may come under pressure to rebuild an empire abroad.

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