Telefonica, Europe’s Biggest Telco, To Up Ante on Pay TV

Company looks to contents, fiber optic broadband in Spain to drive new growth

MADRID – Whether it buys leading Spanish pay TV operator Canal Plus or not, Madrid-based Telefonica, Europe’s biggest telco by revenues, has set a roadmap for 2014: Spanish pay TV and rolling out its fiber optic network in Spain.

Both priorities represent a new geographic emphasis for Telefonica as Latin American sales – still repping roughly half its global biz – begin to falter.

Announced Thursday by Telefonica president Cesar Alierta (pictured), full year 2013 revenues stood at €57.1 billion ($78.85 billion), operating income €19.1 billion ($26.4 billion), both in line with expectations. 2013 net profits jumped 16.9% to €4.6 billion ($6.35 billion), after Telefonica suffered significant write-downs – asset devaluations – in 2012.

Significantly, having completed a two-year plan which including divesting assets – an initial public offering on a stake in O2 Deutschland, 40% of its Central American assets, O2 Ireland, Telefonica Czech Republic for €2.47 billion in November – Telefonica’s debt mountain has been reduced to €45.38 billion ($62.7 billion).

But fourth-quarter earnings dropped a total 8.7% as they plunged 20% in Latin America, partly blunted by weaker local currencies, such as Brazil’s Real.

In Spain, whose economy will grow this year, Alierta wagered, announcing results, Telefonica has already begun to load up on premium pay TV content, buying rights to Formula 1, the Road Racing World Championship and France’s Roland Garros tennis tourney. It has eliminated Telefonica Digital as a dedicated standalone unit: Digital will now drive growth throughout Telefonica’s empire.

There is certainly a rationale in its drive into pay TV.

“Up till the last few years, free-to-air broadcasters have been strong in Spain, airing premium content: blockbuster movies, top-rating series and big sporting events, above all soccer,” said Javier Martinez, Accenture media & entertainment manager, Spain.

He added: “With the crisis, public television budgets have fallen steeply, and private broadcasters, despite more or less stable finances, are investing ever less in premium content. Given its financial muscle, Telefonica is in a very good position to outbid competitors for premium content.”

Martinez noted that one prime advantage of Telefonica’s buying Canal Plus would be to muscle in on its Spanish soccer rights, another to migrate the roughly 60% of its satellite subscribers which are not Telefonica clients to the telco’s bundled fiber optic and 4G Telefonica offers.

A “strong bet on sports rights” is “a first step to growing subscribers,” Telefonica TV contents director Luis Velo told news agency Europa Press last week.  Telefonica’s ambition is to become the leading pay TV player in Spain, he added.

That said, a Telefonica purchase of Canal Plus is as yet no done deal. It could run into anti-trust issues and Canal Plus is said to have other suitors, such as Al Jazeera.

Also, at least for pure-play feevee operators, Spain’s pay TV market – despite the success of Canal Plus’ VOD service YOMVI in attracting low-cost clients – is no cakewalk:  Canal Plus shareholder Prisa announced a whopping €844 million ($1.2 billion) goodwill impairment on Canal Plus in its own 2013 full-year results late last week. Ramping up pay TV subscriptions in Spain will require a deep pocket – such as Telefonica’s and most probably need to be integrated in an attractively prices three or four-play offer.

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