Phone Companies and Content Providers Have Already Begun Hooking Up in Europe

Simon Anselem The WAly Disney Company
Courtesy of The Walt Disney Company Iberia/Movistar Plus

The $85-billion merger between AT&T and Time Warner is making waves across the U.S., from Hollywood to Wall Street to Washington. But in Europe, the strategy isn’t a new one: Telephone companies and content providers have already begun hooking up — if not yet on the scale of AT&T and Time Warner — as the two sectors try to map out a money-making strategy in the digital world.

France’s SFR, Spain’s Telefonica, and the U.K.’s BT are among the big telcos that have dived into the content business, to varying degrees. On the flip side, one of Europe’s biggest content providers, Vivendi, which owns pay-TV service Canal Plus, is now courting telecom companies.

A look at what’s happening in key European markets:

In FRANCE, telco group SFR, which is owned by Netherlands-based Altice, is the latest telecom company to seek sources of exclusive content, via co-financing, co-production or first-run acquisition of sports rights, films and series.

In September, SFR launched Altice Studios to co-finance or co-produce content, and Altice Channel Factory to create dedicated channels. The telco also created an SVOD service, Zive, and pre-bought its first premium series, “Medici: Masters of Florence,” a historical drama starring Dustin Hoffman and Richard Madden. At a confab in France over the weekend, SFR chief Michel Combes said his company was aiming to compete with Netflix using a local approach rather than a global one, investing in homegrown content wherever it’s established.

“In France, telecom operators are now seeing content as a differentiator and appear to be ready to spend more money on content and use content more prominently as a way to justify higher prices,” said Francois Godard, at Enders Analysis.

French media giant Vivendi’s on-again-off-again strategy regarding telecoms also now seems to be on again. Last year, the conglomerate sold all its assets in SFR to Altice and its assets in Brazilian group GVT to Spain’s Telefonica in order to become a pure-play media player. But it’s back in business with telecoms as it strives to double the subscriber base of its pay-TV group Canal Plus and expand the exposure of its content.

This year, Canal Plus Group inked carriage deals with Free and Orange, and is closing a deal with Bouygues, another French telco. Vivendi also just signed a pact with Spain’s Telefonica to distribute Vivendi’s Studio Plus, which produces mobile-native short-format series, in Latin America.

There has been speculation of a potential takeover of Canal Plus Group by Orange, but the rumor has not been confirmed by either party. Jean-Baptiste Sergeant, an analyst at MainFirst Group, said such a takeover was unlikely because it would clash with Vivendi’s current strategy of striking deals with as many telecom companies as possible in order to expand its subscriber base.

For its part, Orange, the first French telco to invest in content (sports, films and TV shows) 10 years ago, has cooled on that strategy, with Orange President Stephane Richard saying that the actual payoff doesn’t justify the effort. Richard, who came on board in 2011, confirmed last February that Orange would remain a distributor, and would not be diving into content production like SFR.

In SPAIN, the country’s biggest telco, Telefonica, paid €725 million ($788.7 million) to take total control of the country’s biggest pay-TV operator, Canal Plus Spain. The deal was finalized last year.

Telefonica’s subsequent Fusion quadruple-play offer, which bundles Canal Plus with telephony and Internet, “is the one thing that has helped Telefonica maintain lower churn figures,” one analyst said, adding that Telefonica’s contents drive “is a fundamental part of its strategy. Without it they would be doing much worse.”

The number of Telefonica’s pay-TV subscribers has rocketed from 730,000 in March 2014 to 3.76 million as of June 30 this year — a fivefold increase.

But the full impact of Telefonica’s move into content has yet to be seen. This summer, it announced that it would plow an annual €70 million ($76 million) into the production of original series. The first is set to air on Telefonica’s pay-TV unit’s Series channel and on catch-up and pay-per-view platforms from September 2017.

Telefonica is trying to position itself strongly against future rivals. HBO is expected to launch in Spain by year’s end.

In the U.K., the steps have been tentative. Dominant telco BT runs pay-TV platform BT Vision, which has only 1.4 million subscribers, and apart from the pricey acquisition of soccer rights has not made substantial investments in original content. However, it has formed a significant partnership with AMC and sells Hollywood movies on it VOD platform.

There is speculation that BT would make a bid for commercial broadcaster and production house ITV, but a more likely buyer for ITV is probably John Malone’s cable company Liberty Global. Through its U.K. subsidiary, Virgin Media, Liberty Global has a foothold in the pay-TV, mobile and broadband markets, and Liberty Global moved strongly into content production with its acquisition of a 50% stake in All3Media.

Meanwhile, pay-TV operator Sky is going the opposite route. It already boasts 12 million pay-TV customers and has been building up its broadband business. And it is making substantial investments in original content, often through co-production deals, such as “The Young Pope” with HBO and Canal Plus. It is now planning to enter the cellphone market.

In GERMANY, the sleeping giant is telco Deutsche Telekom. It currently has a modest pay-TV operation, Entertain TV, with close to 2.5 million customers. Like BT in the U.K., Deutsche Telekom appears more interested in being a content aggregator than a producer, said media analyst Mathew Horsman at Mediatique.

But the potential for growth in pay-TV for Deutsche Telekom could be enormous. It boasts 20.2 million fixed-line customers, 12.6 million broadband customers, and 40 million mobile customers.

Liberty Global and cell-phone company Vodafone both own cable companies in Germany: UnityMedia and Kabel Deutschland, respectively. But neither is active in content creation.

In ITALY, marriages between telcos and content producers are in their early stages, limited at present to carriage deals with broadcasters. But the country could leap ahead if Vivendi, which has a controlling stake in top telco Telecom Italia, has its way.

Telecom Italia looked set to team up with pay-TV service Mediaset Premium after Vivendi and Mediaset announced a deal in April. The pact was touted as a step toward Vivendi’s creation of a major pan-European content platform. But the deal has since soured over financial particulars, and the Mediaset-Telecom Italia alliance is now on hold.

The next big battle over content will be for 2018-2021 rights to Italy’s Serie A soccer league matches, which are up for renewal. The outcome of the battle is expected to help define Italy’s new media landscape.

“The scenario will become clear when we understand what Mediaset, Vivendi and Telecom [Italia] will do,” Luigi De Siervo, chief executive of Infront Italy, which is handling the rights’ sale, said last week.