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Telefonica Reverses Pay-TV Dip in Spain

Pay TV subs increase in Spain as telecom launches new bundles, readies the launch of a massive slate of original series productions

MADRID – Telefonica, Europe’s first telecom to move massively into scripted TV production, saw pay-TV subscribers increase at its Spanish operations in the run-up to the launch of its weighty slate of original TV series productions, which hit the market this September with “Velvet Collection.”

After dropping three consecutive quarters from a high point in June 2016 of 3.755 million, pay-TV subs at Telefonica España added 51,000 clients from April to June this year, increasing from 3.615 million at the end of March to 3.666 million on June 30.

The increase was fostered by new customers and migration from low-value options to the Fusion + Ocio bundle launched in April, which had 131,000 clients on June 30, Telefonica said in its second-quarter results announcement Thursday.

A quad-play offer of mobile and fixed telephony, broadband internet and TV, Fusion + Ocio is offered at prices ranging from €60 ($70) for 50Mb Internet speed to €72 ($84) for 300 Mb.

The big question for Telefonica and other telecoms pushing into original production will be whether pay-TV subscriptions and average revenue per client rise at Telefonica over the next few months as it lowers entry pricing for quad-play bundles and rolls out its first high-end series.

In early July, Telefonica Movistar +, its pay-TV unit in Spain, dropped pricing significantly on its quad-play offers, launching two new convergent bundles on July 9, Movistar Fusion#0 and Movistar Fusion Series, at rates from €45 ($53) and incorporating such advanced features as network recording and seven-day catch-up.

Luis Miguel Gilperez, president of Telefonica España, owner of Movistar + parent Movistar, told Spanish media that the days when new Movistar clients could just buy Internet and telephony were over. Going forward, packaged services from Movistar, sold under the Fusion brand, would contain the obligatory buy of a set-top box decoder and some kind of TV package.

From period fashion-house series “Velvet Collection,” produced by Movistar + and Bambu Producciones, the company behind Netflix’s first Spanish series “Las chicas del cable,” Telefonica will bow a new Movistar + Spanish original series every month, except December, through to June 2018.

Like Sky, in Spain Telefonica aims to combat Netflix and Amazon by the sheer volume of its local series production, and their immediate relevance for Spanish subscribers, as well as the bundling of TV in attractive quad play propositions.

In this context, speaking at an analysis’ conference call on Thursday, Angel Vila, Telefonica’s new COO,  downplayed the impact of Sky’s second-half launch in Spain as an OTT player, saying that “OTT players in Spain are seen as a complementary to bundled services in Spain.”

As high-quality, low-priced TV entertainment increasingly becomes a growth strategy in Spain, Telefonica, which also runs large operations in Brazil, the U.K. and Germany, confirmed Thursday that second-quarter operating profits stood at €4.158 billion ($5.282 billion), up 7.2% year-on-year.

Revenues for April to June came in at €12.96 billion ($15,212 billion), up 1.9% year-on-year. Telefonica upgraded global revenue guidance on Thursday to growth of 1.5% or more in 2017 versus the stable outlook forecast previously.

Of overseas results, at 3.528 reais ($1.124 billion), second-quarter operating profits were particularly strong in Brazil, 10% up year-on-year, thanks to exactly the same strategy as in Spain: Upselling clients to higher-value propositions.

Telefonica’s mix is based on “fibre speed, mobile capacity and certainly content,” Telefonica’s Vila said on Thursday. That should allow Telefonica to continue upselling its customers, increasing revenue per client, he added.

Telefonica’s shares rose 3.2% to €9.7 ($11.7) in early to mid-morning trading on Thursday after the announcement of second-quarter results.

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