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Telefonica Monetizes Movistar + Original Series Investment

Premium series production continues to drive telecom’s pay TV turnaround, as indicated in full-year results

BERLIN — Telefonica, one of Europe’s biggest telecom companies, added a net 80,700 pay TV subscribers in the last quarter of 2017, Telefonica announced Thursday in a full-year results statement.

The figure marks the first financials published by the telecom after Telefonica pay TV unit, Movistar +, began to unleash its original series on the Spanish market: Fashion store series “Velvet Collection” on Sept. 22; “The Zone,” a post nuclear reactor meltdown murder mystery, on Oct. 27; and “Spanish Shame,” an excruciating Spanish couple comedy, on Nov. 3, “Spanish Shame” was also the first Movistar + series made available at its launch for binge viewing.

A full pay TV sub reaction to Movistar + series will not be fully known, even for its first shows, until results take in the Jan. 12 bow of “The Plague,” Movistar Plus’ biggest premium series bet to date, a serial murder mystery-thriller set in 1580 Seville, at the height of its imperial splendor and corruption, which cost about $1.8 million per episode.

Initial results look, however, to add another wrinkle to the debate over whether telco investment in content damages its stock price.

That most certainly does not seem to be the case at Telefonica where, under chairman-CEO José María Alvarez Pallete, share valuation is driven by, currently, far larger concerns such as Telefonica’s spectacular results from mobile data revenues (up 17% for the whole year to €16.9 billion: $20.7 billion) or the height of its debt mountain (down €4.4 billion ($5.3 billion) to €44.2 billion ($54.2 billion).

With Movistar + announcing in late January that the first two episodes of “The Plague” bowed to the best results of any series aired on or available on Movistar +, Telefonica looks to be reaping early returns.

“Telefonica’s investments in content are paying off,” said María Rua Aguete at IHS Markit. “In fourth quarter 2016, Telefonica lost 54,400 pay TV subs. In fourth quarter 2017, it gained 80,700.”

Net additions for the whole year were 191,000, according to Telefonica’s full-year results. Monthly revenue-per-client in Spain also hiked 5.5% to €86.1 ($105.7).

Two new Movistar + “Fusión+” options, bundling TV, mobile telephony and fiber optic cable, launched in July (“Fusión Series” for €60 ($74) and “Fusión #0” for €45 – $56).

Fusión customers continued to increase in the fourth quarter, up 2%, although that represents lower growth than year-on-year change in 2016 (5%). Total Fusión accesses across fibre, TV, and mobile passed the 20m mark in Q4 2017, up 10% over 2017, Aguete observed.

“Telefonica’s positive results in fourth-quarter  2017 highlight again the power of bundled offerings  for consumers.

Spanish consumers appreciate having good content, fixed broadband, fixed telephony and mobile all in the same place.” she said.

The series’ launch, the most massive commitment to scripted drama of any telco in Europe, also helped power operational momentum in Spain, which saw Telefonica return to operating profit over Oct.-Dec. 2017, as it continued to upset packages to clients. Average revenue per client rose 5.5% to €86.1 ($70.1) fourth quarter 2017, compared to same period a year earlier, according to Telefonica full year results.

Having rolled out the largest fibre optic network in Europe, Telefonica is looking to growth on key fronts: Acceleration of fibre in Latin America, where there is a “big demand,” said Telefonica’s head of investor relations, Pablo Eguirón; digital data; Latin America is general, where revenues grew 10% in 2017.

Total Telefonica revenues worldwide increased 3.4% year-on-year in 2017 to €52.0 billion ($63.8 billion). Operating profit was up 7.1% to €16.2 billion ($19.9 billion).

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