Dust settling on French pay TV revolution

With a commercial launch on 21 March, the merger of CanalSat and TPS put an end to ten years of brutal competition between Canal+ and TF1 over prices, programming, movie and soccer rights. Pascale Paoli-Lebailly reports Pascale Paoli-Lebailly.

Greenlit last January and entering its first commercial phase in March, Canal+ France is a 10 million- subscriber group gathering all Canal+ Group pay-TV assets in France in one place, including Canal+, CanalSat, TPS and their thematic channels. The process of migrating 1.8 million TPS customers to CanalSat will start next September and while effects on consumers are clear, its impact on channels, producers and distributors is still to be seen.

Some French distributors fear big revenue losses. "The strength of Canal+ and TPS output deals may mean a freeze on the price of acquisitions for two or three years," says Diane de Saint-Mathieu, general delegate at distribution association Sedpa. "Besides the death of channels and fall in the number of outlets and prices, the merger could destabilize French production and then French international distribution."

Others are more optimistic. "In the previous months, TPS and Canal+ movie channels had, it’s true, less acquired movies because they had stock," Carrère Group’s Emmanuel Loréal says. "Now, with the new offer, channels need to assert themselves if they want to add value to the bouquet. CanalSat subscribers will want quality animation, movies and drama."

Bertrand Méheut, chairman of Canal+ management board, outlined the group’s three-year plan at an investor meeting this March. Besides generating €5 billion ($6.7 billion) in annual revenue by 2010, compared to €3.6 billion in 2006, or €4.2 billion if TPS is factored in, Canal+ Group is targeting a subs base of 11.5 million by 2010. It is betting that an enhanced channel line-up and new services like HD will drive growth.

Maxime Saada, Canal+ head of marketing says: "HD is a priority for Canal+ and most particularly on satellite as it offers the most capacity. We will continue to enrich our HD offer with several new channels coming in before end of the year."

Launched in April 2006, the HD line-up comprises Canal+ HD, National Geographic and, since January, TF1 HD and M6 HD. Negotiations are underway with others including Turner for the TCM movie channel. Canal+ is also working to improve its VOD services. Last January, it boosted its CanalPlay online VOD offer with a download-to-own service and the addition of HD movies.

Meanwhile, Méheut also highlighted the arrival of the new Canal+ channel, the family-oriented Canal+ Famille, and the "development or strengthening in new media" as growth areas.

But along with new services and channels, Canal+ has announced a €350 million cost reduction strategy, which includes slashing up to €250 million from the programming spend.

A chunk of cost-savings will come from movie rights – on which it and TPS spent a combined €530 million in 2006 – and sport rights. In terms of movie offerings, the group, which is involved with all of the major US majors, says it is "ready to not renew output deals with some US major studios".

Canal+ Group also wants to diversify its sports offerings and to decrease dependence on any one sport or championship. In 2004, Canal+ paid ?1.8 billion for French Soccer League rights until 2008. Méheut explained Canal would now "pass on rights if prices are not reasonable".

Finally, some channels are likely to be shelved. CanalSat has already ditched its CineCinema Auteur Channel as well as several TPS movie channels. And talks are currently underway with thematic channels. Canal+ wants to renegotiate its deals, paying a fixed rate, not a per-subscriber fee. Many fear big revenue shortfalls. Some, like Série Club and TF6, are strengthening schedules and exclusive programming in a bid to have a stronger hand at the negotiating table, while Fox’s Voyage is in open conflict with the platform.

Canal+ Group had to commit to 59 anti-competition points, including deals with US producers being limited to three years, and non-exclusive deals on feature films for pay-per-view and VOD.