Market Insight

Canal Plus eyes profitable move into free TV

March 02, 2012

Tim Westcott Tim Westcott Director – Research and Analysis, Programming, IHS Markit

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Canal Plus Group, once the leader of the European pay TV sector, is targeting free TV as a key area for expansion and one that it expects to generate a majority of its operating profit by 2015.

Speaking at yesterday's annual results presentation by parent company Vivendi, Canal Plus chairman Bertrand Meheut said that pay TV would remain the core business for the group. Last year subscription numbers across its portfolio in France, Poland, Vietnam and Africa increased, while ARPU improved for the ninth year in succession. ARPU in mainland France was €47.50 a month (up from €46.30 in 2010).

However, advertising was up six per cent and Canal Plus intends to increase its share of this market via the free-to-air window of its main premium channel, the Direct8 and DirectStar digital terrestrial channels it is in the process of acquiring from Bolloré Group, and the news channel i-Télé, which turned a profit for the first time in 2011.

The StudioCanal film business also performed well, on the back of major movie releases in the UK, Germany and France. Overall, Canal Plus Group revenues were up three per cent at €4.875m, while EBITDA increased 1.6 per cent to €701m. This metric would have been up six per cent without the €30m fine imposed by the Competition Authority over the TPS merger.

Total subscriptions at the end of 2011 were 12.9m, up 237,000 on the year before. Of this total, Canal Plus France accounted for 11.2m (up 158,000), Poland 1.5m and Vietnam 230,000.

Total revenues from free TV were reported by the group as €255m last year, only just above five per cent of its overall business. Because Canal Plus's share of the French TV advertising market remains relatively small, the group is confident that regulators will approve the acquisition of the Bolloré channels by Q3 this year.

The significance is not so much the revenues as the bottom line benefits the group sees as stemming from this non-core business. Canal Plus sees an opportunity to capitalise both on the high income status of its subscriber base and on its higher levels of investment in TV series content.

Meheut identified original series as one of the three key reasons people subscribe and noted that free-to-air channels have cut back their investment in original programming given the volatility of the ad market. Last month StudioCanal added to its capacity in this area when it bought a majority stake in Munich-based Tandem Communications, a producer of high budget TV series and miniseries.

At the same time, Canal Plus is also pushing through cost savings in its core business. Its new contract for rights to Ligue 1, running for four seasons from 2012/13, will cost €420m a year instead of €465m. It also has a much smaller package of Champions League rights. Overall, the group will push through cost savings of €100m over the next two years.

Its reduced investment in sport is significant given the arrival of Al Jazeera Sport on the French market. The Qatari company is reportedly planning to launch two pay channels branded as BeInSport for a competitive €13 a month. As well as eight matches a week from Ligue 1, Al Jazeera will have rights to all matches from the Champions League other than the match aired by Canal Plus and the entire Europa League save for one match on the M6 group's W9.

Allowing a new competitor into its back yard may seem like a high risk strategy. However, Canal Plus has seen off other challengers, including France Telecom, and TPS backers TF1 and M6. It may have calculated that given the high entry cost, the margins in the French pay TV market may make a sustainable business impossible even for oil-rich Gulf investors. 

Always defensive-minded, Canal Plus also launched a subscription-video-on-demand (SVoD) service branded as Canal Play Infinity in November. Meheut said the service, costing €9.99 a month, would be available on all boxes and all connected devices, inside and outside the home.

Geography
France Poland
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