Euro giants start digital dogfight

The digital television race is off to a cracking start. At this early stage the pack is still close together, but the Canal Plus/Nethold link up last week has set the pace that the rest have to follow.

Last week’s handshake between continental Europe’s two key pay TV players, Canal Plus and Nethold, is the third proposed alliance this year designed to dominate digital television in Europe, but probably not the last.

Nearly all the big European analogue TV players are now coupled up for this costly leap forward in technology: within the past nine months Murdoch’s BSkyB has partnered Germany’s Kirch Group, and CLT (part owner of Channel 5) and Bertelsmann.

Now only the Americans are missing. In particular Disney/ABC and Murdoch’s closest sparring partner in the Americas, Hughes Electronics subsidiary DirecTV.

Nethold chose Canal Plus as a partner only after dismissing a 650m proposed marriage with DirecTV. Now the absence of DirecTV from the party casts a shadow over all three deals.

Bertelsmann only managed to pull off its deal with CLT once talks between the Luxembourg-based masters of commercial television in Europe closed the door on Disney.

“Alliances (in Europe) are being made and unmade very quickly,” warns Herbert Granath, head of Disney/ABC International Television.

Take the handshakes between BSkyB, Bertelsmann, Havas (part-owner of both Canal Plus and CLT) and Canal Plus in March for example. That proposed alliance lasted just four months.

The same could happen again with any of this year’s megadeals. However, last week’s alliance stands a better chance of remaining intact than the others. But the question of who will own it is far from certain.

The 900m Canal Plus/Nethold combine will, they claim, be one of the largest TV companies in the world. But initially it will focus on Europe, where both partners are strongest.

Havas-owned Canal Plus dominates its home market in France. Richemont and MIH-owned Nethold has built its Filmnet brand in Benelux, Germany, Scandinavia, Spain and Italy, and like Canal Plus it is growing in Central Europe too. The two companies currently compete in Belgium, but this overlap is minimal and easily overcome.

They plan to use the name Canal Plus and merge their subscriber lists, creating a total of 8.5 million paid viewers – the biggest pay-TV list outside the US.

Once signed, the deal will hand over all Nethold interests outside Europe (including pay-TV operations in South Africa, the Middle East, Greece and Cyprus) to its 50 per cent shareholder MIH.

All operations in Continental Europe will be acquired by Canal Plus in return for 6.1 million new Canal Plus shares plus $45m (30m) cash – a total worth 900m. As a result Richemont and MIH will own 15 per cent and five per cent of Canal Plus respectively.

“I cannot think of a better strategic fit for Canal Plus and I look forward to the challenge of leading our new Group into the era of digital television,” says Canal Plus chairman and chief executive Pierre Lescure.

“Canal Plus provides a fabulous combination of strong internal cashflow, a committed shareholder (Havas), markets that can be developed and an excellent management and programming expertise,” comments Johann Rupert, chairman of Nethold.

On an operations level the strategic fit is snug but not without cracks. Aside from the overlap in Belgium and Central Europe (in particular Poland), there is one important decision that remains to be taken – which digital decoder will the combine use? Nethold shares its Irdeto digital decoder with Kirch. Canal Plus’s Mediasat system is exclusively its own, making it the more likely choice everywhere except in Germany, the biggest TV market in Europe.

But the bigger question marks hang like a cloud over Rupert’s assumption that Havas is “a committed shareholder”.

If, and when Disney/ABC and DirecTV make their assaults in Europe, Havas’s president and director-general Pierre Dauzier is likely to be one of their first lunching partners. The Nethold/Canal Plus alliance is a very attractive target now, and Havas’s interests are divided because of its 29 per cent stake in CLT.

The second lunch slot in their agenda is likely to be with CLT’s biggest single shareholder, Albert Frere. Rumours that Frere is planning to sell out have continued all year. He is over 70 years old and does not have a natural successor to take over the family business, which stretches across media, banking and heavy industry.

“A sell-out by Frere is still very much on the cards,” reckons one industry insider close to the Frere camp. “It’s just a matter of timing – he is as canny as Murdoch when it comes to doing deals.”

1996 will go down in European media history as the year when the starter’s pistol for the digital race was fired. But as with all marathon starts, the pack is close together and everyone is still elbowing for a better position. Last week’s deal sets a fast pace for everyone. Whether Canal Plus/Nethold can sustain it is yet to be seen.

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