The two French pay-television Cos Canal Plus and TPS have announced their intention to merge, hence put an end to their violent price war and join forces. Canal Plus, first in this market, both historically and commercially, will control the new company. Canal+ currently has a portfolio of eight million subscribers and 3000+ employees, while TPS employs 600 and claims 1.4 million subscribers.
Until then, France will be the only European country with two competing paying television operators. French operators have not suceeded at developing successful paying TV channels, with only 37pct premium services-paying subscribers, to compare with 66pct in the US.
TPS is co-owned by TF1, which has a 66pct stake, and M6, a private TV operator that holds 34pct. Under the deal, sources close to the negotiation said, the merger will consist in an exchange of equity, TF1 and M6 then becoming Canal+ shareholders. TF1 would own 10pct of the new company, and M6 about 5pct. Vivendi, currently Canal+ biggest shareholder with 34pct, would take the remaining 85pct. One point is still a mystery, and that is, how can Lagardère group fit into the deal, bearing in mind that it owns 34pct of CanalSat, the satellite distribution branch of Canal+.
High costs of programming, marketing, operations
No one close to the deal seemed to be very concerned by European anti-trust regulations, since similar deals were achieved in Spain and Italy.
The reason of this deal is the intensifying competition from Telecom operators who have, since several years, largely crossed the borders of their traditional business scope. They first started with offering all-in-one boxes that provide customers, not only with phone, but also Internet and now TV access. In addition, they compete in the much disputed sports rights territory, with the blessing of all European and local authorities. So they’re becoming a problem for traditional TV operators as well.
Next is the question of the ROI: because of such a fierce competition between them, distribution rights –especially, but not only sports rights-, marketing costs, and cost of programming have exploded and margins remained very tight at 5pct, at the most. The analyst community anticipates a potential €250 to €300 million in savings after the merger is achieved, thanks in part to the stronger position in bids, and the elimination of a suicidal competition.
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