A Spanish Not-So-Civil War Between Satellite TV Firms

Pity Spain’s 12 million TV households. Most only get to zap a handful of broadcast channels. Cable TV penetration stands at a paltry 3.6%, while only 8.2% of Spanish TV homes are hooked up to a satellite TV service.

It’s been seven years since Spain ended a 30-year monopoly of bland, state-backed broadcasting with two private TV channels. Those who could afford the monthly $23 subscription fee added a third, terrestrial pay-TV channel, Canal Plus Spain.

This year marks a pivotal change in the country’s TV landscape as two fledgling digital satellite platforms begin wrestling over the country’s underdeveloped pay-TV market. At stake is an estimated 6 million TV households that can afford the service. Canal Satelite Digital (CSD), backed by Canal Plus France and Spanish media giant Prisa, already claims 150,000 subscribers since its launch in January. Last month saw the launch of a second digital satellite TV platform, Via Digital.

The top U.S. satellite service, DirecTV, may enter as an equity participant in Via Digital, and all the Hollywood studios are keen to take part in a battle for the last major pay-TV frontier in Europe, apart from Italy.

Via Digital, which is led by Spanish telecom group Telefonica, state broadcaster RTVE and Mexico’s media giant Televisa, is kicking off aggressively by offering its service free of charge until Dec. 1. “We plan to have 150,000 clients by Christmas and become the principal operator [in Spain],” says Director General Pedro Perez. Via claims to have picked up more than 100,000 subscribers already.

The two platforms have been entangled in an acrimonious battle, yanking both the Spanish government and the European Union into the conflict. One of the major bones of contention is which platform owns the rights to broadcast Spain’s wildly popular soccer matches. The issue is now in court, but Perez had announced that Via would offer pay-per-view soccer this month.

Late last month, the dispute took an ugly turn when armed security guards forcibly prevented cameramen from transmitting a soccer game to CSD pay-per-view audiences.

Via Digital began to contest the ownership of the TV rights to the league soccer games after its leading shareholder, Telefonica, took over private TV channel Antena 3 and its 40% stake in sports rights entity Audiovisual Sport last July, thereby gaining access to soccer TV rights. CSD’s main shareholders also have a 40% share in Audiovisual Sport. CSD Director General Jaume Ferrus contends that CSD owns the pay-per-view rights to the soccer league games. Catalan regional broadcaster TV3 owns the remaining 20%.

Meanwhile, the Spanish government seems to have bowed to pressure from the European Commission (the European Union’s policymaking body) to modify its proposed digital law. Originally, the law, presented just before CSD’s launch on Jan. 31, required decoders to be submitted to the government for approval and for all pay-TV services to apply for a license.

Arguing that its decoders were the same ones used in Germany and France, CSD forged ahead with its launch, bypassing official approval. It also filed a complaint with the European Commission about the Spanish government’s legislation.

The Spanish government has now ruled that both CSD and Via Digital decoders--used to unscramble the satellite-delivered digital television signals--will be open to use for either service.

Prisa, a supporter of the opposition socialist party, alleges that the digital law is an attempt by the current conservative administration to stunt CSD’s growth. The government has vested interests in Via Digital through state broadcaster TVE and national satellite system Hispasat, from which Via leases various transponders.

CSD is transmitted by Astra, the Luxembourg-based satellite system that also serves Germany, France and Britain.

CSD has clinched pay-per-view output deals with Warner Bros., Universal, Disney, DreamWorks, Columbia TriStar Television and Polygram Filmed Entertainment, while Via has failed to sign a single deal with a U.S. studio, despite the best efforts of its U.S. representative, Solomon Broadcasting Inc.

Most of Via Digital’s product comes from TVE, regional broadcasters and Televisa. Via Programming Director Carlos Reboll Gil added that he expected product from France’s Gaumont and British media giant Pearson Group as well.

In August, Via hired Los Angeles-based SBI to acquire U.S. product for the platform. According to SBI Chairman and CEO Michael J. Solomon, Via is prepared to spend $2 billion to $3 billion over a 10-year period. Solomon is to focus on securing studio product for two premium movie channels scheduled to launch in November. Sony Pictures Entertainment, Paramount, MGM and 20th Century Fox are still up for grabs.

According to the 1997 European Audiovisual Observatory annual report, the Hollywood majors have seen the European pay-TV market become a primary source of revenue since the mid-’80s, with an annual growth rate of 32.3%.

In 1986, Hollywood studios earned $35 million from the worldwide sale of pay-TV rights to their movies, a fifth of their revenues from free-TV rights. This year, their pay-TV revenues are expected to reach $625 million, half of their estimated free-TV earnings, according to the report.

CSD’s key advantage is Prisa and Canal Plus France’s long-standing relationship with the majors. Over the last seven years, Canal Plus Spain has faced little competition in Spain’s nascent pay-TV market, and it has established deals with most of the studios. “We must not forget that this is a long-term business. No one should enter it without some previous experience, as we have had with Canal Plus,” says CSD Programming Director Pablo Romero.

Via Digital’s ace in the hole could reside with DirecTV, which is eyeing a 17% share in the platform. The deal may include a separate arrangement for DirecTV owner Hughes Communications Inc. to build new satellites with Hispasat.

Whether the Spanish market can support two satellite platforms remains to be seen. Perez contends there is definitely room for two in Spain and sees Via Digital breaking even in three years.

According to Romero, CSD will break even when it captures a million households in four to five years.

A merger is not implausible. “Separately, it will be a tough slog for them, but together they could have a great chance at providing an excellent service to the people in Spain,” observes another analyst.

In Germany, Europe’s largest TV market, pioneering digital pay-TV platform DF1, folded 13 months after its launch and will be absorbed by pay-TV network Premiere.

Quality programming, combined with broadcast rights for soccer matches, will be the key to success. “At the end of the day, the viewers will opt for programming content. They don’t care which companies are behind the services,” says Romero.