Canal+ at 25

 

 

The French certainly know about revolution. In the 18th and 19th centuries they lived through several in the political arena and in the 20th century they were at the forefront of an upheaval in the tele­vision business. In 1984, a small group of French TV executives and journalists, including André Rousselet and Pierre Lescure, had the idea of a premium pay-TV service whose broadcast signal would be encrypted and then decoded by a set-top box placed near the TV set in the home.

 

The name of the service was Canal+, the channel that was more than an ordinary channel because of its premium, can’t-miss content. The programming concept seemed almost too simple: feature films, sports—mainly football—and, as added value to the paying subscriber, quality documentaries and other types of programming not found on conventional networks; a recipe that became the basis for every successful pay-TV operation around the world.

 

While this program menu seemed appetizing enough, management’s huge marketing challenge consisted of persuading French consumers to pay for it. But Canal+ carried out this revolution in television brilliantly.

 

As Pierre Lescure, then CEO, told World Screen in 1998, “our biggest concern is always the subscriber,” consequently, “the service’s overall strategy was built on three cornerstones—subscriptions, entertainment and technology. We put that strategy in place on the first day of the first year when we began operating, in November of 1984.”

 

Today, as Canal+ celebrates its 25th anniversary, subscriptions, entertainment and technology remain the hallmarks of the service’s success. In 2008 it broadcast 400 movies and more than 35 previously unaired films every month to its 5.3 million subscribers. It reinvigorated French football on TV, raised the bar for televised sports coverage and continually offered must-see programming, from original productions to the top acquired shows. And in the field of technology, it not only pioneered digital television in Europe, it has followed viewers’ need to watch content wherever and whenever and developed, among many innovations, the Canal+ key, a pocket set-top box in a USB format.

 

In order to understand Canal+’s huge contribution to the TV industry and its success, it helps to go back to its beginning.

 

Mark Kaner, today the president of Twentieth Century Fox Television Distribution, was hired as a consultant by Lescure, a role Kaner retained for eight years. “At its inception, Canal+ was the most innovative company in continental Europe. Between Canal+ and BSkyB in the U.K., they were leading the way in pay TV in Europe. No other group even touched them in terms of innovation and execution,” Kaner says.

 

Canal+ was unique from the beginning. It was created when France had only three networks, all of them state owned. Given its freedom from political influence and because it was the first pay-TV channel ever launched in France, it became a hallmark for freedom of speech and anti-establishment sentiments.

 

“Everything they did was cutting edge,” says Kaner. “They took chances. They dared to take on the establishment. Look at what they did with [the political satire show] Les Guignols. It wasn’t a puppet show, it was a political revolution. The whole country would be talking about the political satire created on this program. No other institution could have or would have dared do that in France at that time.”

 

Over the years, Canal+ has evolved away from its protesting, iconoclastic debut, but it still remains different, which is very important when attracting customers, especially in a business where people have to pay for something they can otherwise get for free—namely, television. This is why, in addition to offering the best content, Canal+ had to provide something extra, a special touch, an offbeat tone that some people call the Canal+ spirit.

 

As a result, Canal+ created a service, a sense of community, actually, that had such a “cool factor” associated with it that people just wanted to be a part of it.

 

With the subscribers hooked and satisfied, the trick for continued success was to keep them happy and feeling that they were part of a special TV “in crowd.”

 

Canal+ has kept its customers satisfied in two ways: first by investing heavily in content, and then by continually innovating and offering subscribers new and better ways to enjoy the service.

 

“In the very beginning of Canal+, we understood that our main asset—the key card that we could play in the television game—was the rights that we owned, the rights we had for movies and sports,” said Lescure in 1998. “So after we made our first dollar of profit, in 1986, we decided to put 50 cents [of each dollar] into developing new product. We began by putting money into the film industry in France.”

 

Today Studio­Canal, a wholly-owned subsidiary of Canal+ Group, is the European leader in the production, acquisition and distribution of motion pictures in all media: theater, video, audiovisual, and video on demand. Having established itself as a European mini-major, it has a catalogue of over 5,000 French, British and American films, including Basic Instinct, French-Fried Vacation, The Pianist and Podium.

 

Alongside Canal+, StudioCanal is a key partner of the French movie industry, helping to finance two-thirds of all films produced in France each year. StudioCanal also operates directly in the other two largest European markets—in the U.K. through its subsidiary Optimum Releasing, and in Germany through its subsidiary Kinowelt, acquired in January 2008.

 

Canal+ also invests significantly in productions for the small screen. “Original programming has been at the heart of our editorial strategy for the past two to three years,” says Rodolphe Belmer, the VP of content for the Canal+ Group and also COO of Canal+. “This is part of our wider strategy to be a general-interest channel rather than a basic sports/movies channel.”

 

Indeed, today one-third of new subscribers join Canal+ for reasons other than just sports or movies. “We started off with hard-hitting fiction drawn from France’s recent past—political or financial scandals like the Elf scandal or the Rainbow Warrior bombing, to controversial events in French history, such as May 1968 or the brutal repression of Algerian demonstrators in Paris in 1961,” continues Belmer. “From there, we moved to realistic TV series, like Braquo, currently airing on Canal+ to historic ratings, which contrasts sharply with usual French TV productions that tend to cater to the broadest possible audience, which is the whole purpose of commercial TV. Now we are involved in even bigger projects, such as XIII, which aired in prime time on NBC, or Engrenages (Spiral), which became the first French TV drama sold to the BBC. Since 2005, our investment in drama series has increased from 5 million euros per year to over 40 million euros.”

 

Canal+ has 25 years’ of experience in sports coverage. It follows 60 different sports, most importantly football but also rugby, tennis, golf, and other major disciplines. When ac­quiring sports rights, the channel’s main focus is on long-running, nail-biting competitions, such as championships like France’s Ligue 1, the English Premier League and Spain’s Liga, which keep sports fans on their toes and longing to experience the upcoming match. This has been key in driving customer satisfaction and loyalty.

 

Whether on the editorial side, with quality reporting and analysis provided by experts, or technological improvements, such camera placement, on-screen data, or slow mo­tion, Canal+ over the years has set new industry standards. It is widely recognized as the best sports channel in France, and that is part of the reason people are willing to pay for it.

 

Technology and Canal+ have always been inexorably linked. From the very beginning, in order to watch the channel, subscribers needed more than a TV set—a set-top box was also required. Innovation is therefore part of Canal+’s genes, and this has been evident to all in the media industry, even outside France. “Canal+, one of the original pioneers in pay television in Europe, continues to innovate by creating new offerings for its subscribers using the latest technology,” says Jeffrey Schlesinger, the president of Warner Bros. International Television Distribution.

 

In 1996, the company became the first satellite operator in Continental Europe with CanalSat. It was also a very early IPTV player in a country that has been a world leader in this field. Canal+ was also on the cutting edge with HD, personal video records (PVRs), VOD and catch-up TV.

 

“All these new services, which hardly existed a mere five years ago, are the result of constantly advancing technological evolution,” explains Bertrand Meheut, the chairman and CEO of Canal+ Group. “And we can only be amazed at how fast customers are adopting these changes— and adapting their TV habits accordingly. This is why we need, each time, to be quick off the mark.”

 

A lot of subscribers who opted for HD or the PVR or VOD say they could not do without them today, especially catch-up TV, for which Canal+ does not charge extra; it is included in the subscription fee. “This brings incredible added value to customers who can now fully enjoy what they pay for, at their own pace, without ever missing their favorite show again,” continues Meheut. “Obviously, this is driving up customer satisfaction. Catch-up TV users’ churn rate is 2 points lower than that of average subscribers.”

 

For all the success of Canal+ and the loyalty it elicited from subscribers, not to mention the huge boost Studio­Canal was giving the French film industry, the channel’s parent company, Canal+ Group, hit rocky times at the beginning of the new millennium.

 

The company had already begun a process of international expansion. In the ’90s it had set up services in Belgium, Scandinavia, Spain and Poland. Then, in 2000, the Canal+ Group became a wholly-owned subsidiary of the newly merged Vivendi Universal with Jean-Marie Messier at the helm. Messier had ambitious plans for expansion. For example, he told World Screen in 2001: “I believe that down the road Vivendi Universal will not be able to stay out of Asia.” Cultural diversity was an important theme for him. “My goal has always been to build a global company, understanding that when you are in the content field—the entertainment field—’global’ means both global and local…I do think that starting from a European base with European roots we have a great advantage, because every day in Europe we are confronted with a diversity—of cultures, of countries…of languages. In all cultural aspects, we are in a good position to understand what cultural diversity is. That is the reason, when I look at [the] criteria for success for Vivendi Universal in the coming years, I obviously consider size and stock price, but one thing that is also important to me is cultural diversity. Globalization needs this global and local combination.

 

“From that point of view,” Messier continued, “Vivendi Universal will not be the apostle of American domination. We will not be the apostle of French ‘exception culturelle’…I would love five years from now, for Vivend Universal to be recognized as the leading worldwide group in terms of cultural diversity. That’s a strong wish, a strong goal on my part.”

 

Despite Messier’s objectives, the group and the channel began a downward spiral. Because of what many industry insiders describe as Messier’s “megalomania,” Canal+ suffered greatly.

 

When Messier reorganized the company in 2002, the year Lescure left, many other employees left as well. At the time, Canal+ was losing subscribers by the tens of thousands and around ¤350 million per year, with net debt topping 5 billion euros, on turnover of just over 4.5 billion euros.

 

Messier’s reign did not last long. New management stepped in; Meheut joined the group in 2002. Belmer joined in 2003.

 

The new team is widely credited with turning the company around. At the beginning of 2003, a new strategy was implemented: loss-making assets were divested, except for Studio­Canal and the promising pay-TV operation in Poland, and the company was streamlined. But while savings were made across the board, the company stepped up its investments in content and subscriber acquisition. The strategy paid off: at the end of 2003, Canal+ Group turned a profit for the first time in seven years, and at the end of 2004, the subscriber portfolio was on the rise again after four years of continuous decline.

 

At the same time, Canal+ renewed its long-running partnership with the French cinema industry and made a game-changing move by investing a massive ¤600 million per year to acquire exclusive French football league rights, which previously had been shared with a rival pay-TV operator, TPS. A year later, TPS was forced to merge with Canal+ Group, bringing along its 1.3 million subscribers.

 

“Over the past five years, Canal+ has been at the forefront of the digital revolution while expanding outside of France again and developing new growth opportunities,” says Mehuet.

 

“Today, around 20 percent of the group’s total turnover comes from international operations,” he continues. “Our international strategy is threefold: We want to further develop our profit-making operations in Poland, French overseas territories and [with] StudioCanal. We want to partner with foreign pay-TV players to expand existing businesses, as we did recently when we purchased MultiChoice’s French-speaking sub­scriber base in central Africa. And we plan on launching new operations in rapidly growing countries, such as those in North Africa and in Vietnam.”

 

With the company back on a successful track, Meheut sees plenty of opportunities ahead. “Our priority is to further expand our subscriber base here in France, which still has growth potential, as pay-TV penetration rates are lower than they are in the U.K., for instance. Inter­national expansion will also be a key driver, as well as other growth opportunities, such as diversifying our operations in fields related to pay TV. We already have ­a foothold in the free-to-air market since we launched our 24-hour news channel iTélé on DTT in 2005. We also have created a sports events company, Canal+ Events, to leverage our widely recognized expertise in sports.”

 

“The company today is very different from the one I once lived and breathed, but it is very successful,” observes Fox’s Kaner. “What is remarkable is how it has turned around, and credit must be given to the current management, including Rodolphe Belmer and Manuel Alduy [Canal+’s head of cinema], for the current financial success. They took on the competition from TPS and ultimately absorbed them into the new structure, which supplies a brilliant service to its subscribers. In a dramatically changing world, they have adapted in France as well or better than any media company. They seem to be going from strength to strength, and that’s impressive.”