Jumpstarting Spain

May 31, 2011 World Screen

 

Since the broadcasting industry was deregulated in 1990, Spain’s TV market has always been muy dinamico—constantly evolving. First with the launch of two commercial networks, Telecinco and Antena 3 TV, which gave public broadcaster RTVE a run for its money, then with the arrival of pay TV in its various iterations, followed more recently by digital terrestrial television.
 
But 2010 witnessed some seismic shifts in the country’s TV landscape: public broadcaster RTVE has had to adapt to regulation that stripped it of advertising revenues, Italy’s Mediaset has become the leading commercial broadcaster in the country and is now also a player in the pay-TV market, and DTT is carving up even further the viewing and advertising of a market that is already reeling from the effects of the severely challenged economy.
 
The good news is Spaniards love their television as viewing is at all-time highs.
 
MERGER MANIA
There is no question that the slump in the Spanish economy has put a strain on the entire media industry, prompting what appears to be a trend toward consolidation. Mediaset, already Italy’s leading commercial broadcast group, is the majority shareholder in Telecinco. Mediaset recently acquired Cuatro, the TV station owned by the media concern Grupo Prisa, and merged it with Telecinco, for an estimated €1.05 billion. As part of the deal, Mediaset also got a 22-percent stake in the digital DTH platform Digital+, of which Prisa holds 56 percent. Telecom giant Telefónica also owns a stake in the platform.
 
The new pay-TV group, which includes Digital Plus and Telefónica’s IPTV service Movistar Imagenio, has more than 2.5 million subscribers, of which 773,000 are Imagenio’s clients. As a whole, this new group has an estimated market share of 63 percent against the country’s largest cable company, ONO, which has a 24-percent share.
 
The merger between Telecinco and Cuatro has already caused the first casualty: the shutting down of CNN+. The 24-hour-news channel, which launched 11 years ago as a joint venture between Turner Broadcasting and Prisa, had accumulated €40 million in debt in the last three years. Telecinco refused to pay CNN+’s annual costs of €5 million and the channel, with 190 workers, has been replaced by Gran Hermano 24 Horas—the Big Brother channel.
 
Nevertheless, the consolidation process in the commercial-TV market continues. Grupo Televisa, the Mexican media powerhouse, is the main shareholder in the TV network laSexta, with a 40.5-percent stake. Televisa has acknowledged being in negotiations with a number of players to set up a bigger company. Antena 3 TV might be the most likely partner, although merger talks have failed in the past. The Mediapro Group, which manages the audiovisual rights of several football clubs, also holds a stake in laSexta, as well as in the pay-DTT channel Gol TV. The all-football channel, with its more than 1.5 million subscribers across all distributions platforms, is in direct competition with premium channel Canal Plus and its 1.7 million subs.
 
PUBLIC CHALLENGES
While commercial TV channels are relying on mergers to weather the financial storm, state-owned RTVE has been surviving without ad revenues since January 2010, when the new financing model, approved by the government, came into effect. The law stipulated that RTVE should be financed with public funding, a tax on the use of radio spectrum and the introduction of two new taxes—one on the revenues of the private broadcasters and the other on the revenues telecom operators.
 
The reform is now under fire from the European Commission (EC), which started legal proceedings against Spain. The EC claims that the new tax levied on telco operators to finance RTVE—0.9 percent of their total revenues amounting to about around €250 million—may violate European legislation. However, the Spanish Supreme Court has recently ruled that the tax is legal and refused to abolish it, dismissing the measures requested by Telefónica, ONO and Vodafone.
 
In the meantime, the Spanish government has tightened the screws on RTVE again, reducing by 6 percent its state subsidy in 2011, bringing it to €547 million (that’s down €35 million). Nevertheless, RTVE has approved a budget of €1.2 billion, which includes the €250 million from telco operators, as well as funds from the taxes on private TV channels’ revenues and radio spectrum. In addition, RTVE makes money from the sale of its programs.
 
DIGITAL DEBUT
Spain entered the digital era with the analogue switch-off in April 2010, five years after the re-launch of DTT, which came on the heels of the failed pay-DTT platform Quiero. Today, around 45 DTT channels are available in the country, of which three are pay DTT channels: Gol TV, AXN and Canal Plus Dos. Out of the total, 33 are nationwide channels operated by the seven national broadcasters: RTVE, Telecinco, Antena 3, Cuatro, laSexta, Net TV and Unidad Editorial.
 
Traditional pay-TV channels like MTV and Disney Channel have opened themselves up to the free DTT market in order to reach 95 percent of the Spanish population. The DTT boom has turned the Spanish TV market upside down although quality content is conspicuous by its absence. The Asociación de Usuarios de la Comunicación (Association of Communication Users)—which aims to defend the interests of Spanish media consumers—has reported that many local DTT channels are breaking the law by broadcasting “inappropriate” content, like adult content, teleshopping or fortune-telling programs, in some cases 24 hours a day.
 
ON THE HORIZON
High definition and 3D TV are the new challenges Spain is facing after the analogue switch-off. Consumer electronics manufacturers have urged broadcasters to develop HD content to help stir up demand and bolster the market. National TV broadcasters like TVE, Telecinco and Antena 3, and regional networks, such as TV3, Telemadrid and Aragon TV, among others, are increasingly introducing HDTV transmissions. Pay-TV platforms like Digital+ and the IPTV service Imagenio are also launching HDTV packages. The Spanish government recently approved a new law that requires electronics manufacturers to equip all TV sets that are larger than 21 inches with HDTV capabilities. However, around 12 million TV sets in Spain—46 percent of the total market—are not ready for HDTV and the other 11 million need a special set-top-box to receive HD programming.
 
In the second half of this year, the government plans to set up an Audiovisual Council (CEMA) that will oversee the TV market and will guarantee free competition and quality content, among other remits, in accordance with the law. It will be a single regulatory body with responsibilities over TV and telecom markets under the umbrella of the current Telecommunications Market Commission (CMT), like Ofcom in the U.K. or AGCOM in Italy.
 
The creation of this watchdog is the result of the new overall broadcasting bill that came into effect last May. It also paved the way for the development of pay DTT, HDTV and TV cross-ownership, among other things. This law changed the TV landscape by enabling broadcasters to merge as well as lifting limits on cross-ownership as long as a newly formed company does not reach a combined 27-percent audience share or have more than two DTT multiplexes.
 
The law also requires TV channels to dedicate 51 percent of their annual programming to European productions, of which 10 percent must come from independent production companies. Commercial broadcasters are obliged to invest 5 percent of their total annual revenues into European productions—theatrical features, TV movies, TV series, documentaries and animation—while state-owned channels must invest 6 percent.
 
The new legislation also opened the door for pay-DTT channels at a time when the pay-TV market in the country is deadlocked. Today, IPTV leads the growth in the pay-TV market with Telefónica-controlled platform Movistar Imagenio. According to the Telecommunications Market Commission (CMT), pay-TV subscribers grew to 4.188 million as of September last year. Prisa TV, formerly Sogecable, leads the market, but not the growth, with a 42.3-percent share through its DTH platform Digital+, with 1.8 million subscribers. Spain’s largest cable company ONO is second with a market share of 22.8 percent and 954,267 subscribers, whereas Movistar Imagenio has an 18.4-percent share with 771,299 clients. Other smaller cable companies, such as Euskaltel, Telecable or R, IPTV operators like Orange, mobile TV companies and now pay-DTT channels like Gol TV, AXN or Canal Plus Dos, complete the highly saturated pay-TV picture.
 
(B)AD TIMES
Hit by the economic crisis, Spain’s TV ad market is now one third smaller than it was in 2007 and it seems like the golden times will never return.
 
Last year saw a slight recovery, with an estimated growth of 4 to 4.5 percent, due mainly to the FIFA World Cup, compared to a 19 percent drop the previous year. According to Mediaset-controlled Publiespaña, advertising spending in 2011 is expected to grow by 2 percent to 2.5 percent this year.
 
To complicate matters, more players are vying for the same TV ad pie. The DTT boom largely contributed to fragmentation of the audience and of advertising revenues. The advertising ban on the state-owned broadcaster RTVE since January 2010, though, freed €500 million in ad revenues to the benefit of its main competitors in the commercial TV market.
 
Pay-TV channels and commercial DTT stations took the lion’s share of the TV ad growth, with increases of 41.1 percent and 152.5 percent, respectively, capturing a market share of 2.6 percent and 2.8 percent, respectively.
 
TV consumption in Spain continues to grow despite tougher competition from other media like the Internet. In 2010, Spaniards spent an average of 234 minutes watching TV every day, 8 minutes more than the previous year, according to consultancy firm Barlovento Comunicación.
 
Football is the most widely watched programming genre on Spanish TV. The January match between Barcelona and Betis, as part of the Copa del Rey (The King’s Cup) tournament, drew almost 6 million viewers and an average audience share of 28.7 percent. In scripted entertainment, local TV series like Cuentame cómo paso on RTVE’s La 1 or El barco on Antena 3 TV are performing very well with shares of 24 percent (almost 5 million viewers) and 23.4 percent (4.8 million viewers), respectively. Spanish TV channels rely mostly on entertainment to capture audiences, followed by fiction and news.
 
In 2010, RTVE’s channel La 1, with its viewer profile of men 45+, was the most-watched network with an average share of 16 percent, followed by Telecinco with 14.6 percent and Antena 3 TV with 11.7 percent.
 
In January 2011, La 1 was ahead in the ratings with an average audience share of 15.2 percent, but that was down from 15.5 percent in December. Telecinco remained in second place with an audience share of 13.4 percent ahead of its rival Antena 3 TV with 11.6 percent. Telecinco is the favorite channel among women 25 to 44, whereas Antena 3 TV’s sweet spot is young people between 13 and 24.
The smaller networks laSexta and Cuatro both pulled in a 6.3-percent audience share in January. Regional TV stations drew an average audience share of 11 percent.
 
The DTT boom has contributed to a fragmentation of the audience.
 
Overall, DTT channels drew an average share of 18.5 percent in 2010, with the children’s channels Clan TV, Neox and Disney Channel leading the ratings within the DTT group. Thematic TV pulled in an average share of 7 percent with FOX, AXN, Canal Plus and Paramount Comedy taking the lead.
 
The dust has yet to settle in the Spanish TV market, with more consolidation set to come. Commercial broadcasters are still grappling with having to help fund RTVE. Meanwhile, the growth of DTT and IPTV channels continue to fragment viewing and advertising. One thing for now remains certain, however—Spaniards love watching TV, and they continue to say, me incanta la televisión.