The Hot Market

October 2007

Spain has become one of the most dynamic TV markets in the world. Over the last few years, its TV landscape has drastically changed, moving from one dominated by terrestrial broadcasters to one with a burgeoning multichannel environment.

Competition has significantly intensified in a country that’s relatively small—45 million people and 15 million TV households—but which has one of the highest rates of TV consumption worldwide. During the 2006-07 season, Spaniards spent an average of 228 minutes in front of the television each day. The commercial-TV channels are the most watched, with an average market share of 86.6 percent, while local stations, cable, pay TV and DTT account for a 13.4-percent share, according to the consultancy firm Corporación Multimedia.

In the commercial-TV business, Telecinco, whose major shareholder is Italy’s Mediaset, has been leading the market in terms of both audience and revenues over the last three years, with an average share of 20.7 percent in the 2006-07 season. With an audience consisting mainly of females 45 to 64 years old, the network is unbeatable in prime time, which in Spain has two time periods: during the afternoon, from 3 p.m. to 5 p.m., and during the evening, from 9 p.m. to midnight. In July, 19 out of the top 20 TV programs were broadcast by Telecinco, with Formula 1 racing, the U.S. series CSI, and sitcoms like Los Serrano or Yo soy Bea as its main hits. Aída, a spin-off of the series 7 vidas, and drama series like Hospital Central and El Comisario also pulled in a large audience during the last season.

Antena 3 TV, owned by the publishing company Grupo Planeta and the RTL Group, is second in the ratings with an average share of 18.1 percent during the 2006-07 season. Targeted at a family audience, the channel relies on football, cinema and domestic dramas and comedies to capture viewers. The UEFA Cup final between Sevilla FC and RCD Espanyol was the channel’s most widely watched program, with 10.2 million viewers. Feature films like Finding Nemo or TV series like Los Hombres de Paco, Manolo & Benito, El Internado and even The Simpsons also performed well in the ratings.

The state-owned station TVE1, for years the dominant TV player, continues its free fall with a 17.8-percent share compared to 23 percent four years ago. Watched mainly by a more mature audience, 45 and older, the channel’s main hits are Mira quién baila, a celebrity dance show, sports events like football or tennis matches, and its newscasts, which are in direct competition with Antena 3’s news.

NEW KIDS ON THE BLOCK

The RTVE Group—which operates TVE1 and La 2—has a new management team recently appointed by the Spanish parliament. A law was passed last year that provides a legal framework for the public television group that guarantees its independence from political interference. It also establishes an organizational structure and a model of funding that enables RTVE to carry out its public-service mission. As a result, RTVE is now trying to rejuvenate the viewer profile, relying on younger-skewing shows. It has also developed a multiplatform strategy and created a unit specifically for new media.

RTVE, headed by president Luis Fernández, is carrying out widespread staff cuts, which will affect more than 4,000 employees, and is reshuffling the TV operations to tackle its huge debt of more than €7 billion. RTVE’s chaotic financial situation is similar, to a certain extent, to that of the regional TV stations, which are also owned by the state. Currently there are 13 regional networks in the country whose average share is 14.8 percent, and all of them are losing money, despite the fact that, like TVE1, they benefit from advertising revenues and state subsidies.

Two new networks are competing in the commercial-TV market: Cuatro, the former pay-TV channel Canal+, which is owned by Sogecable, the largest pay-TV group in Spain; and La Sexta, which is managed and operated by a consortium of Spanish production companies and the Mexican TV giant Televisa.

Relying on new formats and new genres and targeting young and urban viewers up to 45 years old, Cuatro is pulling in an average share of 7.4 percent. The channel is betting on U.S. series like House (now very popular in Spain, with a share of 19 percent and around 3 million viewers), Grey’s Anatomy (11.3 percent and more than 1.5 million viewers) and Ghost Whisperer (10.7 percent and more than 1.6 million viewers).

With entertainment programs like Si lo que hicisteis el ultimo verano, sports content and comedies, La Sexta is trying to capture a young audience. Last season it managed a 3.1-percent average share by positioning itself as an alternative to traditional TV channels. Through one of its main shareholders, the TV production company Mediapro, the channel is having a tough fight with Sogecable over football TV rights. The battle began this summer after Mediapro announced it had secured the TV rights to 12 clubs in La Liga for the 2008-09 season. Mediapro also said in July that it had struck a deal with 39 of the 42 clubs in the first and second divisions to show their games in the 2009-10 season. Sogecable, which has held first and second division rights for a number of seasons, has said Mediapro’s agreements with the clubs breach contracts already in place with its sports rights division, Audiovisual Sports, and that it will challenge them in court. Meanwhile, as part of existing deals, Mediapro has been broadcasting several football matches on La Sexta. Sogecable, which also airs matches on its Canal+ pay-TV channel, has accused Mediapro of pirating the signal and has filed a lawsuit against the company claiming €200 million in damages. Prior to this, Sogecable cut the signal to La Sexta because it still owed €58 million for matches over the last two years. Mediapro responded by blocking Sogecable’s pay-TV service, Digital+, from broadcasting highlights of the matches aired on La Sexta. Meanwhile, a Spanish court rejected a request from Audiovisual Sports to block Mediapro from entering stadiums with television cameras and broadcasting football matches until a final decision has been made on the broadcasting rights. The government has offered to mediate in the conflict.

fever pitch

Football continues to draw the largest audiences on Spanish television with the UEFA Cup final pulling in more than 10 million viewers and other football matches attracting more than 7 million viewers. Formula 1 is also very popular in Spain.

Prime-time slots are still dominated by national fiction, although foreign series (most of them U.S. series, like Telecinco’s CSI, Cuatro’s House or Antena 3’s Without a Trace) have proven to be ratings winners. Reality programs are still popular, with Telecinco leading the way with Operacion Triunfo, Gran Hermano and Supervivientes.

Despite their strong position in the market, the traditional terrestrial broadcasters are facing considerable new competition. The take-up of digital terrestrial television (DTT) has been relatively rapid. It is estimated that there will be more than 1,000 local DTT stations, as well as regional and national ones. In addition, the rebirth of pay TV thanks to the leading role of the telecom giant Telefonica in the IPTV market is causing the commercial-TV networks to fear that the advertising pie will be significantly reduced.

That is why traditional broadcasters are looking for new ways to raise revenues and extend their businesses to other platforms. Thus, Antena 3 TV, Cuatro and Telecinco have begun distributing their content online. Antena 3 recently launched an Internet TV platform that distributes four of its TV channels: the DTT channels Antena.Neox and Antena.Nova as well as its 24-hour news channel Antena 3 Noticias 24, and Antena 3 Internacional. Cuatro has made a similar move by launching a website in both English and Spanish to sell its in-house TV content. Telecinco is also implementing a cross-multiplatform strategy and TVE is planning to launch a big multimedia news channel that will become “a reference in Spain and Spanish-speaking countries,” according to RTVE’s Fernandez.

Also, the commercial networks are at odds with RTVE over ad revenues, accusing the state broadcaster of unfair competition. The commercial networks have asked the government to limit RTVE’s advertising time from the current 12 minutes per hour to nine or even seven minutes.

PROFITABLE BUSINESS

Buoyed by a healthy advertising market and growth of thematic channels, the Spanish TV market is in great shape at the moment. Commercial-TV channels significantly increased their ad revenues in 2006 to the detriment of public-TV networks, which saw their ad share decline. While private TV channels made some €2 million in ad revenues, the public-TV stations (TVE and regional TV channels) brought in €1 million, with TVE taking €692.5 million, down 1.7 percent over the previous year, according to the Spanish Telecommunications Market Commission (CMT).

Telecinco, with 30.9 percent of the ad pie, led ad revenues in 2006 with €953 million, up 5.8 percent. Antena 3 TV was second with €837 million and a market share of 27.1 percent; TVE was third with €692.5 million and a market share of 22.4 percent; regional channels were fourth, with €370 million; Cuatro made €186 million in ad revenues in its first year of operation; and La Sexta made €48.2 million.

The largest ad growth in 2006 was registered, however, by thematic channels, whose ad revenues amounted to €44.5 million, up 41.8 percent. Local TV channels made €47.3 million in ad revenues, an increase of 12.3 percent over 2005.

One of the hottest debates in Spain now is the switch to digital, to be completed in 2010. It is scheduled to begin next year, according to the government’s plan. In 2008, the analog switch-off will cover 1 percent of the population (switching off in the province of Soria and the town of A Fonsagrada), reaching 12 percent by mid 2009 and 32.4 percent by the end of that year, completing the process in April 2010.

DTT coverage currently reaches 80 to 85 percent of the country, with plans to reach 98 percent by 2010. All broadcasters have urged the government to play a leading role in the deployment of DTT and to approve financial aid to develop the market. To boost the DTT market, RTVE is considering launching a Freesat service, likely via Hispasat, with all the DTT channels to reach those rural areas where terrestrial TV is not viable. In the transitional period until the analog switch-off, RTVE is operating six channels; the private TV networks—Antena 3, Telecinco and Cuatro—are each operating three channels; and the digital operators Net TV, Veo TV and La Sexta each have two.

Starting in 2010, each broadcaster will operate one multiplex of four channels, except for RTVE, which will have two with 8 to 9 channels. The 17 Spanish regions, the Comunidades Autonomas, will be able to operate up to two multiplexes, with eight channels, if technically possible. At the end of the digital migration, there will be at least 32 national channels, 136 regional DTT stations and more than 1,000 local DTT channels across Spain. Now, the government is finalizing a piece of legislation to pave the way for the definitive deployment of DTT, including mobile TV, which will also have a multiplex.

All in all, today, digital TV—through DTT, cable or satellite—reaches 5.92 million homes, with DTT taking the lion’s share with 2.58 million homes, 43.5 percent more than one year ago. Following DTT is digital satellite TV, with 2.16 million homes (up 36.4 percent); cable, with 760,000 homes (up 12.7 percent); and IPTV, with 440,000 homes (up 7.4 percent), according to the satellite system SES Astra. DTT has been in operation since November 2005, when RTVE launched a free-to-air DTT platform with 20 TV channels. Since then, more than 5 million DTT boxes have been sold in the country, according to the research company GfK. Every day, almost 3.3 million people watch DTT in Spain, representing 19.4 percent of homes, up 1.8 percent against the first quarter of the year.

PAY-TV’S COMEBACK

The DTT boom has run in parallel with the rebirth of pay television in Spain. Despite the fact that the pay-TV market is still deadlocked, with operators finding it difficult to attract new subscribers, it seems that the success of Telefonica’s IPTV service, Imagenio, with more than 450,000 subscribers, is giving a real boost to the market.

Recently, Sogecable, whose market-leading platform Digital+ has more than 2 million subscribers, closed a deal with Telefonica, which also operates a pay-TV platform in Spain. Together they will launch a triple-play offer called Trio+, which will change the face of the Spanish pay-TV market. It will include Telefonica’s DUO (ADSL and telephone service) and Digital+’s satellite television, with more than 150 TV channels. Trio+ is expected to launch in November when the government-imposed ban on a possible deal between the two companies expires. The deal also calls for both companies to jointly acquire pay-TV content.

The Sogecable and Telefonica deal represents new consolidation in the Spanish pay-TV market, with two companies that combined have around 2.5 million pay-TV subscribers. The agreement allows Sogecable to break into the triple-play market in direct competition with the largest cable operator, ONO, which has 1 million TV subscribers, and enables Telefonica to increase its pay-TV service to 200 TV channels. All in all, Spain’s pay-TV market reaches more than 3.5 million subscribers, with a penetration of around 23 percent. Other IPTV operators are entering the market, like Jazztelia, Orange TV and Superbanda, but the question is: Will there be enough room for all of them?