Vive La Différence!

December 20, 2010 World Screen

 

This article originally appeared in the MIPCOM 2010 issue of TV Europe.
 
What a difference a year makes. Only last summer, parts of the French TV industry were looking more like a reality-TV series than a thriving business. Desperate to improve its ratings and slumping share price, TF1 hired the head of RTL Group’s operations in France, Axel Duroux, to shore up its management team, raising doubts about the future of TF1’s CEO, Nonce Paolini. But RTL, which owns TF1’s main commercial rival M6, forced Duroux to wait three months before moving to TF1 and when he finally arrived in September, it was soon clear Duroux and Paolini did not get along. By the third week of October, Duroux was gone.
 
This summer, however, Paolini—now secure at the top of the TF1 Group—was at the center of a much happier saga. Ratings were up in prime time, revenues jumped 14 percent and net profits climbed by 51 percent.
 
And TF1 isn’t the only one seeing a rebound in its fortunes. The other major commercial broadcaster, M6, also reported
 
better-than-expected results, with revenues up by 9.4 percent and consolidating operating income showing a 23.4-percent bounce.
 
All in all, the French market got off to a good start this year. In fact, it will be the best year for French television since 2007. ZenithOptimedia recently revised its forecast, calling for 3.5-percent growth in 2010, which is higher than the 1-percent growth it had predicted in March.
 
Even so, ZenithOptimedia is predicting total TV ad revenues will reach only €3.3 billion ($4.3 billion), way below the peak of €3.8 billion ($4.9 billion) seen in 2007.
 
Encouraging forecasts can also be found for the multichannel and digital TV business, which analysts describe as one of the most competitive and innovative in Europe.
 
“While the local broadcasters have benefited from the ban on advertising in prime time at the public broadcaster, France also has the benefit of being arguably the most competitive market for multichannel television in the world,” notes Brian Wieser, MagnaGlobal’s executive VP and director of global forecasting. “Fragmentation driven by the success of DTT reduces the audience shares of the major broadcasters but sustains more growth than there would otherwise be in advertising spending because multichannel TV encourages more viewing, which sustains the health of the television medium over the long run.”
 
Zenith is forecasting that multichannel advertising will grow by 21 percent this year while PricewaterhouseCoopers (PwC) predicts it will grow from €257 million ($330 million) in 2010 to €344 million ($442 million) in 2014.
 
France has also been leading the charge in Europe in creating low-priced triple-play offerings of video, phone and high-speed data, a development that has “created very strong pay-TV and very strong IPTV markets,” notes Ben Piper, the director of multiplay market dynamics at Strategy Analytics.
 
The popularity of these low-cost bundles, which were first introduced by IPTV operators, and the introduction of DTT in 2005, are important because they’ve shaken up what had been a fairly stagnant multichannel landscape dominated by satellite providers and encouraged more people to adopt some form of multichannel TV, Piper and other analysts argue. 
 
DIGITAL OPTIONS
The French broadcaster M6 estimates that 47.6 percent of all French homes received free DTT services at the end of June 2010, up from 26.6 percent two years earlier, and that 16.2 percent of all French homes have subscribed to IPTV services, up from 11.6 percent at the end of June in 2008.
 
“France Telecom and the Iliad Group have made major inroads [with their IPTV and triple-play packages] and in the process they have really invigorated a market that was a kind of status quo with satellite and cable,” explains Ben Reneker, a senior analyst at SNL Kagan. “Since the arrival of IPTV into the market, the pure-play DTH satellite systems that had dominated the market have been challenged to compete against the bundled offerings from the telcos and cable. As a result, we’re starting to see some innovative multiplatform strategies from Canal+ and DTT has become as an important force.”
 
This intensified competition has also fueled overall growth in multichannel penetration. In June of 2010, about 93 percent of French homes had free or pay multichannel TV services, up from only 21 percent in January 2001, according to Médiamétrie data compiled by TF1.
 
DTT is likely to continue to see growth over the next year with the switch-off of analogue signals, a process that started in February of 2010 in Alsace. Since then, Lower Normandy, Pays de la Loire, Bretagne, Lorraine, Champagne-Ardenne have followed. Shortly after MIPCOM, on October 19, Poitou-Charentes and the middle of the country will make the transition, with the final cutoff being slated for completion in November 2011.
 
That cutoff will free up more spectrum for additional high-definition and pay-TV channels on the DTT platform. In 2008, four free channels and one pay high-definition channel were launched on the digital terrestrial service, which is known as TNT (Télévision Numérique Terrestre) in France, and the French regulator CSA has announced plans for additional HD and pay services.
 
Satellite delivery of the DTT offerings has also proven successful. By June of 2010, SES Astra reported that 2.3 million receivers had been sold for the free TNTSat service launched in 2007.
 
Consolidation has also been reshaping the French TV market in recent years. Faced with growing competition from IPTV and digital terrestrial services, the three main cable operators, Noos, UPC France and Numéricable, merged in 2006 and in 2007 the two main satellite DTH providers, TPS and CanalSat, combined their operations.
 
“The [satellite] merger was really driven by the threat of the IPTV guys who have been pushing them around for a long time now,” notes Martin Olausson, the director of digital media strategies at Strategy Analytics.
 
Over the last year, consolidation has continued with Vivendi tightening its hold on the Canal+ Group by buying out minority shareholders. In late 2009, it announced a deal to acquire TF1’s 9.9-percent stake in Canal+ France for €744 million and in February closed a deal to acquire M6’s 5.1-percent share for €384.2 million, boosting Vivendi’s stake to 80 percent. Both broadcasters have been investors in TPS and obtained their stake in Canal+ France as a result of the merger between the two DTH providers.
 
Vivendi tried to buy Lagardère Group’s 20-percent stake but balked at the reported asking price of €1.4 billion. In July Lagardère announced plans to spin off its stake with an IPO, though a number of analysts have seen this as a negotiating ploy.
 
Consolidation is also reshaping the programming business. Faced with criticism that it had been slow to move into the DTT business, TF1 acquired AB Group’s stakes in terrestrial channels TMC and NT1 for €192 million in September 2009.
 
More deals may be in the works as France Telecom revamps its content strategy for Orange’s IPTV and programming businesses. The telco had aggressively moved into programming under then-CEO Didier Lombard, spending heavily to launch premium sports and movie channels. Lombard’s successor, Stéphane Richard, however, has been less enthusiastic about the fact that the telco has been spending about €400 million ($527 million) a year buying up exclusive TV rights to soccer and movies and this summer announced that the company wanted to focus on its core business. “Our objective is to find one or more partners,” for the channels, selling off as much as 50 percent of the equity, he told The Wall Street Journal in July.
 
Since then, a variety of press accounts have reported that France Telecom is in talks with Canal+ about a potential partnership and that the telco has also contacted News Corporation about a possible deal for the sports channels.
 
“Developing exclusive sports and movie content was very successful for Orange in that it allowed them to very rapidly build out their IPTV subscriber base, but they spent huge sums on content rights,” explains Olausson at Strategy Analytics. “You can look at it as the cost of building out this huge IPTV subscriber base, but at some point you need to start making money on that and they now see they can’t really sustain that.”
 
TIGHTENING BUDGETS
Big changes may also be in the works for the public broadcasters. In May 2010, President Nicolas Sarkozy personally selected a new head of France Télévisions, Rémy Pflimlin. Although Pflimlin hasn’t yet outlined his plans in detail, it is clear that the channels will continue to face tight budgets. A 2009 law abolished commercials on the public channels between 8 p.m. and 6 a.m. and the channels are supposed to get rid of all advertising by 2012.
 
To cover that loss of revenue, the French government has increased its subsidies by 18 percent in 2009 to €2.5 billion according to PwC. But it expects those subsidies to rise by only 1.3 percent a year between 2010 and 2014, which would make it difficult for the public channels to cope with rising programming costs.
 
TAX TIME
To bring in additional money, the government is imposing new taxes on broadcast channels and electronic communication, a move that has been vigorously opposed by the broadcasters and pay-TV operators. The European Commission approved the subsidy but broadcasters and local operators have filed appeals against the tax with the European Court.
 
More limited programming budgets also seem to be the norm at the commercial broadcasters. Despite the improved TV ad climate and the fact that they are no longer competing with the public broadcaster for prime-time ad revenue, both TF1 and M6 not only face increased fragmentation that will cut their audience shares in the years ahead, but a generally sluggish ad climate as well. MagnaGlobal, for example, is predicting only modest growth over the next few years with TV ad spend in 2015 expected to be about €3.51 billion, which would still be below 2007 levels.
 
In response, both broadcasters have been cutting budgets. M6 cut costs by €36 million in 2009 and in the first half of 2010 programming costs rose by only 5.3 percent to €156.3 million, slower than the channel’s revenue, which increased by 7.7 percent.
 
TF1’s programming costs increased by 6 percent in the first half of the year, thanks to the hefty fees paid for the FIFA World Cup, but if one-time sports rights were removed, overall programming costs actually declined by 7.2 percent to €422.5 million, with TV dramas (down 6.8 percent), movie rights (down 23.8 percent) and youth programming (down 18.3 percent) taking particularly notable hits.
 
Meanwhile DTT channels, which saw their advertising revenues jump by 38.4 percent in the first half of 2010 according to M6, are increasingly looking to commission original programming.
 
“Most of the advertising has remained with the major broadcasters but DTT is certainly gaining in terms of audience,” notes TV France International’s executive director, Mathieu Béjot. “While DTT is still fairly marginal in terms of producing new content, it is growing and DTT channels realize the need for original programming [especially in prime time].”