Spanish Free-To-Air TV March 2006 [2006-08]

Spanish Free-to-Air TV March 2006 [2006-08] Executive Summary The Spanish government has opened up the country’s free-to-air (FTA) TV market with the launch of two new analogue terrestrial services and a relaunch of digital terrestrial television (DTT). This report describes the changes and assesses the short-term impact on the leading players. Although we expect the Socialist government to do what lies in its power to assist the new analogue terrestrial entrants, we anticipate that both will struggle to make profits. Meanwhile, the DTT space will be more interesting for the takeover opportunities that it presents to the leading terrestrial commercial groups. In autumn 2005 an estimated 71% of Spanish homes had terrestrial-only reception, giving them access typically to six or seven national and regional channels, as well as assorted unlicensed local stations. The changes include: • The replacement on 7th November 2005 of Sogecable’s Canal+ on the terrestrial network with Cuatro, a FTA general entertainment channel • The relaunch on 30th November 2005 of DTT with up to 22 free channels including simulcasts of the main terrestrial channels • The launch on 27th March 2006 of a second new national FTA general entertainment channel, La Sexta We anticipate rapid take up of DTT adapters. Factors that will help to drive growth are the threefold expansion of channel choice, wide 80% technical coverage at launch, large volume of library material at the disposal of the new channels, and low costs of set-top boxes (STBs), currently priced at €55-80. We project DTT take-up to grow from circa 550,000 homes at the end of 2005 to 2.9 million by the end of 2007. Still, the government target for analogue switch-off in 2010 appears highly unrealistic. Although DTT growth promises significant long-term effects, the immediate issue is the impact of the analogue terrestrial channel launches on the FTA TV landscape. Whereas less than 5% of homes received most DTT channels at the end of 2005, the analogue FTA terrestrial channels will be receivable in most homes from the start. The new FTA analogue channels are also investing much more heavily than the new DTT channels in programming and we expect them, on overall channel viewing and advertising market shares in the short-term, to have greater impact than the DTT channels or multichannel growth generally. We project the overall viewing share of today’s four leading analogue terrestrial broadcasts (TVE, Antena 3, Telecinco and the regionals) to decline from 88% in 2005 to 74% in 2007, and that Cuatro and La Sexta will make up more than two thirds of the balance. Media François Godard +39 0815 520601 [email protected] Spanish Free-to-Air TV March 2006 Table 1 Telecinco and Antena 3’s combined advertising revenue, 2003-2007 2,000 60% 1,800 50% 1,600 €000 1,400 rket share a 40% M 1,200 1,000 30% 2003 2004 2005 2006f 2007f [Source: Enders Analysis] The impact of the new analogue FTA competition on Antena 3 and Telecinco will, however, be contained. Although the recent TV advertising boom, which saw 32% growth between 2003 and 2005, is expected to slow, further increases of 8% in 2006 and 6% in 2007 are still expected. They will cushion the impact of Cuatro and La Sexta. In addition, Antena 3 and Telecinco will be assisted by the following: • The government bill to reform the status of the public broadcaster RTVE will include measures for reducing the volume of airtime carried by TVE and La2 • Antena 3 and Telecinco will command a significant premium over the new analogue entrants due to their much higher viewing shares • Early indications are that Cuatro La Sexta may gain viewing share, but at the expense of channels other than Antena 3 or Telecinco The net result is that we anticipate overall growth in Antena 3 and Telecinco revenues of 4% in 2006 and 2% in 2007 in spite of some audience erosion due to the new analogue entrants and multichannel growth. Of much greater concern is the future viability of the new entrants. Cuatro holds important advantages over La Sexta in terms of higher analogue technical reach (97% at launch versus maximum 70% ever for La Sexta) and also a legacy of programmed handsets and established TV shows from the days of Canal+. La Sexta at least has Mexico’s Televisa and Spain’s Mediapro-Árbol as shareholders, both top producers in their domestic market. Yet, with both broadcasters expected to have annual opex of around €225-250 million versus our short-term projection of little over €350 million in combined advertising revenues in 2007, we strongly doubt if the Spanish TV market can sustain one, let alone two new market entrants without further government intervention. We foresee little immediate impact of DTT on the Spanish TV landscape in audience or advertising terms. The main point of interest is that the government has allocated DTT capacity by giving a certain number of channels to the existing national terrestrial channel operators. There exist no multiple channel ownership restrictions for DTT (before switch-off) as with analogue, nor rules to prevent DTT channel owners from acquiring more DTT channels from other owners post launch. In short, the conditions look ripe for market consolidation over the next few years. 2 Spanish Free-to-Air TV March 2006 Expansion of the Terrestrial Broadcast Offer In 2005 the Spanish government significantly altered the terrestrial TV landscape. Like other European governments, it presided over the launch of a digital DTT platform that largely preserved a terrestrial oligopoly. In addition and of greater commercial significance in the medium term, it allowed the launch of two new national terrestrial analogue free-to-air channels. Analogue terrestrial Approximately 71% of the Spanish population of 15 million TV homes has only terrestrial analogue reception. The two new national licences represent a sizeable increase in channel choice, which has consisted in the past of four national FTA channels, one pay-TV channel with an FTA window, usually one or two regional autonomic channels and an assortment of unlicensed local channels. The expansion of FTA choice has occurred in two stages1: • The government granted Sogecable a change in its licence terms in July 2005 that allowed it to close the terrestrial analogue and digital broadcasts of the premium pay-TV channel Canal+ and replace them with a national FTA service. Canal+ is now only available on the Digital+ satellite platform and also on the new FTA channel, named Cuatro, launched on 7th November 2005 • Also in July 2005, the government issued a call to tender for a second new national FTA terrestrial analogue channel. On 29th November it awarded the licence2 to La Sexta, a consortium of Mexico’s Televisa and producers Grupo Árbol and Mediapro from Spain, which are now in the process of merging. La Sexta will launch on 27th March 2006. Its licence also includes two national DTT channels for simulcast and a themed service Most Spanish terrestrial analogue viewers will have a choice of six rather than four and a bit national channels by mid 2006, plus some regional and local channels as before (Table 2). The national choice is to comprise two public channels from Radiotelevisión Española (RTVE), and four private commercial channels under separate ownership. Table 2 FTA terrestrial analogue channels TVE1, TVE2, Antena 3, Tele 5, Cuatro, National La Sexta (launch in March 2006) Regional Up to three by region Local About 800 unlicensed stations [Source: Enders Analysis] Of the two new channels, Cuatro has positioned itself as a general entertainment channel, with a similar mix of first-run domestic sitcoms, news, sports and movies as Telecinco, Antena 3 and TVE1. Cuatro has built on audiences to Canal+’s former unencrypted windows, keeping some of its most popular programmes, notably the daily political puppet satire show. 1 Decisions behind the two new analogue terrestrial licences were taken separately and have widely been seen as politically motivated. In contrast to Telecinco and Antena 3, which are seen as politically hostile, the new licensees are regarded as being close to the Socialist government. In addition, La Sexta’s location in Barcelona could help win support in the national parliament for the minority Socialist administration from the Catalonian nationalist party (CiU). 2 The licence of La Sexta was granted after a call for tender in which only one other project was presented. Government opponents argue that the analogue frequencies used by La Sexta could have been given to DTT instead. 3 Spanish Free-to-Air TV March 2006 Public releases from La Sexta’s shareholders also point to a full-scale general entertainment channel, but with a schedule which avoids head on competition with the major broadcasters. One of the shareholders, Grupo Árbol, is the leading independent producer in Spain and owns a library of very popular domestic series. Cuatro holds a distinct initial advantage over La Sexta in that it has a 97% technical reach of Spanish TV homes, putting it on a par with Telecinco and Antena 3. In contrast, La Sexta will at best reach only 50% of TV homes at launch and – on condition that a number of frequencies now occupied by squatters are freed up – will eventually achieve analogue coverage, rising to a maximum of 70%. The channel plans to make up for the remaining 30% through DTT and cable distribution. DTT Digital terrestrial television in Spain launched as a pay-TV bouquet and FTA service in 2000. Token simulcasting of the existing national analogue channels continued after the collapse of the pay-TV component, Quiero TV, in May 2002.

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