France’s Canal+ faces an increasingly challenging domestic market, due to IPTV expansion, competition from Al-Jazeera’s beIN Sport and the threat of a Netflix launch – on top of sluggish consumer demand in a dull economy

Inflated promotional activity has brought rising churn and failed to stop subscriber base erosion, while denting profitability. Headline revenue growth comes from international channels, film production and FTA TV

Anxious to avoid interference from its owner Vivendi, Canal+ has followed a conservative investment policy that may have undermined growth. The spin-off of SFR and possible dissolution of the conglomerate would leave Canal+ free to contemplate more aggressive moves, in IPTV, set-top boxes and possibly through acquisitions

On 28 June, News Corporation split into two companies:
• 21st Century Fox will consist of the TV and entertainment assets: Cable Network Programming, Fox Filmed Entertainment, Television, Sky Italia, its 55% stake in Sky Deutschland and its 39% stake in BSkyB.
• New News Corp will consist of the publishing assets (Dow Jones, The Sun and Times/Sunday Times, the New York Post, News America Marketing Group, the Australian newspapers and Harper Collins), as well as Fox Sports Australia, the digital education business Amplify, a 61.6% stake in digital property business REA Group Limited and a 50% stake in Australian pay-TV operator Foxtel.

The split partly reflects industry trends. Over the last five years, a number of media conglomerates, including McGraw-Hill and Time Warner, have separated low growth, low multiple publishing assets from higher growth parts of the businesses in order to optimise valuations and management focus.

This report provides a breakdown of the divisions within the two new companies and analyses their growth prospects.

Germany’s fixed line market is in state of flux as Liberty Global and Vodafone, the third and fourth largest players respectively, are reportedly engaged in a bidding war for Kabel Deutschland (currently number two).

The Vodafone bid would offer the most direct cost synergies, but this would be at greater execution risk. The Liberty bid would finally reunify most of the German cable sector, but would consequently need stronger undertakings to get anti-trust clearance.

Either merger would create a strong number two triple play operator, increasing competitive pressure on Deutsche Telekom and Sky Deutschland.

Sky Deutschland is reaping the benefits of its re-launch using BSkyB’s model, with an improving content offering and quality of user experience, plus a favourable environment for household consumption in Germany.

2012 results came in very close to our forecasts and we predict that Sky Deutschland will break even at EBITDA level in 2013 and turn cash flow positive in 2015.

The competitive context is benign and the horizon is clear until the next Bundesliga auction in 2016. But, in the meantime, cable, IPTV, FTA and OTT players are committed to widening their pay offers, which may put pressure on Sky’s subscriber growth and content costs.

France’s Orange Sport closed last month after France Télécom declined to bid for a renewal of its four-year licence to broadcast Ligue 1 football. The future of its sister film channel, Orange Cinéma Séries, remains unclear.

The strategic aim for Orange Sport was confused from the start – standalone profit centre or loss leader, fully fledged alternative to Canal+ or add-on to it.

Orange’s premium TV project was a failure: we estimate its cumulative losses at €1.2 billion, while Orange’s broadband market share and retail price premium shrank during the four years of its operation. But it did arguably strengthen Orange’s hand in carriage negotiations with Canal+.

News Corp will split publishing out of its business by creating a company to include newspapers in the US, UK and Australia as well as book publisher HarperCollins News Corp revenue growth has for some time been driven by explosive growth in cable network programming revenues, with slower revenue growth in film, TV, satellite TV and publishing The structural decline of print-based businesses is the main reason cited for the split. However, the Dow Jones and WSJ, both serving a B2B market, will be at the heart of the new publishing company’s value

Sky Deutschland has renewed its broadcast rights contract with the Bundesliga until 2017, removing the most important source of uncertainty for investors and consumers, albeit at the cost of a 77% jump in the fee from 2013/14

Combined with Sky’s new exclusive channels, high definition offer and on-demand services, the contract will sustain subscriber growth, but ARPU will only rise slowly

Although we forecast Sky to meet its EBITDA breakeven target in 2013, cash flow should stay negative until 2015 due to rising spend on receivers

Qatar’s Al Jazeera will launch its French pay-TV channel by this summer, showing weekly Ligue 1 and Champions League games, but it has yet to disclose a business plan and distribution deals

The new channel is a complement to Canal+, which broadcasts the most attractive games. Al Jazeera would need to obtain distribution on the Canal+ platform

Even if such a deal were to be struck, Al Jazeera would struggle to break even

Canal+ is entering a critical phase of growth following the recent merger with its former rival Télévision Par Satellite (TPS). Vivendi has set short term guidance targets for 2010 of 11.5 million subscriptions, turnover above €5 billion and more than doubling of EBITA from €490 million to over €1 billion. This presentation examines these targets and concludes that Canal+ will fall short of all them. In the best case baseline scenario of least competition from other pay-TV and free-to-air (FTA) services, it projects EBITA in 2010 of just €890 million

France’s football rights auction for the four seasons starting in 2008 ended with a second round on 6th February. Canal+ will keep most rights, while France Télécom picks up some live rights for the first time