The digital transition is almost complete in France, five years after the launch of DTT. After undergoing an audience share decline, TF1's share is stabilising. In contrast, M6 improved its audience share during the transition. Both groups are likely to remain dominant in the FTA TV market, thanks to the partial withdrawal of public TV from advertising sales
The advertising recovery in 2010 was strong. Thanks to its diversification, M6 is less exposed to the cycle than TF1, which is rebounding more strongly. M6 is also structurally more profitable
Pay-TV platform growth has stalled, with subscription decline at Canal+ somewhat balanced by growth of low cost packages of IPTV providers. Canal+ will benefit from the withdrawal of Orange from premium TV and a new distribution deal with Orange. Combined with the roll out of new set-tops with PVRs, we are moderately optimistic on Canal+ prospects
Vivendi is close to being in a cash position to buy out minority shareholdings in SFR and Canal+, shedding the image of a ‘conglomerate’ of partly owned and diverse assets, which has weighed on valuation Acquiring Vodafone’s 44% stake in SFR (now only a question of price) would allow Vivendi to rebrand itself as a telecoms story, serving France, with Maroc Télécom and mainly Brazil’s GVT supplying the upside To fully acquire Canal+, Vivendi’s offer will need to consider Lagardère’s option of floating its 20% stake. Owning 100% of Canal+ and SFR opens the narrative of a ‘French media/telecoms champion’ – which we find less credible
FT has put majority stakes in Orange Sport and Orange Cinéma Séries on the block, and claims to have held discussions with News Corp. We think it unlikely that an investor would be interested in entering the French pay-TV market, dominated by Vivendi’s Canal+
We believe FT could find a buyer for Orange Sport in Disney’s ESPN, which could prove viable if a cross-retailing deal is reached with Canal+. A Eurosport merger is another option. Orange Cinéma Séries could be viable under a new owner, if it widens it distribution to other platforms
Now officially on the way out of the pay-TV production business, a welcome decision in our view, Orange can focus on improving the consumer value of the basic TV offering on the triple play marketplace
Vivendi’s pay-TV unit Canal+ posted flat revenues in 2009, as international growth balanced domestic erosion
Driven mainly by growth internationally, we anticipate recovery to annual revenue growth barely above 2% by 2012, with a slightly deteriorating EBITA margin
Canal+ could do better if it invests in the latest generation of set-tops and, possibly, free to air television
France Télécom’s forthcoming Chief Executive Officer, Stéphane Richard, is considering a radical shake up and potential U-turn of Orange’s TV ‘content’ strategy, initiated and driven by CEO Didier Lombard
Orange could withdraw entirely from supplying premium pay-TV channels (sports and film) and distribute only third party content, as has been the focus of other broadband suppliers
A retreat of Orange from TV content would enable a more active cooperation with the Canal+ Group, benefiting both partners, who have largely overlapping subscriber bases