After two quarters that have fallen short of earlier guidance, TF1 Q3 results have at last met more subdued investor expectations of marginal growth in flagship TF1 channel advertising revenues in a total market expected to increase by about 4.5% in 2007, chiefly due to digital growth

Rising audiences for Cuatro in a booming TV advertising market have unexpectedly lifted Sogecable earnings in H1 2007, encouraging confidence that Cuatro will achieve breakeven in 2008, if not in 2007

With 84,000 net pay-TV additions in 2006, Sogecable resumed subscriber growth, but we expect this pace to decline in 2007 unless Sogecable re-positions on basic and expands distribution from satellite to cable and DSL

The long drawn out merger between the two Spanish pay-TV operators will finally be consummated in the next few weeks. As we have seen elsewhere in Europe, competition in pay-TV produces little but red ink. Investors will be pleased that Sogecable and Via Digital are finally combining. We have little doubt that this merger will eventually produce a profitable and successful business. But management appears too optimistic about the likely continuing cash drains as operations are combined and costs reduced over the next two years.