Canal+ continues to suffer

French pay-TV operator Canal Plus is facing a tough future and even though it is coping well with the threat from the likes of Netflix, “the outlook remains difficult with the likelihood that more TV platforms will emerge to compete for retail market share and content, creating a range of pay-TV alternatives for a consumer base that was already price sensitive.”

The comments are from investment bank Jefferies, and while the bank’s report is looking overall at Canal’s owner Vivendi (and Canal+ represents 63 per cent of Vivendi’s revenues) it devoted many pages to the health of France’s most famous pay-TV operator. Jefferies has changed its recommendation on Vivendi from “Buy” to “Hold”.

The report stresses that Canal+ has not been idle while its dominance is eaten away. “Canal+ has not been standing still. It launched Canalplay as a subscription-VoD service (augmenting an existing pay-per-view product) and myCanal, a portal to access content from different devices. myCanal delivers “on the go” and multi-screen capability, as well as other value-added features, including recommendation and customisation. Nonetheless management appears quite pragmatic about the down-trading/churn risks it faces, making quite clear that near-term ambitions simply extend to stabilising the business,” says Jefferies.

“Customer intake in France has deteriorated over recent periods, even before Netflix arrived,” states the bank. “A weak macro backdrop appears the main cause, although Canal+ was also saddled with a Jan 2014 increase in the reduced rate of VAT (from 7 per cent to 10 per cent), which it was unable to fully pass on to consumers. The subscription base fell -1.4 per cent YTD with – 135k net disconnections in 9M14 (-25k in 3Q14). Even this masks the mix effect of a growing Canalplay base for which ARPUs are low (tariffs €7.99/€9.99 incl. VAT) and there is no contractual lock-in, with the traditional Canal/Canalsat offerings in steeper decline. While Canal+ does not disclose how many Canalplay customers it has, we understand that around half are new customers who continue to take only the Canalplay product. The base of individual Canal+ customers declined by -77k in 9M14 (of which -6k in 3Q14). Average subscriptions per customer have edged down from 1.59 at the end of 2012 to 1.56 by September 2014 despite the commercial effort to promote new product.”

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