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Good news afoot for Canal Plus

A comprehensive 23-page report on Vivendi from equity analysts at Deutsche Bank  –Root Canal – presents some potential good news for French pay-TV operator Canal Plus Group.

In particular, the bank says that Vivendi – and Canal Plus’s new management – is now positioned to “radically restructure” its relationships with France’s telcos, and especially their OTT content and programming services.

Currently Canal Plus (C+) is forced – whether it wants to or not – to offer all its premium content to any platform provided that the operator has more than 500,000 subscribers.

The bank says this situation is unique in Europe. “As a result, almost all new subscribers taking C+ over the past 5 years have come on via telcos/ISPs: Bouygues (Bbox), Illiad (Free), France Telecom/Orange and Altice-SFR. Seven years ago, 18 per cent of subscribers took C+ through one or other of the DSL operators. In 2014 (last reported data), this was 31 per cent and has continued to rise, we understand.”

The main consequences of this current arrangement is squeezed margins and high churn, says the bank. However, Deutsche Bank says that C+ is now in a radically different position. “[It can] restructure its sub-optimal current arrangement with telcos. In doing so, it should be able to increase monetisation of its wholesaling deals and reduce churn.”

Back in November Frédéric Bokobza, Deputy Director General of the Conseil Supérieur de l’Audiovisuel (CSA), the French media regulator, said that while the CSA wanted to continue protecting French cultural interests, it also wanted a “level playing field” for players such as C+, and a review of the current 33 restrictions on Canal Plus cannot be added to, only reduced.

As well as some of Canal’s rivals (not least SFR) now buying up rights, as well as the emergence of the likes of Netflix, Amazon and France Televisions’ own plans for a Netflix-type OTT service, the marketplace has changed significantly.

The CSA review is due in June, and is not dependent on French political elections.

Deutsche Bank is anticipating benefits flowing towards C+ as a result of this review, and any changes will flow to the revenue side of Canal/Vivendi’s balance sheet.  The bank suggests that while Q4 this year will remain weak overall for Vivendi, Canal’s stronger negotiating position should improve, helped also by Vivendi’s new set-top box (LeCubeS).  It said: “LeCubeS was a hybrid OTT/WiFi set-top box which is not tied to a specific broadband operator. This differs from the closed IPTV system offered by ADSL operators (Neuf, Bouygues, Orange, SFR, Darty, Free) where the service is only accessible using the home connection to their network and using the IPTV set-top box provided by the operator. By enabling a TV signal to be received “over-the-top”, C+ potentially breaks the link with an individual telco/ISP. This would reduce churn as switching broadband provider no longer requires a change of customer equipment. It would also strengthen C+’s negotiating position versus telcos. For select partners, it could allow the telco to keep deliver via its own IPTV network; but outside of this C+ could bypass the telco IPTV platform by delivering OTT.”

The bank also added: “We believe the C+ restriction to wholesale to any platform may be removed from June. As a reminder, the restrictions placed on C+ were imposed following the TP-CanalSat merger in 2005 and renewed for 5 years in June 2012. Both the telco regulator, ARCEP, and the media regulator, CSA, have described the current market situation as having changed significantly since 2012. The final decision will be taken by the French competition authority, Autorité de la Concurrence and the CSA and ARCEP feed into their public consultation which is already underway. Realistically, C+ is unlikely to be able to withdraw from all telco distribution deals, nor would it want to, with close of one-third of its subscribers on ADSL. But it might be freed to negotiate its own arrangements and potentially exclude those telcos/ISPs who are unwilling to meet its terms.”

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