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European TV Entering Digital Domain

Broadcasting: Stakes are high as the teaming of Canal Plus and Nethold faces competition from an upstart consortium.


When Canal Plus, France's leading pay-TV company, announced recently it would merge with the Dutch firm Nethold, the $1.64-billion move was a bit reminiscent of an arranged marriage of two 16th century royals. Canal Plus (rhymes with "loose") pledged its 6.6 million subscribers in France and other countries and a valuable digital TV decoder. Nethold brought to the union nearly 2 million subscribers and its own decoder, transformed overnight from a threat to an asset. Together the two hope to pool resources, corner the market for sports and cinema, dominate the development of digital TV and invade an expanse of territory that stretches from Paris to Rome, Madrid, Oslo, Berlin--and beyond.

But first they will have to push aside at least one potent upstart: a newly formed consortium called TPS (Television par Satellite), which announced its intention to move into untapped European territory armed with its own decoder and $600 million worth of program deals sewed up, seemingly overnight, at Paramount Pictures.

The stakes are dramatic. In contrast to countries such as Germany, where cable TV is well-established, France, Italy and, to a lesser extent, Spain are ripe for satellite-delivered digital TV. The winner simply needs to line up the world's best sports and cinema and a consumer-friendly decoder, and millions of entertainment-starved households will rush to subscribe.

Small surprise, then, that Canal Plus Chief Operating Officer Marc-Andre Feffer is angry about the nature of the competition.

TPS was welded together by public broadcaster France Television, public telephone monopoly France Telecom, privately held TV channels M6 and TF1, and private companies CLT of Luxembourg and Lyonnaise des Eaux.

"It's a confusion between the role of the state and a classic shareholder-owned company," Feffer said in a recent interview at Canal Plus' stark white headquarters overlooking the Seine in Paris. "And we will fight it."

Feffer also believes TPS' makeup gives its member companies unfair leverage when they bid for programming.

The two rivals are already fighting over access to lucrative sports programs. TF1 sued this week to block the Canal Plus-Nethold merger--or at a minimum the elements that would allow Canal Plus to absorb Nethold's sports channels--and last month it contested a Canal Plus deal giving it exclusive rights to air French soccer games.

TPS' high-priced bid for Hollywood property virtually guarantees a bruising battle for top-name films. This week, Canal Plus announced programming deals with Columbia TriStar and with MCA, and already has rights to Disney product.

Come December, the announced time of the TPS digital TV launch, the two companies will be chasing after the same consumer dollars that Canal Plus is counting on to balance its post-honeymoon books. This could provoke a draining bidding war.

Here's another problem. Unless the rivals sign a peace pact agreeing to a standardized decoder box, consumers will dawdle as they contemplate the VHS-versus-BETA-like options, which could also exert downward pressure on subscription fees.

Feffer said there are four decoders on the European market and he hopes for development of a single box but refuses to contemplate standardized decoding software, saying it would raise the risk of piracy. TPS has so far declined to agree to a shared box, let alone software.

Canal Plus has weathered other crises since its creation in 1984, when Andrew Rousselet patched it together with a go-ahead from then-President Francois Mitterrand. A year later, Mitterrand nearly knocked the legs out from under the fragile enterprise when he approved new free-TV channels, including M6, thus dampening consumers' zeal for pay TV.

The company survived, generating $2 billion in revenue last year and posting a first-half net profit this year of $75 million, up 16.6% over the equivalent 1995 period. Overall profit for 1996 is expected to be about the same as it was in '95, Feffer said. Among other things, the company is absorbing the cost of its digital-satellite services start-up in April.

Canal Plus has exclusive rights to broadcast all French soccer games in the next three years, which it will distribute as pay-per-view. Its budget for programming this year is roughly half a billion dollars, which under French law must go largely (60%) to programs of European origin--two-thirds of them French. Ultimately, this means buying up every French movie it can lay its hands on, Feffer acknowledged, while zeroing in on a relatively small portion of American blockbusters.

Canal Plus is headed by Pierre Lescure, a 51-year-old former journalist known for his love of American rock 'n' roll, Florida vacations and creative thinking. The average age of his 1,500-person work force is 32.

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