Vivendi and Mediaset are not the best of friends. Few corporate fallings out have been more spectacular than that between the French and Italian media groups, which have been engaged in a running war of words, suit and counter-suit for the last three years.
Vivendi’s decision to pull out of an agreement that would have seen it take control of Mediaset’s pay TV arm resulted in the stalling of its strategy to develop a pan-regional business across southern Europe based on cultural affinity and common interest. The collapse in relations between the pair also plunged Mediaset into a crisis as it fought to stem losses from its pay TV activity, eventually taking it into the arms of arch-rival Sky.
Despite their differences, Vivendi and Mediaset do share common concerns and this week saw some evidence of a certain confluence of their strategic thinking. Vivendi-owned Canal+ struck a deal to take over international pay TV outfit M7 Group, while Mediaset made a friendly investment in Germany’s ProSiebenSat.1, taking a 9.6% share.
Canal+ agreed to acquire M7, which offers satellite pay TV, hybrid and OTT TV services in Belgium, the Netherlands, Austria, the Czech Republic, Slovakia, Hungary and Romania and has a small operation in Germany, for €400 million.
M7 recently expanded its pay TV footprint in central and eastern Europe by acquiring Liberty Global’s DTH operations in those markets, expanding its reach to Hungary and Romania as well as giving it more penetration in the Czech Republic and Slovakia.
Mediaset CEO Pier Silvio Berlusconi meanwhile made it clear that his company’s German investment was strategic, in line with his view that European media groups needed to join together to fight off the threat presented by US-based tech and media giants in an increasingly globalised business.
Both companies understand that having scale – meaning international scale – will be crucial to survival in a world increasingly dominated by a few global media and tech giants.
Canal+ has in recent years struggled to fight off attrition of its pay TV subscriber base in its home market, while its Canalplay subscription video-on-demand service was decimated by Netflix, something the operator blamed on restrictive local windowingand exclusivity rules. Canal+ launched a new SVOD offering, Canal+ Séries, in March.
Canal+ chief Maxime Saada nevertheless said at the MIPTV event in April that he was looking to double his company’s global subscriber count, which is currently split on a roughly 50:50 basis between its domestic and international services. Saada said at the time that he expected the bulk of growth to come from international expansion.
The acquisition of M7 – a traditional back-to-basics pay TV aggregator without any investment in exclusive rights or original content, but with a recently-launched hybrid platforms to enable the delivery of on-demand services – will give its new owner a ready-made distribution channel for its own significant investment in original programming as well as a foothold in the pay TV markets of the Benelux countries, Austria, the Czech Republic, Hungary and Romania. (M7 also has a small but significant distribution platform in Germany through its acquisition some years ago of Eutelsat’s KabelKiosk.)
So far so good. However, some may question whether an investment in traditional pay TV is the best move for Canal+ at a time when this model is already under threat. While M7 has made a success of things by keeping costs relatively low and offering targeted offerings aimed at niche or underserved markets, its acquisition– the biggest Canal+ has made since merging with TPS in the early 2000s – is hardly transformational.
For Mediaset, the failure of the Vivendi relationship and the subsequent decline of its struggling pay TV business, compounded by the loss of Serie A football rights, has left it looking for an alternative strategy to secure its future. Now primarilyonce again focused on the free-to-air market, the Italian broadcaster nevertheless faces a similar dilemma to its onetime ally turned arch-enemy – how to shore up a business model that is under threat from changing viewing patterns and the globalisation of the media business.
For Mediaset – and its peers – investment in digital non-linear distribution and advanced advertising is a sine qua non. Mediaset has characterised its move to pull Mediaset Premium – the pay TV unit that was at the heart of its rupture with Viviendi – from Italy’s digital-terrestrial platform as a ‘transformation’ rather than a shutting down. CFO Marco Giordani recently said that the company was “adopting a more digital, modern way of serving our customers using OTT” with a Netflix-like ability to dip in and out rather than commit to a years-long contract. He said that Mediaset’s online business would be “a free or advertising-funded service with some pay services”.
Mediaset is already involved in the European Media Alliance, a grouping of free-to-air broadcasters interested in developing at-scale platforms to deliver advanced advertising and realise synergies that can help them stave off the threat posed by online players. Its direct investment in ProSiebenSat.1 can be seen as the first step in a broader play to initiate the kind of consolidation that would create a broadcast group with the scale, access to rights and combination of over-the-air and digital broadcast assets that could enable it to better fight off global players. However, the route from taking a 9.6% stake in the German broadcaster to effectuating a more meaningful industrial consolidation is far from clear. While ProSiebenSat.1 CEO Max Conze welcomed the “friendly” investment, he has previously gone on record as saying he saw “no industrial logic”in a deeper consolidation.
Vivendi and Mediaset share a desire to be active consolidators, but their moves so far have so lacked a real sense of a final destination. They also give the impression of trying to shore up core businesses that are under assault from new players and are struggling to tell a convincing growth story. (Time will tell whether Comcast’s acquisition of Sky, a more transformative deal than those discussed here, will deliver the goods.)
It is certainly the case that attempting to consolidate media businesses across European frontiers, with fragmented national markets and diverse media cultures, is fraught with difficulty. It is not yet clear which players, if any, are most likely to rise to the challenge.
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