We last reported in January that talks had broken down between Telefonica and the Spanish competition regulator, CNMC over the purchase of Canal+ in Spain. They now appear, according to Spanish newspaper reports and to Reuters, to be very much alive once again. When these things go quiet, there is usually deadlock, normally fatal deadlock and when they begin leaking to the press once again, it’s usually because something is about to happen.
The sticking point has been exclusivity of content, as it always is when a major pay TV platform emerges – there are usually two issues, will there be sufficient alternative markets for content so that other buyers with money still exist – and a healthy market can be achieved by content players
The other issue is over dominant content, which in the wrong hands would create a flight to a single pay TV operator – in that case it must be available as a license to other pay TV players and for a price which is regulated i.e. not so high that those operators are cutting their own throats by offering it.
This is often a sticking point and regulators have to hold the line or operators will tie content to a particular pay TV access service. They are still allowed to hold exclusives in the future, but they shouldn’t start with all of the best content as an exclusive, achieved through a merger – otherwise the market becomes highly monopolistic.
As we understand it Canal+ currently resells its Spanish football rights to all the other Spanish TV platforms and Telefonica thought it could buy the company and not share the TV rights to drive up subs. Sky has already been through this process in the UK, where it initially resisted resale of its sports channel, but eventually capitulated.
So now Reuters reports that Telefónica will abide by a deal to offer Canal+ content, including sport, at competitive prices to both of the other major rivals in Spain – that would be Vodafone-Ono and Orange, as well as Jazztel, which already has Canal+ content, but which is being acquired by Orange.
We still think it would be a mistake to give approval, and that by holding out for unacceptable terms, Telefonica may actually vacate the deal (as we had thought it had done) and let someone like Sky or Vivendi come in for the asset, adding more competition to the market, rather than less.
However a sensible read on what the European Commission has allowed over the past year suggests that strong content concessions will be enough to see Telefonica close the deal after all.
CNMC had simply said it wanted a detailed investigation into the acquisition and Telefonica had done the usual thing of leaking to the press than under those terms there would be no deal – well the CNMC has called Telefonica’s bluff it seems and Telefonica has had to come back to the table tail between its legs.
Telefonica began by owning 22% and hoisted this to already has 44% after cutting a deal with Italy’s Mediaset for its 22%. It agreed last May to acquire the 56% it didn’t hold from media group Prisa for €750 million.
When Telefonica acquired its 22% stake in 2010, the Spanish authorities required Canal+ to make some of its channels available to third parties as a regulatory approval condition.
For some reason the European Commission allowed the CNMC to manage this negotiation, although it has more experience in these matters and in Netherlands case, where it allowed a merger of cable companies against the incumbent, it insisted on running the show.
Ever since the news broke Faultline doubted the viability of Telefonica’s bid because it would give Telefonica a 61% stranglehold on the Spanish pay TV market in addition to its dominant broadband and cellular market shares. But The European Commission seems to want powerful players as long as they do not cross the pay TV and content divide. The key in a market going rapidly multiscreen, is to free content from control, so that it can cut deals with new multiscreen operators, it seems.
Vodafone-Ono has been pressuring the CNMC to reject the deal. Vodafone currently has almost 800,000 Ono cable TV subscribers, but if Telefonica gets the Canal+ assets, it would have forged an insurmountable lead in pay TV, adding the 1.62 million Canal+ customers to the 1.88 million that is has managed to amass in Imagenio IPTV customers and going way beyond 3 million pay TV homes.
Meanwhile the Orange Jazztel merger talks continue into investigation also, with no clear news on whether or not that much smaller merger will be allowed. We have gone on record saying that this should not be a problem.