Canal+ lured into M7 acquisition by OTT, DTT, ISP assets

As Vivendi struggles to find a buyer for Universal Music Group and the Italian pay TV business Mediaset Premium in which it owns a sizable stake undergoes a dramatic transformation, the French mass media firm’s Canal+ unit is betting big with a $1.1 billion swoop for pay TV provider M7. Vivendi is at the precipice of an empire in the throngs of a bizarre series of events and the latest M&A activity is another which is easy to fault.

The acquisition from private equity firm Astorg initially appears peculiar at a time when the decline of pay TV in Europe is more glaring than ever, but rivals must muscle up against Vodafone to survive in the increasingly cutthroat markets of Eastern Europe as a result of Liberty Global’s exit in certain markets. Has Vivendi learned nothing from the Mediaset Premium debacle, which recently resulted in the leading Italian broadcaster shutting down DTT operations and opting OTT-only?

However, as we reported just last week, pay DTT is enjoying a spike in Eastern Europe as a result of analog shut-off having been completed with a corresponding rise in DTT penetration, reaching almost 30% of homes in the region, about 40 million. While the vast majority of these are on FTA, over 500,000 are pay DTT and rising, with recently introduced new services in several countries including Hungary, Slovenia, Georgia, Bosnia-Herzegovina and Czech Republic. While in Western Europe one example comes from M7 Group’s Belgian subsidiary TV Vlaanderen covering Flanders and Brussels with a pay DTT option launched in 2017.

But M7 also has a number of OTT assets which will certainly have sweetened the deal. M7’s brands are Skylink in Eastern Europe, Diveo in Germany, TeleSat and TV Vlaanderen in Belgium, HD Austria, plus a duo of Dutch assets in the form of Canal Digitaal and, offering a mixed bag of satellite TV, OTT and TV Everywhere options. A number of these brands are triple play operators with established broadband subscriber bases, which adds significant value.

Diveo is an interesting case, a German hybrid DTH OTT service which launched last year, offering on-demand content through a cloud-based PVR, delivered to mobile devices. The OTT element offers live pause and restart, access to FTA catch-up and a TVoD service in partnership with Videociety offering around 5,000 movies. The nPVR enables cloud-based recording with 10 hours of storage.

The Canal+ Group ended 2018 with 16.2 million subscribers, adding 654,000 year on year, of which 8.3 million are in its domestic French market. M7 would boost the group to almost 20 million subscribers, said a statement, of which 12 million are in Europe. Canal+ Group revenues have dropped off slightly, down 3.6% in Q1 2019 to €1.25 billion, while M7 in comparison has annual revenues of €400 million, so a much smaller business, but an acquisition which provides Canal+ with in-roads into Austria, Belgium, the Czech Republic, Hungary, the Netherlands, Romania and Hungary.

Interestingly, the statement did not mention Germany, implying that M7’s cable operator subsidiary Kabel Kiosk is not part of the deal and Astorg will retain these assets. It’s worth noting that M7 acquired Romanian DTH firm Focus Sat from Liberty Global last year.

Luxembourg-based M7 Group has become known as a company with acute attention to detail and the ability to make money out of smaller existing DTH customer bases which are perceived in the market as weak. We’re not sure Canal+ can be held in quite the same regard and we foresaw M7 as better positioned to take on Liberty Global’s European cable assets which are in the process of going to Vodafone.