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Terra Said to Sell Online Films in Telefonica Home Market

Terra, whose websites attract almost 100 million visitors a month in the Americas, plans to offer online films and music in Europe this year, starting with Spain and Portugal, said a person with knowledge of the matter.

The media company, a unit of Telefonica SA (TEF), will introduce music service Sonora in Spain by the end of next month, followed by film site SundayTV in the fourth quarter, said the person, who asked not to be identified because the plan isn’t public. Terra intends to add those services in Portugal this year and expand to other European countries in 2013, the person said.

Terra is in talks with music companies and film studios including Vivendi’s Universal Music Group, News Corp. (NWSA)’s Fox, Walt Disney Co. (DIS) and Time Warner Inc. (TWX)’s Warner Bros. to boost the content offered through Sonora and SundayTV, the person said. With about 1,100 employees, Terra is also looking for an Iberian head from such companies as Facebook Inc. (FB), Google Inc. (GOOG) and Microsoft Corp. (MSFT), the person said.

“At the moment, Netflix isn’t in Spain, Lovefilm is not in Spain either -- it’s a relatively underpenetrated market,” said James Cordwell, a London-based analyst for Atlantic Equities Service, who doesn’t own shares in Netflix or Telefonica. “It would be very difficult for it to go into a market where other players were established.”

Country by Country

The more services in a market, the harder it is to win subscribers and make up for the fixed cost of the content licenses, Cordwell said. Since rights to content have to be negotiated on a country-by-country basis, it makes more sense for newer services to target countries that more established brands, such as Netflix Inc. and Amazon.com (AMZN) Inc.’s Lovefilm, have eschewed, he said.

A spokesman for Telefonica declined to comment.

As Telefonica struggles to stem a decline in profit from phone services amid tough competition, lower consumption and increasing unemployment at its home market, the Madrid-based operator is seeking growth from partnerships and agreements in its digital division. Spain’s biggest phone company last September put Matthew Key in charge of a newly created digital business grouping its companies from three continents such as social-networking site Tuenti and Web-phone unit Jajah.

10 Million Target

Telefonica fell 10 cents, or 0.9 percent, to 11.22 euros at 12:01 p.m. on the Madrid exchange. The stock has lost about 15 percent of its value this year, giving the company a market value of 51.8 billion euros ($68.7 billion).

Terra, based in Sao Paulo, already offers content such as online news in Spain. Its Spanish and Portuguese sites attract 7 million unique visitors a month. The company targets boosting the number to 10 million by the end of this year and generate revenue of $10 million from those customers.

Terra has annual revenue of about $500 million, mainly from advertising and the more than 1 million paying subscribers of Sonora, SundayTV and other services including e-mail and computer security in Latin America. The company in February broadcast live Brazil’s Carnival of Bahia in Spain.

Adam White, a spokesman for Universal Music in London, confirmed that the company is in discussions with Terra to license the new service in Spain and Portugal. The two companies already have a partnership in Latin America.

Matthew Grossman, a Disney spokesman, declined to comment. Warner Bros.’s Tammy Golihew and Deb Lincoln didn’t respond to e-mails seeking comment and an e-mail requesting comment from Fox wasn’t answered.

Spotify, Netflix

Terra’s expansion in Europe will put the company in competition with Spotify Ltd., the London-based online music provider, Netflix, (NFLX) the world’s largest video-subscription service and Amazon.com’s Lovefilm. In Spain, it will face competition from Google, Microsoft and Promotora de Informaciones SA, Spain’s largest media company.

Terra plans to broadcast the London summer Olympics for its Latin American audience and will follow sports events with live minute by minute narration, pictures and other content for the European audience, the person said.

To contact the reporters on this story: Manuel Baigorri in Madrid at mbaigorri@bloomberg.net; Amy Thomson in London at athomson6@bloomberg.net

To contact the editor responsible for this story: Kenneth Wong at kwong11@bloomberg.net

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