French broadcaster Canal Plus may yet win the battle for Europe's couch potatoes. On Sept. 6, the $2 billion French pay-TV company agreed to merge with Nethold, nudging out a bid from Hughes Electronics of Los Angeles. The $1.8 billion deal would give Canal Plus an additional 1.5 million subscribers in Italy, Belgium, the Netherlands, Scandinavia, and Poland.
The deal also strengthens Canal Plus's grand designs in digital TV, which promises to offer subscribers hundreds of channels. To extend Canal Plus's reach, chief Pierre Lescure had wanted to be a power in digital TV in Germany. In March, he emerged a winner in a three-way deal with Bertelsmann and Rupert Murdoch's British Sky Broadcasting, only to find his position marginalized two months later through a series of alliance shuffles.
THE JEWEL. Unfazed, Lescure pursued a deal with Nethold, which has a 45% stake in Telepiù, an Italian broadcaster with 800,000 pay-TV customers. Analysts say Italy and Spain may prove more lucrative markets for digital TV in the short run, even though Germany's population is bigger. The strong programming on Germany's free TV stations already makes Germans reluctant to subscribe to pay-TV. By contrast, Italy and Spain, where Canal Plus is already established, have underdeveloped TV offerings. Michel Thoulouze, head of international development, sees Canal Plus boosting its subscriber base in Italy and Spain to more than 4 million. Italy is the "jewel in Canal Plus's crown," says Jean-Luc Renaud, president of GlobalCom, a UK-based media consultancy. German media mogul Leo Kirch also holds 45% of Telepiù.
Canal Plus must now stem the red ink at Nethold's pay-TV operations, which analysts estimate could reach $100 million next year. Yet Canal Plus is debt-free and has $1 billion in cash going into the merger. Building up far-flung operations also may tax the company. "It will require a huge amount of management time," says Guy Lamming, media analyst at SBC Warburg Group in London. A difficult task, but Canal Plus has already shown it can produce a surprise ending.