France Telecom Goes Hollywood

He's not your standard-issue media mogul. Trained as a telecommunications engineer, Didier Lombard runs France Telecom (FTE), a $75 billion provider of phone, Internet, and cellular services that counts more than 183 million customers in more than 30 countries from France to Senegal. But when I met with Lombard for breakfast, the French executive had been making the rounds in Hollywood.

Lombard's company has been building what is starting to look like the next big media play in Europe. Under the brand name Orange, Lombard's crew has been marketing France Telecom's mobile, online, and, most recently, TV services as an alternative to what's available via cable or satellite. That's similar to what is happening in the U.S., where both AT&T (T) and Verizon (VZ) are taking on incumbent cable and satellite players with their own video offerings. But no one is doing it with quite the gutsy moves of this French engineer and his ever-present orange tie and orange socks.

Last year, France Telecom went Hollywood, launching five channels chock-full of films and TV shows from several major U.S. studios. Subscribers could get Warner Brothers' (TWX) Harry Potter movies or The Sopranos on their TVs, delivered by the same wires that deliver the Internet. And in a move that's downright Murdochian, Lombard and team last year snapped up the exclusive rights to a set of ultra-popular soccer matches by France's Ligue 1 to create a mini-ESPN that French consumers can get only by signing on with Orange—a move not unlike what Rupert Murdoch did years back when he snatched up Premier League soccer matches in Britain to help jump-start his SkyTV service.

Murdoch's play made SkyTV a British media powerhouse. Lombard is hardly at that point. In the last year, sports and TV offerings have helped boost Orange's TV customer base by 69%, the company says in its most recent financial filings, with France Telecom claiming 2.2 million TV customers in France. (It also has a small number of TV customers in Spain and Poland.) In France, Orange has about 8% of the country's homes, according to technology research firm Gartner (IT).

Still an Also-Ran to Canal Plus

Even at 2.2 million, Orange's TV play is far less than that of Canal Plus, the satellite and cable-channel juggernaut owned by French entertainment, music, and games giant Vivendi (VIV.PA). Canal Plus delivers TV to more than 5 million subscribers over its satellite and online services, and it recently branched into offering free digital channels over its satellites and Internet-delivered TV service. Its own sports and entertainment cable channels have more than 5 million viewers as well.

Lombard insists he's not preparing for the next great media battle on the Continent, which has had its share of mogul mud matches. "We're not competing with them," he says flatly. In fact, Orange customers can sign up to carry Canal Plus's cable channels. But his own new cable channels are, not surprisingly, priced below those of Canal Plus. That, says Lombard, is designed to bring in new customers who don't already have pay TV service.

Still, Orange and Canal skirmished late last year, when Canal Plus unsuccessfully filed a complaint with a French regulatory agency to block France Telecom from showing its sports channel. In its annual report, Vivendi says it claimed the telco was restricting "the commercialization of its cinematographic and sporting rights" by offering it only to its own subscribers. An appeals court eventually sided with Orange. "We want our networks to bring more value to our customers, so making great content available over the networks is a key part of this," says Lombard. Canal Plus declined to comment.

Watching Lombard over the coming months could provide valuable lessons for American telecoms that might want to juice up their offerings to take on cable or satellite. AT&T and Verizon have been hustling to line up subscribers for their own TV services, and they're showing some decent growth. Verizon's FiOS has more than 2.2 million subscribers, and AT&T has more than 1.3 million subscribers for its U-verse. And both do offer special content. For instance, there were extra holes for AT&T customers to watch during the Masters golf tournament, and both have a ton of video-on-demand movies and TV shows. But their marketing is geared toward super-hot technology, such as AT&T giving its subscribers the ability to record shows on a DVR that can play on other TV sets as well. Even so, neither service has as yet made a huge dent in a U.S. market that researcher Nielsen says has more than 114 million homes with TVs.

AT&T and Verizon aren't likely to shell out for high-end sporting events anytime soon. The costs would be far too high. But I'm betting they're watching the action in France to see if a healthy dose of content can turn an engineer with orange ties and socks into a media mogul.

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