European TV Channels Want to Merge to Fight U.S. Rivals

(Bloomberg) -- A push for mergers that would help European TV networks compete with fast-growing U.S. streaming platforms is putting the region’s strict media ownership rules under strain.

Bertelsmann SE’s 48% stake in the owner of French channel M6 is up for sale and the German media company is leaning toward a tie-up with rival Television Francaise 1 SA. It would be the most dramatic shake-up of France’s audiovisual landscape in decades and is likely to draw intense scrutiny from the country’s competition and media watchdogs.

“A merger with TF1 would fit with our strategy of actively pursuing market consolidation,” Bertelsmann Chief Executive Officer Thomas Rabe said at an earnings presentation on Tuesday.

Rabe is presenting it as a test of whether rules that uphold media plurality and stop any one player dominating the advertising market are fit for purpose in the streaming era. Critics say they were designed for a time when the old “linear” broadcasters were the only game in town, and fail to acknowledge the new competition brought by digital video advertising and on-demand services such as Netflix Inc., Disney+ and Amazon.com Inc.’s Prime Video.

France’s national media regulator is now recommending a rewrite of the country’s rules around media concentration. The proposal, sent to the government on March 22 and published on the CSA’s website on Tuesday, said the current regime is “obsolete” -- it fails to promote cultural diversity and harms the industry instead.

Spokespeople for M6 and TF1 couldn’t be reached for comment.

A CSA spokeswoman declined to comment further on its proposal, but said the watchdog is working closely with other regulators including France’s competition authority, the other important arbiter in approving any TV network tie-up.

The timing of the CSA’s intervention was significant, with President Emmanuel Macron’s cabinet set to present a bill next week to reform media rules to take account of the streaming revolution. Parliament is expected to start debating the bill in May.

The CSA’s position shows at least one regulator acknowledges the landscape is changing and that French media are fighting for survival against the likes of Amazon and Netflix, said a person close to the M6-TF1 merger talks.

What’s less clear is whether the competition authority will agree to assess the impact of the proposed tie-up on the wider advertising market, including ads on the web and on-demand video platforms, or focus more narrowly on the combined company’s power in traditional TV ads. The authority has the last word on the deal and the outcome isn’t clear, said the person, who asked not to be named as the deliberations are private.

Regional Champion

European broadcasters are struggling to respond to the U.S. streamers that are luring away their traditional audience with a growing arsenal of foreign and locally produced content. Some have established their own streaming services and are trying to boost their share of digital-TV ad space.

French media laws that date back to 1986 strictly limit the number of networks, total viewers and majority ownerships that a single company can hold. So an M6-TF1 deal would face a detailed review involving potential forced asset sales that could weaken the benefits of a tie-up.

The M6 sale is a rare chance to build a leader in European broadcasting, analysts at Bryan Garnier wrote in a note last month. However, “due to regulatory constraints, synergy potential with possible acquirers is limited in our view,” they added.

Closely held Bertelsmann, Europe’s biggest media company, hasn’t agreed for now to exclusive talks with TF1’s owner, construction company Bouygues SA, and the German media group is still consulting with various potential partners, said another person with knowledge of the discussions.

Ownership of French TV channels brings political influence and, with a presidential election coming up in 2022, the government is taking a keen interest in the future of M6, which also owns the country’s biggest private radio station, RTL.

Other possible bidders include Vivendi SA, the media conglomerate controlled by conservative French billionaire Vincent Bollore that owns pay-TV company Groupe Canal+. Italy’s Mediaset SpA and Daniel Kretinsky, a Czech billionaire investor in Le Monde newspaper, have also shown an interest.

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