Search For a European Netflix Takes Bollore Eastwards

(Bloomberg Opinion) -- Everyone needs a Plan B. For billionaire Vincent Bollore, it lies in eastern Europe.

The ambitions of Vivendi SA, the French media conglomerate he controls, have been majorly constrained over the past 18 months. First, his plan to create a southern European content powerhouse with Telecom Italia SpA to fend off Netflix Inc. were stymied by activist investor Elliott Management Corp.

Then Canal+, his French pay-TV arm, lost domestic soccer broadcasting rights. That setback will lead to a decline in subscriber numbers.

In that context, Vivendi’s acquisition of central and eastern European pay TV provider M7 from private equity firm Astorg for a little over 1 billion euros ($1.1 billion) is a sensible one. Is it the best business around? Probably not. But it could help offset some of Vivendi’s recent impediments.

Canal+ has been spending some 540 million euros a year on the rights for Ligue 1, France’s domestic soccer league. For the next batch of rights starting next year, it lost out to Spanish production firm Mediapro, which is paying 60 percent more. It’s unclear as yet how the new broadcaster will secure a return on that investment, so Canal+ was probably astute to step away from the bidding.

The loss will, however, undoubtedly prompt a lot of French customers to cancel their Canal+ subscriptions. Numbers are already falling. But the cost of one year’s soccer rights will pay for the entire equity component of the M7 deal (about half of the deal value is the assumption of debt, which can be refinanced on Vivendi’s more favorable terms).

In return, Vivendi is getting three million subscribers in the Czech Republic, Slovakia, Austria, Hungary, the Netherlands, Belgium and Romania, bringing the Canal+ total to 20 million customers. What’s more, they’re subscribers who aren’t dependent on costly football rights – they’re stickier. It looks like a fair trade-off.

Vivendi is paying about 400 euros per subscriber. Comcast Corp.’s 36 billion-pound ($46 billion) for Sky Plc equated to about 1,790 euros per subscriber. Comcast is getting a lot more for its money: Sky has good technology, its own content and higher-paying customers. But even then, Vivendi looks to have secured a decent deal, and has the tools to generate more value from M7.

The opportunity lies in one of M7’s weaknesses. The Luxembourg-based company generates lower average revenue per user than Canal+, and that’s largely because it doesn’t make its own content. By pumping the television shows and films made by Vivendi’s StudioCanal through M7’s existing channels, it may be able to eke more business out of each user at little-to-no incremental cost.

It’s similar to what Bollore had wanted to do with Telecom Italia, albeit on a much smaller scale – the Italian carrier has six million broadband subscribers.

There are still big question marks over how the disparate pieces of Vivendi’s empire fit together. And adding three million subscribers is hardly a massive bulwark against the infractions of Netflix, which has 141 million paying subscribers. But for the price of a year of football, Bollore could do a lot worse.

To contact the editor responsible for this story: Jennifer Ryan at jryan13@bloomberg.net

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Alex Webb is a Bloomberg Opinion columnist covering Europe's technology, media and communications industries. He previously covered Apple and other technology companies for Bloomberg News in San Francisco.

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