Telefonica Splashes Out on Original Shows in Spanish TV Push

(Bloomberg) -- Telefonica SA is taking an aggressive step into television production, with a plan to spend about 100 million euros ($112 million) a year making exclusive dramas and comedies the company will pipe through Europe’s largest fiber-broadband network.

The initiative from Telefonica’s Movistar TV division would be the biggest bet yet on original series by a European phone company, and could grow in coming years. While carriers have been expanding into cable TV and buying rights to popular sports like soccer, most have stayed away from the risky business of trying to generate hit series like traditional broadcast networks and online players Netflix Inc. and Amazon.com Inc.

“We are aiming to make shows in line with what is being done in the U.S. or the U.K.,” said Domingo Corral, Movistar TV’s head of fiction.

Six shows are in production now, and Movistar TV plans to air 14 programs between September and the end of 2018. The exclusive, Spanish-language entertainment will be part of the company’s pay-TV package that gets bundled with internet, wireless and fixed-line phone services.

One aim is to limit churn, a widely followed measure of customer defections, by giving people an added reason to stay. Telefonica will also use the exclusive programs as a sweetener to encourage customers to upgrade to higher-priced bundles. The formula relies on recurring revenue, similar to what Netflix, Amazon Prime and U.S. pay-TV channel HBO deploy to avoid the ratings-driven, advertising-dependent model of traditional TV.

“It is important that we are watched but audience measurement is not essential,” Corral said. “We need to keep an eye on consumption over time and use metrics such as engagement, level of notoriety."

The company has further hedged its investment by signing contracts with distributors who will market some of the shows outside of Spain, Corral said. Sky Vision bought rights to “La Peste,” a thriller set amid a 16th century plague in Seville, while Beta Film acquired rights to “La Zona,” about a region contaminated by a nuclear accident, and a spinoff of “Velvet,” a love story set in the 1950s. About Premium bought rights to “Gigantes,” which will tell the story of a family with crime links in Madrid.

Telefonica and other telecom carriers are searching for ways to wring revenue from their networks as apps like Messenger siphon off voice and text traffic. The efforts range from Orange SA’s recently launched online bank and BT Group Plc’s investment in soccer, while French media conglomerate Vivendi SA now has a board majority at Telecom Italia SpA. In the biggest commitment yet to entertainment, AT&T Inc. is buying HBO owner Time Warner Inc. in the U.S. in an $85 billion deal.

Telefonica is all too familiar with the risks of trying to leverage telecom and TV. The company dismantled its audiovisual division in mid-2000s after spending 5.2 billion euros to buy Endemol, the creator of “Big Brother,” and investing in TV broadcasters.

The current cycle has been spurred by faster networks that can carry video and the ubiquity of mobile devices, forces that are blurring the lines between the telecom and entertainment industries. Telefonica already owns the largest pay-TV broadcaster in its main market.

Telefonica plans to produce some shows in-house and hire out the production of others. The company has also bought the rights to older shows to make spinoffs, for example “Velvet,” which was aired by Atresmedia SA until January. For now, Telefonica’s ambitions are limited to Spain, rather than the global audience of Netflix and Amazon, Corral said.

“If you do it right in that sense, shows become universal, and our aspiration is that shows will be seen elsewhere,” he said.

To contact the reporter on this story: Rodrigo Orihuela in Madrid at rorihuela@bloomberg.net.

To contact the editors responsible for this story: Anthony Palazzo at apalazzo@bloomberg.net, Ville Heiskanen