Telecinco-PRISA: multiplatform strategy of the new giant (I)

On December 18, the news of the year broke: Telecinco acquired all of Cuatro and 22% of Digital+ from PRISA. But what consequences will this operation have in the free-to-air, pay television, new platforms and advertising markets? We will analyze them in the coming days.

After several days of continuous rumors, finally on December 18 the purchase by Telecinco from PRISA of all of Cuatro and 22% of Digital+ was made public.

The operation, proposed as a merger by absorption, valued the PRISA chain at 550 million euros to be carried out through a capital increase. But what consequences will this operation have in the free-to-air, pay television, new platforms and advertising markets?

From the point of view of the helm of the new Telecinco, it will be the entire Telecinco management team who will be in charge of piloting the new company, which maintains the Telecinco name, although the Cuatro brand will remain.

PRISA will appoint a vice president and the news director for the moment only during 2010 and will maintain two directors on the board of directors while maintaining the 18.3% participation that the operation retains.

The strategy

The strategy of the new Telecinco is to create a convergent television platform in which open television, pay television, content production and new platforms create synergies in what is already the largest multimedia group in Spain.

From the television point of view, Telecinco and Cuatro will maintain both brands, diversifying their targets and gathering 45% of the advertising market share as TVE is left out of the game.

The new Telecinco will prioritize the optimization of free-to-air and paid strategies, creating synergies in terms of costs, with greater rationalization, and income from the advertising exploitation of quality audiences in different profiles.

As a result of the operation, the new company will fully control two free-to-air channels (Telecinco and Cuatro), numerous thematic channels (Siete, Factoría de Ficción, 40 Latino and CNN+) and two digital multiplexes.

In pay, Telecinco will control 22% of major premium channels such as Canal+ Liga, Canal+ Deportes, as well as a similar percentage of the only digital satellite pay television platform, Digital+.

As for other platforms, it will manage all the online television services that could derive from Telecinco.es and Cuatro.com (Play Cuatro).
From the point of view of content production, the new giant will control 25% in Endemol (through 75% in Mediacinco), and 30% packages in production companies such as La Fábrica de la Tele, Producciones Mandarina and Big Bang.

Number one in audiences

Taking into account the 27% limit established by the Government when giving the green light to possible network mergers, at the time of communicating the operation, the sum of Telecinco and Cuatro accounted for 23% of the total audience (17% and 8.3%, respectively), practically on par with TVE with 22.9% (now out of play in the advertising market), and well above Antena 3 (16%), FORTA (12.8%) and LaSexta (6.9%).

If we stick to the commercial target, the difference with TVE is notable, with Telecinco-Cuatro reaching 28.1% (17.8%+10.3%) compared to 16.5% for Antena 3, 10.2% for FORTA and 8.5% for LaSexta.

In the prime time slot, taking into account all individuals, the new Telecinco would also be above TVE. The addition of Telecinco and Cuatro would mean a share of 25.0% (16.3% and 8.7%, respectively), compared to 22.6% for TVE, 15.5 for Antena 3, 13.8 for FORTA and 7.8 for LaSexta. Limiting ourselves to the share of the commercial target in prime time, the new Telecinco-Cuatro reaches 28.1% of the audience (17.1% corresponding to Telecinco and 11% to Cuatro), well above Antena 3 (16.6%), FORTA (11.2%) and LaSexta (8.8%).

Advertising market

According to Infoadex data, of the total Spanish advertising market, 20.4% has so far been in the hands of TVE, compared to the 25.4% controlled by Telecinco; 25.1% for Antena 3 and 10.5 for Cuatro.

If we exclude TVE, the new Telecinco-Cuatro would have controlled 45.1% of the investment in 2009, compared to 31.6% for Antena 3, 12.7 for FORTA and 10.6 for LaSexta.
Regarding income, taking the period from October 2008 to September 2009 as a reference, and without considering the synergies derived from the merger, Telecinco estimates that the EBITDA of the free-to-air television business will amount to 130 million euros, with annual sales of 952 million euros, compared to costs of 822 million euros.