Telecinco-PRISA: multiplatform strategy of the new giant (and III). Economic potential and synergies

To maintain its financial strength, the new Telecinco will maintain a continuity policy based on financial prudence and the diversification of its offer with new formats. The new group foresees a rationalization of structural costs, “highly linked to revenue growth.” One of the areas that will first undergo restructuring will be the sales force and news.

The merger of Telecinco with Cuatro will mean the creation of the largest Spanish television group, with a leadership position in content production, free-to-air television, pay television and online TV. The operation occurs at the most appropriate time to face the new panorama marked by the analog blackout and the blank slate that it will mean for both emerging and established operators.

On the other hand, entering Digital+ will mean greater long-term strategic flexibility for Telecinco. But what consequences will this operation have on the advertising and content market and its own business structure? It is still too early to predict how the day-to-day life of the new giant will be configured, although we can already see what the new framework will be.

Advertising

Regarding the advertising market, for Telecinco the panorama changes radically since its two competitors with lower prices, Cuatro and LaSexta, one remain integrated into its structure and, in the other, waiting for its merger with Antena 3 that would lead to an upward readjustment of its rates. And the Telecinco-Cuatro integration is perfect because it grows in quota and diversifies the profile, making this option 'mandatory' in any planning.

As for TVE, which has been criticized by private companies on numerous occasions for bursting the market with prices below 40%, it is simply out of the game.
On the other hand, the powerful advertising portfolio manager, Puliespaña, will have free rein to market an underexploited advertising platform such as Digital+, although it will be one of the first to undergo the restructuring of the sales force.

Given the new situation, the media centers fear that throughout 2010, despite the unfavorable economic situation, there will be an average increase in the spot price of around 20%, leaving almost 88% of the market in the hands of the new Telecinco and Antena 3. For now, the year starts with an inflation in the price rate of around 10% as a result of TVE's withdrawal from the fight.

However, this withdrawal. As shown by different studies carried out in recent months, it will not mean a direct transfer of investment to the rest of the chains since advertisers, still under pressure from the effects of the recession, have begun to transfer part of the budget they allocated to the public to other media, mainly the Internet, the only medium that has experienced notable growth throughout 2009, or direct advertising at the point of sale itself with options such as digital signage.

Rationalization

According to the document that Telecinco presented to its shareholders on the occasion of the operation with PRISA, the new group foresees a rationalization of structural costs, "highly linked to income growth."

From an infrastructure point of view, it is still too early to guess how this 'rationalization' will affect two of the most advanced production centers in the country, Tres Cantos and Fuencarral. Very little is still known about it, although it is most likely that the news area will be the most affected by the restructuring. Even days before the announcement of the merger, the management of Telecinco already launched an incentivized leave plan among the staff in this area.

As far as content is concerned, which represents 60-70% of the base cost, the new Telecinco would opt rather than purchasing very expensive events (such as the World Cup in South Africa in the exclusive hands of Cuatro) to develop new formats using as a laboratory its channels with a more targeted audience such as LaSiete or even Cuatro itself.
Due to the burden of the World Cup (with a cost that has absorbed around seven out of every ten euros invested in programming in 2010 and whose profitability remains to be seen, depending on the role played by the Spanish team), Cuatro would bet this year on tightening its belt by working with a grid with low-cost or self-financed production (a formula in which Telecinco-Publiespaña is a master in the field).

But, on the other hand, and moving as quickly as possible, Telecinco could take advantage of the momentum of the World Cup to launch a paid DTT or micro-payments platform that would help amortize the around 90 million, according to some sources, that the exclusivity of the free-to-air and pay-per-view matches of the South Africa event would have cost. The other option, not yet ruled out, would be to recover part of the investment with the resale of some World Cup television rights to third parties... even if it meant giving oxygen to a competitor at a crucial moment.

The integration

Merging two networks while maintaining the brand image of both programs is not an easy task. And, in fact, it is most likely that until the summer and the start of the new season the changes to the grid will go unnoticed by the viewer.

To launch the entire complex mechanism activated after the Telecinco-PRISA operation, Telecinco's reference shareholder, Mediaset, has not hired any external consultant (as is usually the case in this type of complex operation), but has instead chosen to move a team of managers to Spain with the intention of creating a joint 'integration committee' with the Cuatro leadership.

Este comité estaría asesorado legalmente por el bufete Uría&Menéndez con asesoramiento financiero de JP Morgan y Mediobanca, y estaría integrado por el ‘triunvirato’ fuerte en Telecinco, Pao Vasile, Giuseppe Tringali y Massimo Musolino, junto con el vicepresidente de RTI Italia (la empresa matriz de Mediaset en el negocio televisivo), Niccolò Querci. Este abogado de 48 años es un hombre de la entera confianza del propietario de Mediaset, Silvio Berlusconi, para quien desempeñó para el hoy primer ministro italiano el papel de asistente personal y jefe de su secretaría.

It will really be this committee that in the coming weeks and months will give answers to what today are only unknowns: how many jobs will be left in the air? What real value will the operation generate for shareholders? Is competition in the market in danger? How will plurality be affected?... Too many questions still in the air.