Canal Plus: arrogance in red.

The French pay-TV service Canal Plus has announced nine-month financial results, and they're tinted red.

Canal Plus' total revenues are up 21 percent over the same period the year before, for a total of roughly $2 billion. This growth can be traced to an increase in Canal Plus subscribers in France (to 4.4 million for the analog service and one million for the digital service). Canal Plus also operates in Italy (900,000 subs for analog, 300,000 for digital), the Benelux (500,000 for analog), Spain (1.5 million for analog, 600,000 for digital), Scandinavia (300,000 for analog, 100,000 for digital) and Poland (200,000 for analog).

Canal Plus is in the process of selling its 37.5 percent share in the German pay-TV service Premiere to the Kirch Group for an estimated $1,250 per subscriber. Premiere currently has 1.5 million subscribers. Hence the selling price amounts to roughly $700 million, of which $90 million was paid on January 15, 1998 (although it was recorded in the 1997 statement). Canal Plus is also looking to unload roughly 35 percent of its 90 percent share in Italy's Telepiu to Italian partners. (In the first six months of 1998, Telepiu reportedly recorded losses of roughly $90 million.)

Some other Canal Plus divisions have generated modest revenues. Advertising revenues amounted to $64 million, while $200 million in international program distribution revenues came from Groupe Ellipse and Groupe Le Studio Canal Plus (including the UGC film library, which it acquired). The latter divisions are considered to be not very savvy when it comes to marketing, although the blame is being attributed not to the ever revolving sales staff but to a corporate structure that reportedly fails to nurture this type of activity.

In spite of the revenue increases, analysts estimate that Canal Plus will close 1998 with losses in the range of $120 million due to investments in the various digital platforms. These investments could further erode the financial health of Canal Plus.

According to the latest report, Canal Plus has a total base of two million digital service subscribers and 7.8 million analog service subscribers. However, Canal Plus is likely to see its competition expand in Italy (where it now operates in a monopoly situation), in Spain (where its merger with the competing Via Digital pay-TV service has stalled) and in Poland.

Another factor against Canal Plus is a Disney-style management that tends to be more confrontational than is necessary. In Italy, for example, the fact that Canal Plus owns 90 percent of Telepiu (a level of ownership not allowed in France) seems to infuriate the Italians. In addition, it is clear that Canal Plus will not bring any added value - such as local production - to the Italian audiovisual market. The fact that Canal Plus seems to control Walter Veltroni, the secretary general of the largest party in the Italian governing coalition, has given the company a reputation for interference. Canal Plus' standing in Scandinavia and Poland isn't much different. Canal Plus' position in Spain is more promising, but only because the management of Canal Plus Espana and Canal Satelite Digital is left to the local partners.

Canal Plus is also resented in Hollywood. Canal Plus reportedly told Warner Bros. that it should cancel an agreement with Italian pay-Tv service Stream (a Canal Plus competitor) if it didn't want to jeopardize their relationship. The American majors aren't fond of being cornered; for this reason, there were talks at one point about a few. studios joining to develop a pay-TV service that would compete with Canal Plus in Scandinavia.

Because of its price structure, Canal Plus is reportedly resented by independent U.S. distributors as well. While Canal Plus was in the habit of paying the studios a basic fee plus a per sub charge for pay-TV rights, it asked the independents to accept a fiat fee. Nowadays, Canal Plus is scouring Hollywood for opportunities to finance independent productions in exchange for pay-TV plays and some distribution rights.

Finally, Canal Plus seems to have lost the confidence of the financial markets. Its share fell 8.5 percent upon the announcement that News Corp.'s Rupert Murdoch is planning to enter the Italian pay-TV market (see article below).

In the words of one insider, Canal Plus is now "taking one brick at a time from its foundation," and the future doesn't look as promising as it used to.