Canal Plus

Canal Plus

85-89, quai Andre Citroen
75015 Paris
France
(33) 1 44 25 1000
Fax: (33) 1 44 25 18 23

Public Company
Incorporated: 1984
Employees: 1,697
Sales: $1.5 billion
Stock Exchanges: Paris
SICs: 4841 Cable & Other Pay Televisin Services; 7812 Motion Picture & Video Tape Production

Canal Plus is among the most profitable and fastest-growing pay television channels in the world. With four million subscribers in France alone, and growing subscription rates in the rest of Europe and in Africa, Canal Plus has achieved success through state guidance, private capital, and innovative programming. Aggressive investments in Hollywood and the creation of its own production companies have also made Canal Plus an important player in both the American and European film industries, allowing the company to profit from its powerful involvement on both continents.

Canal Plus was the creation of Andre Rousselet, president of the French media and advertising giant Havas. While some observers were surprised that the top publicity group in France would become involved in a medium that needed no outside publicity, Havas hoped that the innovative move would open up a potentially profitable market. Rousselet decided to launch a subscription television channel in November 1984 to offer the French public an alternative to the comedies and variety shows typically featured on the three government-owned channels then in existence. Contending that no one would pay for television programming, critics dubbed the company “Canal Minus.”

In fact, subscriptions were extremely low at the onset, and the company announced first year losses of FFr 330 million. Moreover, some politicians, including Laurent Fabius, France’s prime minister, were not in favor of commercial television and petitioned for a retraction of Canal Plus’ broadcasting license. Rousselet, however, was a personal friend, golf partner, and former chief of staff of President Francois Mitterand, and he was able to acquire a government concession that gave Canal Plus an all but official monopoly on subscription television. In addition, Rousselet and Pierre Lescure, the company’s director-general, put forth an aggressive spring schedule of blockbuster films, depleting all its programming for the next season, in an effort to attract viewers. Suddenly, subscriptions picked up. This initial success convinced Canal Plus that giving viewers what they were not able to get on government television— American hit comedies and French drama—was central to its future success.

In addition to Rousselet’s effective political networking and the channel’s innovative programming. Canal Plus benefited from lack of competition, high taxes on home video recorders, and a sluggish video market. The use of an existing broadcast channel and decoders allowed the station to avoid paying cable companies to broadcast shows and gave the station almost immediate national coverage. These advantages proved to be worth the expense the company incurred to improve early decoders, which were known for having technical problems.

Moreover, Canal Plus was exempt from regulations that required free channels to air films only three nights of the week and to wait three years to show a movie after its box-office release. Thus, Canal Plus was able to broadcast feature films only a year after their cinema releases. The channel also managed to use some restrictions to its own advantage. For example, the Socialist government’s regulations required Canal Plus to broadcast a few hours a day with an unscrambled signal so that all television viewers could gain from the new service, and these unscrambled broadcasts were turned into ideal free promotion for the channel’s regular programming. Two of every three subscribers first watched the channel during these free hours, according to Pierre Lescure. The government also required the channel to devote no more than 45 percent of its air time to films. This restriction encouraged Canal Plus to develop other interesting programming; as a result, sports programs became one of the channels specialties, gaining exclusive rights to national soccer matches and top-quality coverage of boxing and American football. When the government succumbed to pressure from the film industry to ban the company’s movie broadcasting during peak cinema-going hours, the station expanded its programming beyond films to interview shows, documentaries, and soft pornography.

In 1985, Mitterand announced the opening of private commercial television stations. While these new stations offered serious competition to Canal Plus, the company managed to break even the following year. Growth since then remained around 25 percent annually, as each new subscriber added about FFr 2,000 in annual turnover, but required far less additional cost. Aggressive advertising and competent management of the viewer base kept subscriptions high. A policy of debiting fees from subscribers’ bank accounts contributed to the extremely high viewer subscription renewal rate of around 95 percent. Canal Plus’ financial stability was thus greatly increased, as subscriber fees accounted for almost 90 percent of all turnover. By the time the company’s stock went on the market in 1987, and soared from FFr 275 to FFr 575 in just one year, the station was thriving, with profits at $100 million in 1988. The channel had penetrated 15 percent of the 18 million French households. By 1989, Canal Plus had almost three million subscribers, representing a comparable penetration rate in France as Home Box Office Inc. (HBO) had accomplished in the United States, without HBO’s 12-year head start.

With a secure base in France, Canal Plus was looking to expand internationally. Its attempts to link up with Lausanne-based Telecine Romandie were thwarted by the Swiss government in 1988. However, the next year, Canal Plus launched a channel in Belgium, of which it controlled 33 percent, and entered into a consortium with Prisa, a media group, which gained a license to begin a private television station in Spain. In partnership with Bertelsmann and the Kirch Group, Canal Plus launched Germany’s first national pay TV service, the Premiere channel.

While Canal Plus faced increased competition and had fewer political connections abroad, its local partners helped tailor its programming of films and sports to match local tastes. In France, as well, Canal Plus created new theme channels featuring specialized programming, including children’s shows and old movies. While these new foreign and domestic channels initially lost money, they proved sound investments by edging out local competitors. By the time Canal Plus had expanded to Africa in 1990 with Canal Horizons, the channel had become the most successful subscription channel in Europe and was second only to HBO worldwide.

In the mid-1980s, Canal Plus began trying to acquire television rights to popular American television shows. Initially dismissed as a newcomer, the French channel soon won over Hollywood with its success and its international expansion, but remained very dependent on American film studios for the blockbusters which were essential to its programming. By 1991, Canal Plus was paying $100 million a year to acquire American movie rights. Unwilling to continue paying Hollywood’s high prices, Canal Plus moved directly into film production, acquiring a five percent stake in Carolco Pictures, an independent U.S. studio, for $30 million in 1991. That year, the company also launched Studio Canal Plus, its own Hollywood production company, which had a working capital of $200 million and which later joined with Universal Pictures to co-produce films. Canal Plus also entered into a deal with Warner Brothers and the German media outfit Scriha & Deyhle to help finance Arnon Milchan’s independent production company, Regency International. Through these various investments, Canal Plus contributed to the production of such movies as Terminator 2, JFK, and Basic Instinct.

The company’s attempts to secure its position in the cinema industry did not all go smoothly, however, as it had to write off the $20 million it had invested in Carolco to help it out of bankruptcy. This loss lowered stock prices, and was not received well by investors. Canal Plus was also gradually withdrawing its equity partnership with Milchan, producer of the hit film Pretty Woman. Nevertheless, Canal Plus continued its investment in Carolco and did not stop buying the European rights to most Milchan films. The company, in fact, undertook another production venture in the form of Hexicon Films, a wholly owned production company, which released Money Men.

The important role of Canal Plus in both the American and French film industries became especially evident in the early 1990s. In 1992, Canal Plus was Europe’s biggest purchaser of American movie rights and remained important to U.S. studios wishing to have access to the European Community market, in light of the increasingly protectionist attitude of the European film industry. At the same time, Canal Plus’s management expressed the desire to play a leading role in modernizing and strengthening European film production. The company’s obligations to spend ten percent of its revenue on French-made films increased its clout in the ailing French cinema industry, which had at first regarded the subscription channel as a competitor. With the increasing number of Hollywood movies entering the European market, Canal Plus came to be regarded as a savior for the French film industry, with its significant investments in French movies.

Canal Plus began to broadcast by satellite in 1992 to reach parts of France not hooked up to the cable network, developing subsidiaries to build satellite antennas and decoders. However, this venture produced conflicts with the government over the use of the D2-Mac standard for satellite broadcasting. The government’s support of this standard broke the monopoly that Canal Plus had enjoyed in the decoder market. Nonetheless, Canal Plus was still reaching more and more viewers, passing the four million mark in France, which was long thought to be the saturation level.

The company continued its policy of European expansion, investing in such cable channels as European Sports Network and entering the market in Britain with a ten percent stake in TVS. In 1992, the channel joined with BSkyB, another powerful European subscription television service, to offer digital, multichannel pay-TV to Europe. Canal Plus also teamed up with Rupert Murdoch’s News Corp to develop new TV services throughout Europe in 1992.

Between 1988 and 1993, Canal Plus stock increased 378 percent, and sales rose to $ 1.5 billion. While the channel’s earnings growth and return on capital were expected to decline slightly throughout the 1990s, due to its investment in cable television and foreign channels, continued growth patterns were expected to bolster profits once the company passed the break-even point in its new investments. Canal Plus’s broadcasting license would come up for renewal at the end of 1995, and, with its investments in the French film industry, its ownership of a popular Paris-based soccer team, and its dominant position in French cultural life, Canal Plus was likely to receive a renewed contract from the government. Despite new competition in the form of Lyonnaise Communications’ pay-per-view television in France and Taurus Programming Services’s six-channel satellite service in Spain, the company’s predominance in the market, as well as its flexibility, seemed likely to sustain its success.

In February 1994, Rousselet quit the Havas board, citing disagreement with equity moves. This development, however, was generally regarded as consistent with the continual reorganization necessary for competing in an aggressive market. Canal Plus’s aggressive negotiations in Hollywood and its expansion across Europe had ensured its position as the premier financier of the European film industry and made it an ideal ally for American media giants. The pressure to supply good films and television to a growing audience of subscribers was continually increasing in the mid-1990s, and Canal Plus showed no signs of slowing down its efforts to meet this demand.

Principal Subsidiaries:

Canal Horizons; Le Studio Canal Plus; Ellipse Programme (60.7%); Carolco (11.9%).

Further Reading:

Checketts, Peter, “News Corp., Canal Plus Are Partners,” Broadcasting, October 12, 1992, p. 14.

Echikson, William, “The Big Payoff in French Pay-TV,” Fortune, May 3, 1993, pp. 48-49.

Grantham, Bill, “Euromoguls,” Forbes, December 9, 1991, pp. 140-46.

Jaques, Bob, “Swiss Govt Nixes Canal Plus Link with Troubled Telecine,” Variety, March 16, 1988, p. 68.

Marcom, John, Jr., “TV de Triomphe,” Forbes, October 16, 1989, p. 124.

Moore, Lisa, “Will Taurus’ Pay-TV Plans Fly in Spain?,” Variety, June 14, 1993, pp. 37, 39.

“Putting Europe on the Box,” The Economist, July 11, 1992.

Riemer, Blanca, “Canal Plus: The Latest French Sensation,” Business Week, May 13, 1991, p. 55.

Sasseen, Jane, “Return on Capital,” International Management, January/February 1993, pp. 61-62.

Sasseen, Jane, “Star of the Small Screen,” International Management, June 1991, pp. 42, 45.

“Stock Leap Leaves Top 12 Execs Sitting Pretty on a Pile of Coins,”Variety, November 30, 1988, pp. 50, 60.

Williams, Michael, “New Broadcast Standard Threatens Canal Plus,”Variety, March 9, 1992, pp. 40, 45.

Williams, Michael, “Paris Test Bodes Well for PPV,” Variety, August 2, 1993, pp. 27, 48.

—Jennifer Kerns