Despite blue skies and sunny weather, executives attending the MIPCOM programming market here forecast a cloudy outlook for the global cable and satellite industry.
"It is the worst crisis in 25 years," Carlos Taboada, the programming director at Via Digital, Spain's No. 2 direct-to-home satellite platform, during one of the panel sessions.
Few others were quite that gloomy, but it was difficult to find anyone who had good things to say about the current business climate.
"It's been a tough year," said Discovery Networks International executive vice president of content Rick Rodriguez. "In the past, we'd have problems in one market, but there were always new markets to take up the slack.
"This is the first time that all of the regions, with the exception of Asia, have been hit by economic problems."
Ops in trouble
That has left operators floundering. Over the past year, NTL Inc., United Pan-Europe Communications N.V., Telewest Communications plc and Callahan Associates — companies with about 18 million cable subscribers in Europe — have been forced to restructure some of their debts, cut capital expenditures and lay off thousands of employees.
Financial woes at Germany's Premiere have also pushed one of Europe's largest media companies, the KirchGruppe, into bankruptcy — a development that will probably cost the major Hollywood studios over $500 million in lost revenues in 2002.
"Even if they find new deals in 2003 in Germany, they won't be able to get the prices they once got," explained one consultant who noted that program prices in many major territories have fallen by 10 percent to 30 percent.
Even worse problems can be found in Latin America, where economic woes in Brazil, Argentina, Chile, Venezuela, Colombia and Uruguay have forced a number of operators to restructure their debts or file for bankruptcy.
Ralph Haiek, the COO of pay TV for Claxson Interactive Group, said the number of cable subscribers in the region's most important market for the industry has dropped by 14 percent in the first six months of 2002.
Only Mexico has emerged relatively unscathed.
In the U.K., financially troubled cable operators NTL and Telewest have already dramatically reduced their capital spending and set-top box orders. Last week, Pace Micro Technologies plc, whose share price has plummeted, dismissed top executive Malcolm Miller.
Fees on decline
Meanwhile, consolidation and financial problems have resulted in a general decline in subscriber fees.
The trend has had biggest effect on newer networks or smaller companies that lack the market leverage to negotiate decent carriage deals. But consolidation has even affected powerful programmers like Viacom Inc.'s MTV Networks, which has a large bouquet of successful channels.
Earlier this year, MTV was forced to accept lower subscriber fees from Telewest after the U.K. operator threatened to throw it off its system. At present, DTH operator British Sky Broadcasting plc is trying to reduce subscriber fees from 70p to 40p ($1.05 to $0.60).
MTV Networks International chief operating officer Greg Ricca declined to discuss the specifics of the BSkyB negotiations. He confirmed that MTVN accepted a lower subscriber fee from Telewest, but stressed that this was part of a larger deal that "will not reduce and hopefully will increase the revenues we get from Telewest."
"The term 'crisis' is not an accurate way to describe the European situation," Ricca added. "Our revenues in Europe have not been materially affected."
Ricca and most other executives do say consolidation will continue, as players like John Malone try to build up large cable holdings in Europe.
In the early 1990s, there were 20 pay TV operators in the U.K. Today there are only three, and one of them — BSkyB — has 65 percent of the market.
Pending deals would merge the two DTH platforms in Spain and Italy, reducing the competition for sports and movie rights. And analysts expect the two French platforms, TPS and CanalSatellite, to combine within the next year.
Increasingly, this pits programmers against powerful operators.
"Doing a deal with Sky in 2002 is not much different than negotiating with TCI [U.S. MSO Tele-Communications Inc.] in 1981," Ricca quipped.
A sluggish ad climate, increased competition due to the rollout of new digital channels and stagnant or declining subscriber fees add to the problems cable and satellite networks face.
CTV Television senior director of TV distribution Carol McLean — whose company offers six networks in Canada — noted that the performance of new digital channels launched last September has been disappointing.
"Most of us have had to revise our business plans," she said. "The break-even point will be in five years, not the three years we once believed."
In Latin America, where there are about 200 thematic services, programmers face even greater woes. Claxson's Haiek noted that the economic crisis has virtually dried up foreign investment in the cable sector, making it virtually impossible for operators to finance digital upgrades.
Local currencies have plunged in value — dramatically increasing the cost of programming contracts valued in U.S. dollars — and consumers find it increasingly difficult to afford multichannel television, a problem that's led to increased churn rates.
As a result, "major MSOs in Brazil and Argentina have slowed or stopped the move to digital and a number of operators are in default of their debt payments," he said.
Slightly better news can be found in Asia, which is now rebounding from the crisis of 1998. Revenues at Jupiter Programming Corp., which provides 14 channels in Japan, have grown by 30 percent this year, and the company is now making money.
"If you consider that only 14 percent of all homes in Japan have multichannel TV, it's easy to see that we are poised for serious growth," said Jupiter executive vice president and COO Graeme Wilson.
Digital rollouts have slowed in most markets, but a number of channel launches were announced at MIPCOM.
Brazil's Globo Internacional will bow in Europe in November as a satellite-delivered premium pay service; Zone Vision is launching Reality TV Net on BSkyB; the Soundtrack Channel will bow on DirecTV Inc. in Latin America in November; Nickelodeon and Nick Jr. plan to launch branded programming blocks on Canal J and Tiji in France; and Claxson is launching the El Sitio Digital Channel.
ESDC, which will deliver programming to the computer over broadband lines, will soon be available in Spain and subsequently in Brazil.
Walt Disney Television International president David Hulbert said his studio has completed a major deal with the Modern Times Group and will be launching a new Disney Channel in Scandinavia in the first quarter of 2003.
While Hulbert admits program sellers face a tougher climate, he noted that the studios continue to do deals: Disney announced one with DTH platform TPS in France and with TV New Zealand.
Universal Studios also announced some major program sales, including one with Mexico's Televisa.
Some major cable programmers are also putting more emphasis on selling their programs to broadcasters.
Last year, AETN International launched a sales division, and it aggressively peddled its 2,000-hour library at MIPCOM in 2002.
MTV's Ricca noted that the company has invested more money to expand its sales operations and is now acquiring programs both for its networks and its program-sales arm.
"We see this as a growth area," he said.
Discovery's Rodriquez noted that his company has put more emphasis on sales. "We have more product coming out of our digital networks in the U.S., and [international sales have] become an increasingly important source of financing."
Rodriquez and others add that the bottom seems to have been reached in Europe and that the region should rebound sometime in 2004. The pending DTH mergers in Spain and Italy will put these operators on a better financial footing and set the stage for more rapid growth in the future.
In early October and late September, restructuring plans were announced for UPC, Telewest and Callahan's German operations and in early September NTL emerged from bankruptcy.
"The restructuring process has been started and once it is completed, the whole industry will be in better shape," Disney's Hulbert said. "Multichannel penetration is still low in many markets, so there is tremendous room for growth."