Vivendi-EchoStar Deal Boosts ITV, Canal Plus

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Vivendi Universal's megadeal to pump $1.5 billion into EchoStar Communications Corp. does more than boost the latter's bid to dominate the U.S. direct-broadcast satellite market: It sends Canal Plus U.S. Technologies along for the ride.

Part of the multifaceted investment deal calls for EchoStar to use Vivendi subsidiary Canal Plus's MediaHighway middleware on a nonexclusive basis in its next-generation, personal video recorder-capable digital satellite boxes. It also calls for Vivendi and EchoStar to jointly develop interactive channels that harness Vivendi's vast content holdings, most likely using Canal Plus technology.

Already a player in European interactive TV, Canal Plus has been trying to crack the U.S. market. The deal effectively serves as a major deployment victory for the vendor, said Canal Plus vice president of marketing Arthur Orduna.

It gives Canal Plus a foothold in the market for new advanced boxes with hard drives and HTML (HyperText Markup Language)-enabled Web browsers, and calls for EchoStar and Vivendi to look at the broadest possible use of MediaHighway.

"What we are going to explore is the applicability of Media-Highway profiles in other either existing boxes or other to-be-deployed boxes," Orduna said. "Those discussions are yet to begin."

Including Canal Plus in the Vivendi-EchoStar deal gives the equipment vendor greater traction in the U.S., said International Data Corp. digital-TV analyst Greg Ireland.

"Canal Plus has been at it for a long time; they have overseas deployments," he said. "They are up and running and they are working, so to see them have some U.S. distribution, I think, is really good news."

But the arrangement does raise some questions, most notably about EchoStar's pre-existing deal with OpenTV Inc., a Canal Plus rival. Because MediaHighway's addition to the new EchoStar PVR boxes is on a nonexclusive basis, it won't necessarily supplant the OpenTV system.

EchoStar has not asked Mountain View, Calif.-based OpenTV to alter its long-term contract, said senior vice president of worldwide marketing and business development Michael Collette.

"I am sure we have a long-term relationship with EchoStar going forward," he said. "From our perspective, it's not at all clear to us that we have actually seen any degradation in our direct revenue potential for middleware and embedded software products."

That's because MediaHighway's "thick-client" middleware may not fit on the less-sophisticated boxes that have already been deployed. And EchoStar won't want to abandon that base of deployed homes or the OpenTV applications some customers are used to, Collette argued.

To maintain consistency in EchoStar's application offerings, OpenTV also will have a place on the advanced PVR boxes, he added. On those next-generation boxes, OpenTV and Canal Plus software will likely be integrated under a parallel setup, with customers downloading the software appropriate to run either system's applications.

IDC's Ireland doesn't think the deal will kill OpenTV or ensure a Canal Plus lock on EchoStar's business. He pointed out a similar deal forged between Microsoft Corp. and AT&T has not resulted in a Microsoft monopoly on the MSO's digital boxes.

"It doesn't guarantee that at the end-of-day that it is either, A, the best solution for that moment or B, everything falls into place at the right moment," Ireland noted. "So I don't think it is necessarily the death of OpenTV."

ITV IMPACT

Deployment questions aside, the Vivendi-EchoStar deal does promises to give the U.S. ITV market a much-needed jump-start. Vivendi and EchoStar will, in effect, create a safe harbor for development

Content and technology providers will be afforded a chance to create and field applications for a potential 16 million captive viewers, if EchoStar succeeds in acquiring rival DirecTV Inc. Because applications will be developed on a nonexclusive basis, Vivendi can then sell the products elsewhere.

"And that's really the essence of the technology deal with EchoStar," Orduna said. "We are going to provide a technology platform that allows content partners, beginning with our Vivendi Universal cousins, to very, very quickly bring over both traditional digital content and to experiment safely with interactive forms.

"Those guys are going to over the next couple of years hopefully have a heyday, because we've safely defined the sandbox that they can play in, and we've given them well-defined tools, that reassure them that hey, the business model is going to be taken care of."

Ireland said the deal shows that Vivendi has a cohesive interactive strategy.

"With a focused strategy, you realize it is not just this hypothetical ITV platform, but they are really considering ways in which they can add value to a satellite-TV subscription, compete effectively with cable and offer a next-generation, on-demand entertainment system, which is what I think they we are all eagerly awaiting," he said.

And that development will have a positive effect across the pay TV and entertainment industries, Orduna said.

"That's really the long-term implications of this technology deal," he said. "It's not, 'Let's beat up poor cable or on the poor telcos.' It's, 'Let's get this freaking ITV stuff going.' "

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