Webs make hay while they can

Revenue growth slowing down in Spain

By JOHN HOPEWELL, EMILIO MAYORGA

MADRID -- On March 2, Paolo Vasile, CEO of Spanish terrestrial web Telecinco, sat down with analysts to pour over full year results.

He was oozing confidence.

Telecinco's 2006 profit margins reached 44%, comparing well with 11.3% at France's TF1 and 21.1% at Germany's ProSieben. Dividend levels of 6% were a sector high.

But that could be as good as it gets.

Already, in terms of revenue growth, the party's over. Telecinco revenue hikes were 23% in 2004, 17% in 2005 and 7% last year. Rival Antena 3 TV's growth slowed from 23% in 2005 to 0.6% in 2006.

Spain remains Europe's multichannel laggard, with 47% penetration.

But major trends are belatedly reshaping Spain's broadcast landscape: Telecinco and Antena 3 have little option but to reconfigure with them.

There were several milestones in February. For the first time, auds for all the multichannel webs combined hit 20.2%, larger than auds for any single terrestrial broadcaster. The latter all lost shares and, for the first time, none registered more than a 20% share -- Telecinco topped the pile with 19.8%.

Meanwhile, digital terrestrial television finally registered, taking a 5.3% share, up from August's 3%.

Another recent record: over Feb. 16-22, U.S. series -- "CSI: Miami," "CSI: New York" and "House" -- outnumbered local skeins -- "Aida," "Los hombres de Paco" -- in Spain's free-to-air Top Ten.

Hot U.S. series probably favor multichannel penetration.

Niche services such as Fox, Sony's AXN and NBC Universal's Sci Fi, have become appointment channels for upscale Spaniards.

"When I get home, I flop down and see what's on Fox or AXN," says Fabian Lares, an analyst at Espirito Santo Investment.

He's not alone.

Daily connections at Spain's most popular pay TV channel, Fox, which boasts first-run "House" and "Prison Break," were 1.4 million in February, up 32% over the same period in 2006.

The prime concerns for Telecinco and Antena 3, headed by Mauricio Carlotti, are profits and margins, not audience shares.

In 2006, they shored up margins by hiking ad prices to offset audience erosion.

Could they achieve a repeat performance?

"That depends on Spain's economy and whether new broadcasters Cuatro and La Sexta have peaked," Lares says.

Also, they face a 2010 analog switchoff.

"The ongoing analog-to-digital conversion of all European TV markets, which will result in all households becoming multichannel homes, means that lower margins are inevitable for those broadcasters not yet affected by audience fragmentation," says Sarah Simon, at Morgan Stanley.

The question isn't if but when Telecinco and Antena 3 diversify.

Both broadcasters were forced by the Spanish government to launch two DTT channels in November 2005. But much programming is reruns.

"The problem with DTT is that an audience share point lost by a mass-audience channel is not fully offset by one gained by a spinoff, given the huge ad premiums core channels command," says one TV exec.

Antena 3 has original programming on one DTT channels, Antena.Neox, slotting a "Sundance Night" of edgy indie pics.

But until Spain's DTT market really gains traction in 2008-2009, Telecinco and Antena 3 will likely focus on core ad biz, making hay as if there were no tomorrow.