Between the lines: Canal Plus
On the Plus side
Nov 23, 2004
PARIS -- Canal Plus certainly has endured its share of ups and downs during its 20-year history. Launched into a skeptical marketplace, Europe's first pay TV channel grew to become one of the continent's biggest broadcast groups -- with sufficient critical mass to forge a three-way merger in 2000 with parent company Vivendi and Seagram Co., then-owner of Universal Pictures -- but the subsequent crisis within the European pay TV sector, compounded by mismanagement, forced the company to scale back to survive.
Nonetheless, Canal Plus remains one of France's strongest brands. Under chairman and chief executive Bertrand Meheut, the company has sold off its loss-making divisions, returned to profitability and is looking to use the two-dozen channels it operates to remain a key player through all television distribution methods -- notably digital terrestrial, set to bow next year in France.
Meheut believes that Canal Plus' premium channel, the company's main source of income, possesses the potential to attract another million subscribers on top of its current 4.9 million.
"Canal Plus is a channel with a strong brand image, with subscribers who like the channel," he says. "We have an important reservoir of growth."
Having spawned a generation of TV and movie talent during the 1990s, can the company now produce the next generation of French entertainment amid a multichannel environment?
From early on, Canal Plus was, in many ways, ahead of its time. When the channel burst onto French TV screens Nov. 4, 1984, many observers thought it would not last until its first anniversary.
Not only was Canal Plus France's first commercial channel -- joining the then-state-run trio of TF1, Antenne 2 and FR3 -- but also it heralded the age of pay TV, a new concept on a continent that perceived television as a free public service. Broadcasting as an encrypted terrestrial channel received via a decoder -- then a newfangled invention for French homes -- Canal Plus' early transmissions were beset with technical problems.
"In the first few days, everyone said it would never work," says French journalist Pascal Merigeau, co-author of the 2001 book "The Real Adventure of Canal Plus." "Many didn't believe that people would pay for a television channel."
Canal Plus toughed it out and attracted an initial 110,000 subscribers. With financial losses building the following year, though, the channel struggled to win the hearts and minds of the French viewing public with programming that consisted primarily of sports and movies.
But the company endured in large part because founding chairman Andre Rousselet had assembled a talented creative team that came as a breath of fresh air to the stodgy world of French television, winning the channel a reputation as hip and iconoclastic. In addition to airing first-run movies, Canal Plus set new standards for sports coverage, cutting-edge comic talent and late-night adult films. In many ways, being a subscriber was like belonging to a trendy club.
"There was the famous 'esprit Canal,'" Societe Generale media analyst Arnaud Frerault says. "When you were a subscriber, you had a notion of being a member."
The channel amassed a respectable 1 million subscribers by 1986 and the following year floated on the Paris Bourse. Flush with success in France, the Canal Plus concept was exported to Belgium in 1989, followed soon after by Spain.
In 1994, former journalist and TV presenter Pierre Lescure took over the reins when Rousselet retired. Lescure had been with the company from the outset and had been groomed as Rousselet's successor.
Lescure presided over ever-more rapid expansion, most significantly the 1996 acquisition of European pay TV rival Nethold that gave Canal Plus a foothold in Italy, the Netherlands, Poland and Scandinavia.
Canal Plus then expanded into nearly all areas of the TV and film businesses. CanalSatellite, Europe's first digital satellite platform, also launched in 1996, and the group developed cable operations, thematic channels, movie production and distribution operations, building a 5,000-title-strong catalog.
But Lescure -- along with some of his top managers -- was not known for his financial discipline, and many observers thought he was overpaying for acquisitions and taking too many risks. (Lescure declined to be interviewed for this report.)
"They overpaid for certain rights, like Formula One (auto racing)," Frerault says. "And their internal costs were staggering: They lived very, very generously."
Canal Plus by now was a major buyer of Hollywood product, sinking hundreds of millions of dollars into movie deals with many of the major studios. It was not always money well-spent: The French channel made a disastrous investment in Carolco, whose library it subsequently acquired.
At one point, Canal Plus also contributed funds to 90% of French movie productions, with scant regard for the artistic merit or
commercial viability of the films in which it participated. With convergence emerging as the buzzword for media companies, Lescure also caught the technology bug, and Canal Plus began investing in various online ventures.
In 1999, the last year in which Canal Plus operated independently, the group employed 4,600 people, posted revenue of €3.3 billion and had about 14 million subscribers in a dozen European and African nations. The problem, though, was that the only units making money were the main French pay channel and the rights-management division -- so the group posted an annual loss of €330 million.
Nonetheless, the quest for growth was constant: In early 2000, Lescure predicted a subscriber base of 24 million within five years. At the apparent pinnacle of its success, Canal Plus was sucked into the merger with Vivendi and Seagram.
In June 2000, Vivendi Universal was born with great fanfare, primarily from messianic chairman Jean-Marie Messier, whose vision was a vast ensemble combining its prestigious content companies such as Canal Plus, Universal and its sister music company with distribution through the group's television, online and mobile operations.
Lescure later said he never believed in that vision, which in fact never materialized. "The majority of people at VU weren't very convinced," Lescure told The Hollywood Reporter a few months after he exited the company.
But the merger allowed the Americana-loving Lescure to fulfill a dream of his own -- to become boss of a Hollywood studio -- as Universal Studios was placed under the control of Canal Plus.
Ironically, everything soon began to unravel because Canal Plus' expansion no longer could hide losses that had been widening since 1996. The company's financial woes were compounded when the dot-com bubble burst, the European pay TV market collapsed and all media stock went through the floor.
Heads already were rolling at Canal Plus by December 2000, when Messier imposed financial rigor and broke up an inner circle of managers known as "Pierre's friends." Lescure lasted until spring 2002 before being replaced by short-lived former TF1 executive Xavier Couture. Messier was ousted in June 2002 when VU's perilous debt situation became known; Canal Plus, for its part, was losing more than €300 million a year.
VU, which merged this year with NBC, was brought back from the brink by current chairman Jean-Rene Fourtou, who installed his former colleague Meheut at Canal Plus with a mandate to stem losses and get the business back on track.
Enter the era of realpolitik: Canal Plus since has sold nearly all of its international operations except those in Poland, cutting a major source of losses. In France, the company also has slimmed down, shedding several hundred jobs during the past couple of years and moving out of its chic Richard Meier-designed Paris headquarters to more humdrum peripheral office space.
"The Canal Plus Group went through a very difficult period," Meheut says. "In 2003, for the first time since 1996, the group's operating income was positive -- and 2004 will show a major improvement."
Operating income for the first half of 2004 was a healthy €207 million ($268.3 million). When that result was made public, Fourtou declared that the figures "confirm that Canal Plus' turnaround is on the right track."
But righting Canal Plus is not merely a question of tightening purse strings. Pay TV has undergone a paradigm shift during the past few years: Whereas Canal Plus was the sole operator in its field for more than a decade, rival cable and satellite channels have begun to offer first-run movies and exclusive sports coverage.
More recently, the DVD explosion has devalued the pay TV window for movies, and growing broadband access makes for further competition amid a multimedia world. Canal Plus subscriptions fell in 2002 for the first time in company history, though a schedule overhaul and aggressive marketing have put that number back on an upward curve.
Canal Plus' film division, StudioCanal, has endured a roller-coaster ride similar to that of its parent but remains one of Europe's biggest players in co-production, theatrical and video distribution and rights trading, posting revenue of about €400 million ($518.4 million) in fiscal 2004. StudioCanal also has dissolved all of its multipicture deals, including pacts with heavyweight international directors Emir Kusturica, David Lynch and Mike Leigh.
Nonetheless, "if Mike Leigh has a great project and wants to talk to us, we'd be delighted to talk to him," StudioCanal managing director Frederic Sichler says. "If David Lynch has a project and we consider it financially viable, I don't see why we wouldn't talk."
StudioCanal expects to make more than €25 million ($32.4 million) in profits this year, Sichler adds.
As for the parent company, Meheut remains diplomatic about the period during which Canal Plus was under Lescure's management. "The company wouldn't exist any longer if things had carried on like that," Meheut says. "Let's just say the shareholders were very patient."
The biggest challenge currently facing Canal Plus is to secure crucial French soccer rights in a bidding process that is under way. But with a bigger war chest than any of its rivals, the company is well-placed to come away with what it needs.
Nonetheless, Canal Plus remains one of France's strongest brands. Under chairman and chief executive Bertrand Meheut, the company has sold off its loss-making divisions, returned to profitability and is looking to use the two-dozen channels it operates to remain a key player through all television distribution methods -- notably digital terrestrial, set to bow next year in France.
Meheut believes that Canal Plus' premium channel, the company's main source of income, possesses the potential to attract another million subscribers on top of its current 4.9 million.
"Canal Plus is a channel with a strong brand image, with subscribers who like the channel," he says. "We have an important reservoir of growth."
Having spawned a generation of TV and movie talent during the 1990s, can the company now produce the next generation of French entertainment amid a multichannel environment?
From early on, Canal Plus was, in many ways, ahead of its time. When the channel burst onto French TV screens Nov. 4, 1984, many observers thought it would not last until its first anniversary.
Not only was Canal Plus France's first commercial channel -- joining the then-state-run trio of TF1, Antenne 2 and FR3 -- but also it heralded the age of pay TV, a new concept on a continent that perceived television as a free public service. Broadcasting as an encrypted terrestrial channel received via a decoder -- then a newfangled invention for French homes -- Canal Plus' early transmissions were beset with technical problems.
"In the first few days, everyone said it would never work," says French journalist Pascal Merigeau, co-author of the 2001 book "The Real Adventure of Canal Plus." "Many didn't believe that people would pay for a television channel."
Canal Plus toughed it out and attracted an initial 110,000 subscribers. With financial losses building the following year, though, the channel struggled to win the hearts and minds of the French viewing public with programming that consisted primarily of sports and movies.
But the company endured in large part because founding chairman Andre Rousselet had assembled a talented creative team that came as a breath of fresh air to the stodgy world of French television, winning the channel a reputation as hip and iconoclastic. In addition to airing first-run movies, Canal Plus set new standards for sports coverage, cutting-edge comic talent and late-night adult films. In many ways, being a subscriber was like belonging to a trendy club.
"There was the famous 'esprit Canal,'" Societe Generale media analyst Arnaud Frerault says. "When you were a subscriber, you had a notion of being a member."
The channel amassed a respectable 1 million subscribers by 1986 and the following year floated on the Paris Bourse. Flush with success in France, the Canal Plus concept was exported to Belgium in 1989, followed soon after by Spain.
In 1994, former journalist and TV presenter Pierre Lescure took over the reins when Rousselet retired. Lescure had been with the company from the outset and had been groomed as Rousselet's successor.
Lescure presided over ever-more rapid expansion, most significantly the 1996 acquisition of European pay TV rival Nethold that gave Canal Plus a foothold in Italy, the Netherlands, Poland and Scandinavia.
Canal Plus then expanded into nearly all areas of the TV and film businesses. CanalSatellite, Europe's first digital satellite platform, also launched in 1996, and the group developed cable operations, thematic channels, movie production and distribution operations, building a 5,000-title-strong catalog.
But Lescure -- along with some of his top managers -- was not known for his financial discipline, and many observers thought he was overpaying for acquisitions and taking too many risks. (Lescure declined to be interviewed for this report.)
"They overpaid for certain rights, like Formula One (auto racing)," Frerault says. "And their internal costs were staggering: They lived very, very generously."
Canal Plus by now was a major buyer of Hollywood product, sinking hundreds of millions of dollars into movie deals with many of the major studios. It was not always money well-spent: The French channel made a disastrous investment in Carolco, whose library it subsequently acquired.
At one point, Canal Plus also contributed funds to 90% of French movie productions, with scant regard for the artistic merit or
commercial viability of the films in which it participated. With convergence emerging as the buzzword for media companies, Lescure also caught the technology bug, and Canal Plus began investing in various online ventures.
In 1999, the last year in which Canal Plus operated independently, the group employed 4,600 people, posted revenue of €3.3 billion and had about 14 million subscribers in a dozen European and African nations. The problem, though, was that the only units making money were the main French pay channel and the rights-management division -- so the group posted an annual loss of €330 million.
Nonetheless, the quest for growth was constant: In early 2000, Lescure predicted a subscriber base of 24 million within five years. At the apparent pinnacle of its success, Canal Plus was sucked into the merger with Vivendi and Seagram.
In June 2000, Vivendi Universal was born with great fanfare, primarily from messianic chairman Jean-Marie Messier, whose vision was a vast ensemble combining its prestigious content companies such as Canal Plus, Universal and its sister music company with distribution through the group's television, online and mobile operations.
Lescure later said he never believed in that vision, which in fact never materialized. "The majority of people at VU weren't very convinced," Lescure told The Hollywood Reporter a few months after he exited the company.
But the merger allowed the Americana-loving Lescure to fulfill a dream of his own -- to become boss of a Hollywood studio -- as Universal Studios was placed under the control of Canal Plus.
Ironically, everything soon began to unravel because Canal Plus' expansion no longer could hide losses that had been widening since 1996. The company's financial woes were compounded when the dot-com bubble burst, the European pay TV market collapsed and all media stock went through the floor.
Heads already were rolling at Canal Plus by December 2000, when Messier imposed financial rigor and broke up an inner circle of managers known as "Pierre's friends." Lescure lasted until spring 2002 before being replaced by short-lived former TF1 executive Xavier Couture. Messier was ousted in June 2002 when VU's perilous debt situation became known; Canal Plus, for its part, was losing more than €300 million a year.
VU, which merged this year with NBC, was brought back from the brink by current chairman Jean-Rene Fourtou, who installed his former colleague Meheut at Canal Plus with a mandate to stem losses and get the business back on track.
Enter the era of realpolitik: Canal Plus since has sold nearly all of its international operations except those in Poland, cutting a major source of losses. In France, the company also has slimmed down, shedding several hundred jobs during the past couple of years and moving out of its chic Richard Meier-designed Paris headquarters to more humdrum peripheral office space.
"The Canal Plus Group went through a very difficult period," Meheut says. "In 2003, for the first time since 1996, the group's operating income was positive -- and 2004 will show a major improvement."
Operating income for the first half of 2004 was a healthy €207 million ($268.3 million). When that result was made public, Fourtou declared that the figures "confirm that Canal Plus' turnaround is on the right track."
But righting Canal Plus is not merely a question of tightening purse strings. Pay TV has undergone a paradigm shift during the past few years: Whereas Canal Plus was the sole operator in its field for more than a decade, rival cable and satellite channels have begun to offer first-run movies and exclusive sports coverage.
More recently, the DVD explosion has devalued the pay TV window for movies, and growing broadband access makes for further competition amid a multimedia world. Canal Plus subscriptions fell in 2002 for the first time in company history, though a schedule overhaul and aggressive marketing have put that number back on an upward curve.
Canal Plus' film division, StudioCanal, has endured a roller-coaster ride similar to that of its parent but remains one of Europe's biggest players in co-production, theatrical and video distribution and rights trading, posting revenue of about €400 million ($518.4 million) in fiscal 2004. StudioCanal also has dissolved all of its multipicture deals, including pacts with heavyweight international directors Emir Kusturica, David Lynch and Mike Leigh.
Nonetheless, "if Mike Leigh has a great project and wants to talk to us, we'd be delighted to talk to him," StudioCanal managing director Frederic Sichler says. "If David Lynch has a project and we consider it financially viable, I don't see why we wouldn't talk."
StudioCanal expects to make more than €25 million ($32.4 million) in profits this year, Sichler adds.
As for the parent company, Meheut remains diplomatic about the period during which Canal Plus was under Lescure's management. "The company wouldn't exist any longer if things had carried on like that," Meheut says. "Let's just say the shareholders were very patient."
The biggest challenge currently facing Canal Plus is to secure crucial French soccer rights in a bidding process that is under way. But with a bigger war chest than any of its rivals, the company is well-placed to come away with what it needs.
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