African growth helps offset domestic decline at Canal+

Arnaud de Puyfontaine

Strong revenue growth in Africa helped to partially offset a continued precipitous decline in pay TV operator Canal+’s fortunes in France in the third quarter and for the first nine months of the year, contributing to a relatively strong showing for parent group Vivendi.

For the full nine-months period, Canal+’s revenues fell by 2.7% in constant currency terms to €3.9 billion overall, but the African operation saw revenue growth of 20%. Canal+ added 505,000 subscribers in Africa in the year to September, taking its total there to 2.2 million.

In France, the pay TV operator lost about 400,000 customers over the year to end with 5.4 million, leading to a 5.6% decline in revenues.

Overall, Canal+ had a subscriber base of 11 million in September, down 19,000 year-on-year.

SVOD service Canalplay lost 154,000 subscribers in the year to September, taking its total to 620,000.

Parent company Vivendi’s chief financial officer Hervé Philippe told analysts that the relaunch of the pay TV offering in France on November 15, together with Canal+’s new distribution deals with Free and Orange, would bear fruit in the first half of 2017. However, Vivendi’s analyst presentation focused more on the strong showing from its Universal Music arm, which saw revenues rise by 4.8% at constant currency terms to €3.62 billion.

One bright spot for Canal+ was free-to-air, where revenues were up by 9.2% despite strong competition in the advertising market and competition for eyeballs from the Olympic Games and Euro 2016 football competition.

Canal+ production arm StudioCanal also underperformed, thanks to what Philippe described to analysts as “a lighter line-up compared to last year”. StudioCanal revenues declined by 14.9% due to fewer theatrical and DVD releases compared with the previous year.

CEO Arnaud de Puyfontaine told analysts that “the transformation play at Canal+ in France is well underway”, with the full impact of its €300 million cost saving programme likely to be seen in 2018.De Puyfontaine highlighted the greater “choice and more freedom” that the pay TV outfit was offering subscribers through its new low cost offerings and tie-ups with IPTV providers.

De Puyfontaine confirmed that Studio+, the Canal+ mobile-targeted short-form content offering that debuted in Latin America last month would be launched in France and Italy soon. He also highlighted the launch of WatchMusic, a new premium video music service for mobile, in Brazil.

Vivendi’s results were lifted by the strong contribution from Universal Music. Overall, the company posted revenues of €7.712 billion for the first nine months, up 1.3% or 0.6% in constant currency terms. EBIT stood at €1.278 billion, up 15.9%, while cash flow from operations was up 46.3% to €555 million.

De Puyfontaine declined to take any questions from analysts on Vivendi’s ongoing conflict with Mediaset, which looks set to enter a new stage soon with Mediaset’s claim for the seizure of a 3.5% stake in the French group due to be heard in a Milan court.

Morgan Stanley said that Vivendi’s results were “surprisingly strong”, with “damage limitation” at Canal+ helping keep things on track and the strong showing in music lifting the group’s performance.

While Canal+ results “were weak in the absolute”, the investment bank said they were improving. Morgan Stanley raised its privde target on the group to €21.

Goldman Sachs made a similar assessment, describing Universal Music Group as “the highlight of the quarter”. The investment bank said that Canal+’s turnaround was “on trace”, with third quarter subscribers losses an improvement on the second quarter, with the 8.5% international growth helping offset domestic losses. It said that the cost-savings programme had also boosted the outfit’s overall result. Goldman Sachs reiterated a buy recommendation.