Movistar Plus. The new Goliath in the Spanish market

In recent years, it has become common to observe many telecommunications operators fighting to include audiovisual content in the products that they offer. In Spain, despite the negative impact of piracy, the value of this market has continued to increase, to the point that it has become the operators’ best way of offsetting lower revenue from their other businesses.

In recent months the biggest story in the sector has been the purchase of Digital Plus by Movistar. Despite rival operators’ complaints, a transaction in which the dominant company in the broadband market bought the dominant company in the contents market was ultimately approved. The result of this acquisition will undoubtedly have an enormous impact on the whole market.

Conditions of the purchase

From the moment that Movistar’s offer was made public, its main competitors (Vodafone and Orange) complained about the operation, alleging that it would endanger free competition in the market. Brussels delegated the case to the Spanish competition authority, the National Markets and Competition Commission (the “CNMC”), which, after analysing the matter for some months, cleared the purchase subject to a series of conditions aimed at achieving a balance, at least partially, in the market:

  • Movistar must make available to the remaining operators 50% of its Premium contents.
  • For these contents, the wholesale price will be regulated by the CNMC, based on the cost incurred by Movistar.
  • The exclusivity period for the contents of the suppliers acquired is reduced from 5 to 3 years.

The total acquisition price came to 725 million euros.

Shortly after the acquisition was confirmed, news of the purchase by Movistar Plus of the football league rights for the 2015-16 season was published, an operation that appears to have cost them another 600 million euros. Just by comparing the final purchase prices of the two operations, we can understand the importance of this second transaction.

The football packages, which have traditionally been the most valuable Premium content in the market, will form part of the 50% of the content to which the competition will have access.

Movistar’s strategy

Looking at the recently launched offer, it appears clear that Movistar’s intention is to strengthen its triple play offer. It does not appear to have any interest in having content-only customers; in fact, although former Digital Plus subscribers can continue with the same conditions, for new customers it is much cheaper to buy the whole package.

Without doubt, it is aiming at the top end of the market, trying not only to boost its customer portfolio but above all to increase ARPU (average revenue per client), while eroding that of its competitors.

Impact on competition

Once again, as happened some years ago with triple play and before that with ADSL, Telefónica has a strategic advantage that its competitors are not going to be able to match easily. Since other operators can only opt for 50% of the contents, their final offer will be incomplete.

One possible strategy open to other operators is to compete on price, launching integrated packages that are cheaper than Movistar’s Plus. This approach may hurt them financially, depending on the final price that is set for the contents. In addition, it will be easy for Movistar to retain its more valuable customers, i.e. the more demanding ones who seek a more complete offer.

The best possibility would be to look for alternative contents to offer. Bearing in mind that Movistar Plus offer already includes football, which is still the prized possession in the market, the alternative is hard to find. One possibility would be an agreement with Netflix, which is expected to enter the Spanish market at the end of 2015. Unfortunately, this has its limitations since a large part of the rights to Netflix contents were sold to none other than Digital Plus.

Future evolution of the market

In the short term, it is highly likely that Movistar’s figures will start to improve. We will probably start to see positive results in terms of switching broadband customers, particularly in the optical fibre market.

It remains to be seen whether, in the medium term, the competition can come up with an alternative contents offer and/or an attractive price that allows a significant market share to be maintained.

If not, Movistar will hold all the aces, since in terms of volume it will be much more likely to have a firm grip on future contents of value as these appear in the market or come up for renewal. The possibility of a quasi monopolistic market, without any genuine alternatives for users and with all that this entails, coming into existence cannot be ruled out.

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Author: Crescencio Lucas Herrera

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Las opiniones vertidas por el autor son enteramente suyas y no siempre representan la opinión de GMV
The author’s views are entirely his own and may not reflect the views of GMV
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