A new player in the Pay TV industry
Strategic Management Business Case
Nicolas Hasse Host: Professor Daniel Haumont 04.01.2010
Presentation of FT/Orange with regard to Canal+:
The history of the French Pay TV market is mainly the history of one Pay TV player- Canal+. This business case is dealing with the company “Orange”, a new player in the Pay TV Industry andtherefore, the focus will be on this Pay TV provider. Nevertheless, the story of Oranges short history and maybe long future is and will be nearly unexplainable without referring to the one of Canal+.
Since both players offer mainly the same movies, they are closer to one another then they maybe would like to be. It all began in 1990 with the privatization of a Giant: France Télécom, today FT/Orange.Being the first and unique telecommunications operator in France with a monopoly for the fixed telephone lines, FT/Orange has a staff of around 190,000 people and a brought more or less successful spread in other activities like mobile phone offers or Internet Access Provider activities. In comparison to these businesses of FT/Orange, the company is a newbie in the Pay TV market which before wasentirely in the hands of Canal+ from the Vivendi-Group. So Orange is trying to compete in the “territory” of an already settled Player with a long experience. It is maybe even questionable whether there is, in the long run, enough space for two players in this French Pay TV Industry. With which strategy FT/Orange is approaching the task of gaining ground in it and what could be done better from mypersonal point of view, will be the subject of this business case analysis.
The Pay TV Industry – France:
In order to analyze the French Pay TV industry, I would like to use the “Five Forces of Michael Porter- Framework”, enriched with a sixth forth, the “Power of the legislator”. This enrichment is necessary since the French Pay TV market-players are restrained in theirpossibilities by the French law/government. In this paper, forces have values from 1=low till 5=high.
In 2008, the de facto monopoly of Canal+, that acquired it’s only competitor, TPS, in 2007, was disturbed and changed into an oligopoly by the market entrance of a powerful Player, - Orange. The rivalry between these two players nowadays is high, first of all, simply becauseof the fact that the French Pay TV market is shared amongst just these two players. They compete for a relatively seen small amount of customers. Each of these customers has a high so called “CLV” (Customer Life-time Value). That means that each customer values a lot and is worth to fight for. (Every customer that gives a subscription on a contract is forced to pay monthly high rates over more orless a long timeperiod). Moreover that, the so called “Web-effect” for a Pay TV customer is high, which means that the tie between customer and Pay TV provider is thick. A subscribing customer is in most of the cases “trapped” in multi-contracts (Contracts for internet access, TV-broadcasting access, and telephone with possible run-time differences) that causes him to stick with either Orange orCanal+, since the cancellation process is very complicated. This leaves us with a high estimated force of 5.
Threat of new Entrants:
Canal+ and Orange are both not isolated companies that do not act on their own! They are subsidiaries of large and powerful Groups who financially back them up. Offering Pay TV acquires high financial investments and a lot of experience and know how. This isfor example reflected in the costs of Canal+ of 1, 2 billion €/year. So the financial investments necessary (no matter if movies are bought from e.g. Majors or produced on their own) set a huge entry barrier. Moreover that, the demand of the French Pay TV market is limited and the existing players have
preferential positions1. Probably one of the highest entry barriers is given in the nature...