The World: Recession and reform shaking up Spanish TV

It's a challenging time for change for the country's embattled advertising and media industries, William Cabrera writes.

The fact the Spanish economy is battling a deep recession is already well known. What's not so well known is how this situation, together with some recent government announcements, is affecting Spanish TV.

The country's financial turmoil has presented its TV industry with a crisis. After a period of continuous growth between 2003 and 2007, the expected losses in TV advertising during 2008-09 could be up to EUR1,070 million. By the same criteria, the TV market could be reduced to EUR2,395 million, which is below the 2004 level of investment.

The financial crisis has hit an industry in the middle of a challenging transformation, with audience fragmentation increasing every day and constant changes in audience rankings.

Because of this, national TV stations have lost four share points since January 2008 and currently control 66.2 per cent of the audience, while digital terrestrial television has gone from 3.3 per cent to 9.2 per cent over the same period.

Also, the Spanish TV system will soon pass from analogue to DTT.

Over the past few months, and through different spokespeople, the Spanish government has announced three important changes.

February 2009 More flexibility in the regulation of cross stakes between TV channels. This opens the possibility of mergers between TV stations, with the only condition being that their combined share is not more than 27 per cent in the past 12 months. In short, no merger will be possible between Tele 5 and Antena 3 (29.6 per cent). But there are other options, notably Antena 3-La Sexta and Cuatro-La Sexta.

8 April TV operators can apply for authorisation to offer pay-per-view DTT. This announcement has been seen as clear support to La Sexta, which has been pushing the urgent launching of pay-per-view DTT as a way of making profitable its rights over football and Formula One. On the other side, the announcement has clear negative implications for Digital +, part of Prisa Group.

14 April A major decrease in public TV advertising is announced by the Spanish Prime Minister, although no detail is revealed about how or when it would be implemented. In any case, it looks like the initiative will only affect TVE, the national broadcaster, and not the regional public channels and that it could be effective as soon as September this year.

The model adopted would be similar to the French one: 3 per cent of net operating income from private TV companies, a 0.9 per cent tax on telecom operators, as well as a new tax over the radio-electric domain. This financing solution has been already been publicly opposed by private TV companies and telecom operators in Spain.

On 5 January, public French TV channels stopped broadcasting commercial advertising from 8pm to 6am. This initiative came together with changes in primetime programming.

The French scheme raised important issues in the market - advertising increases for private TV companies, changes in the audience which would prefer TV without ads, possible loss of coverage. However, some months after the programme started, none of this has taken place. Havas Media France says: "The reform has not changed the audience habits and has not developed as expected due to the financial context."

In short, although the French TV market is not exactly the same as the Spanish one, it is remarkable that the advertising decrease on public TV has not meant a move of the equivalent advertising to the private stations. Nor has the withdrawal of advertising resulted in a higher audience for free-to-view.

In the current economic conditions - and taking into account the French example - we believe that the withdrawal of advertising from Spanish public TV will not mean an instant move of this business to the private stations.

We foresee four possible scenarios for the Spanish market: a worse economic situation and a consolidation (probability 72 per cent); a worse economic situation and no consolidation (18 per cent); a better economic situation and no consolidation (2 per cent); a better economic situation with consolidation (8 per cent).

In the first case, an adverse economic situation in 2009 and 2010 would come together with an investment decrease. A profitability decrease would force mergers among TV groups. The implications include an alignment of the commercial politics of the merged groups, a minor price competition and an increase in the average profitability of the industry and especially among the merged groups.

On the other hand, in the second-worse scenario, we would have to work in a fragmented industry that is losing profitability. In this case, the whole industry would have to adjust and change its business model. For the advertising sector, it would mean working in an environment with lower prices but with higher volatility and complexity.

The construction of coverage without TVE and with an increased audience fragmentation is the real challenge for advertisers, media and agencies.

- William Cabrera is the general director of research and modelling at Havas Media Iberia.