In the highly competitive French pay-TV market, satellite operator Canalsat likely will lead the way in bringing high-definition (HD) services to customers. The operator, which is in the midst of merging with fellow direct-to-home operator TPS, is planning to offer its main premium channels on HD in the near future, according to Guy Lafarge, executive vice president, distribution, of Canal+ Group and CEO of Canalsat.

"There is competition in France between the telcos and the satellite operators, and everybody is talking about HD," LaFarge said. "The telcos are pushing strongly to implement HD on DSL. There is strong competition between the various telcos, and they are promising a lot of things. I am not sure that they can deliver that yet. In terms of terrestrial, the trials have just begun to implement in the future HD on terrestrial. …There is strong pressure in the market, but we have to be careful as quality is a strategic issue to deliver HD to not disappoint the consumers."

Lafarge spokes with Satellite News International Editor Mark Holmes about HD in France.

Satellite News: Can you give us an update on your proposed launch of HD services in France?

Lafarge: The first channel in full HD Canal+ Group launched was Canal+ en HD in April. At the beginning of this [June], Canalsat launched National Geographic Channel HD, which is a specific channel built for HD. This is the first step. Subscribers can have access to HD content with the HD option at 9 euros ($11.37) per month. With this HD option, subscribers will be able to receive all the HD channels now, as well as the ones we will launch in the future.

Satellite News: What levels of demand do you see for HD?

Lafarge: Our HD offer is for satellite only. We have begun a trial on terrestrial. In terms of ADSL, we have decided not to launch because we want to look at the quality of the network. There are bandwidth issues. There are some trials with telcos, but we are not sure if the quality is high enough to launch. The compression rates with MPEG-4 are not enough to have very fluent usage on ADSL.

Satellite News: Do you believe HD will be an easy sell to the Canal+/Canalsat subscriber base?

Lafarge: It is just at the beginning. For instance, we have an offer called Canal+ Le Bouquet, which provides five premium channels, and we plan to switch all these channels on HD in the future. We believe it will be necessary to have more HD channels to strengthen the market. We have done a lot of research, and France is the number one in Europe in terms of switching to an HD-ready TV. We believe our subscriber base is very interested in this type of offer.

Satellite News: BSkyB’s Brian Sullivan said a main lessons the operator learned from the United States was that an education process was needed to explain to customers what was needed in terms of HD. Is it the same in France?

Lafarge: We have partnerships with suppliers such as Philips and Samsung. We have specific actions for the World Cup in terms of customer education, and we want to continue after the World Cup to promote the solution. We have a promotion to encourage customers who buy an HD-ready TV set to switch to HD at the same time. The first thing we want to do is educate at the point of sale where we have developed specific solutions with advertising and promotion of Canal+ Group HD offer. The second stage is to directly promote HD to our subscriber base. The issue is what makes people decide to go to a flat TV. Will it be our HD solution? It is clear that France is in advance of the U.K. market in terms of HD-ready TV set penetration. There are very strong promotions now for the World Cup and the prices will continue to come down.

Satellite News: BSkyB in the U.K. has had problems in terms of the shortage of set-top boxes (STB). Is this still a major issue for Canal+?

Lafarge: We are working with two suppliers, Sagem and Philips. We have received the box from Sagem. 5,000 subscribers have already received their HD STB before the World Cup; 3,000 to 4,000 boxes will be available each week. The ramp-up will be good during June and July in terms of gaining subscribers.

We don’t have the same problems BSkyB has with Thomson. On our side, we have semi-conductor STM components, which is the largest quantity we can access. We have solved all the technical problems and we now develop the commercial launch. We just have to check the STB’s compatibility with some TV sets, which is not so clear. We have to make sure that third generation HD ready TV sets are fully compatible with a HDMI connection. We have found a solution that will work with 90 percent of the TV sets, which are compatible with HDMI connections.

Satellite News: How many HD boxes would you hope to have in households by the end of this year?

Lafarge: It is difficult to estimate what the exact penetration of HD services will be. We are quite pragmatic. We consider that all our new STBs can be HD compatible and during the last quarter of 2006, all the STBs we will push on the market will be HD compatible. The philosophy is to design a STB with an HD solution that we can push to every subscriber without depending on the option they take. I think this approach is quite different from other operators.

In terms of numbers by the end of the year, a lot will depend on the suppliers and the availability of STBs. We have ordered around 300,000 STBs. We hope to have all of these STBs so we can push them on the market. A lot will also depend on the quality of the programming for HD.

Satellite News: When will you launch an HD personal video recorder (PVR)?

Lafarge: We have a very different strategy from BSkyB here. We don’t necessarily see the PVR as a driver for the HD market. For us, the driver is the content, premium and exclusive content. … For now we have only a solution, which is based on MPEG-2, but we are looking to launch a new HD PVR solution. We are confident we can do this by the end of this year or the beginning of 2007. We have not decided on the capacity of the box. We will work with key industrial players

Satellite News: How are you going to look to innovate with the HD service over the next few months? Will there be many channel additions?

Lafarge: We are producing a lot of sports and cinema in HD. Our target is to produce everything under our control in HD. In terms of how many channels we can have in HD, this will depend on the levels of the subscriber base and consumer interest. We have to examine issues such as the levels of return on investment and the capability to produce to HD. We have decided not to change the production process at the moment. It is a soft switch between [standard definition] and HD.

–Mark Holmes

Contact, Delphine Huchet, Canal+, e-mail, [email protected]