Chello Multicanal is a leading channel provider in Spain and Portugal and part of the Chellomedia Group. Earlier this year, Chellomedia acquired Teuve, a group of TV channels previously owned by Spanish cable operator ONO. These have now been integrated into Chello Multicanal.

The man responsible for leading the growth for Chello Multicanal is Managing Director Eduardo Zulueta, who discusses the integration of Teuve into current operations, expansion of its broadcasting reach, brand creation, new revenue streams and increased ownership of content. 

VIA SATELLITE: What is the significance of the acquisition of Teuve?

Zulueta: This acquisition allows us to consolidate our position as the leading thematic channel producer in Spain and Portugal. We already were a significant player in the market, but with this acquisition we become a substantial one. We have 17 channels in Spain and four specifically produced in Portugal for the Portuguese market through Dreamia, a joint venture with Zon Multimedia where we have 50 percent equity. As far as audience share is concerned, we have 16 percent of the pay-TV audience share in Spain and 18 percent of pay TV audience share in Portugal. 

VIA SATELLITE: What are the major initiatives that Chello Multicanal is working on in terms of content delivery?

Zulueta: We are experimenting with several initiatives to bolster our content on the Web. There is now paid video-on-demand content available online. We have been extremely successful with an iPhone application for our cooking channel, Canal Cocina. That iPhone application has registered 250,000 downloads. It is a free application, but when you consider there are less than 1 million iPhones in Spain, reaching 30 percent of them, higher than the pay-TV penetration in Spain, tells you a lot about the power of the brand of Canal Cocina and also about the need of specific applications designed for new platforms. It is very clever. It is quite handy and practical and a great promotional tool for Canal Cocina. 

VIA SATELLITE: If the iPhone application is free, how will you make generate revenue from this initiative?

Zulueta: All of these initiatives are at an experimental stage. We have been very surprised by the rollout of this iPhone application. The best way to monetize it would be to have a pay application, which we didn’t think was right in this first step but it is something we might consider in the future once we have more content available. Another way of monetizing these efforts would be through advertising, but it appears the advertising community is not ready at this stage to value adequately new media. So far they seem reluctant to explore the possibilities of this new world and stay close to the well-trodden path of [gross ratings points] and conventional advertising. So even though we have had a massive response from the consumer in terms of the iPhone application, we have not encountered any excitement on behalf of advertisers. 

VIA SATELLITE: What are your plans in terms of an HD channel and producing content in HD?

Zulueta: We are ready to launch several HD initiatives, but we are not a distribution platform; we are a supplier and producer of thematic channels. HD roll out is dependent on the wishes of our distribution partners — the satellite and cable platforms in Spain and Portugal.

We could launch before the end of the year one HD movie channel and one or two HD documentary channels. This is dependent on the platforms, and what capacity they have, as well as their HD rollout priorities, which are currently focused on sports. Our expectation is that there will be more and more HD channels, however, one of the reasons why things are moving a bit slower in Spain is that we lack the critical mass of other European countries. Pay-TV penetration is around 25 percent of households, which is quite low by European standards. Certainly, Digital+, the DTH platform; Imagenio, the Telefónica-owned IPTV platform; and ONO, the main cable operator have ambitious plans to rollout HD in Spain and will probably increase their HD offer significantly in the second half of this year and early next year. Once they do, we will certainly be a part of it as we have some HD channels in the pipeline.

As far as our production is concerned, we have not started producing HD content. As soon as our channels are carried in HD, we will start producing HD content, but so far, the 600 hours of TV production we do in-house per year are being done in SD. But things are changing rather quickly. Once HD has enough critical mass in both Portugal and Spain, all of our production will be done in HD. 

VIA SATELLITE: What are the major challenges for Chello Multicanal over the next 12 months?

Zulueta: We just acquired a major company, Teuve in April that produces a bouquet of 10 thematic channels. Additionally, Chello Multicanal produces a bouquet of 11 channels in Spain and Portugal. Our main challenge is going to be the successful integration of the two companies.

In addition to this company-specific challenge, there are industry wide concerns. The main one is to stay focused in costs. The recession is far from over, and we have to continue reducing costs without destroying value and without losing audience share. This is obviously a difficult balance. Another challenge for us as a multichannel producer is to create strong brands for each of our thematic channels. Brands are becoming the essential beacon for audiences to navigate the multichannel universe. Another challenge for Chello Multicanal will be to increase our in-house production capacity and increase the percentage of ownership of the content aired by our channels. Currently, we produce 600 hours of TV programs a year. This is very significant for a thematic channel player, but we plan to increase the levels we currently produce.

Last but not least, we need to explore new business opportunities in the non-linear world and place our content across all the different multimedia platforms that are emerging. 

VIA SATELLITE: Are there markets outside of Spain and Portugal which are attractive to Chello Multicanal?

Zulueta: We belong to Chellomedia that operates successful regional thematic channel companies in other European territories. Spain and Portugal are our main focus and we have no pan-European objectives. However, we are being quite successful in Africa. We have found opportunities through our Portuguese business and are growing in Portuguese-speaking Africa. Most of the Chello Multicanal channels are carried in Angola. We are also going to expand into Mozambique, and one of our documentary channels is being distributed in South Africa. 

VIA SATELLITE: What is the next phase of Chello Multicanal’s growth strategy?

Zulueta: There is clearly a process towards industry consolidation. In a recessionary environment, one way to grow while cutting costs is of course through [merger and acquisition] activity. In Spain, there has been a wave of consolidation. The DTH platforms merged years ago. There has also been a merger of the cable platforms ONO and Auna, and we have also seen substantial consolidation among production companies. We are currently seeing consolidation among FTA (free-to-air) broadcasters. Telecinco, owned by Mediaset, and Cuatro, owned by Prisa, are in advanced discussions to merge their two broadcasting companies. As a thematic channel producer, it was obvious to us, that we needed to play an active role in this consolidation process. The acquisition of Teuve allows us to gain size and critical mass to stay relevant in a market that is changing quickly.

As far as other major initiatives we are working on, we will continue to focus on costs and explore new revenue streams in the non-linear channel world.

VIA SATELLITE: How do you see the broadcast landscape changing over the next 12 months?

Zulueta: The FTA landscape is changing rapidly in Spain with analog switchover completed, proliferation of national FTA channels and mergers among broadcasting companies. We are going to see further audience fragmentation and more industry consolidation with Telecinco and Antena 3 as the main players in terms of audience and market share.

In the pay-TV environment, we are also going to see changes. A DTT pay platform is being launched and that is also a significant event that could increase pay TV penetration, which at 25 percent, is quite low in Spain. In short, both in the free- and pay-TV environments, we are going to see massive changes in terms of business structures, audience distribution and technological developments. We certainly plan to be an active and leading player in all these exciting new developments.