Tuesday, May 24, 2005

Telefonica + Endemol: the failure of an entertelco

When I am at home, I like to start my day by browsing the news sites. You see the local news, but also the international news; you see general, nice to know news and specific trade news, which sometimes hits you between the eyes. So this morning: BERLUSCONI WANTS ENDEMOL.

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The news item said that Mediaset, the media company of the Italian prime minister Berlusconi, likes to acquire Endemol International from Telefonica. Mediaset has confirmed the interest, but has not informed Telefonica yet. But according to the Media spokesperson Fedele Confalonieri the time is not ripe for talking as Telefonica asks 3 billion euro for the company.
Mediaset is a dominant media player in Italy with Canale 5, Italia 1 and Retequattro. It exploits also digital theme channels and websites, while it also owner of the largest publishing company. Mediaset is interested as the company would fit well with its TV fomats such as Big Brother.

WOW. This spells a big content deal. Telefonica bought Endemol for almost 6 billion euro in 2000. But soon Telefonica would find out that Telecom and entertainment are different games. In fact in 2003 Telefonica got more money from fixed lines and mobile phones that from the entertainment company Endemol. The company had been unable to think up new successful formats and the formats it possessed were at the end of their lifetime; so not too much money would be paid for them.

Of course the entertainment business is different from the telco business. While telecom companies like Telefonica need to get their money from fixed lines, ADSL and mobile phone, Endemol needs to get its money from their bestsellers such as Big Brother. Endemol is in the best sellers business, which has to support weak programs with bestsellers. Even with a diversification in other media and so spreading risks, people will buy only best sellers, regardless of the complete offer. So far the regular tick business did not agree with the best-seller’s business.

At the time of the acquisition of Endemol by Telefonica, the convergence model was en vogue. AOL Time Warner had merged. They travelled through the digital conduit and found out that it was very hard to optimise all the digital content they had. And Bertelsmann had at the same time problems with the convergence road. Having a worldwide music company, a worldwide print and publishing company and a European conglomerate of TV and radio stations, the Bertelsmann family sent off the CEO and started to retreat to safe grounds. Looking back the conclusion can be drawn that the convergence model has not worked yet.

But John de Mol, once one of the owners of Endemol, has broken free from his agreement with Telefonica and has started his own entertainment production company anew: Talpa, which is the Spanish word for mole (what a smart , political pun). He is hiring television people left an right for his new television station that will go live in August. He just bought the mostly listened to radio station in The Netherlands 538 FM. And he is talking with the Belgian telco Belgacom and the Dutch telco Versatel of merging into an entertainment telecom company (entertelco), active in The Netherlands and Belgium. Both companies have the soccer league rights in respectively Belgium and The Netherlands and hope to make their breakthrough in triple play.

What the future holds for Endemol is not sure. They serve out their existing formats and badly need new exciting formats in order to the price higher. Telefonica bought Endemol in the midst of the internet hype at too high a price. Then it replaced the board by managers and not by creative managers. So, according to the Berlusconi company, even half the sum is now too much, while a new competitor has been created with the money from the sale to Telefonica. It is like Telefonica and Mediaset will be in a revolving door for a while, while John de Mol and his Talpa Capital group are taking the side door to go straight through.

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