Rupert Murdoch's aspiration to create a pan-European media empire from the UK to Poland took dramatic shape yesterday when it emerged that the media mogul was in talks with Canal Plus of France over alliances, joint ventures and even a full-blown merger.
The talks, centred on British Sky Broadcasting, were confirmed by Canal Plus, sending shockwaves through the television industry but bringing swift warnings from analysts of regulatory problems ahead.
Although BSkyB and Mr Murdoch's News Corp declined to comment, Canal Plus said it has been in talks with his group. The French sought to cool mounting speculation by adding that they had also been talking to other audio-visual companies. Such talks were 'nothing unusual'.
Analysts warned that a full merger was out of the question because competition authorities in Europe would block it. But there were indications last night from Brussels that a merger would not automatically be opposed. One European Commission official indicated that there would be tough scrutiny of a merger, but said it was not clear that it would be blocked.
Until now, the Commission has treated pay-TV markets as national or by countries sharing a language. 'We have never found a European market,' the official said.
But the City focused on the potential that could be unlocked by other forms of alliance. Mathew Horsman, media analyst at Henderson Crosthwaite, said the talks were 'absolutely vintage Murdoch', coming as BSkyB and Canal Plus were at similar stages of development in digital TV with much potential ahead.
Even without a merger, BSkyB and Canal Plus could deal together on a variety of issues, including joint bids for high-cost programming and sports rights, and joint ventures in markets where there is no regulatory problem.
An alliance could also give Mr Murdoch entry to the Italian market where numerous players are manoeuvring for digital TV. There Canal Plus owns 90 per cent of the Telepiu pay-TV company and recently struck an alliance with RAI, the Italian state broadcaster.
Mr Murdoch's decision to court the French TV and film group follows the failure of earlier attempts to break into Europe. Although BSkyB is leading the UK's foray into multi-channel digital TV and interactive services, it has no presence outside the UK. Mr Murdoch is keen to secure a significant presence on the Continent where a multi-billion pound market for programming and pay-television is developing.
Canal Plus is one of Europe's leading TV groups with 10 million subscribers to its pay-TV, and interests in 13 countries, including Belgium, Spain, Italy, the Netherlands, Poland and the Nordic countries, as well as its main market in France.
Aside from its successful Canal+ channel on terrestrial, satellite and cable television, the group has launched digital services via satellite and, like BSkyB, is winning new subscribers rapidly against one other domestic competitor.
Both groups are investing heavily in digital TV, depressing recent profits, and have substantial interests in sport. BSkyB is poised to buy Manchester United, pending Monopolies and Merger Commission approval, and Canal Plus owns Paris St Germain.
BSkyB and Canal Plus are already linked by personality and shareholdings. Jerome Seydoux, chairman and chief executive of French film and TV company Pathe, is also chairman of BSkyB. His appointment at BSkyB was backed by Mr Murdoch who was keen to improve his European credentials.
Pathe, Canal Plus and BSkyB are also linked by a series of cross-shareholdings. Pathe owns 17 per cent of BSkyB through direct and indirect stakes, and also 20 per cent of the pay-TV arm of Canal Plus. Canal Plus and its main shareholder, Vivendi, own 28.6 per cent of Pathe.