Canal+ plans to block HBO from digital system

HBO was originally scheduled to be included in a 14-channel digital package @Entertainment had planned to launch two weeks ago called Wizja TV, which will now be merged with Canal+'s planned platform to create Wizja+.
The merger, along with a six-month-old legal battle between Canal+ and HBO, could scuttle HBO's digital ambitions in Poland. Canal+ in October sued HBO, alleging the company was illegally broadcasting in Poland.
"The whole philosophy behind the (Wizja+) platform is that it will only broadcast legal channels, with a clear legal status," said Piotr Kryczek, legal director at Canal+ Polska and a board member. "That's why HBO Polska cannot be on the platform."
Officials at @Entertainment, whose cable subsidiary Polska Telewizja Kablowa (PTK) carries HBO and is a defendant in Canal+'s lawsuit, weren't so quick to rule out HBO, though.
"We still have many questions to which we don't necessarily know the answers yet," said Przemyslaw Szmyt, @Entertainment deputy president. He added that such issues had to be hammered out over the next 30 days before @Entertainment and Canal+ come to a final agreement on the digital television merger plans.
The issue is just one of many points the two companies will have to resolve to make Wizja+ a reality.
For its part, HBO said it wasn't overly concerned if it was excluded from the new digital platform, adding that this was not crucial for the channel's expansion.
"(Digital) distribution was not a part of our original plan for the first five years on the market," said Tom Powers, HBO Polska's marketing and sales director. "(This) is disappointing, but it does not change our commitment to the cable business here."
In addition, HBO said last week that Canal+'s legal argument, which is set for its first hearing later this month, is not valid because the broadcaster for its programming now has a full Hungarian telecommunications service license. HBO broadcasts its programs via a satellite uplink in Hungary.
"(The license) clearly signifies that HBO has passed all the rigorous legal and technical requirements of the licensing process," said George Douglas, managing director of HBO Hungary.
Previously, HBO's broadcaster in Hungary, CEU, which is jointly owned by HBO and Hungary's largest cable operator Kabelkom, was operating with a temporary Hungarian telecommunications permit.
Canal+ has argued that HBO was broadcasting illegally because it was beaming Polish language programming into Poland from a transmission station in Hungary and did not have a license from the National Radio and Television Council (KRRiTV). (See WBJ, Feb. 23 - March 1, 1998.) So, it maintains that in either case the Hungarian license does not affect the legality of HBO's operations here.
HBO is distributed in Poland by a number of cable companies, the main one being PTK, which is the largest operator in Poland with 800,000 subscribers in eight cities.
Although Canal+ is suing PTK for distributing HBO, this will not impact the digital television deal, officials with the companies said. The Wizja agreement excludes PTK from the merger, although it will be the main distributor of the digital channels.
Under the Wizja deal, @Entertainment's wholly-owned subsidiary DTC Productions will assume a 40% stake in Telewizyjna Korporacja Partycypacyjna (TKP), the parent company of the new Wizja+. The same stake will be held by Canal+, with two minority shareholders holding 10% stakes each.
"These are two different companies, and we're not suing @Entertainment but PTK, which in fact is not the main defendant in the case," said Canal+'s Kryczek. "But it does not change the fact that PTK and other cable operators distribute a channel that according to us is operating illegally here."
While Canal+ was willing to openly air its problems with HBO, the company, like @Entertainment, was coy when it came to other details that had to be worked out for the merger to take place.
"It's a huge, complex set of issues, starting with the serious choice of a satellite system and finishing with office headquarters," Kryczek said. "By the end of May, we want to sign final agreements that would solve all these problems."
The main question facing the two companies, though, was how far each is willing to go in compromising its own plans to make the deal work, said Piotr Fajks, advertising director at private television operator Polsat.
"This merger goes for a completely new technology here, and it's practically impossible to relate it to any other event on the Polish media scene," he said. "That's why, to a certain extent, they have to make decisions based on intuition rather than experience."
One question that will also have to be answered, he added, is whether the ultimate deal will be a marriage of equals or an uneven relationship.
Canal+, which with a market capitalization of FFr 35.65 billion ($5.8 billion) is far larger than @Entertainment with a market cap of $582.9 million. Canal+ said the relationship with @Entertainment will be one of equals.
"(@Entertainment) is a publicly listed company that has already invested a lot of money here, and there is no question about any takeover," Kryczek said. "(The merger) is a sensible connection of experience in doing this kind of television, which we have, with a big capital potential, which @Entertainment has."
But some market observers said the core interests of the two might still be different.
"@Entertainment already invested lots of money here, and their vital interest is to start getting it back as soon as possible," said an executive with one of television stations, who did not want to be named. "On the other hand, turning from analog to digital broadcasting is Canal+'s global policy, which means that if something goes wrong, they risk much more than @Entertainment.