Controversial levy on media operators signals dramatic market changes to come

Spain's Royal Decree 8/2009, of 28 August, has restructured the financing for Spain's public television channel RTVE through a levy on private media entertainment operators, even if they do not carry audiovisual content. Restrictions on the ownership of private channels have also been removed, clearing the way for mergers and many industry players have inevitably been swift to respond.

Encouraged by the introduction of digital terrestrial television and by a 79% drop in advertising revenue, Spain's four main free to air channels are about to become two. Telecinco will merge with Cuatro and Antena 3 with La Sexta.

The first merger, suggest some, has been hastened by acute financing problems at Cuatro's ultimate owners, Grupo Prisa. The company, which publishes Spain's leading newspaper El País, is facing a debt repayment of €1.95bn by 31 March.

Under the terms of the merger agreement, Gestión Telecinco, 50.1% owned by Italian Prime Minister Silvio Berusconi’s Mediaset, will merge with Cuatro and also acquire from Prisa, 22% of Spain’s leading pay-TV company Digital+ for €517m. Mediaset is using Uría Menéndez while Prisa has engaged boutique Cortés Abogados, as it has for all its recent M&A work.

Prisa has also recently made other divestments. DLJ Capital Partners bought a 25% stake in Prisa's Santillana publishing house while Telefónica invested €517m for a 21% stake in Digital+, which in return allows the channel to offer a triple pay service by providing Telefónica’s broadband. Portuguese investment vehicle Ongoing Strategy has also now agreed to pay €122m for 35% of Media Capital, owner of its country's terrestrial channel TVI, but market observers say Prisa still has more to do. Further stake sales in Digital+, Editorial Santillana and Media Capital seem inevitable.

The second merger, the €2.18bn Antena 3 / La Sexta deal, will create Spain's third largest broadcaster with a 21% market share. Antena 3, owned by Planeta, is being advised by Clifford Chance while La Sexta's two main partners, Mediapro and Televisa, have mandated Linklaters and Garrigues respectively.

The deals have been well received by the stock market. With advertising having been removed from public TV channels, the two new chains will be able to divide the publicity cake between them. Although an issue remains that now the advert-free public channels are winning new audience share their private peers may not be able to sustain the 20% rise in advertising rates introduced to take advantage of the new market conditions.

A further downside however is that the market for legal advice to the sector is shrinking rapidly. Those firms to have received mandates for the current round of consolidation may be pleased but many media lawyers may, in the longer term, be looking at blank screens.