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The Player (Int'l Edition)

International -- Cover Story -- Europe: The Player

THE PLAYER (int'l edition)

A restless night owl, Pierre Lescure does some of his best thinking at 2 a.m. In his office or his Paris apartment, the chairman of French television powerhouse Canal Plus hunches over a fax machine into the wee hours, firing off handwritten queries to company managers on everything from new programming to strategic alliances. Once he phoned a company executive long after midnight to complain there was nothing good on TV. The pair hatched the concept for the hugely successful Canal Jimmy, an all-night channel devoted to old and new American TV serials, cult movies, and pop music.

Those sleepless nights have paid off big for the 50-year-old Lescure, a former TV reporter who joined Canal Plus as programming director 11 years ago. Then, it was a fledgling pay-TV company so mired in initial losses it was nicknamed Canal Minus. Today, it's the world's biggest pay-TV company by sales, with $2.2 billion in revenues and a host of channels beaming movies, talk shows, videos, and sports to 6.4 million homes throughout France, Belgium, Spain, Germany, and French-speaking Africa.

Now, Canal Plus's hard-driving chairman has a new vision for his company. While defending his dominance in European pay TV against all comers, he plans to challenge the English-language media giants for a top spot in the global television market. No other European broadcasting company has achieved that distinction. To extend Canal Plus's reach around the planet, Lescure is weaving a web of joint ventures with such heavies as the U.S.'s

Tele-Communications Inc. (TCI), Germany's Bertelsmann, and Japan's Sony Pictures Entertainment.

That's for starters. Beyond the year 2000, Lescure sees Canal Plus as a global king of content, a producer of high-quality offerings adapted to local markets from India to the U.S. Canal is also amassing a huge library of programming rights, from cartoons to documentaries and feature films, and is angling to reinvent European filmmaking. Besides backing U.S.-made movies such as the 1994 hit Stargate, Lescure hopes to churn out bigger-budget films that are distinctly European but as commercially successful as Hollywood fare. Says Lescure: "Where this market is going, imagination is the only limit."

It's a daunting agenda: No Continental media company, with the exception of publishing and recording giant Bertelsmann, has entered the winner's circle of top global players. But the time is right for bold moves. The launch of two new satellites bringing digital broadcasting to Europe will soon transform the protected television market there by vastly multiplying the number mf stations available to broadcasters. Europeans will soon have access to hundreds of channels, most of them in the pay-TV format.

Like Rupert Murdoch, Lescure is betting that those first to exploit this market will be the biggest winners. Lescure already has plans to launch 40 new digital pay-TV channels. He figures he can capitalize on a loyal French audience of baby boomers and Generation Xers, who avidly follow such Canal Plus offerings as Canal Jimmy and Les Guignols de l'Info, a satirical puppet show that lampoons the French Establishment. "The big success of Canal Plus is the quality of their programming," says Philippe Cassagnes, media analyst for Nomura Bourse in Paris.

HOT HANDS. Yet the sudden arrival of some 600 new channels over the next year will create new dangers in pay TV. "There will be an oversupply of channels," warns Allen Marmian, media consultant at Price Waterhouse in London. "Somebody is going to get burned." Murdoch, sources say, has signed a preliminary agreement with one of Europe's strongest broadcasters, Compagnie de Luxembourgeoise de Telediffusion (CLT), to set up a Europewide pay-TV company. CLT already plans to challenge Canal Plus with pay-TV service in France next year. Lescure doubts Murdoch and CLT will consummate their alliance, but he concedes Canal Plus "might be shaken up more than in the past by the competition."

But Lescure is moving fast. Sources say he will announce soon a joint venture with cable-TV giant TCI. TCI is likely to pay roughly $100 million for a 50% stake in the venture, which would consist of four existing Canal Plus channels, and plans to develop new channels for foreign markets. At the same time, TCI International's networks in foreign markets such as Asia and Latin America might also become an outlet for Canal Plus programs.

To fill the airtime on its 40 new channels and provide content to its new allies, Canal Plus plans to become a "channel factory," mixing its own in-house programming with purchased shows, movies, or sports events. The most successful concepts for channels will be exported to Asia, Latin America, the U.S., and elsewhere in Europe--but adapted with the help of alliance partners for those markets. Some programming may also be designed uniquely for foreign markets, such as Voila, an English-language channel created with TCI for the U.S. market as well as Britain and Hong Kong. The channel will highlight the best of European fashion, culture, art, travel, music, and lifestyle.

EARNINGS HIT. This will all cost money--big money. Canal Plus and its partners will have to spend hundreds of millions of dollars on new TV programming, film production, and rights acquisition over the next few years. Canal Plus is also investing $80 million over three years to be among the first with new digital services, including the decoder-box technology that will unscramble digital satellite signals to subscribers' homes. Having developed the decoder technology in-house, Lescure has quickly signed up Deutsche Telekom, CLT, and Bertelsmann as licensees.

Investing in the digital future is taking a bite out of earnings. Profits dropped last year by 50%, to $125 million. Overall earnings are expected to rise only slightly for 1995 and 1996. Meanwhile, the stock, at 173, has outperformed the Paris market in the past six months, but it is well below its 1993 high of 285. "Lescure knows he has to be very careful on the money side and very creative on the product side," says one top Canal Plus manager.

Analysts expect earnings to rebound in 1997, to $189 million, as subscriptions to new digital satellite services start rising. An added comfort is a $510 million cash hoard and an absence of debt. But the pressure will remain, especially if the explosion of new pay-TV services forces subscription prices down. Laurent Carozzi, media analyst at Paribas Capital Markets in London, expects new entrants to offer subscriber packages at lower prices than those of existing players such as Canal Plus, which charges $36 a month in France, compared with $11 a month for Home Box Office in the U.S.

DON'T LOOK BACK. Yet Lescure insists his programming quality will allow him to maintain that price premium. Seated in his office on a red hassock shaped like a woman's lips, he gazes at a bank of six TVs showing Canal Plus programs and those of rivals. His company's offerings all look like great shows to him. Breaking into a grin, he asks: "Do I look worried?"

Lescure certainly knows how to survive, despite all the risks he has taken. A news director at station France 2, Lescure took all of five minutes to accept an offer in 1984 to become head of programming at the newly founded Canal Plus. The request came from Andre Rousselet, then a top executive at media conglomerate Havas and a golfing buddy of former French President Francois Mitterrand. Using funds from Havas and his own political influence, Rousselet set up the pay-TV station to compete with three government-owned channels.

Rousselet wanted to create an HBO-like pay-TV movie channel in France. But French law prevents airing movies Friday and Saturday evenings, to protect French cinemas. So Lescure decided to air movies half the time while offering a mixture of live sports coverage, National Geographic documentaries, and musical events such as Michael Jackson concerts. Now, Canal Plus airs everything from cartoons developed by the company's studios to the enormously popular Les Guignols. Says Pierre Dauzier, chief executive of Havas, which holds 24% of Canal Plus: "Lescure has a very acute sensibility about the evolution of popular culture. He's atypical."

From the beginning, Canal Plus has had to broadcast four hours a day of unscrambled programs to ensure all French citizens would have partial access to the channel. Cleverly, Rousselet and Lescure whet the appetite of potential subscribers by airing some of their best programs for free during the unscrambled hours. The method has proven so successful, they've repeated the practice in markets such as Spain and Poland. "It's the first time French overregulation was a good thing," says Lescure.

Lescure demonstrated acute political savvy when he was appointed chief at Canal Plus in February, 1994, after the departure of Rousselet, his mentor. Rousselet quit in a fury after key shareholders Havas and Compagnie Generale des Eaux tried to undercut his independence. Lescure has since quietly worked to distance Canal Plus from outsiders eager to meddle. And he has maintained cordial relations with Havas, which also indirectly owns 20% of archrival CLT. Dauzier of Havas at one point sought a merger between Canal Plus and CLT, a move Lescure opposed. But insiders say instead Dauzier now probably plans to sell the CLT stake and back Canal Plus.

Lescure disdains hierarchy and motivates employees by his own enthusiasm for pop culture, especially the American variety. As a teenager, he sneaked into the U.S. military base in Paris to buy rock 'n' roll record albums. Now Lescure is renowned for his vast collection of American kitsch, ranging from Porky Pig statues to rubber Apollo rockets and old radios.

"TURNING POINT." Lescure has had some jarring experiences in America, though. Early visits to Hollywood to develop film deals were humbling--studio bosses kept him waiting for hours, and one Warner Bros. executive rudely fell asleep as Lescure was talking. "I never came back discouraged," insists Lescure, who worked arduously to improve his English throughout the 1980s and spends half his vacation time in the U.S. He now hobnobs with such moguls as Walt Disney Co. Chairman Michael G. Eisner and TCI CEO John C. Malone. But the one he admires most is Murdoch. "He's a genius," says Lescure. "He was probably born global."

Lescure's media empire may be smaller than Murdoch's, but his vision is no less grand. He's betting that his young creative team--average age: 35--can join with U.S. and European partners to produce channels in French, German, Spanish, and ether languages that cater to selective tastes. The ability to create for local markets gives Lescure an edge over English-only broadcasters such as Turner Broadcasting System, which broadcasts old movies, cartoons, and Cable News Network in English throughout Europe. Already, Canal Plus produces Na Gape, a Polish talk show, Topspiel der Woche, a weekly German soccer game, and CCP, a Belgium business-news show.

Now, as U.S. media companies begin to realize global audiences want more than Hollywood movies, MTV, and CNN, they're scrambling for savvy foreign allies. "It's a critical turning point," says one top U.S. media executive who is talking with Canal Plus. "Everyone is looking for a European partner." In October, Canal Plus inked a joint venture with National Geographic to market documentaries from both companies globally. It also has an alliance with Home Shopping Network. "Canal Plus has an incredible network," says Kenneth Lemberger, executive vice-president at Sony Pictures Entertainment.

Lescure is also planning to raise Canal Plus's profile in feature-film production to feed first to movie houses, then to its own channels and other television companies worldwide. He hopes to announce an agreement in November with Sony Pictures Entertainment for a joint venture for film production based in London. Canal Plus already helps finance 90% of French films. But many of its in-house productions are low-budget. In the future, Lescure aims to make fewer movies with bigger budgets of up to $25 million a pop.

The dream of making European films that bring in big box-office receipts will be the toughest to execute. "It's a brilliant idea. The problem is no one has succeeded in doing it," says Paribas' Carozzi. Canal Plus already stumbled once, seeking to gain access to big Hollywood hits by taking a 17% stake in Carolco Pictures Inc., the U.S. film-production company. The link gave Canal Plus the chance to back big hits such as Basic Instinct and Terminator 2. But Carolco failed to control its costs and now teeters on the edge of bankruptcy. That forced Canal Plus last year to take a $24 million write-off. Lescure, however, will still occasionally back Hollywood productions. Subsidiary Canal Studio entirely financed last year's sci-fi hit Stargate, which grossed $200 million worldwide.

As it picks up the pace, Canal Plus is pumping out 200 hours of fresh TV programming a year, compared with 100 hours two years ago, including TV movies, miniseries, and children's programming. The company has also acquired 1,500 hours of outside programming and wants to acquire an additional 3,500 hours by 1997.

If Lescure's vision pans out, Canal Plus could create a vibrant TV and film industry in Europe. That would jolt the U.S. broadcasting giants that assume they will dominate global markets. Yet Lescure must move fast. "Anyone who waits until 2000 is dead," he asserts. "The game will be won by then." For now, this French company is a worthy challenger.By Gail Edmondson in Paris, with Paula Dwyer in London and Ronald Grover in Los Angeles

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