Market Insight

Chellomedia bets on US brands for international growth

August 01, 2012

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Liberty Global-owned Chellomedia is ditching its Chello and Zone branded channels in a major strategic overhaul that will see it extend its partnership with CBS and acquire MGM's international channels outside the UK. The move will bring a wealth of new US content to Chello's channel portfolio and leverage two major US studio names in an international market place that is becoming increasingly competitive.

Chello and CBS first partnered back in 2009 with a re-launch of the UK Zone channels under the CBS brand. The pair claim that viewing more than doubled as result, with full access to the 70,000-hour CBS library boosting the channels' evening schedules with strong US entertainment series. The MGM brand--arguable the most famous of the US studios-is clearly seen as an opportunity to repeat this, bringing the strength of the massive movie-driven MGM archive fully within the channel family.

Under the terms of the deal, CBS will receive a 30 per cent stake in the four Zone channels which between them are active in 83 countries across EMEA. In Poland Zone Romantica will be re-named CBS Action while in other territories Zone Romantica and Club will become CBS Drama and Zone Reality will become CBS Reality. Zone Europa will also receive a new name in all territories.

The deal with MGM means Chello will get MGM and MGM HD channels in EMEA, India and South East Asia, but MGM will hang onto its channels in Germany and the UK.  The channels will continue to show the same content as before, consisting mainly of MGM classic films, with Chellomedia and MGM inking a long-term program licensing agreement with MGM.

The Chello Zone channels were launched in 1998 and 1999, with a focus on Eastern Europe. Poland remains the key market, both in terms of a transmission Hub and also as an important revenue generator in its own right. Chello acquired the channels in 2005, and although the properties have remained central to the Chello channel business, the group has also focused increasingly on the distribution of third-party channels (including the MGM channels it will now acquire). US-studio brands are particularly important in driving pay TV in emerging markets and it seems the two deals will be a win-win for the both Chello and the studio groups.

For CBS the deal gives it an instant international footprint--we estimate the Zone channels reach 40m homes outside the UK--with limited financial exposure. MGM, which has struggled financially in recent years and emerged from bankruptcy just one year ago, has off-loaded a portfolio which, although strong in brand, has never really expanded beyond the single MGM Channel. Through this agreement MGM will focus its efforts on larger markets, whilst retaining an income elsewhere from the sale of its valuable content catalogue to Chellomedia.

Chello's focus is now likely to be on growing the reach of the brands outside Poland, where the channels are most established. IHS Screen Digest estimates the cumulative reach of the channels in Poland to be 13.5m with carriage on Cyfrowy Polsat, TPSA, Vectra, Multimedia Polska and UPC. Opportunities to replicate this success exist throughout the rest of Eastern Europe, where pay TV is undergoing something of a renaissance driven by fierce competition in the satellite pay TV space.


CBS Chellomedia MGM
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