Week in review: Endemol and Telefonica's fear factor

(Originally published in Total Content + Media earlier today.)

Among the noteworthy M&A deals this week in the media industry—they included online advertising companies snapped up by Microsoft, WPP and AOL and Thomson finalising its deal to buy Reuters—Telefonica finally offloaded its 75% stake in Endemol to the tune of €2.6 billion.

It sounds like a nice sum, except for the fact that the Spanish telco had actually bought the stake in the TV production company in 2000 for €5.5 billion.

The consortium of successful buyers was led by Endemol’s founder, John de Mol and his investment vehicle Cyrte Fund, and included the Italian media giant Mediaset as well as Goldman Sachs.

"John de Mol did a great deal," one executive from a major broadcaster, told me this week. "He’s basically bought back his company for almost half of what he sold it for a few years ago! We should all try to do that.”

Putting aside the obvious waste of money in buying Endemol at a high and selling it for a low, one has to ask whether Telefonica would have ever been able to capitalise on its asset.

Endemol has been hugely successful in its traditional market of TV, producing franchises in largely in non-scripted formats: shows like Big Brother, Deal or No Deal and Fear Factor now grace millions of TV sets in dozens of countries.

But it’s also been setting the pace in new markets, too, developing mobile-only programming, games and products for other new formats like IPTV. Endemol has made some interesting progress here, signing distribution deals not just with Telefonica properties like mobile operator O2 but with a number of other distributors (mobile and otherwise). And it partners with a number of content companies to develop the products themselves.

Now it may not be your particular cup of tea, but a recent product, a mobile-only TV programme called Get Close To…Sugababes, was done in partnership with Universal Music, appeared exclusively on the O2 network, and really works to push the idea of how to use a small, short mobile format in a compelling way not just for the viewer, but also as part of the programme itself.

In the mobile space alone, Endemol claims that mobile users have downloaded 10 million minutes of Endemol-produced content, and that one million people have streamed endemol shows on their phones.

But all this still didn’t seem to be enough to make Endemol a compelling asset for Telefonica to keep, or to raise its price above what the telco had paid in 2000.

To be fair, Telefonica did try to work some convergence magic on Endemol over the last seven years. This apparently was why the telco didn’t sell it sooner. According to a source, Telefonica had actually wanted to sell off Endemol as far back as 2005 but held off after it bought mobile phone operator O2.

“They didn’t want to upset the relationship between the two,” he said, referring to the deal Endemol had struck with the mobile operator to run text voting for programmes like Big Brother, a lucrative mobile data deal for O2.

“Telefonica seemed to do the right thing buying Endemol,” said the executive. “They just did it at the wrong time.”

Looking to the future, early days under its new owners might be rocky for Endemol. From the moment the deal was announced, there were reports that the company would lose some key executives. Stephane Courbit, the chairman and founder of Endemol France, who was one of the unsuccessful bidders, said he would leave if John de Mol returned to the helm. And the chief creative officer and chairman of Endemol UK, Peter Bazalgette is also rumoured to be eyeing up the exit.

Mediaset, the Berlusconi-owned Italian media conglomerate, may have less time for new projects like mobile TV and IPTV as previous owner Telefonica did. Mediaset has been quick to release a statement saying that Endemol will retain its editorial independence, but this wouldn’t rule out trying to shape the production company’s product line up to better fit with its own media assets.

And Goldman Sachs could stay on the sidelines as a pure financial punter, but it too wouldn’t be in this deal if it didn’t think it could make some money out of it at some point. Perhaps those bankers know something that Telefonica did not.