Market Insight

MTG reshuffles free-to-air TV portfolio in CEE

January 17, 2012

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Swedish media group MTG has reorganised its Central and Eastern European (CEE) TV channel portfolio, following closure of terrestrial channel TV3 in Slovenia and acquisition of Latvian media group LNT in just a matter of days.

TV3 was shut down following consecutive years of losses (€5m in 2011, according to local sources), ending almost six years of MTG presence in the Eastern European country. MTG first entered the Slovenian market in July 2006 with a buy-out of free channel Prva TV from Croatian businessman Ivan Caleta (who owned 75 per cent of the shares) and the Roman Catholic Church (25 per cent of shares). Shortly after the acquisition, the channel was rebranded to TV3 and started with an audience share of two per cent, which increased to 11 per cent in 2011. MTG was not able to monetise this audience reach proportionately with advertising. TV3's TV net advertising revenues (TV NAR), contributed towards five per cent of Slovenian total TV advertising revenues in the first nine months of 2011.

Only five days after withdrawal from the Slovenian market, MTG announced the acquisition of LNT, the second-largest free TV operator in terms of audience share in Latvia. LNT owns incumbent free-to-air channel LNT, Russian-language channel TV5 and entertainment channel LMK. In the first nine months of 2011, LNT generated revenues of almost €7m. The audience leader, MTG, has been present in the Latvian market since 2006. Prior to the acquisition of LNT, it already operated four channels: TV3, 3+, TV6 and Viasat Sport Baltic Latvia. Comprising those four channels, MTG's group audience share in Latvia was slightly above 30 per cent in 2011, with 14 per cent from its main channel, TV3. In the same year, almost 13 per cent of the Latvian TV audience watched LNT. The acquisition will give MTG a leading position in the Latvian market. The deal is subject to regulatory approval by the Latvian Competition Council.

Operating in Slovenia was tough for MTG due to macro-economic and competive factors.

On the macro-economic side, the 2009 recession resulted in a decrease of 25 per cent in total TV NAR in Slovenia. The market started to recover as early as in 2010, ahead of other Eastern European countries, when it grew by eight per cent. IHS Screen Digest expects this positive trend to continue over the next five years and forecast a compound annual growth rate (CAGR) of six per cent for the period 2011-2015. MTG's inability to increase its TV NAR market shares offsets this positive outlook for the total TV ad market in Slovenia.

However, this growth prospect is not enough to help MTG break free from competitive challenges. MTG's key competitor in Slovenia, Central European Media Enterprises (CME), owns 100 per cent of shares in Pro Plus, the Slovenian broadcaster whose portfolio consists of three free-to-air channels: POP TV, Kanal A and POP NON STOP. In Q3 2011, Pro Plus reported the audience share of 47 per cent and TV ad market share above 70 per cent. In the same period, MTG had an audience share of 11 per cent and TV ad market share of around six per cent. Squeezed by the large competitor, who dictactes market rates for advertising pricing and has a fully-fledged multichannel strategy, MTG has little room for growth in Slovenia.

Indeed, early in 2010, MTG and RTV (the public broadcaster in Slovenia) filed a joint complaint against Pro Plus to the Competition Protection Authority, accusing Pro Plus of abusing their dominant position on the market. Broadcasters claimed that Pro Plus offered better deals for advertising agencies and clients who had signed exclusive contracts with Pro Plus, preventing them from advertising on MTG and RTV. The investigation started in August 2011, however no decision has been made so far.

The relatively weak position of MTG is amplified by a signal overspill from neighbouring countries, notably Serbia, whose channels enjoy high popularity among the Slovenian audience.

Due to the limited growth opportunity in the Slovenian market, MTG had to look for other business opportunities, resulting in the deal to acquire Latvian LNT. IHS Screen Digest estimates that the Latvian net TV ad market grew by one per cent in 2011, and further growth of five per cent is expected in 2012. This, along with the gains of audience shares from LNT, may result in year-on-year growth of 50 per cent in 2012 in MTG's Latvian operations. Long term, due its strong position in Latvia MTG is much better equipped to capitalise on ad market growth than in Slovenia.

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