Pan-European broadcaster Central European Media Enterprises (CME) reported 15.4 per cent year-on-year net revenue decline to $211.2m (€152m) for Q2 2012, resulting in operating profit decline of 40 per cent. CME's main competitor, Modern Times Group (MTG), maintained its revenues at SEK3.5bn, or €387m, in the same period.
CME operates 24 free-to-air channels, pay TV and online services in Central and Eastern Europe (CEE): Czech Republic, Romania, Bulgaria, Slovakia, Slovenia and Croatia. MTG business activities span across free and pay TV in Scandinavia and an 'Emerging Markets' category, which includes the Baltics, Bulgaria, Czech Republic and Ghana.
CME maintained its leadership position in 2012, both in terms of audience and market shares across all its markets of operations. However, the group's performance was inconsistent across its markets. In terms of audience share, CME gained points only in Slovakia and Croatia, but its share remained flat in Romania and declined in other countries. In terms of advertising, the group lost market shares in Slovakia and Bulgaria.
In Slovakia, CME gained one percentage points in terms of its audience shares. However, this did not prevent the group from losing three percentage points of advertising market share. Some of this advertising market share was taken over by public broadcaster STV who attracted advertisers by broadcasting the EURO 2012 football championship. Other advertising market share moved to key competitor JoJ Group, thanks to their successful programming strategy. Also in Croatia, CME did not succeed in monetising an increase in audience shares. This was mainly due to budgets moving to the public TV group which held the broadcasting rights for EURO 2012.
Audience erosion was also present in Czech Republic, where CME's audience shares fell from 43 per cent in Q2 2011 to 38 per cent in Q2 2012. This is two points below the audience shares threshold of 40 per cent set by CME in order to reach its full operating potential in the Czech market. CME's TV advertising market share remained stable at 66 per cent. Again in this quarter, CME decided not to increase discounts on its rate card prices, trusting market demand to be strong enough. Key competitor MTG on the other hand, continued to offer high discounts to its clients. Paired with an increase in audience share, MTG was able to increase its TV advertising market share from to 26 per cent in Q2 2012 from 24 per cent in Q2 2011. However, as the Czech TV advertising market declined by eight per cent in Q2, MTG finished the quarter with a two per cent decrease in its TV NAR despite market share wins. CME closed the period with NAR loses of eight per cent year on-year.
In Bulgaria, competitors CME and MTG both suffered as they lost a total of six percentage points of their audience shares each. Their losses were attributed to a strong public as well as the rise of smaller thematic channels. Despite that, MTG increased its advertising market shares by one point which it took from CME. Again, different philosophies of advertising pricing faciliated this. MTG offered more attractive discounts which were favoured by advertisers considering an ongoing economic volatility in Bulgaria. However, CME is banking on a long-term strategy. When markets rebound, it will be more difficult for MTG to reduce discounts again, whereas CME will be able to better monetise its inventory. Unlike in Slovakia and Croatia, the Bulgarian public broadcaster (BNT) failed to benefit from its broadcasting rights for EURO 2012. Sales of advertising spots during the football championships were executed only in a short space of time before the games which discouraged advertisers.
As MTG withdrew its operations from the Slovenian market in February 2012, Q2 2012 was its first full quarter without a presence in Slovenia. The audience share of TV3 and a further two percentage points from CME were distributed between the public broadcaster, RTV Group (the exclusive broadcaster of EURO 2012) and minor thematic channels available. The advertising market shares of RTV and CME remained flat, with the ad market shares of small thematic channels increasing by five points year-on-year.
Even a major sport event like EURO 2012 could not prevent CME's markets of operation decline year-on-year in Q2 2012. Advertisers were cautious, discouraged by the macroeconomic volatility across Central and Eastern Europe, as well as by the uncertainty in the wider Eurozone. IHS Screen Digest estimates that markets will perform better in H2 2012, however we forecast declines across all markets of CME's operations, ranging from 0.6 per cent in Slovakia to 12.1 per cent in Croatia.
Out of the large international broadcasting groups operating in Central and Eastern Europe, the soft advertising market in the region has the largest effect on CME. MTG can partially compensate the difficult conditions by an overall stable performance in its Scandinavian markets of operation.
As yet another major pan-European broadcaster operating in the region, ProSiebenSat.1 has also felt the adverse advertising climate, with its advertising revenues in Romania and Hungary dropping more than 20 per cent year-on-year in Q2 2012. However, since Central and Eastern European operations contribute towards less than five per cent of ProSiebenSat.1' total net revenues, the broadcaster is much less exposed. Looking ahead, due to already high market shares across all its market of operations, the room for growth in terms of gaining advertising market is limited for CME, with a possible exception of Croatia. Over the next years, the group is likely to focus on maintaining its leadership position, investing more in non-advertising activities, such as its video-on-demand platform Voyo, production and distribution, as well as subscription base channels. Competitor MTG will start benefiting hugely from its new family of channels in Latvia in H2 2012.