Market Insight

CTC Media plans revenue diversification through investment in digital

November 12, 2013

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Russian broadcasting group CTC Media announced plans to expand its business operation outside of free-to-air television, its traditional domain. This move shows the broadcaster's need for revenue diversification. Currently, the group generates nearly all of its total revenues from TV advertising.

CTC Media operates three free-to-air TV channels in Russia: CTC Channel, Domashny Channel, Peretz Channel as well as Channel 31 in Kazakhstan. In the third quarter of 2013, the group's revenues increased by 9 per cent in the like-for-like basis to $171.1m. The group's total advertising revenues were up 9 per cent to $166.9m like-for-like.

CTC Media's revenue growth is in line with the Russian TV advertising market that also grew 9 per cent in the third quarter of 2013, according to the Russian Association of Advertising Agencies (AKAR). However, revenue growth is slowing down in Q4 2013. This is primarily because of the tough comparisons with the last year, when the last quarter was particularly strong and increased by 10 per cent. IHS forecasts total TV advertising growth for the full year 2013 to reach 9.1 per cent. But this is mainly thanks to a strong first half. The Q4 slowdown stands for a wider trend: macroeconomic forecasts for Russia see a deceleration of growth, which will also be reflected on advertising markets. CTC Media's current strategy of almost complete reliance on TV advertising has paid off so far. But as the macroeconomic framework changes and the Russian advertising market matures, new risks and limits to revenue growth emerge. IHS forecasts a 7.4 per cent compound annual growth rate (CAGR) for Russian TV advertising in years 2012-2017. CTC Media plans for higher growth to satisfy investor expectations and future-proofing the business. In order to do so, it must start look for new revenue streams. Of primary interest to CTC is the fast-growing Russian online market, which IHS estimates to grow by 21.8 per cent in 2013. Other broadcasters, such as ProSiebenSat.1 in Germany, have already proven that online ventures can be complimentary to TV advertising and put a broadcaster on a more solid footing in the digital age.

Already in Q3, CTC Media's its digital revenues were up by 85 per cent year on year. Leveraging the digital opportunity for CTC Media means to start building on its already existing assets. At the moment only the website of its main TV channel, CTC, is generating advertising revenues. Websites of both Peretz and Domashny will be revamped to draw in advertising money as well.

Core component will be online video. The broadcaster plans to integrate video players to its websites and monetise them further by making CTC content available exclusively on CTC websites. This will help increase the number of viewers which in turn will increase popularity amongst advertisers and bring additional advertising revenues to CTC Media. The broadcaster may also opt for creating subscriber-based services, although the board did not say that explicitly. This would further boost non-ad related revenue growth.

CTC Media also revealed its intention to futher invest in content and transform from being a content distributor to becoming an aggregator. Currently, its portal 'Videomore' contains both internal and external programming, such as from Channel 5 and Ren TV which are not owned by CTC Media. In the future, such cooperations are likely to be extended in order to build scale in a digital environment. Lessons from other countries, such as the US, UK and Germany suggest that key challenges here are regulatory limitations.

The group is already in the proccess of launching ecommerce activities using third party suppliers. Although no further details were provided, some of the agreements are at their final stages.

Apart from the new business ideas, the broadcaster also acknowledged the importance of the smaller TV channels. Although the combined audience share of CTC Media's Russian TV channels increased in Q3 2013, it declined for Peretz. The group is changing the programming so that this channel will become 'the king of thrill and extreme', to complement women's channel Domashny and family channel CTC. In this way it hopes to create a more attractive channel bundle for advertisers.

However, as important as the core channel business and ongoing optimisation in broadcast TV may be, digital strategy is becoming more important. CTC Media aims to generate at least 10 per cent of their revenues outside of traditional free-to-air television operations by 2016.

CTC Media
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