Market Insight

MTG sells central and eastern Europe pay TV channels

October 26, 2015  | Subscribers Only


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MTG has agreed to sell its central and eastern Europe (CEE) pay TV channel operations for $45.5 million. Sabiero Holdings Ltd, controlled by private equity firm Baring Vostok, has acquired the CEE channels while the Russian segment has been purchased by LLC Sinerdzhi. The Russian channel operations include all the factual and cinema channels while the international segment includes all the pan-regional feeds and the TV1000 movie networks. The deal does not include any of MTG’s sports channels -with the exception of Viasat Sport East, the global Trace, or MTG’s free-to-air operations.

Sweden's MTG is being forced to sell its Russian assets in order to comply with an amendment to the Russian ‘On Mass Media’ law, which will impose a 20% non-Russian ownership cap of Russian television companies from 1 January 2016. MTG has been trying to sell the Russian subsidiary of its Viasat international satellite TV operation, which runs around 30 of its own pay TV channels. Until recently there had been talks between a company which manages the assets of Leonard Blavatnik, the UK-based investor, and the Modern Times Group about purchasing about MTG’s stake in the Russian subsidiary of Viasat. However, no agreement was reached.

Our analysis 

In its Q3 interim report, MTG reported revenues of SKr297 million ($35 million) for its pay TV emerging markets segment - stable on a year-on-year basis at a constant foreign exchange rate, while free TV revenues in the same region were up by 9%. Results were hit by the performance of MTG's pay TV platform in Ukraine and lower ad revenues in Russia after changes in the local media law. The mini-pay TV channel segment added eight million new subscribers with the Baltic subscriber base stable but Ukraine declining.

The sale will remove the political uncertainties of the Russia and Ukraine regions from MTG's overall business and enable it to focus on strengthening its growing Scandinavian pay TV and international free-to-air operations. In August, MTG announced a reduction of a 7% of its employee base across the Nordics and the UK as part of a general restructuring plan. It is also promoting its digital business growth which included the investment of SKr1.2 billion ($141 million) in the acquisition of Turtle Entertainment, Splay and Zoomin.TV. MTG has been also investing heavily in sports, including rights agreements with the NHL, World Cup of Hockey, Premier League, La Liga, Serie A and Ligue 1 in the Nordics.

Unlike Disney or Discovery, the Modern Times Group did not manage to find a way around the 20% ownership cap in Russia. The Walt Disney Company will sell 29% of its 49% stake in Disney Channel Russia to UTH Russia which already owns 51% of the channel. Disney will continue its previous revenue share agreement with UTH Russia. In its turn, Discovery Communications will create distribution for its channel properties via a partnership. Combining forces with a Russian company called National Media Group, Discovery has formed a company called Media Alliance in which it can hold a 20% stake.

The sale of the MTG's Russian business is also influenced by the ban on advertising on pay TV channels which came into effect in the beginning of the year.

It is important to point out that LLC Sinerdzhi is not completely independent from Baring Vostok. LLC Sinerdzhi was only created on 8 October 2015 and it solely belongs to Anatoliy Karyakin who use to be a co-owner of Vostok Capital and partner, a minority shareholder of Baring Vostok. According to Russkiy Biznes Kanal (translation: Russian Business Channel), commonly referred to as RBK, Mr. Karyakin used to be one of the top executives at Baring Vostok. Additionally Mr. Karyakin is the CEO of the second largest billboard advertising company in Russia which is 51%-owned by Baring Vostok

Geography
Russia Sweden USA
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