Central European Media Enterprises (CME) has reported their annual results highlighting a growth of 5% compared to 2015 in their net advertising revenues (NAR). This growth was driven by the strong performance in four out of the six countries in which they operate. Moreover, CME maintained its leading position in terms of TV ad market share and audience ratings across all of their territories.
The four markets that recorded growth for CME in 2016 were Czech Republic, Romania, Slovakia and Slovenia:
Czech Republic: CME achieved a NAR growth of 3% year-on-year (y-o-y) although it contracted its market share to 60% (from 61% in 2015) - holding nevertheless its market leader position by far. With MTG exiting the Czech market by selling their share of Prima to local owners, CME will potentially gain an advantage of scale as a larger operator across the CEE region. Prima however showed that it’s prepared to exert ad prices pressure as it has increased its inventory volume with the launch of Prima Plus (aimed also to neighbouring Slovak market).
Romania: CME recorded a massive 14.9% NAR growth y-o-y, an acceleration from the 13.5% growth achieved in 2015. The economic growth in Romania (real GDP growth rate at 5.1% in 2016) has propelled the investments in TV advertising backed by the high consumer spending levels observed in the local market. Key consumer sectors like fashion, food and telecommunications have recorded a high growth rate, in the last five years, contributing to the boom in the TV ad market. Alcoholic beverages and fashion consumption grew 9% and 11% respectively, propelling growth in marketing campaigns. CME’s leading position in Romania remains unthreatened, as the second largest broadcaster by market share; Antenna Group is preoccupied with allegations of its involvement in political corruption scandals.
Slovakia: CME grew its NAR by 7.4% y-o-y however, increased competition from JOJ group on prices and audience share meant that CME lost 1% of its market share. In 2016, ad slots were sold out to the point that CME’s Markiza was fined by the local regulator for airing ads over the permitted limit within the prescribed 30-minutes intervals. CME in Slovakia has also moved its channels distribution (including Czech programming) from Digital-to-Terrestrial (DTT) to cable, satellite and IPTV. This means that CME will not be competing directly with JOJ in the DTT space and consequently audience ratings will no longer be available for comparison, until the local audience measurement panels are reconfigured. A prolonged process of unifying the audience data will risk in extended market uncertainty which could have an adverse effect on prices.
Slovenia: the combination of low audience ratings and lower prices from competitors meant that CME started the year from a very low basis in Slovenia; however, it has managed to progressively pull better ratings (32% in Q1 to 41% in Q4) and hence recover lost advertisers finishing the year with 4.5% NAR growth y-o-y. Due to the strong price fluctuations in Slovenia, the TV ad budgets shifted between broadcasters which caused CME’s monopolistic market share to oscillate between low 70% (in Q3) and high 78% (in Q2), indicating the high ad prices sensitivity that characterises the local market.
The two markets, in which CME contracted in 2016, were Bulgaria and Croatia:
Bulgaria; downward average ad price pressure meant that despite a higher volume of ads sold and steady audience share, CME’s TV ad market share was decreased from 58% to 56% in 2016 (a three year low). MTG (the larger competitor) on the other hand, recorded gains of 1% up to 36% owing to its strong TV and digital platform offerings.
Croatia: despite an increase in the total ad market CME decreased its NAR by 2.2% y-o-y, losing 2% of its market share down to 54%, for RTL’s benefit, which resulted from its launch of new channel and HbbTV (Hybrid Broadcast Broadband TV) format.
CME continued to show strong commitment to invest in local productions for its programming content, a key strategy of the group across all its territories. In the short-term this strategy is paying off as reflected in its 2016 earnings results. However, the lack of focus on digital platforms and online (on demand) content distribution strategy (M&A investments or in-house development) unlike its key competitors (mainly larger groups MTG and RTL), could potentially mean a deterioration of future NAR as advertisers could shift budgets to TV and digital campaigns. At the moment this is still a low risk as the CEE markets are traditionally TV (linear) centric. However, faster growing (Romania) and larger more developed markets (Czech) could rapidly embrace new formats at CME’s expense. These two markets brought 57% of CME’s total NAR in 2016 and are hence integral to CME’s long-term success.