Correctly Assessing Television Potential One Bone At A Time

Michael Hedges August 15, 2011 Follow on Twitter

Investors in television companies come in all sizes and styles. Some become operators, others players. The money in the television business just keeps on growing, which keeps investors on their toes lest one or two get broken.

Long present speculation was confirmed when Polish conglomerate ITI Group announced (July 7) it had hired investment bankers to “review strategic options” for its stake in broadcaster TVN Group. ITI has been considered in cash-out mode since the death of co-founder Jan Wejchert in 2009. ITI’s current stake in TVN Group has been valued at roughly €1 billion, which would pay off accrued debts and leave about €200 million for the going away party.

”Given the fact that our strategic shareholder has announced its intention to sell its stake in TVN, we decided to extend the scope of our expectations about the future, which we share with the market,” said TVN Group CEO Markus Tellenbach at a press conference (August 11).  “We believe that this will help all interested in an objective and correct assessment of the potential transaction that is so important.”

All the favorites have been tipped as potential buyers, from Vivendi and News Corporation to RTL Group and Time Warner. There are more than five suitors said Mr. Tellenbach. Others suggested as possibly interested include publisher Agora SA, Russian internet company Yandex, and Renaissance Capital

ITI Group has been selling shares all year, reducing its holdings from just under 62% to just under 52%, the amount pledged against the €260 million senior note due in 2017.  TVN Group owns ten television channels, including main free-to-air channel TVN, TVN7, TVN 24 and others. The company also owns major online portal Onet.pl and pay-TV channel N. It has been listed in the Warsaw Stock Exchange since 2004. That IPO was just part of the considerable debt package that has plagued ITI Group for a decade.

Mr. Tellenbach has been president and CEO of TVN Group since 2009 but the relationship there and with potential suitors goes much deeper. Appointed SBS Broadcasting COO in 2001 Mr. Tellenbach was named CEO the following year. SBS Broadcasting held a significant minority in TVN Group until the end of 2003. He resigned for “personal health reasons” in 2005 after the merger with ProSiebenSat but remained on the board until 2007. Shortly thereafter he joined the supervisory board of German pay-TV company Premiere, now known as Sky Deutschland and principally controlled by News Corporation, becoming chairman in 2009.

Before joining SBS Broadcasting Mr. Tellenbach worked for Kirch Pay TV, part of Kirch Media. It’s major asset was pay TV channel Premiere and significant minority shareholders were BSkyB, controlled by News Corporation, Lehman Brothers and Saudi Prince Al-Waleed, a significant News Corporation shareholder. While serving the Premiere board, Mr. Tellenbach was joined by Sky Italia CEO Tom Mockridge, who quite recently became CEO of News Corporation’s UK newspaper publisher News International after a bit of a scandal. Mr. Tellenbach may just have the best phone book in European television. 

TVN Group was founded by ITI Group in 1997 with a 33% strategic investment from Central European Media Enterprises (CME).  After about a year and less than satisfactory results, CME made suggestions it would pull out, which it did in 1998. Time Warner is currently a significant shareholder in CME. Some analysts believe Time Warner, through CME, the strongest candidate for TVN Group.   

Also released were Q2 2011 financial results, TVN Group’s three operating platforms each generating more cash.  Television revenues, advertising and external sales, were up on revenues from thematic channels and a content deal with Polsat. Pay-TV channel N increased subscriber revenue with an increased base and higher rates. The online business, notably onet.pl, saw significant ad revenue increases. 

TVN leads the market in television advertising revenue, taking 34.7% in QA2 2011, according to Screen Digest (August 12). Polish public television TVP follows with 28.4%, then Polsat with 25.9%. Full year estimates for television advertising in Poland near €990 million, certainly sufficient to attract investor attention.

Big media houses have long eyed Poland’s media, many stumbling along the way. News Corporation acquired a minority stake in TV Puls in 2006, a free-to-air broadcaster originally founded by the Franciscan Order, which eventually rose to 35%. A shift away from mainly religious programming in 2007 didn’t move the ratings and News Corporation exited a year later just as the Great Recession was making itself felt. News Corporation sold News Outdoor Poland to Ströer Out-of-Home Media (Germany) in 2010 as part of its sell-off of media ventures in Eastern Europe. In 2009 CME reportedly offered to buy all or part of TV Puls.

Competition is digital crazy in Poland with more than 170 channels available. Poland’s main broadcasters, including public broadcaster TVP, are investing heavily in programming and new thematic channels. The sharper eye is on newer competitors, like Cyfra+ and Telekomunikacja Polska, which offer satellite and IPTV platforms. To counter the buzz of more and newer channels, Cyfrowy Polsat and TVN signed an “unprecedented” content sharing agreement, reported Dziennik Gazeta Prawna (August 8). Cyfra+ is owned by Vivendi’s Canal+, another possible suitor for TVN Group shares.

Poland’s second largest commercial television platform Cyfrowy Polsat may also undergo an ownership change. Majority owner and billionaire Zygmunt Solorz-Zak is in the process of buying out mobile phone company Polkomtel SA and may sell a piece of Cyfrowy Polsat to finance 4G/LTE networks, reported Polish news agency PAP (June 17). Mr. Solorz-Zak outbid financial heavies Apax and Bain Capital for Polkomtel, which will remain separate from Cyfrowy Polsat with considerable sharing. He has expressed an interest in seeing a Hulu-like television on demand service developed in Poland.

Selling a piece of Polsat has long been touted. In 2006 Mr. Solorz-Zak indicated an interest in selling a stake up to 25% in the broadcaster and approached several of the usual suspects. “It doesn’t make any sense for us to buy 20% of Polsat,” said CME spokesperson Romana Tomasova, citing the Evel Knievel Principle. RTL Group briefly entered exclusive negotiations, but the deal collapsed. News Corporation also passed on the opportunity.  RTL Group launched RTL 7 in Poland in 1996, which was sold to TVN in 2001 and rebranded TVN Siedem.

According to media legend, the Evel Knievel Principle on minority partnerships originated with American broadcaster and investor Mel Karmazin. When offered a minority stake in a foreign broadcasting company, Karmazin reportedly rebuffed the idea saying,” I’m not looking for a ride in Evel Knievel’s sidecar.” The late motorcycle daredevil and entertainer Evel Knievel holds the Guinness World Record for surviving the “most broken bones in a lifetime.”

See also in ftm Knowledge

Media in Poland

Poland is the biggest media market of the new EU Member States and the changes have been often surprising, sometimes radical and never ending. Publishers, broadcasters and new media are plentiful, talented and under constant stress. ftm has its eye on Poland. 43 pages PDF Includes Poland's neighbor Belarus, resources (March 2009)

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