Nothing Is The Same In Eastern Europe

Michael Hedges November 16, 2010 Follow on Twitter

The opening of Eastern Europe to private, commercial broadcasting was met with massive investment. In those two decades consumers have changed their habits. Advertisers have changed their spending. Broadcasters have responded with totally new strategies.

Central European Media Enterprises (CME) released Q3 and first nine months 2010 financial results (October 27). Net revenues for the first nine months 2010 rose to US$479.7 million from US$447.5 million in like period 2009, 7.2%. Broadcast revenues were up 1.9% to US$449.5 million while new media operations gained 9.5% with Media Pro Entertainment revenues up 42%. The “strategy to reposition CME as a vertically integrated media company,” said CEO Adrian Sarbu in the requisite official statement, “is working.”

CME’s share price on the Prague Stock Exchange fell as the MSCI Czech Republic Index announced (November 11) it would drop CME from the stock index at the end of November. CME is listed both on the Prague and NASDAQ exchanges. The company’s share price on the NASDEQ Exchange also declined last week. Share price performance has little or nothing to do with company fundamentals.

CME operates television and some radio stations in the Czech Republic, Romania, Slovakia, Slovenia, Croatia and Bulgaria. Most of the television channels are free-to-air. Net revenues for the first nine months 2010 dropped in all but Bulgaria and Croatia compared to like period 2009. Since its founding CME has been a bellwether for regional broadcasting.

In the Czech Republic, where flagship Nova TV has been market dominant, net revenue as a percentage of total broadcast net revenue dropped to 38.5% from 39.8% year on year. Gross audience share for Nova TV in September was 32.4%, roughly double the share of the next highest rated channel Prima TV (50% owned by Modern Times Group - MTG).

Net revenue for CME’s Romania operations dropped to 24.3% from 27.2% of total broadcast revenue. Its primary free-to-air television channel is Pro TV. Several cable TV channels and all three of the radio channels are branded under the Pro name. Pro TV remains the highest rated TV channel in Romania.

CME paid News Corporation US$400 million for its Bulgarian television channel bTV and several radio stations in the first quarter 2010. No other M&A deal in Bulgaria has been bigger in any sector. In early 2009 Time Warner paid about US$250 million for a 31% stake in CME, joining founder Ronald Lauder as major shareholders.

Shortly thereafter the company bought Media Pro Entertainment, a production house based in Romania, from Mr. Sarbu, who founded that company in 1990. Since the acquisition much of Media Pro Entertainment has moved to Prague. And shortly after the bTV acquisition CME exited its broadcast holding in Ukraine. CME produces a sizeable portion of its broadcast content.

Mr. Sarbu has never ruled out future acquisitions, the Polish market being an obvious target, but the company’s vertical strategy is more oriented to content production both for television and new media. CME owns a slew of entertainment and news websites and portals, including IPTV platforms. All of this adds to more diversified revenue streams, important as ad spending in Eastern Europe, like the rest of Europe, shifts to new media.

The challenge for Mr. Sarbu at CME – and all broadcasters active in Central and Eastern Europe – is platform shift as much as ad spending shift. Digital households in the region are expected to nearly triple by 2015, said Informa Telecoms in a September 2010 regional analysis. Pay TV revenues, said the report, will increase by 50%.

The shift in broadcasting business models has shown itself more rapidly in Central and Eastern Europe. New platforms have risen in concert with other changes in media habits. Nobody in media fares well by ignoring the clear signals from the market.

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