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Central Europe's appeal wanes for media groups
April 07, 2010, Financial Times
By Ben Fenton in London
Central and eastern European television markets will recover the losses made during the downturn by 2012, and big international players such as News Corp and RTL will miss opportunities for a return to growth, the chief executive of CME, one of the biggest broadcasters in the region, told the Financial Times.
Last month News Corp sold its pay-television business in Latvia to the management, completing a pull-out from a region that saw $1bn disappear from total advertising revenues in 2009. News Corp’s only remaining investment in the CEE region is a minority holding in Serbia.
Gerhard Zeiler, chief executive of RTL, the pan-European broadcaster with assets in Croatia and Hungary, told the FT last month that he saw no major acquisition opportunities in the region.
Predicting that the region would recover from a grim 2009 faster than western regions, Adrian Sarbu, the Romanian chief executive of CME, the Nasdaq-listed group that operates in seven CEE countries, said: “Nobody can make money in our region except the leaders [in each country].”
That rules out multinationals previously interested in the region, such as News Corp, RTL or ProSieben.Sat1 of Germany, he said in one of his first interviews since taking the job in 2008.
Mr Sarbu, a film director before he became minister responsible for the media in the first government in Bucharest since the fall of the dictator Nicolae Ceaucescu, pointed out that when six digital television licences were auctioned in the Czech Republic in 2008, no multinational applied.
This year, CME bought News Corp’s Bulgarian broadcaster, BTV, for $400m.
Mr Sarbu said that outsiders were put off the region by language barriers: “These countries are quite small in respect of language, and language defines the markets. And the volume of spending on advertising doesn’t encourage anybody from outside.
“We have built up our presence in the past 15 years and nobody can make money in our region, in our business, but the leaders,” he added. “Maybe there will be money for the number 2, but not below that.”
Mr Sarbu’s contention was supported by Hans-Holger Albrecht, chief executive of Modern Times Group, the Swedish-based broadcaster which is CME’s closest regional rival.
“People cannot go into this region and expect to do business in a German way, or in a western way,” he told the FT. “People in these countries do things in their own way and that is how they like things.”
Both chief executives said outsiders underestimated the resilience of the relatively young markets, although Mr Sarbu’s company has been harder hit by the downturn.
CME’s shares are down to about 30 per cent of their May 2008 levels, and are off 24 per cent in the past quarter, while the price for MTG, which is supported by a strong Scandinavian market, has climbed from a low of SEK116 ($16) a year ago, to SEK438.30 on Tuesday.
Mr Sarbu said: “Investors aren’t optimistic about recovery in the region or about our ability to converge with western European growth rates. But we tell them straight: we are ready for recovery and it is coming. The pace of recovery will be faster than in the west where maybe you can’t even use the word recovery because of the impact of advertising moving to the internet.”
He said local markets were more volatile than in the west, because of their relative immaturity, and advertising revenues would bounce back as confidence returned. “The $800m we lost in our markets in 2009 will come back by 2012.
“This is a young market. Don’t forget, we only began to exist 20 years ago [after the fall of the Iron Curtain],” said Mr Sarbu, who himself filmed the violent downfall of the socialist government in Romania.
Analysts are a little more cautious than Mr Sarbu. Daniel Knapp, media analyst at Screen Digest, said that hesitation among advertisers in 2008 turned to panic in 2009. But while there would be a return to growth this year, he added: “2010 growth expectations are only within a single-digit range and do not mean return to normal, pre-recession levels. Short-term bookings are still preferred to annual contracts and advertisers are hesitant to make early commitments.
“I think trading conditions will return to normal only in 2011, with a risk that long-term growth may not be as great as people expect.”
For additional information, please contact:
Romana Wyllie
Vice President of Corporate Communications
Central European Media Enterprises
Krizeneckeho nam. 1078/5
152 00 Praha 5
Czech Republic
+420 242 465 525
romana.wyllie@cme-net.com
