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Jan Řehák, Business Manager of TV Nova, speaks to E15 about how TV Nova has coped with the difficult market conditions during the first half of 200

June 11, 2009, E15

Jan Řehák: We Stole Big Clients from Prima TV

The largest commercial television, Nova, has undergone a difficult period this spring. With the TV advertising market plummeting due to the advertisers’ limited communication budgets, Nova had to make savings wherever it could: the TV station stopped hiring, the management reduced their salaries, and the filming of several expensive series was delayed.

Instead of increasing prices, the station had to offer discounts to its advertisers. “It was a short-term offer. At the end of the summer we will decide what to do next; but it’s clear that Nova’s business model will have to change,” says Jan Řehák, Nova’s business manager.

* E15: This spring, due to the decrease of interest in TV advertising, you offered bonuses to media agencies, in the form of free advertising space, even though in the fall of 2008, you intended to increase advertising prices by some 30 per cent. What results have you had with this measure?

Thanks to this measure, we have managed to stabilize the television market. It was a very turbulent period; advertisers received numerous instructions from their headquarters as to the way they were supposed to handle their advertising obligations. Since March 1, we decided to intervene momentarily in the advertising price levels. Today I may say that 80 per cent of our clients accepted our offer. We have also managed to increase the sold advertising time volume.

* E15: You have just finished the spring high season – the months of April and May, a period when advertisers spend the most money. How did it come off?

We feel we have increased our market share, which is critical for us. As regards our sales, we are quite happy considering the situation on the market. It’s a daily struggle; we have to fight for every penny. I am afraid I cannot give you exact numbers, though.

* E15: As one of the few still productive CME units, Nova must be under enormous pressure. Are the shareholders’ demands stricter in any way?

The pressure is primarily evident in the fact that we are now in much closer contact with both CME’s and our own management. We have to review our costs and revenues on a weekly basis, and we send reports to the management more frequently. It is true, however, that Nova’s importance within CME has been growing.

* E15: Rumor in the media world has it that in March and April, it was not a problem to place an ad in Nova’s prime time by the next day. The situation must have been fairly critical.

Nova has not been selling out advertising space since 2006. With the exception of some prime time slots during high seasons, which were and could now be sold out 100 per cent, we have a policy of retaining a certain free capacity. So, in principle, it is possible to have a spot aired by the next day.

* E15: Robert Kvapil, your counterpart from Czech Television, has described the situation as a “collapse of the television market”. Do you agree?

He must have assessed the situation based on inside information from Czech Television. According to our estimates, CT has suffered the greatest blow of all Czech stations in the spring. Not that they necessarily had to lose clients, but they have been forced to reduce the average prices of their advertising time considerably. This will definitely lead to an above-average drop in their advertising income.

* E15: Another rumor that goes around is that media agencies who have ordered certain advertising space on TV in the fall had a great difficulty to fill up this space, and had to cancel ads elsewhere, such as in the press, so as not to pay the contractual penalties. Have you had similar signals?

Certain key advertisers may have reduced their investments in other types of media in order to retain their priority in their key media, but I do not think this was a mass occurrence.

* E15: Have you modified any contracts made with clients in the fall of 2008?

It is difficult to change anything in contracts that have already been concluded. Companies who had real problems and had to reduce their fixed advertising volume were charged an increased average ad price, or received a discount which they could claim during the early months of this year. However, the approach has differed from case to case.

* E15: Have you had any indication as to whether other TV stations have given higher or lower discounts than Nova?

That’s hard to guess. In the past, deals were made for a year ahead; this year, a number of clients have decided to make short-term purchases, and have been comparing offers from various stations. The situation with these short-term offers is very complicated, since we have decided to maintain a transparent price list. We are therefore slightly more expensive than others.

* E15: Have you managed to steal clients from any other TV stations thanks to your price discounts? Or has there also been an outflow of clients?

In general, clients have started reducing the number of partners involved in their media plan, both as regards all types of media (Internet, press, radio, TV, etc.) and the television market as such. We have strengthened our position with our largest customers. A number of big clients, such as Nestlé or Opavia, have left Prima and put their stakes in Nova. On the other hand, our competitors have gained ground with medium-sized corporate clients: Johnson&Johnson only advertises on Prima now.

* E15: Let’s go back to your price discounts. Officially, you have declared that your discounts amounted to 20 to 30 per cent of free advertising time. Some of our sources from among the advertisers claim that the number was actually 20 per cent higher. What is the truth?

Since the beginning of March, up to 80 per cent of our clients, taken by the volume of their advertising, use discounted prices. We offered the highest discounts, around 30 per cent, in March. The figure dropped after that, to 18 to 19 per cent during high season, and down to 9 per cent during the summer months.

* E15: The disproportion between these figures may be a consequence of the fact that clients included other discounts in their bonus, such as the transfer of bonuses from the previous year.

This is misinformation. According to Nova’s business policy, there is no link-up between calendar years. Each year constitutes a separate contract. We cannot even provide loyalty discounts to clients.

* E15: Aren’t such bonuses counterproductive? What if clients get used to them and will require them the following year, too, even though the crisis might pass and companies might again loosen their advertising budgets? How would you react to that?

The measure was aimed at stimulating the advertising market in a turbulent period of cost-saving measures, which we have actually managed to do. It was, however, only a short-term incentive. Next year’s business model will clearly require some changes. We will decide on specific measures at the end of the summer.

* E15: In the past, Nova has raised advertising prices each year. How will you behave at the beginning of 2010?

That depends on the volume of our sales. If we manage to sell at least 80 per cent of our advertising time on a long-term basis, there would be a definite pressure to raise our prices. Our primary objective is to simplify our business policy. We might simplify our discount structure, with far less discounts.

* E15: In the first quarter, Nova’s sales have dropped by 17 per cent, to CZK 1.19 billion, speaking in Czech crowns only; in US dollars, the drop was 34 per cent. From which customers has your income dropped most substantially?

The press. This has been, and still is, a very important segment with great dynamics. The drop was mostly related to enclosed DVDs. However, we had expected this part of the market to exhaust itself, which has not become apparent on newsstands.

* E15: This fall, Nova will again launch the costly SuperStar contest. Isn’t it too risky to come up with such a grand, expensive project during a poor advertising period? Or have you had any indication that the crisis might abate in the fall?

We believe that the project will attract sponsors. This doesn’t mean that we expect the same results as during the years of prosperity, but we are convinced that we can fund a certain part of the project’s costs from sponsors’ contributions. The broadcasting time is another factor. The project is expensive, but counted over to unit costs per hour of broadcast, the costs no longer seem so terrifying. SuperStar is a strategically sound move that will also help us improve our broadcasting content.

* E15: One of the goals of the extra bonus was to respond to the emergence of new TV channels. Even though their advertising volumes are still low, monitoring results clearly prove that they are growing. Has the launch of these new stations had any impact on your business strategy or advertising prices?

Not yet. Their advertising volumes are still negligible, so we are incapable of monitoring them yet. We are unable to find out whether we have lost one hundred or two hundred thousand from a client.

* E15: Do the new channels steal your or other stations’ revenues, or have they been getting new funds from advertisers?

The sums are so negligible that I am unable to tell. TV Barrandov or Z1 are not names that we would come across in discussions with our clients.

* E15: According to the estimates of the OMD agency, the television market will drop by 27 per cent this year. What is your estimate?

The situation is so complicated that we do not make any presumptions. However, OMD’s forecast seems slightly more pessimistic than our own perception.

* E15: According to the figures presented by OMD, the Internet will be the only growing type of media. You sell advertising space both at tn.cz and Nova.cz. How high receipts from these channels do you expect this year. Will their importance within the Nova group increase?

The strategy of increased focus on the Internet has already been launched in the previous year. Internet is a great priority for us, and we have invested considerable resources in it. We have great hopes of video ads, which some clients have already bought – even companies from which we would never have expected it.

* E15: At a recent conference on the Internet, you claimed that the productivity of Nova’s websites is not yet worth a single major TV campaign. When do you expect this to change?

The point is that even if you put together the entire space of the Czech Internet, the figures would not even come close to those in TV advertising. We therefore need a major increase in Internet content consumption. We need to come up with projects that will attract users, and keep expanding high-speed Internet coverage. This will open new possibilities for video advertising.

* E15: Wouldn’t Nova’s Internet activities benefit from an association with Seznam.cz, which is your only chance to achieve a massive increase of your viewings?

We have already established business cooperation with Seznam.cz. Our company, Jyxo, is the provider of the Sklick advertising system. However, a joint project with Seznam.cz would substantially increase the importance of Internet among prominent media entities.

Jan Řehák (33)

Graduate of the University of Economics and the University of Finance and Administration in Prague. From 1996 to 2006, he worked for several international advertising and media agencies, first in the research department of DMB&B, then for Leo Burnett as a media planner, for Starcom and OMD. From 2005 to 2007, he was the CEO of the ZenithOptimedia media agency. Business manager of TV Nova since January 2007.

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