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CETV CEO: Regional Distribution To Lower Costs
September 22, 2009, Dow Jones
PRAGUE (Dow Jones)--Central European Media Enterprises (CETV) aims to slash production costs by producing content for international, rather than just national broadcasting and aims to export such programming to Western Europe to provide additional revenue, Adrian Sarbu, CETV President and chief executive officer, told Dow Jones Newswires in a recent interview.
The broadcaster is fusing standalone, national subsidiaries in seven countries - the Czech Republic, Slovakia, Romania, Ukraine, Croatia, Slovenia and Bulgaria - into three pan-regional operating units: content, Internet and broadcasting.
Sarbu said focusing on production for a regional rather than national market would diversify revenue sources.
"But the main reason for the [changes] is more product, and cheaper [production costs] in the short-, medium- and long-term in each market and in each language," Sarbu said.
The programs will be co-productions between various CETV units in different countries. Thematically the programs will be broad enough to appeal to audiences outside their area of production. The shows can then be broadcast in multiple countries and, if necessary, be subtitled or dubbed according to local tastes.
Previously CETV, founded in the early 1990s by American cosmetics heir Ronald Lauder and still partially owned by him, has produced fragmented programming for individual Central European markets.
Now the media company aims to integrate production and make its product go further in the countries where it already operates.
"There will be more cross-selling in countries where they operate; it's the future," said Josef Nemy, an analyst at the Prague unit of Societe Generale. Cross-selling programs within the group is the surest way to bring down unit costs, he said.
And CETV also aims to enter export markets in Western Europe with shows more geared to those audiences than CETV's product has formerly been.
Projected cost savings from the changes will be known once CETV has finished preparing its 2010 budget, Sarbu said, but added that, even at that time, it may still be premature to release the projected savings figure to the public.
Spearheading the new policy will be a newly-acquired Romanian unit which makes films and television programs and sells them abroad, including the 2007 film "California Dreamin'," which won nine awards, including the "Un Certain Regard" Award, at the Cannes Film Festival in the same year, and this year made the fantasy film "Fire and Ice: The Dragon Chronicles" for U.S. broadcaster the SciFi Channel.
Just this month CETV launched the first multinational version of the popular British show "Pop Idol." While there are over 50 versions of the format running in 110 countries, CETV said this was the first example in which contestants and hosts are not from only one country, but from two, in this case the Czech Republic and Slovakia. The show is broadcast in both countries as well and follows successful runs of nationally produced versions of the shows in both countries.
Analyst David Kestenbaum of Morgan Joseph said in a note he expected the steps CETV is taking, together with economic recovery in Central Europe and a slowdown in the annual decline in advertising sales, to help CETV narrow its annual net loss to $12 million in 2009, to be followed by a net profit of $52 million in 2010.
Last year CETV posted a net loss of $255.5 million, largely because of foreign exchange losses - CETV does business in local currencies, reports in dollars and has debt in euros - and impairment charges taken when the Ukrainian and Bulgarian economies tumbled. the company posted net profits of $88.6 million in 2007 and $20.4 million in 2006.
Romanian-born Sarbu was appointed president in January and then elevated to the CEO post in July, after heading operations at CETV since 1995.
Sarbu said the group's new pan-regional structure will emulate the creative centers-of-excellence and export-oriented business models of Hollywood studios.
"That's why we pay so much attention to the development of our content," he said, adding: "This is what the Hollywood studios do and we know we have to do this."
"Ideally we should achieve a structure similar to an American studio, I say ideally, which is not something you can achieve in a couple of years," Sarbu said. Some U.S. studios can generate almost half of their revenue from international distribution and sales, he said.
CETV today generates only "a couple of percent" of revenue from sales in global markets. However, Sarbu said those sales should rise "very fast," as Romanian production company MediaPro, which generates over half its revenue from international sales, is integrated into CETV's group sales unit.
CETV bought MediaPro for roughly $90 million from the company's founder, Adrian Sarbu himself, and now the combined group produces more than 1,000 hours of drama annually in addition to more locally-focused nonfiction material based around national news, local magazine shows and reality television shows. But, excluding MediaPro, CETV doesn't sell much content outside its own markets.
"We see a big opportunity for us to package our content from different countries together with subtitles and sell it to third parties in other markets," Sarbu said.
Some of MediaPro's television shows, including "Tears of Love," "Only Love," "Gipsy Heart" or "Regina," are already broadcast on other CETV stations.
CETV may be able to ramp up sales in Western Europe, but that's most likely to come slowly, using the Internet for initial distribution, said Nemy. CETV has yet to clearly identify what are its preferred distribution channels in new markets, he said.
Sarbu said CETV would be able to capitalize on the know-how and might of new partner Time Warner Inc (TWX), which paid $241.5 million in May for a 31% stake in CETV.
The two companies will jointly launch new cinema channels in CETV's markets that may be Time Warner branded, be managed by CETV or combine programming.
"This is just the start and we see other areas of potential cooperation, such as co-productions or content distribution," Sarbu said.
While increased exports are a key goal, the company is also readying for a return of advertising demand. This should, in turn, drive up advertising spending, which fell sharply over the past year.
Sarbu said the regional advertising market will start recovering in the fourth quarter and advertising spending growth will outpace overall economic growth.
"Advertisers will return to Central and Eastern European markets at the first signs of recovery in Western Europe because they fear that a long absence from the market will lead to a decline in market share," Sarbu said.
Czech gross television advertising spending rose 13.7% on the year to 1.614 billion koruna ($94 million) in August after falling 1.7% on-the-year in July.
Media monitoring agency OMD estimates that this year Czech television advertising spending will decline 27% annually to 8.39 billion koruna ($487.3 million), largely because of tighter corporate spending budgets, rising unemployment and lower retail sales causing advertisers to choose more carefully how they spend.
In 2010, however, spending levels should level off and OMD expects a 13% year-on-year fall in advertising spending.
In 2008 Czech gross advertising spending on television peaked at CZK11.5 billion and Sarbu said it would take between two and four years for advertising expenditure to again reach such levels.
CETV derives the largest single share of its revenue, about one third, from its Czech operations and roughly one-quarter from Romania.
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
