European pan-regional broadcaster Central European Media Enterprises (CME) increased revenues by 17 per cent year-on-year to $865m (€621m) in 2011. CME's key competitor, Modern Times Group (MTG), increased revenues by three per cent year-on-year to SEK 3.7bn, or €409m in 2011.
CME operates 24 free-to-air channels, pay TV and online services in Central and Eastern Europe (CEE): Czech Republic, Romania, Bulgaria, Slovakia, Slovenia and Croatia. MTG business activities span across free and pay TV in Scandinavia and an 'Emerging Markets' category, which includes the Baltics, Bulgaria, Czech Republic Slovenia and Ghana.
MTG's TV net advertising revenues (NAR) in the Scandinavia region were up by six per cent year-on-year in 2011 to SEK 4,393m (€486m). Aggregate TV NAR for the Emerging Markets increased by three per cent, or eight per cent at a constant exchange rate, to SEK 2,073m (€229m).
CME maintained a leadership position across all its market of operations, in terms of both audience and market shares. CME's aggregate TV advertising market share in these countries grew by one percentage point to 64 per cent in 2011. However, the development picture for its markets remains highly heterogeneous, with three of the markets reporting a decline of the TV net advertising market, namely Bulgaria, Croatia and Romania.
The highest market share figure for CME comes from Slovenia, where its TV advertising market share exceeded 75 per cent in both 2010 and 2011. In these years MTG's TV net advertising revenue (NAR) remained at a constant level of five per cent of total Slovenian TV NAR. Squeezed by the large competitor, MTG decided to withdraw its business from the Slovenian market, effective from 31st March 2012, and instead expand its portfolio in Latvia by the acquisition of broadcaster LNT. As a result, we expect CME to gain an additional two percentage points to its already high share of the growing Slovenian market. IHS Screen Digest estimates that Slovenian TV advertising market grew by 5.1 per cent in 2011 and will continue to grow by further 7.4 per cent in 2012.
As the Czech TV advertising market was on its way to recovery in 2010, CME chose not to increase discounts on its ratecard prices, trusting market demand to be strong enough. However, MTG did continue to discount its prices despite recovery signs. This helped MTG TV NAR in the Czech Republic to grow by 20 per cent year-on-year increase in sales in 2011 and resulted in a a two percentage points market share growth to 24 per cent in 2011. CME's strategy in contrast lead to a decline of TV net advertising market share to 67 per cent from 69 in 2011 per cent in 2010. CME and MTG are particularly fierce rivals in the Czech market which is heavily concentrated. In 2012, we expect the market shares of both groups to increase even further, resulting from regulatory changes in Czech Republic. Since October 2011, advertising on public TV is allowed on only two, previously four, channels. We estimate that CME will gain additional two percentage points, whereas MTG's shares will grow by one point due to the partial abolition of advertising on public channels. However, the revenue gains resulted from the increases in shares will be partially offset by a new taxation. As part of the legislation change, CME and MTG are obliged to pay two per cent of their advertising revenues to the Czech cinematography fund.
The Bulgarian advertising market has remained challenging in 2010 and is yet to recover from the advertising recession of 2009. Resulting from economic uncertainty and lack of consumer confidence, Bulgarian TV NAR continued to contract in 2011. Although official figures are still outstanding, IHS Screen Digest estimates that the Bulgarian TV ad market declined by 4.3 per cent in 2011. This weak market climate was particularly felt by MTG which suffered a 12 percent year-on-year decrease in TV NAR. This underperformance led to a decline of MTG's net TV advertising market share to 28 per cent in 2011 from 31per cent in 2010. At the same time, CME increased its already high market share by four percentage points to 67 per cent in 2011. These gains originated from the acquisition of bTV in Q2 2010 as well as a strong initial position, which allowed the broadcaster to attract advertisers by giving them higher discounts.
In its other markets of operation, CME saw a steady growth of its TV net advertising market share, with the exception of the Romanian market, in which its market shares remained flat. The most significant growth of CME's market share from 41 to 48 per cent was noted in Croatia and resulted from the launch of new TV channel, Doma, in January 2011. IHS Screen Digest estimates that the Croatian market dropped 1.6 per cent in 2011, which gives CME an estimate 15.2 per cent year-on-year increase in its revenues from Croatia. Slovakian operations brought a 10 per cent revenue increase, due to an increase of market share by three percentage points and a 5.1 per cent growth of the Slovakian TV ad market. Lastly, the Romanian market has remained challenging, where pessimistic macroeconomic outlook and lack of consumer confidence led to further 5.8 per cent contraction of both the total net TV advertising market and CME Romanian TV NAR in 2011 each.
Starting from the second half of 2012, MTG will benefit largely from reshuffling its portfolio. Due to its already strong position in Latvian market, it is better equipped to capitalise on ad market growth than in Slovenia. As CME has very high market shares across all its countries of operation, there is not much room for growth left in terms of conquering advertising market share in most countries of its operations with a possible exception of Croatia. Instead, the group's main focus in upcoming years will likely centre around maintaining its leadership position and investment in non-advertising activities, such as online, its pan-regional video-on-demand platform (Voyo), production, distribution and subscription base channels.