Chief Executive Officer’s Statement

The last year has seen a fundamental stress test of all businesses, as the world has been gripped by a far reaching financial crisis and a wider economic recession with the most dramatic advertising market declines in living memory.

We are emerging from this perfect storm in good shape with higher viewing and market shares in virtually all of our markets. Sales were up 8% to a record level of over SEK 14 billion in 2009 and we delivered SEK 1.5 billion of net cash flow from operations, despite the difficult market conditions and pressured economic environment in our markets during the year. We therefore strengthened our financial position during the year and are proposing the payment of an increased annual dividend of SEK 5.50 per share. 

Three key factors have driven this outperformance.

Firstly, we are the primary challenger to the free-TV incumbent in almost all of the markets in which we operate. Our growing audience shares are enabling us to take advertising market shares and we are building powerful media houses of multiple complementary channels with attractive audience profiles. The closing down of the analogue terrestrial TV networks, which has now been completed in Scandinavia and is sweeping across the rest of Europe, is providing us with a structural tailwind as we launch new channels on multiple digital distribution platforms and benefit from higher penetration levels for our existing channels. We are therefore competing on an increasingly level playing field with the incumbents and our pricing is moving accordingly.

Secondly, we have a platform agnostic pay-TV strategy. The more distribution platforms that we can make our channel packages available on the better, provided that we have direct access to the customer and control the pricing of our content. Our virtual operator model makes the premium packages of Viasat and leading 3rd party channels that we have developed on our own satellite platforms available as packaged content solutions for 3rd third party distribution networks. In this context, we now have agreements with all of the major IPTV networks in Scandinavia, and these networks enable us to address a potential customer base that we have not been able to reach before.        

Thirdly, we are an integrated operator of both free and pay-TV businesses. We now operate satellite DTH platforms in nine countries and our 60 Viasat channels are watched by 125 million people in 31 countries. Not only does this provide us with an almost evenly balanced revenue mix of cyclical advertising revenues and non-cyclical pay-TV subscription revenues, but it also yields synergies. As much as half of the channels on our satellite pay-TV platforms are Viasat channels, which gives us a clear margin advantage. The fact that we buy sports rights and Hollywood content for multiple channels on multiple platforms in multiple countries also increases our leverage with third party suppliers and distributors.

 
None of these strategic drivers is a one-off 2009 or 2010 factor but will continue to enable us to out-perform our peers moving forward.

As well as being a growth company, we are known as a ’lean and mean broadcasting machine’. This has served us well as belts have been tightened across the industry. We have taken out costs across the organisation but have been careful not to negatively impact our brands. We have actually taken the opportunity afforded by our healthy financial position and operational resilience to also invest selectively in programming, subscriber acquisition, new channels and new platforms, in order to further develop our market positions.

But, none of the above would be worth anything without efficient execution on a minute by minute, hour by hour, day by day basis. This execution is testimony to MTG’s unique culture, which is our key advantage and our greatest value driver. We have a rule – ‘Do not blame the Market’ – which reflects our determination to strive for more than we think is possible, to seek opportunities in challenges, and to take a long term view, with the flexibility to make short term tactical adjustments. In this context, our 11 executive managers have worked in MTG for an average of over nine years – we have been through a recession before as a team and we learned important lessons from what happened last time.

So, what is next as we head into more stable market conditions in virtually all of our markets and await a return to growth – what will drive our growth over the coming years? Again, there are three key drivers:

Firstly, a fundamental shift in consumer behaviour is taking place. People are increasingly accessing video content via the open internet and this is actually increasing the amount of time people spend watching TV. This is nothing new in our largest markets in Scandinavia, which have the second highest broadband penetration rates and speeds in the world. What is clear is that if content is the king and distribution is the throne, it is always the viewer who decides what, where and when he or she wants to watch. It is also clear that the trend is towards ’on demand’ services rather than ‘linear’ content delivery, and that the TV set will remain the point of convergence for in-home entertainment. What is less clear is how internet TV will be financed – is it an advertising supported model (free-TV) or a subscription based model (pay-TV) or both? Our position as an integrated player has enabled us to develop both business models alongside each other. All of our free-TV content and the vast majority of our pay-TV content are already available over the internet. Furthermore, visit www.viasatondemand.com if you are in Scandinavia and you can access the on-demand catch-up services for the leading local free-TV channels, and you can pay for access to over 1,000 movie titles and watch major live sports events. A similar service is available to Viasat subscribers with TV set-top boxes with broadband connections. This innovation reflects our view that the winning model in this environment is as the online content aggregator  – much in the way that aggregators have reshaped the music industry in recent years. Technology’s role is therefore changing from ‘gatekeeper’ to ‘enabler’...

Secondly, we have already identified and are engaging in the growth markets of the future. Not only do we expect our existing emerging market operations to return to the levels of growth seen before the crisis, but our free-TV operation in Ghana in West Africa has made a promising start, as has our satellite pay-TV platform in Europe’s second largest territorial market – Ukraine. We have taken a further step this year with the acquisition of 50% of a start-up satellite pay-TV platform in Europe’s largest territorial market – Russia.

Thirdly, we intend to continue to replicate the integrated operating model that has worked so well in Scandinavia. Notwithstanding the economic headwind in the Baltics, we have successfully established integrated free and pay-TV operations in the three Baltic countries. Furthermore, our mini-pay or wholesale channel business, which sells 11 customised Viasat channels to 3rd party pay-TV distributors in 25 Central & Eastern European countries and the United States, has now generated over 40 million subscriptions!

All of the above sits within the context of our Modern Responsibility framework, which defines our corporate personality and how we do business and interact with our stakeholders. It not only defines who and what we are, but also what we have the potential to become. Over the past year, we have established Modern Responsibility tasked committees in each of our countries of operation. We have also joined Swedish BLICC (Business Leaders Initiative on Climate Change) and are independently auditing the Group’s carbon footprint and broader climatic impacts. Finally, we are one of the companies behind the ’Playing for Change’ incubator, which is challenging and supporting social entrepreneurs to create businesses that stimulate and promote children’s and young peoples’ right to play as a key aspect of personal development.

Media is a people business – run by people for people, so thank you to MTG’s owners, customers, employees, business partners and suppliers for your contribution to the ongoing development and success of the Group.

Hans-Holger Albrecht
President & Chief Executive Officer