MTG is Made To Grow and 2010 was another year of industry leading growth. 4% sales growth at constant exchange rates in 2009 during the recession was followed by 12% sales growth in 2010 as economies stabilised or returned to growth around the world.
This is in line with our strategic objective to grow by more than 10% organically each year. If 2009 demonstrated the benefit of half of our revenues coming from non-cyclical (pay-TV) subscription revenues, then 2010 highlighted the advantage of generating the other half of our revenues from cyclical (free-TV) advertising revenues − the best of both worlds! This uniquely integrated operating structure yields synergies, economies of scale and tangible operating and financial advantage.
If growth is what defines us, then cost control is in our DNA as a ‘lean and mean broadcasting machine’. This was reflected in our 2010 profits returning to, and indeed exceeding, the pre-crisis levels in 2008, and the improved margin of 15% for our fully consolidated operations is moving towards our target of more than 20%. These profits have largely been converted into cash flow, which has enabled us to make investments, pay down debt and propose a higher dividend payment for the third year in succession.
Simply put, we are a Modern Media Group for Modern Times. We are a leading international entertainment broadcasting group with the largest geographical broadcast footprint in Europe. We operate 28 free-TV channels in 11 European countries and our 37 pay-TV channels are available in 32 countries. Viasat’s packages and these channels are distributed on our own satellite platforms in 9 countries, as well as on third party broadcast networks (terrestrial, cable, satellite, IPTV) and over the open internet.
Our Scandinavian free-TV business benefited from the sharp recovery in the Scandinavian advertising markets in 2010, with sales up 16% year on year at constant exchange rates. This reflected not only the economic recovery, but also the fact that TV has continued to take advertising market share from other media, and that overall TV viewing is rising in the first markets in Europe to go fully digital. Our combined audience and advertising market shares continued to climb during 2010 following further channel penetration gains, investments in programming and the launch of new channels. Our combined media house of multiple channels in each country is the clear number two operator in each market, and we are challenging the pricing premiums and historic dominance of the incumbents. Our operating leverage ensured that this growth was translated into 32% earnings growth and an increased full year operating margin of 25%.
The performance of the emerging market free-TV business improved during the year as the local economies and advertising markets stabilised and, in some cases, returned to growth. We took viewing and advertising market shares in almost all of our territories, as we selectively invested in programming and the launch of new channels, and our sales were up 4% at constant exchange rates. Our scale Baltic, Czech and Bulgarian operations also reported an increased combined profit. The recovery in Eastern Europe has been sharpest in Russia where CTC Media, in which we have a 38% shareholding, reported 15% revenue growth in ruble terms, a 37% OIBDA margin, and paid out USD 80 million in dividends. The other markets will generate higher levels of growth again as the relatively low levels of advertising spend per capita rise accelerate with the broader economic recovery and resurgent consumer spending.
The investments that we have been making in new programming content and channels illustrate our belief that ‘Content is King’ and this is just as true for our pay-TV businesses, where content sits alongside accessibility and price as the drivers of consumer decision-making. The reason that we have been able to grow our Nordic subscriber base and increase our ARPU every year is that we have consistently enriched our market-leading content offering of sports, movies and documentaries every year. 2010 was no exception as we acquired the exclusive Swedish broadcasting rights to English Premier League football for three seasons, and became the only broadcaster to air Premier League football coverage on a pan-Scandinavian basis. We also added a number of our own channels and numerous third party channels to our offering. Not only does this enhance the content offering on our own Nordic satellite platform, but also makes our packages even more attractive to third party networks. We therefore signed new groundbreaking agreements in 2010 with Telenor and Com Hem to make our content available to their double and triple-play (telephony, broadband and TV) subscribers in Sweden and Norway. When combined with the agreements that we have signed with other operators over the last two years, our premium pay-TV packages are now distributed virtually in all of Scandinavia’s broadband networks.
Technology is of course changing the way that content is delivered and consumed, and we are right at the forefront of this change. Not only did we launch a number of additional high definition channels in 2010 and launched Scandinavia’s first 3D TV services, but we have also just launched the industry’s first full scale ‘Over-The-Top’ internet-based on-demand service. As the region with the second highest broadband penetration and amongst the highest broadband speeds in the world, Scandinavia offers unrivalled opportunities in this area. For a single monthly payment, subscribers to our Viaplay service can now access thousands of movies, hundreds of hours of live and archive sports coverage and their favourite TV series over the open internet. Our content offering is now therefore truly available on an ‘anytime, anywhere’ basis to internet-connected devices including TV sets, PCs, mobile phones and tablets.
All in all, our Nordic pay-TV sales grew by 8% at constant exchange rates in 2010 as we exceeded 1 million subscribers for the first time, and we reported an increased operating margin of 18% despite all of the investments that we are making.
The Eastern European pay-TV markets are at an earlier stage of development but have considerable potential. Following our entry into these emerging markets with our free-TV channels, we started selling our movie, sports and documentary pay-TV channels through third party cable and satellite networks seven years ago. In 2010, the 50 millionth subscription was signed up to these 15 channels, which are now available in 28 countries, including the US. We have added to this wholesale distribution by deploying satellite platforms in the Baltics, Ukraine and, most recently, Russia, and had 430,000 subscribers by the end of the year, compared to 240,000 subscribers at the end of 2009. We acquired a further 35% (taking our holding to 85%) of the Ukrainian platform in 2010 and bought 50% of the Raduga TV satellite platform in Russia. Russia and Ukraine represent huge opportunities for us – the two largest countries in Europe by territory, with over 70 million TV households and low levels of cable and broadband penetration outside the major cities. Sales for the emerging market pay-TV business grew by 12% at constant exchange rates in 2010, and we delivered a 12% margin despite the investments that we are making in the development of the Russian and Ukrainian platforms.
MTG has always been about entrepreneur-led growth, staying ahead of the game-changing curves, and long term value creation for all of our stakeholders. This story continues and we are currently reviewing a number of opportunities to establish, grow and consolidate our competitive market positions in both existing and new territories. Our investments in Africa and the demerger of our internet retailing operations are perfect examples of this approach, as they illustrate our focus on identifying and positioning MTG to catch each new wave of growth.
Broadcast television in sub-Saharan Africa is in its relative infancy, but we are investing now to secure low cost entry on an opportunistic basis to markets that we believe will be the growth engines of the future. This is why we launched our first free-TV channel in Africa at the end of 2008 in Ghana, and have now launched four of our pay-TV channels in Nigeria and Kenya. It is the same approach as in Scandinavia in the 90s and Eastern Europe in the 00s – free-TV channels first, followed by pay-TV channels and then pay-TV platforms.
CDON Group comprises all of MTG’s internet retailing operations and was launched more than 10 years ago. We grew the business to become the largest player in the Nordic e-commerce market with sales of over SEK 2 billion, and then spun it off to shareholders at the end of 2010. CDON Group is now a separately listed entity with a market value of over SEK 2 billion.
This approach to business is what we call Modern Responsibility – our responsibility to engage and respond to our stakeholders, to create long term value and to act responsibly in our relationships with all stakeholders, society and the environment. In this context, I would like to thank you as owners for your interest and support, as partners for your vision and cooperation, as employees for your dedication and creativity, and as customers for your business and loyalty.
Hans-Holger Albrecht
President & Chief Executive Officer