Big Broadcaster Consolidates Market

Michael Hedges June 4, 2012 Follow on Twitter

Tough times can be opportunities for savvy investors. The secret, often, is waiting for the right moment. But patience is rarely an executive virtue, punishment being swift. Sometimes having a pile of cash helps.

Modern Times Group (MTG) accepted terms of the Latvian anti-trust regulator and will acquire broadcaster LNT (Latvijas Neatkariga Televizija  - Latvian Independent Television). LNT, Russian-language TV5 and associated channels will be consolidated into MTG’s other Baltic states operations, which include TV3 and its associated channels in Latvia, said an MTG statement (June 1). Effectively, Latvia now has one privately owned television broadcaster.

The Latvian Competition Council (Konkurences Padomes – KP) approved the acquisition, with several conditions, two weeks ago (May 21). MTG has agreed that the two main channels – LNT and TV3 – will remain free-to-air until the end of 2013, both channels will offer 21% Latvian language original productions and news programs will remain separate and independent of each other with no reduction in news programming. The channels will also not increase the number of ads per hour through the end of 2012 and will not increase ad rates more than the annual inflation rate. The KP has imposed a special reporting requirement to be conducted by independent outside auditors and it can, if conditions aren’t met, force divestiture in five years.

”We decided that the LNT acquisition is the only way to return to a sustainable and profitable advertising market,” said MTG Baltics general manager Kaspars Ozolins, quoted by reported Diena.lv (June 1). ”Only by consolidating resources can the market that has been seriously hurt in recent years be restored. LNT and TV3 will immediately begin consolidating facilities, staff and services. LNT will continue to be positioned for “an older audience” as TV3 is “positioned more for the economically active part of society,” said Mr. Ozolins.

The acquisition of LNT by MTG was first announced in January after long negotiations. News Corporation (News Corp Europe) sold LNT and TV5 to LNT founder Andrejs Ekis in March 2010 as part of the company’s general exit from Central and Eastern Europe. In 2007 Mr. Ekis sold LNT to News Corporation, which also acquired TV5 from local investors. MTG also owns radio station Star FM in Latvia.

MTG is considered Europe’s second biggest television broadcaster by geography, dominant with free-to-air and pay-TV channels across Scandinavia and the Baltics as well as significant holdings in Hungary, the Czech Republic and Bulgaria. MTG subsidiary Viasat is a minority partner in Russia’s CTC Media, which also offers Russian-language television channels in the Baltics. A share distribution by Swedish financial giant Investment AB Kinnevik formed MTG in 1997. Kinnevik holds 20.3% of the capital shares and 47.9% of voting shares in MTG.

MTG under CEO Hans-Holger Albrecht has long pursued expansion outside the very mature Scandinavian markets, and even Europe. In Sweden and Norway, MTG goes head-to-head with well-entrenched and reasonably well-financed public broadcasters, which continue to spend on original programming. Outside of Scandinavia, in the Baltics and Eastern Europe public broadcasters are far less well funded but major private sector competitors are formidable.

In Hungary MTG faces RTL Group’s RTL Klub and ProSiebenSat1 Media’s TV2. In the Czech Republic the market leader is CME’s TV Nova. MTG bought Bulgaria’s Nova TV in 2008 for €620 million to compete with CME’s bTV. In January MTG took a €365 million “impairment charge” against the Bulgarian assets. In February MTG closed its Slovenian television channel TV3.

Africa has attracted the development attention of Herr Albrecht. MTG has had television channels and a production house in Ghana since 2008.

Competition in Sweden and Norway, often from new digital channels, has caused executive shifting. MTG Sweden’s managing director Manfred Aronsson departed last week (May 31). In April flagship channel TV3 lost about 10% of its viewers.  Last fall several executives at MTG Norway departed. The company continues to invest in sports rights, the English Premiere league for Sweden and Denmark being the most recent, to bolster pay-TV revenues.

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