Morning, everyone. Welcome to our Q1 2019 results conference call. Max Conze, our CEO, and myself will lead you through the presentation today. Please be aware that for the first time, we today broadcast this quarterly call also via a webcast. If you want to ask a question after the presentation, please also dial in into the conference. The dial-in details have been provided through the invitation, which was sent to you by Investor Relations. With this, I think we can get started. I hand over to Max.
Good morning. Thank you for joining us today, which is a bit of a wordplay. Some of you may have seen, and some may not have seen that yesterday, we announced the launch of our new streaming platform, Joyn, this summer. I think it's a wonderful wordplay and combination because it combines the two sentiments we're after, which is for all of Germany to join us and to take joy out of the streaming experience we look to provide. I will give you details on our planned launch later. On slide four, I just wanted to start off on a personal note, in that all in, I was quite pleased with our first quarter. That's really for two reasons. One, on revenues, we are making a positive start and growing about 4%.
Not yet everything we want. Good momentum, I think importantly driven by really strong development of Red Arrow Studios with +38% and NuCom Group with +25%. Digital and smart advertising business also grew +14%. Again, more acceleration needed, but I think quite encouraging. Two. We are winning with consumers and audiences, I think that's very important because underlyingly, it's the entertainment and content we create and getting people to engage with what we are creating. We've had the best TV audience share since first quarter 2016, importantly, total digital view time grew by 26%. This really matters because the key conversation that I think we have inside ProSieben, also we have outside with you is how do we counter the decline in TV consumption? The answer is by growing digital over proportionally fast.
While we're not completely there, I thought it was encouraging to see us delivering total video view time, so when you combine TV viewing consumption and digital viewing consumption, to be almost flat. That is really important because let me remind you, what is our core growth thesis? Our core growth thesis is, number one, that we can grow digital view time overcompensating TV decline, thus building total view time and reach. Two. That we can translate that into more money because we can make advertising smarter and thus address more of a EUR 22 billion German advertising market. Three. That we can continue to use and build the advantages of having an entertainment and commerce ecosystem to deliver growth on both ends of the equation. I'll talk about Joyn a little bit later.
The last overarching comment I wanted to make is on team culture and transformation, where I think we're well underway. Of course, not all done yet, but I'm feeling good about the progress we're making. Now moving to key financials for the first quarter on page five. If you look at group revenues, organic growth at 3%, reported at 4%. Let me comment on the segments, I'll do it from the bottom up. If you look at NuCom, very good organic growth at 14% at the top end of our guidance, 25% reported. Red Arrow Studios actually well ahead of our guidance at +31% organic and +38% reported. On entertainment, we're seeing about a 4% revenue decline organic. That's 7% reported because remember, there's a deconsolidation effect of predominantly Maxdome in this. If you look underlyingly, TV core advertising is about -4%.
Digital and smart advertising is about +14%. These numbers, give or take, would be the same organic, reported. We now have April actuals, April was actually encouraging with both TV core advertising and total entertainment positive. If you look at our year-to-date position four months in, remember, we discussed jointly that that is probably the first marker for us to get a sense of how this year will perform in terms of advertising market. The entertainment ad revenues are about -2%. If you look at group-adjusted EBITDA, that's -5% behind the investments that we're making into the future.
As I think we have commented in the past, we expect more accentuated EBITDA declines in quarter two and quarter three, predominantly behind the investments that we're making in content, which will partially reverse out in Q4, importantly, is not built on overly optimistic, entertainment revenue assumptions. I think with all that, we are quite comfortable, Ralf will comment on this later, with the guidance we have provided you with previously. If you go to slide six, let me talk, in more detail about entertainment. I think what I'm really pleased about is that we are gaining on total video view time.
I think this reflects the +26% growth around all of our digital platforms, that's before we're launching Joyn, indeed, very strong TV audience share gains. It is quite interesting to note that Austria, while a relatively small part of our total business, is a bit of a test bed for us. Because it's small, because we already are organized as an all-in end-to-end entertainment company, we're able to, I think, execute and operate more strongly. It's quite encouraging to me that in that environment, we're able to deliver positive entertainment revenue growth despite seeing the same levels of TV ad market decline that we're seeing in Germany. That is predominantly driven by faster progress on digital, around 30% growth. By the way, in April in Germany, we're also seeing about 30% growth on digital.
Not all done yet, but I think at least some encouraging signs that are going the right direction, all that based on a very strong local content push with 43 new formats in Q1, and a slate of entertainment formats that are coming this summer that I'm very excited about. I will talk about Joyn in a moment. Distribution continues to show a solid revenue growth, and we are quite focused on building more new client business. If you look on slide seven, really quite a successful slate of programs. They are broad because I think sometimes there's a perception we're doing Germany's Next Topmodel and The Voice, but we have a very broad offering. Factual really matters to us and with taff, with red., with Galileo, with Akte, we have the most successful lineup of magazine formats.
They are performing more strongly than ever, and they are creating local relevancy, I think, in a way that, for example, our global streaming competitors cannot. We're really winning on show and reality, whether that's with The Voice Kids, up 42% in digital video views, whether that's with Germany's Next Topmodel, that is just having a smashing season. We're winning with comedy. Late Night Berlin is a good example, which is a format that we have stuck with, that we are developing, and that I think is becoming a real anchor point in the German programming landscape. We're investing in fiction, where we have a number of thematic films around stalking, moral courage, sexual harassment that had very close to 10 million viewers, and indeed, we're doing more on sports. We also, I think, are taking our role to entertain and inform serious.
Because we are approaching European election season, we have a very big campaign where we're using our assets to encourage young people in Germany to participate and make their voice heard about the future in Europe, which I think is something that's very important and meaningful to all of us. If you look on slide eight, Studio71 is creating hugely exciting content for young people at large scale. By the way, we are generating 630 million monthly streaming views in Germany. That is counting both TV content that we're making available as well as content that we're creating uniquely for these environments. If you will allow me, that is twice as many YouTube views as the following six competitors combined.
On slide nine, I did want to spend a moment and talk about macro and advertising environment because that is certainly something on our minds, and I know very high on your minds. Without a doubt, the German environment, I think, is both still volatile, a bit difficult to predict. As I've said before, I'm not smart enough to predict where advertising markets will be a year from now, let alone where they will be three months from now. But I think what is very interesting to see is that in that uncertain environment, we are seeing an improving trend. If you look at ProSiebenSat.1 Entertainment ad revenues, Q4 2018 were -8%, Q1 2019 was -4%, year to date, April is -2%. Importantly, we are really focused on how we can leverage further monetization potentials.
We're doing more work with direct clients, and you see the share of direct business climbing. We are investing more energy in really not just being a TV or reach inventory seller, but building 360 degree propositions. We just did a very successful H&M campaign around The Voice Kids. We're expanding new client business, for example, MAC Cosmetics, again, integrated seamlessly around content. We're building out more smart reach, both in number of campaigns, and we're continuing to work on the technology that is critically required for us to win with smart reach. Just yesterday, we completed very important technical work and an important step forward on addressable inventory, where we now are the first broadcaster globally that can launch at TV spots on HbbTV 1.5 in every ad break.
What that means, put in simple terms, is that we are increasing the amount of inventory that we can access with addressable dramatically. If you put together the amount of inventory addressable on TV, you cast your eye forward, and you think about how much we're building digital inventory, particularly as and when Joyn comes on stream, then really that is the first most important move for us to make a bigger, more intelligent inventory of advertising available that we can then monetize better. With that, let me spend a few moments and talk about Joyn. First of all, on the timing roadmap, we are about to launch a better version. I have it on my phone.
By the way, if you have it becomes quite an inescapable habit because the one thing that people forget is that in Germany, there still is not one app and one streaming service that is free and not behind a paywall, where you can access broadly the channels and the content that you want and love, and you can do that on every device. You have to jump from app to website to this and that, or you have to pay big services to do that for you. I think that's a unique window of opportunity for us, because don't forget that where we come from is as a free-to-air broadcaster, advertising funded. I think there's a huge opportunity for us to take that position and replicate it in the digital space. We'll have beta launch in May.
We will then launch this broad and publicly in June, and we will have a subscription layer that integrates Maxdome, Eurosport Player, and a few other things later in the year. What are we going to offer? On slide 11, you can see that we think we'll have more than 50 live channels at launch. We have worked very closely with ARD, and I'm very pleased to say that I am confident that ARD will be ready to join us when we launch in summer. Indeed, that means our channel lineup is pretty much complete across the German landscape, with the exception of RTL channels. We will, on the channels we control, have seven days pre-TV airing, 30 days catch up. We'll have 40 TV previews. We'll have five exclusive originals. We'll have about 20,000 episodes available in our library across 4,000 formats.
When we launch, we will use the unique strengths we have. 25 million people engage with our content every week. We will have a very big campaign over the first three months to really invite all of Germany to join the journey. Other thing we'll do as we go through the better phase is really invite German users to work with us, how to make this the best streaming offer for them, whether that's the 10-minute snackable news you want to see in the morning on the way to work, whether it's the 5-minute comedy that you watch after you come home from work, whether it's the It Rains on Sunday charmy playlist or whatever other ideas users have in Germany. We want to listen to them, invite them into that journey so that we can build the best product that everybody needs to have.
As you can see on page 12, we think there is quite a unique, comprehensive offering that we have put together relative to everything else that sits in the landscape. Now, let me talk about Red Arrow Studios. As I've commented before, very strong start with +38% revenue growth. Where is this coming from? We have really quite a superb 2019 content production slate. From "The Weekly," which is The New York Times' first major foray into TV, to "Vienna Blood" that we're doing together with ZDF and ORF, to "Jailbirds" for Netflix, to another season of "Bosch," I could go on and on. Indeed, on slide 14, we've put together just a high-level view of some of the very exciting pipeline and renewals that are coming on stream. Hopefully, all of us will get to enjoy. Slide 15.
I did want to make a comment on Studio71 because I think sometimes we're maybe not talking enough about it, or people are not understanding enough what it is and how critical and important it is. Studio71 today is the world's largest distributor and producer of social media, or if you want to call it short-form content. We have 10 billion views per month on YouTube. We have 450 million followers on Instagram, billion+ snaps. We're on TikTok, we're everywhere you look. That's so important for us, because for us to create a winning high-growth entertainment future, we need to be deeply connected to young audiences. The wonderful team that we have at Studio71 is helping us do this in a leading way, both in Germany but also in the U.S. and globally. Now on slide 16, let me comment on NuCom Group.
Overall, I think a pleasing first quarter, at +14% organic, +25% reported. You can see that across the four major verticals, there is really good progress and development. One or two comments. eHarmony, I think the integration work is going really well. We're seeing positive registration and revenue growth. For the first time in a very long time, we started to deploy our technology and marketing assets, I'm really quite excited about what we can do with that business.
The other example maybe I wanted to give you, because it shows how we're creating synergies, is Jochen Schweizer and mydays Group. On Jochen Schweizer, we are working with him and will launch later this year a Jochen Schweizer TV show called "Der Traumjob - bei Jochen Schweizer," where Jochen himself is looking for a new managing director for his company, and in probably the most unusual and daring process. There's a number of candidates that have to take on various challenges around the world with Jochen. We are working on a separate venture that I won't comment on yet with Jochen Schweizer, that I think will come alive later in the year. Then, of course, jointly, we're moving into the very important Christmas business. I think that's a nice example of where what we can do in entertainment and what we can do in commerce is combining and coming alive.
We're now early in the second year of NuCom existence as a company, I think it is quite exciting that NuCom this year will become a EUR 1 billion plus revenue business. If you look at the growth rates we're projecting for the year, and if you were to benchmark that against listed internet companies, we will be, if not the, certainly one of the fastest-growing internet/digital companies in Germany. On slide 17, before I close, I just wanted to make a few remarks on where we are on our transformation agenda. Again, good progress, but much remains to be done. One, we've completed the top team with, I think, a very strong mix of ProSiebenSat.1 experience, but also importantly needed fresh perspective. We filled critical capability gaps from tech to HR.
Two, we're changing our culture to be much faster and nimbler. We're very focused on execution because at the end of the day, as I think many of you have commented, the game in winning media going forward isn't really one of strategy, it is one of execution. Can we deliver digitally? Can we deliver in streaming? Can we deliver on the synergies? We are structuring a future-fit ProSiebenSat.1 Entertainment company. I've commented on this previously. We're making really good experiences with NuCom and the cleanliness of that setup. I think Entertainment hasn't been set up that clean in the past. We've appointed two CEOs, we're now structuring the team and really making sure that we have an entertainment business that can operate and win day in, day out.
We also are in the midst of looking at all investments, I've asked the team to put together proposals for us to divest non-strategic minority stakes so that we can generate cash that we can use to reinvest into the critical strategic growth drivers. We are exercising very tight control on content, digital, and tech investments and indeed are improving our cash position. Five, we're progressing on our technology roadmap with particular focus on smart reach and the arrival of Nick as CTO, very imminently, I think will help us further accelerate that agenda. Then, as you know, we're working with our European Media Alliance partners, particularly on content co-production and advertising technology solutions. Allow me to close on slide 18 on valuation and share price. This isn't for me to say where I think the share price needs to be.
That is for our investors to decide. Our job is to execute on strategy and deliver. If you look at valuations, I think it does strike one that relative to both the diversification that we have and the strategy we have going forward, there is very significant potential for us to correct the value equation going forward. Thus, I wanted to close and reiterate what "is our investment thesis." That more local relevant content delivered more digitally can grow reach. That smart reach and 360-degree advertising approaches can unlock more of a EUR 22 billion German advertising market, and that entertainment and commerce are very synergistic and can feed and develop each other. A statement of the obvious, we're in the midst of transformation. Ad market is difficult to read.
Not everything we're doing is perfect by the longest stretch of imagination, but I am feeling good about momentum and progress, and I have a very unwavering conviction to win. As you will have seen, I am putting my personal money where my conviction is. With that, I'd like to pass on to Ralf.
Well, thank you, Max. Let me now continue with a few more details on the financial performance of the group in our three segments. Please turn to page 20. In Q1 2019, we have achieved group revenue growth of about 4% on a reported and of about 3% on a portfolio and currency-adjusted basis. Adjusted EBITDA for the group declined mainly due to lower advertising revenues as well as P&L investments in entertainment into content, reach, and monetization. Thanks to counterbalancing cost savings in the entertainment segment, the decline in adjusted EBITDA could be limited to 5%. Both the NuCom Group and Red Arrow Studios came in strong, both in terms of revenue and earnings contributions. With regards to group adjusted net income, we saw a slight increase of 1%. This was primarily related to lower net interest expenses recorded.
Net financial debt increased to about EUR 2.2 billion, which reflects M&A CapEx, including the acquisition of minorities of EUR 314 million in the past 12 months. In addition to that, the share buyback in the amount of EUR 50 million, a one-time tax charge of about EUR 40 million, and restructuring expenses in the mid-double-digit million EUR range, have affected our net financial debt since Q1 2018. The financial leverage was 2.2 times net debt to adjusted EBITDA, hence, within the targeted range of 1.5 times to 2.5 times. Please turn to the next page. Revenues for the entertainment segment declined 7% to EUR 579 million. The decline was primarily related to weaker advertising revenues, as well as the deconsolidation of both Maxdome and 7NXT, which have negatively affected external segment revenues by about three percentage points.
Total advertising revenues in entertainment declined close to 4%, from EUR 526 million to EUR 507 million, due to a demanding market environment and a late Easter, which fell into April this year. Within the mix, TV core advertising revenues decreased by around 4%, and digital and smart advertising revenues increased by around 14%. Distribution revenues, yet again, showed 11% revenue growth, and hence, very satisfying, and reached EUR 38 million, supported by a continuing growth of subscriptions. Last but not least, other entertainment revenues declined by 47%, which were negatively affected by the deconsolidations, as well as lower program sales. On the other hand, both our AdTech and 7Sports business units grew nicely. Entertainment adjusted EBITDA thus declined by 11% to EUR 163 million from EUR 183 million, mainly reflecting the development of advertising revenues. Incremental P&L investments in the low double-digit million euro amount were offset by cost savings.
Please turn to page 22. As indicated at our full year 2018 results conference call in March, we will be reporting selected key operational KPIs from Q1 2019 onwards on a quarterly basis. Whilst most of the entertainment KPIs on this page 22 are self-explaining, and whilst Max has already elaborated on the most relevant KPI, total video view time, I just want to remind you that total video view time combines the traditional daily linear TV consumption of our channels, measured by the German TV panel, and the digital content consumption on all of our digital platforms, both linear and non-linear. This is the foundation of our future advertising business as it takes all of our available advertising inventory into account. Now please turn to page 23. In the content production and global sales segment, i.e.
the Red Arrow Studios business, we saw a meaningful improvement of both revenues and adjusted EBITDA in the first quarter. Thanks to double-digit percentage growth of Red Arrow's production business, as well as a continuing strong expansion of Studio71, external segment revenues increased by 38% to EUR 135 million. The production business, in particular, benefited from growth of the portfolio companies Left/Right and Endor Productions. In addition, Studio71's business grew dynamically in all of its key markets, with overall revenue growth of 56% in Q1. Segment profitability increased along with growing revenues on the content production business, as well as reduced losses at Studio71 due to positive operating leverage. Please turn to page 24. As you can see on this slide, almost all operating KPIs of Red Arrow Studios show improvement. In terms of the production business of Red Arrow, the number of productions and number of hours produced are worth highlighting.
With regards to Studio71's business, the increase of monthly video views by more than 20% to 10 billion, as well as a strong increase of YouTube subscribers and monthly minutes watched, explain the strong performance of this division. Please now turn to page 25. Page 25 shows the performance of our commerce segment, i.e. the NuCom Group business, with dynamic external revenue growth of 25% and an adjusted EBITDA increase by 44%. Portfolio and currency-adjusted revenue growth was 14%, and hence, at the upper end of our midterm revenue growth range of 10%-15%. The positive development was driven by all verticals with a strong organic performance of consumer advice, experience in gift vouchers, and beauty and lifestyle, all driven by their particular lead assets, Verivox, Jochen Schweizer mydays, and Flaconi.
Matchmaking also grew in line with our expectations. We are so far very satisfied with the development of the recently acquired U.S. matchmaking business of eHarmony. eHarmony already saw improvement in terms of registrations, which is a good indicator for future revenue growth. Now, please turn to page 26. In terms of NuCom's operational KPIs, we saw an improvement in all four verticals, with a pronounced increase in matchmaking and beauty and lifestyle. Please note that the strong increase in registrations in the matchmaking business mainly stems from the acquisition of eHarmony, which was not included in the Q1 2018 numbers. This being said, also on a like-for-like basis, i.e., for Parship and ElitePartner, we could achieve an improvement compared to last year. Let me now conclude my part of the presentation with a confirmation of our financial targets for the full year 2019. Please turn to page 27.
Let me first recap our full-year guidance. As already communicated, we target full-year group revenue growth in the mid-single-digit % range and an adjusted EBITDA margin between 22%-25% respectively. These targets presumed a stable to only slightly declining development of the TV advertising market and the corresponding development of TV advertising revenues in the entertainment segment. In the first quarter, we overall came in on track with respect to achieving our goals for the full year. We delivered 4% group revenue growth despite TV core and total entertainment advertising revenues coming in at around minus 4%. As announced, Q1 earnings were affected by first P&L investments in entertainment, supporting our digital transformation. However, adjusted EBITDA for the group, coming in at minus 5% year-on-year in Q1, was also in line with respect to achieving our targets.
For Q2, in terms of revenue performance, we are seeing a solid start in all segments. TV core and total entertainment advertising revenues in April have been positive, which has limited the decline of total entertainment advertising revenues in the first four months, i.e., year to date April, to minus 2%. For May and June, as in any post-soccer World Cup year, we expect a reversal of last year's soccer seasonality with this year's TV advertising revenues in May trending weak, but with June expected stronger. For the other two segments in Q2, Red Arrow Studios and NuCom Group, we are optimistic that both segments will continue to show dynamic revenue growth year-on-year. With respect to earnings, let me again emphasize that the P&L investment in the entertainment segment will have a pronounced impact on the group's profitability in Q2 and Q3.
For the full-year, we expect, as announced, that the decline in group-adjusted EBITDA will be limited to a mid-double-digit million EUR amount. To be clear, this is not built on overly optimistic revenue assumptions towards the end of the year, but a reflection of content investments in Q2 and Q3 and will partially reverse out in Q4. For the full-year, with the advertising outlook remaining limited, we expect good progress with regards to tapping additional advertising monies in the TV and digital space through our monetization initiatives, enabling us to support our total entertainment advertising top line, even in the potentially weaker ad environment. In addition, we are prepared to address any potential incremental weakness in market conditions beyond our ingoing assumptions by continued cost management efforts.
This being said, taking into account the performance of Red Arrow Studios and NuCom Group, we see ourselves on track to achieving our group financial targets for the full year. Overall, we will be working very hard to accelerate the performance of the business, where we are already seeing a promising development to ensure the continuing transformation of the group. With this, we conclude our presentation and open up Q&A.
Thank you. If you would like to ask a question, please signal by pressing star one on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, that's star one to ask a question. We'll pause for just a moment to allow everyone an opportunity to signal for questions. We will now take our first question from Julien Roch from Barclays. Please go ahead.
Yes, good morning. My first question is on your full-year guidance. You said a decline in EUR 50 million for adjusted EBITDA, but at the full-year results, you said that was based on TV not being worse than -2%. Is that still the case, or could you still have EBITDA declining EUR 50 if TV was a bit worse? Ralf just said that you were working on cost in case advertising was weaker. That's my first question. The second question is on cash flow. It was negative EUR 54 million, free cash flow was negative EUR 54 million in Q1. You say it was due to working capital and programming rights. Will working capital revert for the full year? First question on cash flow, the second one is programming amortization was EUR 232, programming investment EUR 303, a big gap. What should be the gap for the year?
Lastly, on net debt, how much money do you have for M&A this year? You talked about disposal of non-strategic minority stakes. Which are they? Thank you.
Okay, Julien, I think I will take these questions. Your first question with respect to full-year guidance and EBITDA performance. You're right that the ingoing assumption is for an only slightly declining TV ad market. You're also right, as we are working on cost efficiency and sales initiatives, there's a little bit more flexibility. Let me put it this way. In terms of cash flow, yes, Q1 was negative due to working capital and program. Just as a reminder, obviously, the comparator 2018 was pretty favorable. There we actually had a negative gap, i.e., we had more consumption than CapEx. Please bear in mind that also part of the payments we made relate to the program we have written off in Q4 of last year. This is the reason.
For the full year, the program gap will probably be at around EUR 50 million, as we can foresee right now. In terms of net debt, yes, we are working on disposing non-core assets. I don't want to put out a number at this point. It would be detrimental to the undertaking, and we will have, obviously, some firepower for additional M&A.
Right. Let me just add two points. One on cash. I think as Ralf put, we're very conscious that delivering and improving our cash performance, both in 2019 and by the way, in following years, is really important. We've already done some work on cash this year. I think the team's forecast for cash for the year is there or there about EUR 300 million, which is actually an improvement of what we communicated previously. I think that's good news. The second point to make on advertising and market performance, I think as I commented in my remarks, of course, we are exposed to what is happening fundamentally in the underlying advertising markets.
If you look at what we're focused on, which is building more digital reach, building deeper advertising client relationships, building better advertising products, and more 360-degree exploitations, the more and the better we do that, I think it gives us more of an opportunity to outperform underlying market trends. That's why I made a comment earlier on Austria, which by the way, is a small part of our business, so it doesn't skew results one way or the other. It's only about 6% of our entertainment setup. In Austria, we're already growing digital more in the 30s, and we've done a better job in building deep client relationships. We can perform positive in revenue growth with an underlying TV advertising market trend that has about the same negativity that Germany has.
I think that is a good indicator that as we execute better, as we put the team and the capabilities in place, over time, we can do the same in Germany.
Thank you very much.
We will now take our next question from Omar Sheikh from Morgan Stanley. Please go ahead.
Morning, everyone. I've got three, if I could. Max, maybe start with Joyn. Could you maybe just set out how we should judge Joyn's success over the next few years? Should it be users, subscribers, revenue, or profit? That would be helpful. Also, could you give us a sense of when you expect the platform overall to break even? That's the first question. Secondly, on the linear TV viewing declines that you've seen in Q1 in Germany, what do you think is driving that? Is that mostly individuals or consumers in Germany transferring to new platforms? Is it mostly Netflix and Amazon, or is it something else? Finally, maybe one for Ralph. Ralph, you mentioned that you are, I guess, making preparations for more cost savings. How should we read that?
Is that because you anticipate a risk that advertising may be worse than your slightly down expectation for the full year, or is that just normal, prudent planning that you normally do? Thank you very much.
Thanks, Omar. You are, by the way, my favorite bear. On Joyn, I think it's a very good question because maybe, actually, let me use that to fundamentally explain my belief system again. My belief system is that if you go back to where we come from, our whole business model is built on being a free-to-air broadcaster that generates money through advertising. I think there's an equivalency of that in the digital world, which is why we're very focused on going free first, having the most compelling free offering, and building broad user engagement. Over time, I think those users have a choice of whether they want the portfolio of our offering in a free environment where there's also some advertising, or whether they want to be in a subscription model.
I've stated previously that our target is to have 10 million users on the platform in the first two years. That target stands. Hopefully, we can get there quite a bit more quickly. Of course, in terms of break even, we would expect to break even around four to five years. Actually, the most important point, I think, is that at the end of the day, I think the singular most potent strategy for us is as quickly as we can to generate at as much scale as we can, addressable and smart inventory.
That's a combination of addressable TV inventory and digital inventory, within which Joyn plays a major role, because we know that that is a more valuable product to the advertisers we serve today, and importantly, we know that that can unlock significant inflows of advertising money that sits in that 22 billion German market that we're currently not capturing. By the way, the other comment to make on Joyn is that while we're very excited about the work we're doing, I should probably also point out that we have a set of very important distribution partner relationships that are near and dear to us, and they're near and dear to us today and tomorrow. This is an and not an either/or. On linear TV decline, well, I think there's two bits at play.
One, without a doubt, I think structurally there's linear TV decline, and that is built into our models. I think it's over-accentuated if you look at the numbers in the first quarter because of an Olympics effect, and we know that big sports events, if you want over Q and then under Q, audiences. Certainly, our models forward assume that we'll have continuing TV decline, which again, is why it's so important that we're building out more digital reach. By the way, I've spent quite a bit of time in Scandinavia and in other places where there's a few broadcasters that have done that very successfully over the past four or five years in markets where Amazon and Netflix have much higher penetration than they have in Germany.
Okay, Omar, I take your last question with respect to cost savings. Obviously, what we do is ordinary course of business. It's our duty to run the company as efficient as possible. Having said this, obviously, our visibility into the ad market is limited, as we have repeatedly stated. Should ad trends come in weaker than we initially hoped, then obviously, our cost management effort will help to sustain results.
Okay. That's very clear. Thanks a lot.
We will now take our next question from Christoph Johns from HSBC. Please go ahead.
Yes, thanks for taking my questions. I would like to take them one by one. First, on your new TV core advertising figure. I appreciate the incremental disclosure. Just to understand, can you first give a quick comment on SevenVentures? If SevenVentures was down quite a bit, then the underlying TV advertising performance should have been better than the minus four. Maybe you could comment on that first.
Chris, Rafi. Obviously, we are not breaking out, let's say, the subsets of our TV core advertising line. You can assume that also SevenVentures was challenged in the first quarter in line with the overall market.
Also worse than the overall minus four, I guess, right?
Yes.
Okay. In terms of markets outside of Germany, maybe a quick comment on Switzerland and Austria?
Similar trends, yeah, for Switzerland and Austria. As we have stated, the team in Austria was doing a pretty good job. It's fair to say that in Austria, we have outperformed the market.
Okay. Second question on your addressable TV efforts. I understand the comment about the reach compared to digital, simply because of the amount of TV sets you already have. Or are exposed in those households. Is there any incremental comment you can give on, you said you're now ready to launch full addressable on HbbTV 1.5. Is there any recent figures on how many households that includes? Any feedback from advertisers so that we can get a bit of an idea on how quickly this will jumpstart? That'd be interesting.
Yeah, I'll take that one, Chris. It's really a critical question because I think that's the most significant strategic pathway to our future. In terms of TV sets or households, there's about seven, eight million households that have smart TVs that are connected and are HbbTV enabled. Of course, that number, as the population of TVs and connected households renews, will only ever go up. We are working very hard on creating the technical infrastructure to deliver smart and addressable advertising at scale. I think I commented in the annual results conference on the work that we're doing on cross-device bridge, which is very important. I commented today that we've just completed the work to, as I'm being told, actually be the first broadcaster globally that can launch ad TV spots on HbbTV 1.5 in each break.
What that fundamentally means is that we can provide more inventory of addressable TV spots. Then, of course, as and when Joyn comes online, we will start to generate pretty quickly a meaningful increase in how much of digital video we can mix into that. To your question of advertiser interest, I think addressable is pretty much the hottest trend in the world. Just the other day, I was looking at CBS comments in the U.S. They can't build addressable fast enough for demand from the advertisers. I had a dinner this week, actually, with the CEO of Trade Desk, who was telling me the same story, and also that the premiums that they see being generated in a programmatic market for addressable spots are somewhere around 100%.
I think that makes all great sense to me, and that is why we're very singularly focused on building that up. We have a lot of test and trial campaigns out there. I do realize that the number today in our P&L of what constitutes addressable is still pretty small. On the one hand, one could say, "Well, you guys should have been more advanced in the past," but that's water under the bridge. On the other hand, I think it makes the opportunity going forward more sizable because our starting base is pretty low, and I think we are now really pushing on this front, and we're also in quite active discussions on how on the advertising technology front, we can partner more smartly in the market for more scale.
Okay. That's clear. Thank you. Last question, again, coming back to the non-strategic minority stakes. If I'm going through my M&A sheet, it seems there's actually not that much. I'm seeing things like 90min, Eversport, Jochen Schweizer, those kind of things. What are we talking about here in terms of the things that you're looking at? Without being too specific, I understand. But could this even involve some of the studios in the U.S., for example? Or am I over-interpreting non-strategic stakes here?
Chris, I think you are over-interpreting non-strategic. What we have in mind is a portfolio where we have a EUR low triple-digit million number in mind as potential disposal proceeds. These are all assets which are really non-core. We don't want to dig deeper now as this would impair our envisage processes, but it will obviously benefit our financial headroom.
Okay, thanks.
We will now take our next question from Laurie Davison from Deutsche Bank. Please go ahead.
Hi there, guys. First question, just a follow-up on the EUR 300 million free cash flow figure, Max, you mentioned. Is that unlevered free cash flow or post-interest? Second question is on Joyn. You've talked about the marketing spend for launching that in your presentation, and that's included within your guidance for this year. Is there any dedicated programming, which is already baked into your 2019 forecasts for the EBITDA drop of EUR 70 million in entertainment? Beyond that, your Capital Markets Day guidance of EUR 1 billion adjusted EBITDA for entertainment by 2023. Does that include any dedicated programming spend, originals? Last question, just on your good audience share. Do you think you're taking share over January to April in the core German TV market? Thanks.
Laurie, Rafi. With respect to free cash flow, the EUR 300 million number, this is post-interest, yes.
Sorry. On Joyn, Laurie. One on marketing spend, actually, I think one of the things that's important to recognize there is that there's both physical marketing spend, but there's also trailer and basically marketing infrastructure that is available to us that we're deploying against Joyn that isn't costing us cash. That again, is one of the advantages, I think, similarly to my comments in entertainment and commerce and how they feed each other significantly, that we talk with 25 million Germans in every single week. I think we have quite a unique ability to create a platform and to create awareness that would be very uneconomical for others to do. All that spend is baked into our guidance. On programming, yes, we are investing in dedicated and inclusive programming in Joyn.
That is also baked into our forecast and guidance both for this year and midterm. It's probably important to remember that if you look at this year, we're investing EUR 50 million, Discovery is investing EUR 50 million, but of course, that's after quite a bit of the revenue flows and so forth. I think we have a pretty significant investment and pretty significant program. On your third question on audience market share. As in the presentation, if you look at our TV viewing and share performance, that is up meaningfully. I think that's very encouraging. By default, yes, that probably means we're taking a little bit of share from others.
In many ways, actually, the most encouraging number for me was that if you look at total video view time, and remember, it's very important that we're working hard to create new currency measurement systems. Because if all of us believe the world that we live in is video, we need to measure video as total video view time and as total reach. Reach is complicated because you have to un-duplicate it, so we're not quite there yet. If you look at total video view time, actually the most encouraging for me is that in a quarter where TV consumption or viewing materially declines, we're able to not overcompensate, but almost compensate for that.
I think that's validation of the strategy we're on, which is to aggressively build out digital reach, and of course, to fire all of that with a heavy slate of more local programming, of which I think we had a very successful slate in the first quarter. We have quite a bit of firepower coming as we move through the year.
Thanks. That's clear. Just to follow up, how much dedicated originals programming spend is baked into the 2019 and the Capital Markets Day guidance?
Laurie, is this a question for 7TV or Joyn?
No, this is on Joyn. Sorry.
Yeah, Joyn. Okay. Look, what you can assume is that program cost, and I can't go into any further detail, is more than 50% of the cost base of Joyn's P&L. There will be a significant contribution into the programming success of this venture.
Okay, thanks.
We will now take our next question from Annick Maas from Exane BNP Paribas. Please go ahead.
Hi. My first question is on the April minus 2% year-to-date number within the TV core business. Do you see the SevenVentures trends improving within that or not? The second one is if you could give us an update on the renegotiation of the output deals. Finally, now that we've seen some of these global media players announcing properly their investment plans in their streaming platforms, such as Disney, for instance, do you think that midterm there's a risk that you might have to invest considerably more to be competitive with the new platform, or are you feeling comfortable with your investment at this stage? Thank you.
I take the first question. Yes, in April, also SevenVentures was improving. On output deals, as you know, we secured the Warner deal last year, which was the core piece. Beyond that, we're working across the total landscape on specific deals. Some of them will be deals, some of them we will pick. We're very comfortable to be able to feed in totality our grid requirements, particularly as we rebalance to local content. We feel we're in good shape. On midterm risk might be to invest more in Joyn. Look, I think we've built a five-year plan that is actually quite aggressive in its investments and quite aggressive if you look at the numbers that Airtel or ITV or others are putting out. We're comfortable with that plan we've built.
For the moment, we don't see any changes to that. I am hopeful, actually, that we get to some of the targets we're setting, particularly in building up users faster. The best place for me to be in would be to have more success more quickly and to use that to reinvest and bulk up more quickly. Let's launch, and let's get there.
Thank you. Just one final question. With your rebalancing to more local content, do you view actually the new KKR content production venture as a risk to your content business or not at all?
Not at all.
Okay. Thank you.
Not at all, one. Two, by the way, we have a very deep network of relationships in the German creative landscape. There's very active work going on how we work with the top creative talent, the top stars, and the top producers in a very collaborative fashion. We think we're sitting in a really good position.
Thank you.
We will now take our next question from Sophie Julienne from Bank of America. Please go ahead. Ms. Julienne, your line is now open. You may ask your question.
Hi. Thank you very much for taking my questions for me. Could you maybe give us more color on May and June? You said May would be weak. Are we talking minus two, minus five? Same question for June. You mentioned strategic partnerships in Europe in your press release. What would be the best way to partner? Through single initiatives, JVs, or would you consider some deeper collaboration? Finally, digital was up 14% in Q1, but viewing increased 26%. What explains the gap? Thank you.
Julienne, I take the first question. Obviously, what we are facing now for the second quarter was, as we already outlined, a decent April. We see a reversal of last year's soccer seasonality, where last year May benefited from pull forward spendings because our advertising customers wanted to avoid the World Cup airing on the publics. Hence, we had a weak June. This year will be simply a reversal of the trend. Yeah. Just as a reminder, year-to-date, April last year was actually growing, and May, June last year were slightly negative, yeah. This is all we can say at this point, but this is an every two-year phenomenon we experience. On strategic partnerships, Sophie. Look, my belief system is that the most value is in partnering around the subjects that create future value, and where we have shared needs.
I think that is using combined firepower to create more exciting content that enthuses people in Germany, but also in France and Italy and other places. Looking at some of the investments we're making in advertising technology and how that can get at more scale. I think we believe it's focused, singular initiatives that are partnering. There may be equity elements in that partnering in the future, as, by the way, we have done in the past on Studio71, but we think that is the way to win versus wholesale combinations. On the third, viewing the revenue growth. Yes, you are right. We're growing digital views faster than revenues. The underlying monetization is lagging a bit. This fundamentally has to do with quite a bit of the viewing growth today is YouTube, where we're not monetizing as well.
By the way, that points back to Joyn as a strategic initiative because the more of our digital inventory we play in an environment where we can capture 100% of the monetization, I think the more that will flip and reverse. We are seeing globally, in markets where quality digital video advertising inventories of the kind that we are looking to provide are more mature. That's the case in Scandinavia, that's the case in the U.S. The value of that inventory relative to linear reach carries a premium of 2,200%. I think the fundamental case is there. We are in what I call the early, as opposed to the end stages of that game.
Thank you. Very clear.
We will now take our next question from Conor O'Shea from Kepler Cheuvreux. Please go ahead.
Yes, good morning. Thanks for taking my questions. I also have three questions. My first question, just to return on this second quarter net advertising revenue. Apologies for that, but just in terms of the weights of the individual months, I think I'm right in saying May is the biggest month in the quarter. At this stage, given the weights and the trends you're seeing so far, and the expectation for June, what do you think the chances are of the overall being positive growth for now in Q2? If you're not willing to say that, maybe you could give a little bit more color if you're seeing any changes on an underlying basis in terms of clients' spend among the big advertising sectors, FMCG, autos and so on. My second question, just on the commerce business.
If I could just have a number on the M&A revenue contribution for eHarmony and Aroundhome in Q1, and also, just a confirmation that there are no M&A effects for the rest of the year in the two remaining businesses, beauty and lifestyle and experiences. My third question, very quickly, just from your comments, Max, that you're ruling out clearly any kind of wider cross-border merger with another free-to-air broadcaster in Europe as things stand. Thank you.
All right, Conor. Ralf here. Let me take your first question with respect to Q2. I think the way how you have to look at Q2 is April typically is roughly one third of the quarter, and then you have to look at May and June combined. In terms of relative share this year, we actually do not expect a meaningful deviation from past years. April typically being one third and the other two months, two third. Why we are looking this way at this, obviously, we always have the seasonality driven by soccer.
Yeah.
In one year, May is stronger, in the other year, June is stronger. I think this is how you have to look at it.
Okay. Fair.
The commerce, I think you were asking for the revenue contribution of Aroundhome and eHarmony. In the first quarter, I guess, yeah?
Yes.
Aroundhome and eHarmony roughly contributed EUR 25 million to revenues.
Combined?
Combined.
Yes. Okay. No M&A effect on the other two businesses.
Well-
in 2019?
We still have some old travel revenues in there.
Yeah, they were for Q1, around about EUR 7 million to be considered, yeah, which were not in this year, but were in last year.
Okay. Fine.
I'll comment on cross-border mergers in a second, but just because you asked on commerce, I wanted to make one comment on NuCom, because what I'm really quite excited about here is that we're now just a little bit more than a year into really running this as a company. We're able to deliver accelerated growth. We have a great management team on it. We're operationally very sharp. We're partnering well with GA. This will be a billion-plus business, and it's hard to benchmark the business. I asked the team to look at, which probably is the best benchmark if you look at listed kind of digital e-commerce platform, pure play businesses. If you do that benchmark in Germany, actually we are both rapidly becoming one of the most significant, but also one of the fastest-growing.
I think importantly within it, we're very focused on the verticals, and I continue to see great synergy potential and opportunities as we use the scaling and platform effects that entertainment has to offer. At the risk of reiterating things I've said before, I did want to make that point because I still think that maybe we're not doing as good a job in people understanding how exciting and quite unique is what we're building there. On cross-border mergers, while I've learned never to say never, I will reiterate what I've said in the past, which is, one, we're very focused on our strategy and our agenda. I think as many of you rightfully comment, what broadcasters need to do strategically isn't rocket science. Executing it well is hard.
All my and my team's energy is really focused on executing all the things that we continue to discuss jointly. How do we build more sticky local content? How do we expand digitally? How do we convert that into smarter advertising products? How do we build deeper relationships across the advertising client community? I think above and beyond that, we obviously are and will continue to work in where we can partner effectively to bring more scale to endeavors that are near and dear to our heart. There are one or two active discussions in areas of very high interest to us, and there may be more in the future, and that's probably as deep as I'm prepared to be drawn on that subject. Thank you.
Okay, many thanks.
We will now take our next question from Richard Eary from UBS. Please go ahead.
No, thank you very much. Just a couple of questions from me. Just going back to a couple of questions that have been already asked, just for clarity reasons again, is that of the EUR 50 million of guidance that you gave in terms of the capital markets day for the decline in EBITDA, are you now saying that as a result of looking at further cost management opportunities inside the business, that EUR 50 million is probably the downside, even if basically ad markets deteriorate from where you expect? That's the first question. The second question, Max, you talked about, obviously, the EUR 10 million numbers for Joyn. I don't know whether you can outline within that ad-supported versus subscription.
Additionally, if Joyn does get traction and we do see a shift in traffic from linear to Joyn, how do you think about that in terms of cannibalizing the core business, and particularly, how we think about that when you are associate counting Joyn, but consolidating your entertainment business? Thanks.
Richard, I think I'll take your first question. Basically, our full year guidance has not changed to what we have said in March. We are aiming for a year-on-year, for the full year, around about EUR 50 million EBITDA decline driven by our investments into content, digital platforms, and monetization. There's no change.
Okay.
Okay. On Joyn, Richard. I'm somewhat agnostic to start with because I think really the key battlefield is to build scale in our user base. I want to get to 10 million as quickly as I can. I would guesstimate that the balance between free and subscription will probably be two-thirds, one-third. I spent quite a bit of time with the Spotify guys in looking at their model, and I like that as a guide track. If you go back and you look at Spotify a couple of years ago, 70%, 80% of their business was advertising supported. Now, maybe 50% plus of their business is subscription supported. I like that strategy. I think our number one job is to have a great product and to get people to use it and enjoy it. If they use it and enjoy it, they will start using it more often.
They will start consuming more content. We will be agnostic and make available to people, both doing this in an advertising supported and in a subscription-based model. I think one of the things on your question on cannibalization, the short answer is I'm zero worried on cannibalization. It's important maybe to remember that all the advertising on our channels is captured through our own sales house. At the end of the day, an ad on a program in Joyn to start with is at minimum as valuable as that same ad on a linear stream. As I explained earlier, I think as our advertising products are getting more sophisticated, as the way advertising is being bought in Germany moves to more programmatic, every single data point I see around the world would suggest that that advertising product will become more and more valuable.
If anything, the cannibalization is positive as opposed to negative.
Just lastly, Max, obviously, as we go into, I don't know whether there's any comments you can make in terms of pricing at this stage before the launch of the subscription plan in the winter.
No.
Okay.
Look, because it's a consumer proposition, and I think we have an idea of where we want to be, but we'll also keep looking at the market, and closer in time, I think we will comment on that.
Maybe just, you talked about four to five-year breakeven as well. If we look at the depth of that curve, where do we think losses trough? Is that year 2, year 3? How do we think about that?
Richard, I take this question. I think we have guided for a negative contribution to our financial result of around about EUR 50. I think for now, this is a good marker. Obviously, we will update you. We feel comfortable with the minus EUR 50. Bear in mind, there are some offsetting effects in our P&L, so that for this year, the total net effect will be around about EUR 30. I think this should serve as guidance for the time being.
Okay. Thanks, Ralf.
We will now take our next question from Giasone Salati from Macquarie. Please go ahead.
Hi, good morning. three questions, please. Can you give us a little bit more color on the direct TV deals? What kind of client category, or else you can help us understanding the future prospects there. Secondly, on Studio71, there is maybe in the numbers, a little bit of a mismatch between the reach and the monetization of that content. Am I reading this right? That could be a focus of yours in terms of getting more money for what you are showing? Lastly, after all of these M&A questions, it might sound like a leading question. It isn't. If you had to choose between partnering with Discovery or partnering with Mediaset, where do you see the biggest upside on a larger scale?
That's very good. Your third question did cause us all to just have a smile. I'll call it on that one last. It's big. I'll ponder for a moment how I answer that one. Look, on direct TV deals, maybe first, just to clarify the numbers. What we've done here is, if you want, we've bundled what is the volume that moves through the top seven agencies, which is fundamentally, if you want, the agency-driven advertising market. Then we looked at the business that we do direct with clients. By the way, mechanically, some of that we transact directly with clients. Some of that also runs through very minor agencies that are in the employ of those clients. I thought it was encouraging to see that we're building that business. That is very important, by the way.
The game here is not to take away from anyone, and we have great relationships with the big agencies, and they're very important to us. The game here is to build more business directly with advertising clients that are maybe underexposed to the kind of products that we have provided. Of course, that becomes more meaningful, as we start to have more data-driven reach, because then we can segment that reach and make it available for advertisers that are looking for specific geographic targets, specific target audience targets also that we cannot really deliver with our broad-based linear reach. It's early days, but I think that's encouraging. We put in place a key account organization last year, and so I think that's some early outflow of that organization, adding value. Second question, Studio71.
Yes, there is a mismatch between reach and monetization, which is really mostly a YouTube effect, that the commodity advertising product on YouTube, is only generating marginal yields, and we need to trade more of that volume, both up the value chain in YouTube. Of course, as our own streaming platforms and structures become more prominent, more of that will flow through infrastructures that we control, and at that moment, we can monetize better. I will also say, we'll deal with that. Having said that, the team is continuing for the moment to focus on building reach, because I do think it's important that-
the more young audiences are exposed to the content that we're creating. One of the misbeliefs in the YouTube world is that all the kids watch different things, and it's really not true. If you look at the content that is being viewed, a lot of what people think of as traditional TV content is actually also the things that people really like to watch in that different environment. For the moment, while my own infrastructures aren't at scale, I think building relevance and connectivity with younger audiences is important, even though the monetization is not as good as we wish, and I think we have plans in place, to do that. On partnering, Oh, my God. Look, I have no idea.
We are a very good partner with Discovery, and have deep ties, and we've worked together for the past year in creating Joyn as a platform. I'm seeing David Zaslav in New York next week, this is really a big strategic effort for us now.
Okay
on Mediaset, we know each other well. Mediaset, by the way, is an equity investor in Studio71. I think I commented earlier on some of the things that we can do through the European Media Alliance. I think in general, we live in and not either/or worlds. We live in worlds where you need to do partnering smart. We're being very focused on where that can create value, as opposed to just people sitting around the table. That's the best answer I can give you, I realize it doesn't quite answer what you asked, I don't want to. Thank you.
No, that is great. Can I just follow up on the direct TV clients, direct TV deals? Is there a one-for-one overlap with addressable TV, or we're talking about something different on the side?
Yeah. No, it's not a one-to-one overlap. Yes, addressable plays in that portfolio, but it's also 360-degree deals. It's putting together sponsoring and advertising and other elements. It's talking with advertisers that haven't been in TV. Maybe they were in the past, and they were not, and helping them understand how the kind of advertising products we have can add more value. It's multifaceted, though over time, as I think addressable gets scale in terms of the product engine, I think addressable is the most potent product engine, in everything that we do.
Thank you.
Okay, ladies and gentlemen, I think this was the last question for today. As always, if you have any follow-up questions, please reach out to our investor relations team. Dirk and colleagues will be at your service. With this, we close today's call, and we wish you a very good day. Thank you.