morning, everyone, and welcome to our Q1 twenty nineteen Results Conference Call. Max Konsa, our CEO, and myself will lead you through the presentation today. And 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, and I hand over to Max.
Good morning, and 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. And I think it's a wonderful wordplay in 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, and 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. And that's really for two reasons: one, on revenues, we are making a positive start and growing about 4%.
Not yet everything we want, but good momentum and I think importantly driven by really strong development of Red Arrow Studios with plus 38% and NuCom Group with plus 25%. Digital and smart advertising business also grew plus 14%, again, more acceleration needed, but I think quite encouraging. Two, we are winning with consumers and audiences. And 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 twenty sixteen.
And importantly, total digital view time grew by 26%. And this really matters because the key conversation, that I think we have inside ProSieben, but also we have outside with you, is how do we counter the decline in TV consumption? And the answer is by going digital over proportionally fast. And 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. And 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 and 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 22,000,000,000 German advertising market. And 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. And 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, and 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.
And Red Arrow Studios actually well ahead of our guidance at plus 31% organic and plus 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 Maxtrom in this. And then if you look underlyingly, TV core advertising is about minus 4%, digital and smart advertising is about plus 14%. These numbers, give or take, would be the same organic and reported.
We now have April actuals, and April was actually encouraging with both TV core advertising and total entertainment positive. And so if you look at our year to date position, four months in, and 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 minus 2%. If you look at group adjusted EBITDA, that's minus 5% behind the investments that we're making into the future. And 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 and importantly, is not built on overly optimistic Entertainment revenue assumptions.
And I think with all that, we are quite comfortable, and 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. And I think what I'm really pleased about is that we are gaining on total video view time. I think this reflects the plus 26% growth around all of our digital platforms, and that's before we're launching Joyn, and 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. And 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. And that is predominantly driven by faster progress on digital, around 30% growth. And by the way, in April in Germany, we're also seeing about 30% growth on digital. So 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 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. And they are broad because I think sometimes there's a perception we're doing Germany's Next Top Model in the voice, but we have a very broad offering. Factual is really matters to us.
And with TAF, with RED, with GALILEO, with ACT, 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 Voigt's kits, up 42% in digital video views, whether that's with Germany's Next Top Model that is just having a smashing season. Indeed, we're winning with comedy. And 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 10,000,000 viewers, and indeed we're doing more on sports. We also, I think, taking our role to entertain and inform serious, And 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, Studio seventy one is creating hugely exciting content for young people at large scale. And by the way, we are generating six thirty million monthly streaming views in Germany, so that is counting both TV content that we're making available as well as content that we're creating uniquely for these environments. And if you will allow me, that is twice as many YouTube views as the following six competitors combined.
Now 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. And without a doubt, the German environment, I think, is both still volatile, a bit difficult to predict. And 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. So if you look at Prosimsadine's Entertainment ad revenues, Q4 twenty eighteen were minus 8%, Q1 twenty nineteen was minus 4%, year to date April is minus 2%.
And 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 three sixty degree propositions. We just did a very successful H and M campaign around voice kits. 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 HBV TV 1.5 in every outbreak. And 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. Now 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, it becomes quite an inescapable habit, because the 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. And 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.
And I think there's a huge opportunity for us to take that position and replicate it in the digital space. So we'll have better 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 R and D, and I'm very pleased to say that I am confident that RD will be ready to join us when we launch in summer, and 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, thirty 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.
And when we launch, we will use the unique strengths we have. 25,000,000 people engage with our content every week, and we will have a very big campaign over the first three months to really invite all of Germany to join the journey. The 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 ten minute snackable news you want to see in the morning on the way to work, whether it's the five minute comedy that you watch after you come home from work, whether it's the you know, it rains on Sunday, charming 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. And 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 plus 38% revenue growth. Where is this coming from? Well, we have really quite a superb 2019 content production slate. From The Weekly, which is New York Times' first major foray into TV, to Vienna Blood that we're doing together with ZTF and OFF, to Jaybirds for Netflix, to another season of Borsch, and I could go on and on. And 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, and hopefully, all of us will get to enjoy.
Slide 15, I did want to make a comment on Studio seventy one 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 10,000,000,000 views per month on YouTube, We have four fifty million followers on Instagram, billion plus snaps. We're on TikTok and we're everywhere you look. And 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.
And 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 plus 14% organic, plus 25% reported.
And 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. And I'm really, 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 Maedesk Group. Because on Jochen Schweizer, we are working with him and will launch later this year a Jochen Schweizer TV show called The Dream Job, 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 Schweitzer that I think will come alive later in the year. And then, of course, jointly, we're moving into the very important Christmas business. So 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, and I think it is quite exciting that NuCom this year will become a EUR1 billion plus revenue business. And 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 Internetdigital companies in Germany. Now 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.
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, and 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 for Siemens Sardines 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 and 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, and 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. And 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. And then as you know, we're working with our European media alliance partners, particularly on content coproduction and advertising technology solutions.
Allow me to close on Slide 18 on valuation and share price. And 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. But 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.
And thus, I wanted to close and reiterate what quote unquote is our investment thesis, that more local relevant content delivered more digitally can grow reach. That smart reach and three sixty degree advertising approaches can unlock more of a Euro 22,000,000,000 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. At 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. And as you will have seen, I am putting my personal money where my conviction is.
So with that, I'd like to pass on to Ralf.
Well, thank you, Max. And let me now continue with a few more details on the financial performance of the group in our three segments. So please turn to page 20. In Q1 twenty nineteen, 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 and 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 €2,200,000,000 which reflects M and A CapEx, including the acquisition of minorities of €314,000,000 in the past twelve months.
In addition to that, the share buyback in the amount of €50,000,000 a onetime tax charge of about €40,000,000 and restructuring expenses in the mid double digit million euro range have affected our net financial debt since Q1 twenty eighteen. The financial leverage was 2.2 times net debt to adjusted EBITDA and 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 €579,000,000 The decline was primarily related to weaker advertising revenues as well as the deconsolidation of both MaxDome and 7Next, which have negatively affected external segment revenues by about three percentage points. Total advertising revenues in Entertainment declined close to 4% from €526,000,000 to $5.00 €7,000,000 due to a demanding market environment and the late Easter, which fell into April.
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 €38,000,000 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 Seven Sports business units grew nicely. Entertainment adjusted EBITDA thus declined by 11% to €163,000,000 from €183,000,000 mainly reflecting the development of advertising revenues.
Incremental P and 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 twenty eighteen results conference call in March, we will be reporting selected key operational KPIs from Q1 twenty nineteen 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 nonlinear. 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 €135,000,000 The Production business, in particular, benefited from growth of the portfolio companies, LeftRight and Endor. In addition, Studio71's business grew dynamically in all of its key markets, with overall revenue growth of 56% in Q1.
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 €10,000,000,000 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 increased by 44%. Portfolio and currency adjusted revenue growth was 14% and hence at the upper end of our mid term revenue growth range of 10% to 15%.
The positive development was driven by all verticals with a strong organic performance of Consumer Advice, experience and gift vouchers in Beauty and Lifestyle, all driven by the particular lead assets, Verivox, Jochen Schweizer Midas and Flaconi. Matchmaking also grew in line with our expectations, and 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 in 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 twenty eighteen numbers. This being said, also on a like for like basis, I. E, for Parship and Elita partners, 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 percentage range and an adjusted EBITA margin between 2225%, 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 and 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 and L investments 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 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 a 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 and taking into account the performance of Red Arrow Studios and EUCOM 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 and A.
Thank We will now take our first question from Julian Roche from Barclays. Please go ahead.
Yes. Good morning. My first question is on your full year guidance. You said a decline in €50,000,000 for adjusted EBITDA. But at the full year results, you said that was based on TV not being worse than minus 2%.
Is that still the case? Or could you still have EBITDA declining 50,000,000 if TV was a bit worse? Because Raf just said that you were working on cost in case advertising was weaker. That's my first second question is on cash flow. It was negative €54,000,000 free cash flow.
It was negative €54,000,000 in Q1. You say it was due to working capital and programming rights. So will working capital revert for the full year? First question on cash flow. And the second one is programming amortization was €232,000,000 Programming investment $3.00 3,000,000 a big gap.
What should be the gap for the year? And then lastly, on net debt, how much money do you have for M and A this year? Because you talked about disposal of non strategic minority stakes, which are they? Thank you.
Okay, Julian. I think I will take these questions. So your first question with respect to the full year guidance and EBITDA performance. You're right that the ingoing assumption is for a only slightly declining TV ad market, but 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, yes?
In terms of cash flow, yes, Q1 was negative due to working capital in program. And 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. And 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.
So this is the reason. And for the full year, the program gap will probably be at around 50,000,000 as we can foresee right now, yes? And in terms of net debt, yes, we are working on disposing noncore assets, yes. But 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 and
Ralph, let me just add two points. So one on cash. I think as Ralph 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. So 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 €300,000,000 which is actually an improvement of what we communicated previously.
So 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. But 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 three sixty degree exploitations, the more and the better we do that, I think it gives us more of an opportunity to outperform underlying market trends. And 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 queue results one way or the other, it's only about 6% of our entertainment setup.
But in Austria, we're already growing digital more in the 30s, and we've done a better job in building deep client relationships. And so we can perform positive in revenue growth with an underlying TV advertising market trend that has about the same negativity that Germany has. And 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.
Good 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? So should it be users, subscribers, revenue or profit? That would be helpful. And also, could you give us a sense of when you expect, the platform overall, to breakeven?
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?
And then finally, maybe one for Ralph. Ralph, we you mentioned that you are, I guess, making preparations for more cost savings. How should we read that? I mean, 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 there. The 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, then our whole business model is built on being a free to air broadcaster that generates money through advertising. And 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.
And then 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 the subscription model. I've stated previously that our target is to have 10,000,000 users on the platform in the first two years. That target stands. Hopefully, we can get there quite a bit more quickly. And then of course, terms of breakeven, we would expect to breakeven around four to five years.
But 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. And that's a combination of addressable TV inventory and digital inventory, which 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 22,000,000,000 German market that we're currently not catching. 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.
So this is an and and not an either or. On linear TV decline, well, I think there's two bits at play. So 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 queue and then under queue audiences.
But 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 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. But having said this, obviously, our visibility into the ad market is limited as we have repeatedly stated. And 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 Jones from HSBC. Please go ahead.
Yes, thanks for taking my questions. I'd like to take them one by one. First, on your new TV core advertising figure. I appreciate the incremental disclosure. But just to understand, I mean, can you first give a quick comment on seven Ventures?
Because if seven Ventures was down quite a bit, then the underlying TV advertising performance should have been better than the minus 4%. Maybe you could comment on that first.
Chris, Rafi, I will be taking obviously, we are not breaking out, let's say, the subsets of our TV core advertising line. But you can assume that also seven Ventures was challenged in the first quarter in line with the overall market.
But also worse than the overall minus 4%, I guess, right?
Yes.
Okay. And is I mean, in in terms of markets, outside of Germany, maybe a quick comment on Switzerland and Austria?
Well, similar trends, yes, for Switzerland and Austria. But as we have stated, the team in Austria was doing a pretty good job. And it's fair to say that in Austria, we have outperformed the market.
Okay. Then 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 in those are exposed in those households. But is there any incremental comment you can give on you said you're now ready to launch full addressable on HPV TV 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 jump start?
That would be interesting.
Yeah, I'll take that one, Kristin. And it's really a critical question, because I think that's the most significant strategic pathway to our future. So in terms of TV sets or households, there's about seven, eight million households that have smart TVs that are connected and are HPV TV enabled. And 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. And 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 at TV spots on HVB TV 1.5 in each break. And 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.
If you look at just the other day, was looking at CBS comments in The US, they can't build addressable fast enough for the mouth on 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%. And I think that makes all great sense to me, and that's 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 and 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. And then last question, again, coming back to the nonstrategic minority stakes. I mean, I'm going through my M and A sheet, it seems there's actually not that much.
I mean, I'm seeing things like, ninety Minutes, Eversport, John VR, those kind of things. I mean, is this are we talking about I mean, 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 I overinterpreting nonstrategic stakes here?
Chris, I think you are overinterpreting nonstrategic, yes? So what we have in mind is a portfolio where we have a low triple digit million number in mind as potential disposal proceeds. And these are all assets which are really noncore, yes? We don't want to dig deeper now as this would impair our envisaged 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 €300,000,000 free cash flow figure, Max, you mentioned. Is that unlevered free cash flow or post interest? Second question is on Joyn. Is there dedicated 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 GBP 70,000,000 in Entertainment? And then beyond that, your Capital Markets Day guidance of GBP 1,000,000,000 adjusted EBITDA for Entertainment by 2023. So 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, called German TV market?
Thanks.
Laurie, Ralph here. With respect to free cash flow, the €300,000,000 number, this is post interest, yes.
Sorry. On Joyn, Laurie. So 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. And 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 25,000,000 Germans in every single week. And so 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.
And 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. And it's probably important to remember that if you look at this year, we're investing $50,000,000 Discovery is investing $50,000,000 but of course, that's after quite a bit of the revenue flows and so forth. So I think we have a pretty significant investment and pretty significant program.
And then on your third question on audience market share. Well, if you look at our as in the presentation, if you look at our TV viewing and share performance, that is up meaningfully. And I think that's very encouraging. And so 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. We just complicate it because we have to duplicate it, so we're not quite there yet. But 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. And 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.
And we have quite a bit of firepower coming as we move through the year.
Thanks. That's clear. Just a follow-up. How much dedicated Originals programming spend is baked into the 2019 and the Capital Markets Day guidance?
Is this a Laurie, is this a question for seven TV or
Joyn? No, this is on Joyn, sorry. Joyn, yes. Okay, okay. So look, I
mean, 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 and L. So 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 seven venture trends improving within that or not? The second one is if you could give us an update on the renegotiation of the output deals. And then 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. And yes, in April, also seven Ventures was improving, yes.
On output deals, as you know, we secured the one or the last year, which is kind of the core piece. And beyond that, we're working across the total landscape on specific deals, some of them will be deals, some of them we will pick. But we're very comfortable to be able to feed in totality our grid requirements, particularly as we rebalance to local content. So we feel we're in good shape. And then 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 and we're comfortable with that plan we've built. And so 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. And so 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. But let's launch, and let's get there.
Thank you. And 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. And not at all, one and two, by the way, we have a very deep network of relationships in the German creative landscape. And there's very active work going on, on how we work with the top creative talent, the top staff and the top producers in a very collaborative fashion. And so we think we're sitting in a really good position.
Thank you.
We will now take our next question from Sophie Julien from Bank of America. Please go ahead. Ms. Julien, your line is now open. You may ask your question.
Hi. Thank you very much for taking my questions. Three for me. Could you maybe give us more color on May and June? You say May would be weak.
We're 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? And finally, digital was up 14% in Q1, but viewing increased 26%.
What explains the gap? Thank you.
Julian, I take the first question. Obviously, what we will be what we are facing now for the second quarter was, as we already outlined, a decent April. And we see a reversal of the 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 public, yes? And hence, we had a weak June. And this year will be simply a reversal of the trend, yes?
And just as a reminder, year to date April was actually growing, and May, June was slightly negative, yes? This is all we can say at this point, but this is an every two year phenomenon we experience.
Okay, 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. And so I think that is using combined firepower to create more exciting content that infuses 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. And so I think 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 Studio seventy one. 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. So 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.
And by the way, that points back to join 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 20% to 100%. So I think the fundamental cases 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. Also have three questions. First question, just to return on the 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? And if you're not willing to say that, maybe you could give us a little bit more color if you're seeing any changes on an underlying basis in terms of client spend among the big advertising sectors, FMCG, autos and so on? Second question, just on the commerce business. If you could just have a number on the M and A revenue contribution for eHarmony and Around Home in Q1. And also just a confirmation that there are no M and A effects for the rest of the year in the two remaining businesses, Beauty and Lifestyle and Experiences?
Then the third question very quickly, just from your comments, Max, is 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.
Right. Konar, Ralph 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, yes, is roughly onethree of the quarter. And then you have to look at May and June combined.
And in terms of relative share this year, we actually do not expect a meaningful deviation from from past years. Yeah? So April typically being one one third and the other two two months, two third. And why we are looking this way at this, obviously, we always have the seasonality driven by soccer.
And
in one year, May is stronger. In the other year, June is stronger. And I think this is how you have to look at it.
Okay.
Then the commerce, I think you were asking for the revenue contribution of around home and eHarmony. So in the first quarter, I guess, yes. Yes. So Around Home and eHarmony roughly contributed EUR 25,000,000 to revenues.
Combined?
Combined.
Yes. Okay. And no M and A effect on the other two businesses We in '20
still have some old travel revenues in there, yeah, and they were for Q1, around about €7,000,000 to be considered, yeah, which we are not in this year but were in last year.
Okay, okay, fine.
Let me I'll comment on cross border mergers in a second. Just because he asked some comments, I wanted to make one comment on NuComm 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. And 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 €1,000,000,000 plus business. And it's hard to benchmark the business, but 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. And if you do that benchmark in Germany, then actually we are both rapidly becoming one of the most significant, but also one of the fastest growing. And 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. So at the risk of reiterating things I've said before, but I did want to make that point because I do 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. But I will reiterate what I've said in the past, which is we are one, we're very focused on our strategy and our agenda. And I think as many of you rightfully comment, what broadcasters need to do strategically isn't rocket science, executing it well is hard.
And so 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. They 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, very thanks.
We will now take our next question from Richard Ehry from UBS. Please go ahead.
Thank you very much. Just a couple of questions for me. Just going back to a couple of questions that have been all been asked, just for clarity reasons again, is that of the €50,000,000 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 with inside the business, that 50,000,000 is probably the downside even if basically ad markets deteriorate from where you expect? So that's the first question. The second question, Max, you've talked about obviously the CHF 10,000,000 numbers for Joyn.
I mean I don't know whether you can sort of outline within that ad supported versus subscription. And 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, we think about that when you are associate accounting Joyn but consolidating your Entertainment business? Richard,
I think I'll take your first question. I mean basically, our full year guidance has not changed to what we have said in March, yes? So we are aiming for a year on year for the full year roundabout 50,000,000 EBITDA decline driven by our investments into content, digital platforms and monetization. So 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. And I want to get to 10,000,000 as quickly as I can. I would guesstimate that the balance between free and subscription will probably be two thirds, one third. I've 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, 7080% of their business was advertising supported. Now 50%, maybe 50% plus of their business is subscription supported. And 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. And then 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, I mean, 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.
And so at the end of the day, an ad on a program in join to start with is at minimum as valuable as that same ad on a linear stream. And then 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. And so 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. 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, I mean, where do we think losses trough? Is that year two, year three? How do we think about that?
Richard, I take this question. I mean, I think we have guided for a negative contribution to our financial result of around about 50, yes? And I think for now, a this good marker. Obviously, we will update you. But we feel comfortable with the minus 50.
And bear in mind, there are some offsetting effects in our P and L so that for this year, the total net effect will be roundabout 30,000,000 yes? I think this should serve as guidance for the time being.
Okay. Thanks, Ruff. Thanks, Max.
We will now take our next question from Giusone Salati from Macquarie. Please go ahead.
Hi, good morning. Three questions, please. Can you give us a little bit more color on the DIRECTV DIRECTV deals? What kind of a a client category or or else you you can help us understanding the the future prospects there? Secondly, on the Studio 71, there is maybe in in the numbers, little bit of a mismatch between the reach and the monetization of of that content.
Am I reading this right that that could be a focus of yours in terms of getting more money for for what you are showing? And lastly, after all of these M and A questions, it might sounds 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 last. It's peak.
I'll ponder for a moment how I answer that one. Look, on DIRECTV deals, so maybe first just to clarify the numbers. What we've done here is if you want, we've bundled what are the is the volume that moves through the seven agencies, which is fundamentally, if you want, the agency driven advertising market. And then we looked at the business that we do direct with clients. And 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. And I thought it was encouraging to see that we're building that business. That is very important, by the way. That isn't the game here is not to take away from anyone. And we have great relationship 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. And of course, that becomes more meaningful as we start to have more data driven reach because then we can segment that region, make it available for advertisers that are looking for specific geographic targets, specific target audience targets or so that we cannot really deliver with our broad based linear reach. So it's early days, but I think that's encouraging. And 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. And then 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. But I will also say, so 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
Mhmm.
You know, I mean, the more young audiences are exposed to the content that we're creating. And, you know, 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. And so 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 place in place to do that.
And then on partnering, oh my God, look, we 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 Zaslov in New York next week. And this is really, really a big strategic effort for us now.
And 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. And I think in general, we live in and not either or worlds. But we live in worlds where you need to do partnering smart.
So 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. And I realize it doesn't quite answer what you asked, but I don't want to. Thank you.
No, that's great. Can I just follow-up on the DIRECTV clients, DIRECTV deals? Is there a one for one overlap with addressable TV? Or we're talking about something different on the side? Yes.
It's not
a one to one overlap because, yes, addressable plays in that portfolio, but it's also three sixty 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 in helping them understand how the kind of advertising products we have can add more value. So 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.