Welcome to the full year 2017 results conference call of RTL Group. Today's conference is being recorded. At this time, I would like to turn the conference over to Andrew Buckhurst. Please go ahead, sir.
Andrew?
Good morning, everyone, thank you for joining us either in person or via the audio cast for our analyst meeting covering the results for the full year 2017. I'd like to introduce our speakers, our CEO, Bert Habets, and our CFO, who's well known to all of you, and now Deputy CEO, Elmar Heggen. Looking now at the agenda on slide two. We will start, as usual, with the highlights of 2017, then proceed with a review of the group financials, which will be followed by a business and strategy update. We'll finish with the outlook statement before moving on to a Q&A session. I will now hand over to Bert to begin the presentation.
Thank you, Andrew, good morning to everybody. As you know, we have redefined TV from television into total video. This means that our strategy has one very clear goal: to maximize consumer attentions of all our video offers across all platforms and across all screens. This strategy pays off. Our three strategic pillars, broadcast, content, and digital, have all had another very successful year. In broadcast, our main two profit centers, Mediengruppe RTL Deutschland and Groupe M6, reported very strong results. In content, FremantleMedia had accelerated its successful push into high-end drama production. In digital, revenue growth continued to be very dynamic, reaching 23% growth for the years across all of our activities. This operational performance has resulted in another strong financial year, as you can see on slide number four. 2017 was again a record year, with increased levels of revenue, EBITDA, and EBITDA margin.
Revenue was up just over 2% at almost EUR 6.4 billion. EBITDA increased stronger than previously guided, up 4%, which results in a margin of 23%. Following this strong performance, the board is proposing a final dividend of EUR 3 per share. This results in a total dividend per year per share of EUR 4, which based on the average share price of 2017, would result in a yield of 5.9%. To summarize, we continue to deliver strong high profits, strong cash flows, and good shareholder return while continuing to invest in order to deliver upon our total video strategy. Moving on to slide five. The group's digital revenue grew again very strongly and has become a key driver of all of our overall top-line revenue. In 2013, digital revenue stood at just a level of EUR 230 million. Since then, it has grown 3.5 times to reach EUR 827 million in 2019.
2017, sorry. Now represents 13% of the group's reported total revenue. Last year's target of achieving at least 15% of the group's total revenue within three to five years is firmly in sight. This will mean that digital revenue will contribute over EUR 1 billion to the group. However, our growth rates for 2017 were below expectations. This is because of major advertisers' concern around brand safety. We proactively took this on board, especially in our AdTech businesses, where SpotX disabled 75 low-quality publisher accounts and blacklisted more than 60,000 sites that did not meet our quality and verification standards of the inventory. In addition to these market issues, we have also been repositioning our AdTech business model towards the more premium OTT model, and a change from managed to more programmatic revenues. Moving on to the platform revenues.
The group's platform revenues has also shown strong growth, up 14% to a level of EUR 390 million in 2017. This has been driven by new deals across several territories and the continued uptake of our HD offers in Germany. In Germany, which is clearly one of our main drivers for the group. The number of HD subscribers increased to 8.8 million subscribers, an increase of 1.6 versus last year. We experienced substantial further growth in subscribers in 2017 following the launch of DVB-T2, and we believe that there is more to come given the fact that German cable operators are still in the process of switching off analog cable. With the continued growth in the group's digital and platform revenue, RTL Group has an even more diversified portfolio this year. As you can see on this chart, less than 48% of the group's revenue comes now from TV advertising.
With content representing 20% of our revenue base and digital 13%, up 2% versus last year. Platform revenue represents 5% of the group's revenue, having increased significantly in the year 2017. This diverse geographical and revenue stream mix compares very favorable, in our opinion, with some of our competitors. Moving on to slide number eight. Our leading positions in broadcast content and digital will help us to transition our business model away from linear TV to a total video world. Our strength is highlighted on this page. First of all, we are leaders in Europe in long-form advertising finance video on demand. While we are globally number one in short-form video through our multi-platform business. We are a leading content provider across all genres and increasingly active and successful in high-end drama development.
We have built a leading AdTech stack, offering a global presence while remaining very strong in our core markets, either through RTL AdConnect or via leading addressable TV platforms in Germany. This cross-media content and technology play is currently unique in the marketplace, and we intend to develop this position in order to drive future growth. To do this, we need to expand. By expanding, I mean we have three priorities for the group. These three priorities recall our heritage of being pioneers. Today, this pioneering spirit of us as a group needs to be applied to the total video world. The three priorities that I have for the group are the following. First of all, cross-media innovation. The recent combination of TV and radio activities in France is one example of this. Our investment into virtual reality through Inception is another one.
Virtual reality presents amazing opportunities for brands to grab consumer attention and make an emotional connection to the consumer. Even better, if there are no distractions once you have a user in the headset. Within this environment, we are seeing engagement of up to 40 minutes for high-quality content. Ultimately, virtual reality and augmented reality are a logical extension of TV and digital revenue and will enhance the RTL Group's total video approach. Secondly, FremantleMedia will continue its successful push into high-end drama production in all territories. At the same time, our broadcasters will invest more into exclusive local content and the broadcasters will continue to build their direct to consumer on-demand businesses. Lastly, we will own more technology. Following the combination of SpotX and smartclip into one company, we will now build both organically and through additional M&A, an independent monetization powerhouse for video.
This is vital in order to keep our destiny in our own hands as we compete with global giants like Google, Facebook, Amazon, et cetera. By doing so, we will ensure that we will remain creative, are more customer-focused, have the right technology and talent in place to meet the demands of the total video world. I will now hand on to Elmar, who will take you through the group's financial results.
Thank you, Bert, good morning, everyone. Before I get into a bit more detail, as you can see on slide 11, I'd just like to point out that what already Bert said, both revenue and EBITDA were up again at a record high with growth above 2% in revenue and almost 4% in EBITDA. We've now delivered a record EBITDA every year since we started reporting on it in 2013. The group's EBITDA to free cash flow was very strong, reaching 104% in 2017, another sign that the business is operating efficiently. Let's now move to slide 12. Group revenue on a full year basis was up by 2.2% at EUR 6.4 billion thanks to higher revenue from Mediengruppe RTL Deutschland, Groupe M6, and our digital activities.
Underlying revenue in 2017, which is at constant exchange rates and also at constant scope, was up 1.8%, more or less mirroring the reported growth. The group's operating cost base rose 2.6% year-on-year, mainly as a result of increased costs linked to the growth of our MPN activities and higher employee costs, part of which is linked to the restructuring the group has launched. Reported EBITDA came in at EUR 1.464 billion, up 3.8% on last year. The increase is mainly driven by higher contributions from Germany, FremantleMedia, and the other segment, which included a one-off following the sale of our Paris-based buildings at Rue Bayard. The EBITDA margin was slightly up at 23%, from 22.6% in 2016. The group's net debt at the end of 2017 was EUR 545 million. This results in a net debt to EBITDA ratio of 0.37 times outside of our target range.
The group expects to be back within the guidance following the dividend payment that we intend to make at the end of April. Let's now look at the items below EBITDA down to net profit. Our net financial expense totaled EUR 24 million and is made up of a net interest charge of EUR 22 million and a cost in financial result other than interest of EUR 2 million. The group's tax charge came in at EUR 385 million, up 6.1% against last year. This is partly as a result of lower commission income related to the loss pooling agreement with Bertelsmann, which came in at EUR 2 million compared to EUR 60 million last year.
Our other effects impacting the 2017 tax line include the tax on the sale of the buildings in Paris, which added EUR 32 million to the tax charge, where there was an overall positive effect on the group's deferred tax positions amounting to EUR 8 million due to lower future tax rates in a number of territories, including the U.S. Despite the higher tax charge, the net profit increased by 2.6% to EUR 739 million. Let's now move to the next slide, the cash flow statement. As mentioned earlier, our cash conversion reached 104% for the full year, up 7 percentage points on 2016. The acquisitions line is relatively modest with small investments across all our main business units, while the large increase in the transactions with non-controlling interests primarily reflects the acquisition of the remaining change in SpotX.
On the next slide, we show the adjustments made to arrive at the adjusted net profit, which, as you know, is the base for the ordinary dividend payout. As in previous exercises, the reported profit attributable to RTL Group shareholders remains the starting point for the exercise. The adjustments this year concern the capital gain following the disposal of the French building at Rue Bayard, the non-cash gain on the remeasurement of Divim ove, and specific restructuring costs. This results in an adjusted net profit of EUR 679 million. Given the results, the board has decided to maintain the final dividend at EUR 3 per share. This equates to a payment of EUR 461 million or 68% of the adjusted net profit. In line with the guidance and the group policy of a payout ratio between 50%-75%.
The total amount of dividends for 2017, therefore, amounts to EUR 4 per share when the interim dividend is taken into account. Based on the average share price for 2017, this translates into an attractive dividend yield of 5.9%. I will now hand you back to Bert for the review of the various businesses, starting with Mediengruppe RTL Deutschland.
Thank you, Elmar. 2017 was a great year for Mediengruppe RTL Deutschland, with another set of record earnings. Advertising revenue at Mediengruppe Deutschland grew slightly, outperforming the overall net TV ad market, which is estimated to have declined between 0.5%-1.5% year-on-year. As a result of the higher TV and digital advertising as well as platform revenues, our biggest profit center finished 2017 with another record operating result. Revenues were up 4.7%, while EBITDA was up 3.5% to a level of EUR 743 million. In terms of audience performance, our family of channels increased the combined audience share to 28.5% in the target group, 14-59. This resulted in a lead over our main commercial competitor of 4.5 percentage points, which is an increase of 1.5 percentage points versus last year.
On the right-hand side of the chart, you can see the competitive advantage that our family of TV stations has over the commercial competitor. Compared to two years ago, the audience lead has risen from 1.7% to 4.5 percentage points at the end of 2017. This is a reflection of the hard work undertaken by the programming team to launch local new programming really tailored and catered to our audiences. As we have remarked across all of our European territories, for a number of years now, our high degree of local content is what makes us stand out. Being able to stand out in a more connected, more digital world where U.S. content is available on a multitude of streaming platforms is really important. Audiences want local formats, and we heavily invest in them because they can bring continuity to the program grids over multiple seasons.
The diversity of our offering is highlighted across our German TV channels. This very local focus and positioning is now also helping us to build our digital activities, either through B2B businesses or through the platform revenues that we generate. In 2017, we signed a new agreement with Vodafone, making our channels available for smartphones, tablets, also on a linear basis and in HD quality via the GigaTV app. Our German on-demand platform, TV Now, will also be strengthened by a new channel of U.S. series, showing that the world of linear and non-linear TV is actually coming together. I will now hand back to Elmar to take you through Groupe M6.
Thank you, Bert. I'll start with Groupe M6 on slide 22, but as M6 already published its full-year results two weeks ago, I'll be very brief. Please note that we are presenting the results of Groupe M6 as if the transaction with RTL Radio had occurred already on 1st of January 2017. The audience share of the family of free-to-air channels was up year-on-year at 22.3%, largely thanks to the growth of W9 and 6ter. This is a fine performance since 2016 included record audiences on the main channel around the UEFA European Championship. The net advertising market in France was estimated to be stable over the whole year, with M6 outperforming substantially. Revenue for Groupe M6 rose 3.9% to EUR 1.5 billion, with reported EBITDA coming in at EUR 389 million.
Please note that last year's result includes the positive one-off effect amounting to EUR 42 million related to the settlement agreement with Orange. The highlight of 2017 was the successful acquisition by Groupe M6 of RTL Group's French radio activities. The integration of the TV and radio businesses under one roof will ensure that we can build a cross-media powerhouse, unlocking synergies and driving innovation. In terms of digital offers, M6 has been steadily building an increasingly attractive catch-up service in 6play. The success of this platform is demonstrated in its user numbers. 20 million registered users generating 1.3 billion video views. The attractiveness of M6's cross-media offering will be enhanced further with stronger programming that, for the first time, will include a 4-year license for the French national football team.
I will now hand you back to Bert, that will continue with the business and the strategy update.
Thank you, Elmar. Moving on to the Netherlands. 2017 was a tough year for RTL in the Netherlands. The combined Dutch family of stations delivered an audience share of 31.5%. While this was down 1.2% year-on-year, RTL is still significantly ahead of both the public broadcaster and its nearest commercial rival at a level of 19.4%. As in 2016, lower viewing share impacted all broadcasters. With viewing share in the target group 25-54 going down 4% year-on-year, while the younger demos, 20-34, even showed a steeper decline of 8%. This lower viewing time resulted in an advertising market that is estimated to have declined approximately 5% in 2017. Platform revenues with new agreements with Ziggo and KPN have been signed, our digital activities have helped mitigate part of the weak advertising revenue in total.
Revenue was down 4% to a level of EUR 475 million, EBITDA was down to a level of EUR 78 million. We have continued to invest in our SVOD platform, Videoland, which has grown its subscriber base substantially, almost up 80% year-on-year. Videoland brings us substantial learnings in the field of technology, notably the user interface, but also in managing a subscriber base and the type of content that we need to make available for such services. These learnings will be very valuable for the group as we continuously adapt our local video offers. RTL Nederland has also invested in Adfactor, which operates in digital content marketing, especially in native advertising. It has a very large network of quality content creators and influencers.
By combining this strength with the market leadership and branded content from RTL, we increase our reach and create even more opportunities for advertisers to sell their brands to specific target groups. Lastly, local exclusive content is our USP. This is why we will further invest in this area across all major genres. This message applies equally well to the rest of our TV businesses. I will move on now to FremantleMedia. The strength and depth of the production slate of FremantleMedia is something we are extremely proud of. Between 50% and 60% of its revenue is secured each year thanks to the long-running daily soaps, game shows, and big entertainment formats. This allows FremantleMedia to invest and develop into new formats with the most recent focus on drama.
Drama takes a long time to successfully develop, with a life cycle taking two to three years from the original idea to bringing the series on air. Given its size and international footprint, FremantleMedia has been able to invest in talent, both off-screen and on-screen. The fruits of this long investment phase has now started to come through with signature shows such as "The Young Pope," "American Gods," or locally, "Charité." They all have been very successful. A renewal for drama really ensures that there is catalog value being created. This will help the overall margin development of the business, as most of the overhead and development spend that it will require has already been incurred. As I mentioned earlier, on the drama front, there is much more to come.
2018 is going to get a great start with "Hard Sun" being aired on the BBC and Hulu, and with a Netflix original called "The Rain," which is scheduled in spring. It is also called by many newspapers, the next must-watch for everybody. FremantleMedia big Australian drama, "Picnic at Hanging Rock," will be aired on Foxtel, BBC, Amazon in the U.S., Canal+ in France, and Deutsche Telekom in Germany. We will move on to the financial part of FremantleMedia. Revenue slightly increased to EUR 1.47 billion in 2017. It is only due to negative exchange rates. Having net production growth, even on a minor, it is actually a remarkable achievement in a year where there was no significant revenue as "American Idol" was no longer on air. The fact that FremantleMedia was able to more than replace this with new shows further demonstrates that the creative renewal is really firmly on track.
Despite the lower reported revenues, EBITDA rose 8.5% to a level of EUR 140 million, resulting in an increased margin to 9.5%. In 2017, there were 12,500 hours of FremantleMedia content broadcast, of which over 3,000 were new. In terms of primetime drama, the numbers of hours aired was broadly stable year-on-year, up to a level of 928, of which 138 were new, with returning hours increasing to a level of 790. Looking ahead into 2018. Over the course of the year, we expect an improvement in revenue and EBITDA. This is on the back of a strong drama pipeline led by shows like "Picnic at Hanging Rock," "My Brilliant Friend," which is the first one of the Elena Ferrante novels, but also the relaunch of "American Idol" upcoming Sunday on ABC.
The revenue guidance is currently based on a delivered schedule, which includes Deutschland 86, The Breach, and the Ferrante novel in the last quarter of 2018. It excludes any possible FX impact. We are now moving on to our digital activities. RTL Group started transforming its business several years ago, from a linear TV business into a global total video powerhouse. This process is ongoing, and further investments will be made around our video-on-demand offers, in our MPN businesses, which have recently been strengthened through the acquisition of United Screens, and across our AdTech businesses. In the total video industry, scale really matters, and the combination of SpotX and smartclip will enable us to compete more effectively in the dynamic programmatic video landscape. We will shortly be able to offer a unified solution that will result in a fully integrated ad stack.
This includes a combined ad and programmatic platform serving the full range of total video across all screens, including TV screens through OTT, including connected TV, as well as addressable. Let us now have a look at our VOD plans, which are the main priority for us in the upcoming years. Previously, RTL Group was very much focused on an ad-funded VOD model. These have steadily developed and have been enhanced over the last few years. In the Netherlands, the Group has its only dedicated SVOD offer, Videoland. Following extensive investments over the last few years, both in the tech platform and in the content, the number of subscribers has grown dynamically in 2017, up, as I mentioned before, 78%. We have now decided to enhance these direct-to-consumer offers by developing what we call a hybrid business model.
This business model will offer the consumer the basic on-demand ad-funded model, but will also offer a more premium model based on a pay environment with more exclusive content in HD quality and obviously with a lower ad load. This hybrid model will require more investments in local digital-first programming, enhanced with direct-to-consumer business models and shared use of a common technology platform where it makes sense. The first example of this is the use of the front- and back-end technology of the platform 6play in France, which we use for our on-demand services in Belgium, in Croatia, and Hungary. In short form video, as shown on the next page, we continue to grow very dynamically. RTL Group's footprint is both global and at the same time local.
On the global basis, we are leaders with our investment in BroadbandTV, while our respective businesses are number one in the local markets, whether it is being in the U.S. market, Europe, or in the Nordic countries. Each of these multi-platform networks bring in specific skills to the Group, whether it is being scale, data, branded content, or direct sales capabilities, we will all have them. Management focus, therefore, is really focused on driving further integration to help push the businesses towards profitability. We will move on to ads technology. The Group's AdTech and programmatic business is a key pillar to the Group's strategy and is increasingly focused on the big screen in the living room. At the beginning of last month, we announced that the first major step of the merger between SpotX and smartclip has been concluded.
Following this combination, the new company increases its international exposure strongly, with more than 40% of its business now being generated outside of the U.S. Additionally, this combination allows SpotX to focus significant resources on expanding investments and innovation at scale. Traditionally, TV advertising has been sold at a national level, but many global advertisers see Europe as one region, and together with media agencies, they have shifted to a more centralized buying strategy. RTL AdConnect, our international sales house, is our response to this. RTL AdConnect helps advertisers who want to export their products or services internationally or simply want to do a big campaign across Europe. Their success in this field can really be demonstrated by the fact that revenue went up last year by 18%.
Their mission is to provide a simplified access to a large portfolio of TV, VOD, and MPN businesses, and technology in a transparent and brand-safe environment. As a group, through these largely new activities, we have unique access to data capabilities. With this new technology, there comes a greater level of responsibility and regulation as well. How we look at the AdTech ecosystem, how we transact with the consumer, and how we take decisions in the future is going to be very different in a post-GDPR world. We have responded to these legal requirements by creating the Login Alliance in Germany and Gravity in France. In addition to these steps, a group-wide initiative in order to prepare for GDPR was launched during the course of 2017.
Our vision for these AdTech businesses is to create an independent global monetization platform for video, providing a large, innovative, customer-friendly alternative for publishers. I will now hand back to Elmar, who will take you to the group outlook statement.
Thanks, Bert. Starting with advertising. Looking back at 2017, the performance of the overall television ad markets across our footprint, generally, rather disappointing. With most markets down, or those that were up, were just up. Looking now at 2018, we've already had one major sports event, the Winter Olympics, and we face a summer dominated by sports by the World Cup in Russia. This inevitably will lead to a high degree of volatility in terms of TV advertising spending. It is clear that those channels not carrying sports will suffer in the months concerned. Accordingly, we expect 2018 to be another challenging year for advertising, with an overall slight top-line growth from our broadcast markets. Our content division will benefit not only from the drama pipeline, but also from the delivery of the first season of "American Idol" at ABC.
Accordingly, RTL Group expects FremantleMedia's revenue to grow between 4% and 7%, with EBITDA once again progressing. This revenue guidance excludes any possible impact from Forex, as we cannot predict those movements. Lastly, our digital revenues are expected to continue to show double-digit revenue growth. Accordingly, the group's revenue is expected to grow moderately, i.e., between 2.5% and 5%. RTL Group will continue to target a leverage ratio of between 0.5 and 1 times net debt to full-year EBITDA for the fiscal year 2018, as we also did so in the past. We will continue to focus on our EBITDA cash conversion, where we are targeting levels not below 85%-90%. Looking now at EBITDA, 2017 is an unfortunate base off which to guide, simply because it contains the pretty large one-off capital gain recorded on the sale of our buildings in Paris.
By eliminating this effect, our operational EBITDA came in at EUR 1.37 billion. Using this figure as a starting point for our 2018 EBITDA guidance, we expect that EBITDA will be broadly stable, i.e., between ±1%. This reflects continued program investments at both the level of our broadcasters and FremantleMedia, but also additional costs in our digital businesses, including the ramp-up of our VOD offers. This brings us to the end of the presentation. Thank you for your attention. We are now available for any questions that you might have.
Thanks. Nassim Witker from Liberum. Just two questions, please. First of all, listening to your outlook, I think you said broadcasting would be up slightly. I guess if you were to strip out things such as retransmission revenues that you get in Germany and so forth, can we take that as meaning that you expect TV advertising revenues as a whole to be down? If so, where would be the drivers of that in terms of the country by country? Second of all, in terms of the AdTech side, in terms of more advertisers looking to buy advertising on a European scale as opposed to the national scale.
In terms of your own business, how much of that have you seen so far, and how much would you sell of your TV business programmatically? Would it be concentrated more on the remnant, or would it be also the prime slots?
I would take the outlook question and then hand over to Bert. Problem is, it is still very early in the year. January, February are rather small months. Not very much selling for the rest of the year. As you know, our ambition is to operate and to further grow our portfolio of solid assets and to provide sustainable and profitable growth. We do not run from one quarter to the other, but we intend to strengthen our activities for the mid and for the long run. We believe that investments are needed to achieve this target. For example, to establish a very strong presence in the VOD activities. As you know, we generally are prudent when it comes to future predictions, especially if it is that early in the year.
We hope that we will be able to review this sort of statement throughout the course of this year. We believe it is really too early to make another statement at this stage.
Coming back to your second question, RTL AdConnect. Please be aware that we have been building this business for a long period of time already. Previously, it was branded IP Network. We rebranded the international sales house two years ago. Coming from the thought that we saw a lot of big advertisers getting organized on a more global basis. If you look at the article today of P&G in the FT, you can really see that they are taking out a lot of agencies and want to direct connect on the digital side, and diminish the number of publishers as well. The direction of RTL AdConnect is perhaps on this development. We really want to cater for these global advertisers for both the TV commitments, which we have done for many years in a row.
We are also building the ad tech stack within RTL AdConnect to serve these clients, in their domain. This business, we are ramping up resources very quickly in this specific domain. Revenue is expected to continue to grow very rapidly. As a percentage of total business, this is actually very difficult to give an answer as this varies a lot from country by country basis. We see an increasing demand from our advertisers for pan-European campaigns, both for TV and online video.
Just a follow-up question. In terms of the other broadcasters that you speak with in Europe, how much willingness is there to actually, as it were, share their TV inventory, or is their willingness more on the video-on-demand side?
It's actually both. We both try to come to an agreement to sell part of their advertising space in TV, but also in the online video domain. We see traction on both sides.
Good morning. It's Adrian from Bank of America Merrill Lynch. I've got three questions, please. The first one, you've talked about 2.5%-5% revenue growth, but flat EBITDA growth. Fremantle should have EBITDA growth. I'm just curious which businesses will absorb the revenue increases. Is it Germany? Is it France? Is it Netherlands? That's the first topic. Second topic is around Germany. You say you want to develop a paid VOD activity, but it's already quite a crowded market, and obviously ProSiebenSat.1, Vivendi have tried to crack the nuts, and they've lost quite a lot of money. I'm just wondering what your tolerance for losses or what is the sort of future losses that you expect for your own VOD activity.
The third question is, obviously, Bert, you know the Dutch market very well, and your predecessor used to tell us that, well, the market was impacted by Netflix and lower viewership in linear TV. What are the odds that this spreads to other key markets for the group? Thank you.
I would take the first one. Yes, it's true that we expect revenue to grow moderately, i.e., 2.5%-5%. Yet, don't forget that also 2017 contained a number of positive effects. For example, the fact that we've been getting a reimbursement for the paid advertising taxes in both France and Hungary, things that will not reoccur throughout the course of 2018. As I mentioned earlier, there is an intention to start ramping up our investments in our video-on-demand offers. That is why we currently expect that the additional revenue will be needed to basically offset the positive impacts that we were able to benefit from in 2017 and to basically fuel our ambition to ramp up the VOD offers.
Coming back to your second question on building a paid on-demand service in Germany. As you are aware, we already launched a paid TV service in Germany called TV NOW. We are building the subscriber base significantly. We've increased our share and paying subscriber base significantly over time as well. We will cross-leverage in further building these services, cross-leverage our position in local and exclusive content. Actually, there was an announcement today that in Germany they've recommissioned five new drama series, which is part of the strategy of moving into local exclusive content. We're building these services by cross-leveraging, on the one hand side, the local exclusive programming strategy that we've adopted already a couple of years ago. At the same time, using our marketing capabilities to bolster that.
We're ramping up investment in this area, we also are very firm and confident, given the learnings in the Dutch landscape, that we are able to create shareholder value by doing this. Coming back to your third question on the Dutch landscape. Ad market has been down, as I stated. It's partly caused by linear viewing time, but it's also linked to the fact that FMCG has been very difficult, specifically in the Dutch market last year, by declining their budgets more than in other countries. We are selling the advertising based on a GRP model, which is more sensitive for the decline in linear viewing than in other countries. All in all, it's not really comparable to say that what's happening in the Netherlands can be exported to the other European countries.
We're following this, obviously, on a very day-to-day basis, and that's also part of the reason why we're expanding our direct-to-consumer on-demand businesses in the hybrid model, as explained.
Julien Roch with Barclays. The usual three questions. Could we get ad trends in your 5 main countries at the beginning of 2018? Every year you highlight the fact that digital is going up, platform revenue is going up, content is going up, TV's going down. It's all going in the right direction. You've seen no EBITDA growth for now 5 years, and you're guiding again to no EBITDA growth for 5 years. I understand that you're not managing the company for the next quarter, but for future growth. This year it's about investing in new technology, pay TV, and so on and so forth. Can we get a sense of when is the inflection point? When will you see profit growth, or can we expect reinvestment for the foreseeable future and no growth for the foreseeable future? My second question.
The third one is on GDPR. You mentioned you launched a group-wide initiative, can we be a bit more concrete on what could be the potential impact on your ad business, especially online? What's the best case scenario, worst case scenario? Some concrete example, so we can have a feel for that wonderful piece of legislation. Thank you.
Julien, I'll start again on the outlook question. I know that you're also a very tough cookie. I think it's also fair to say that we've had 5 years of EBITDA growth in a row. Don't forget that EUR 1,464,000,000, this is by far the highest figure that we've ever been able to publish. Our intention is to basically keep a high level of profitability whilst making the necessary investments in the transformation of our portfolio. This is probably not going to be done after a couple of months, but it's expected to take some years. We believe it will help us to really build a strong and a sustainable business for the long run. In other words, 2018 is expected to be a year of investments to contribute to that transformation.
It's done in a year after which we have achieved an all-time high. I think that you should also look at what has happened over the last 5 years, I think that it's in the best interest of all shareholders that we make such investments now to safeguard and to ring-fence our position in the market than to add another record year without having achieved the transformation in our portfolio.
Trends in general, will we have some
Yeah, we can already give you the main markets. In Germany, we have seen a good start into 2018, with January and February that are expected to be slightly up. It's an estimate. Obviously we don't own any reliable data as we speak, but we believe that in January and February, the market was probably up 2%-3%. March, we expect to be positively impacted because of the Easter effect. As you know, we typically tend to look at both March and April together because depending on when Easter is, there's always a certain shift for the German advertising environment. France, we've seen January up an estimated 4%, February down more or less by the same percentage, probably more like 5%. Overall, I would think that we could look at a stable performance of the French TV advertising market for the first quarter.
I'm talking M6, as you know. When I talk about France, it's always us. The Netherlands, Bert is probably the best place to witness, here we are in a lucky position to have had a strong January and February.
We believe that January was up 4%, and February probably even 7%. We need to have in mind that there will be the World Cup broadcast in June, July. Q2 is probably more difficult in the Netherlands. It's yet a bit early to say. Last market, Belgium South, I have to say. January was stable, probably a plus 1% in practice. I now look into February, March with more concern. There we believe the market has been down sharply, probably double digit for February, March. A rather weak start into the first quarter 2018.
just obviously on Belgium, you've got obviously the full year impact of TF1 coming through, which will obviously provide a pretty heavy headwind for our activities, considering we have pretty much two-thirds of the advertising market in Belgium South.
Okay. Well, maybe a last word on GDPR. We've actually early embarked on taking the necessary measures to prepare for GDPR, especially in our digital business and more specifically in the AdTech business, especially with smartclip being a very strong player in the European markets. There, based on the current insights, we expect the short-term impacts on our business to be limited. We're actually more concerned about the long-term impact of what ePrivacy will bring us, as the current direction of the proposals really means that we're going to be in a competitive disadvantage versus the existing walled garden players like Amazon, Netflix, YouTube, and all of them. That's more of our concern, but at the same time, right now, this impact is impossible to assess as we're still discussing drafts of the directive itself.
Sorry. Sonia Rabussier from Commerzbank. I would like to come back on situation in the Netherlands first. Elmar, you mentioned that January and February were strong. Maybe Q2 will be more difficult, but do you think you have reached now an inflection point Netherlands? Do you think you are able to stabilize at least a bit there? What is the situation for Videoland? Can you maybe give a few words on the competitive environment on Videoland? What is the development of the market share compared to Netflix, and is Videoland profitable? Second question, maybe you can give us a color on the review process on BroadbandTV. What are your options now? What's the situation now? When could we expect a decision? Thank you.
Maybe on the Netherlands, I'll pick these two ones. Actually, the rebound of the market is a bit of a surprise to us in the first two months of the year. We really hope that this trend continues. It's really early stage at the same time to conclude whether we have reached a point of return or balancing out of the two years of decline that we've experienced now in the Netherlands in the ad market. The first insights in March give a similar increase of the markets. It's really early stage to give any more guidance on this specifically. Videoland itself. Netflix is by far the market leader in the SVOD domain in the Netherlands. It has grown very rapidly, and there are rumors they have a paid subscriber base above the 2 million level, 2 million subscribers.
We started Videoland two years ago, and especially last year, we've booked a lot of progress on all KPIs that we have for the business. Both in subscription ramp-up, in uptake, and really having paid subscribers coming in and staying with us. Viewing time of the pattern is significantly up versus last year, and also churn has reduced significantly. All in all KPI sets within this business have improved significantly. Therefore, we are very confident to continue our investments in this field, especially in the light of these services in the Dutch landscape have a very high adoption rate. Obviously it's a learning phase for all of our direct-to-consumer business in the on-demand space that we will develop in the countries where we have strong broadcasting presence.
Briefly on BroadbandTV.
Sorry.
Sorry. Do you want to?
Yeah, you had one last question on whether or not Videoland is profitable. I think given the investments in the content library and the tech, then we can safely assume it's not yet.
It's one of the reasons why, with regard to outlook, we are a bit more prudent. It's normal. It's a young business, we are in the ramp-up phase, we really want to establish a significant presence. Hence we accept a certain level of losses in a startup phase. I think it's normal if you establish a new business. On broadband, we are making progress. We continue to have good discussions with the minorities, we currently explore it. It's early days, whether or not there is an additional synergy potential available when basically putting BroadbandTV activities together with our other MPN, MCN activities. As I mentioned, it's early days. We don't believe that we have to act under any time pressure.
We'd like to review that until the end, then take an educated decision on what is in the best interest of the company, but also its shareholders. We believe that there are a number of options out there, compelling options that exist outside a sale. We are just in the phase of getting our heads around this, as early as tomorrow, we'll meet with some minorities again to continue our thoughts.
Yes. Hi, it's Chris from HSBC. Two questions for me. First, on the expectations for MCN growth overall for the year. It's been a bit volatile also in terms of video views for some of the smaller assets. I'd just be curious how you see the development on some of the individual assets in 2018. Whether you see a pickup for some of them. Related to that on SpotX. I understand that the measurements have been taken in 2017. What should we think about, in terms of growth for 2018? Then the second question on the SVOD offering, and the initiatives taken to create a new, maybe even pan-European, AdTech set up across your network. Given you've done, are you working together with ProSiebenSat.1 on the Login Alliance?
I mean, what are the odds that you're going to keep trying or try another time to come up with a sort of German Hulu and maybe go from there. Do you see any improvements in terms of odds that, if you were to try another time, you could get something going? Maybe related to that, you could comment on whether you see that the market is actually ready for multiple direct-to-consumer offers, or whether it wouldn't be better to just try to get something more universal, maybe together with the public broadcasters, et cetera. Thanks.
Let me try and take the first question on drafting a little bit of the growth picture across the divisions. I think on broadcast, we've drafted a picture where we expect slight revenue growth during the year. With regard to Fremantle, we've given a guidance of 4%-7% revenue growth, given the strong lineup and good launches of our additional scripted series that are in the pipeline. Our MPN business is expected to grow double digits, also in the year 2018. With regards to our AdTech business, we expect this company, and the combined entity of smartclip and SpotX, to regain on their growth track. They have had growth issues last year because of the brand safety issues. At the same time, a lot of measures have been taken.
We're repositioning the business towards a more OTT premium environment, seeking more and more of our business in the big screen in the living room, in the OTT and connected TV. There the business is gaining substantial traction.
On your idea of creating a German Hulu. As you know, it is something that we have been discussing with the regulator in the past, and it was turned down. When I talked to Doris, they continued to repeat that. Unfortunately, it is highly unlikely to expect that they have changed their view in the meantime. The way that they look at the market has probably not changed. It is rather a difficult mission. If we were to conclude with the antitrust authorities that they should look at the market differently and eventually get them to agree that such a business combination should be possible. Don't forget that they are in the market with Maxdome since 2006. I think also getting this aligned and agreed how such cooperation could work is probably not going to be an easy one, to say the least.
That's why we're currently not relying on the regulator changing his view and attitude. I believe that time has come that we speed up our investments there, that we create a higher level of ambition compared to the past. That's why Mediengruppe is continuously investing in TV Now, and this is something that we expect to continue over the years to come.
To complement Elmar on that. With TV Now, we really take and try to build a different market position than the other existing SVOD services. We really focus ourselves in building the direct-to-consumer business across our local exclusive content footprints. That's a different one than the existing offers in the market.
We believe that this gives us a unique selling point also for the long run versus the increasing competitive fields of Netflix, Amazon and all the like.
Are there any further questions on the floor? Patrick?
Hi, it's Patrick Wellington, Morgan Stanley. Just on Fremantle, can you remind us of the longer-term margin targets there? You should be having a really good year this year because you've got American Idol back in, and you had Picnic at Hanging Rock delayed, and suddenly we've got 4%-7% growth. Will normal service be resumed in 2019 to go back down again? Secondly, on your brand safety issues, you said that issues have been resolved. Can we take that sweeping statement about brand safety issues? Doesn't the shift to OTT restrict your inventory and provide a headwind for that business? Thirdly, can you say something a bit about advertiser mood in general in 2018? I know you didn't have huge issues with FMCG last year, touchy-feely, how's it feeling with advertisers this year?
Are you asking us to be touchy-feely with you, Patrick?
Always. Always want you to be touchy-feely.
I will take the first one. Bert will continue with brand safety and the advertiser's mood. As you know, our target has always been to grow Fremantle back to a level of EBITDA margin, without the D, of around 10%. Even though we focus more and more on EBITDA as the KPI, we are not going to say now, well, it's an EBITDA target to 10%. We stick to what we said in the past, and I am with you that they have basically gained momentum to get closer to that target. "American Idol" is back on air, I think it's clear that we intend it to be back on air not only for 2018 but for the longer run.
We also agreed together with Fremantle to invest quite significantly into the relaunch of the format because it's in our common interest to have it on the air for multiple years. I wouldn't attach too much expectation in terms of profitability to "American Idol" for 2018. It will help us to drive revenue, and it hopefully will help us to drive profitability in the years to come. We stick to the 10% return on sales. It will take a bit of time, as we said, to get there. What we have seen in 2017 makes us comfortable that we will be able to achieve this.
You had a quick question, I think on 2019, Patrick, about Fremantle. Looking ahead, obviously you've got the return, hopefully, of "American Gods," so Season 2 coming in in 2019. You will have the second season of "The Young Pope." You'll probably have the second season of one of the Elena Ferrante novels coming through. Beyond that, you've got, hopefully, "Deutschland 89" as well coming through. Whether that's 2019 or 2020 to be seen. I think you can safely say that the slate for Fremantle in terms of returning series, as was highlighted in the presentation through 2018 and 2019, is incredibly strong, which gives us a lot of comfort in terms of revenue development. As we said, because of the catalog value being created, margin improvement, both in absolute amounts and in terms of, obviously, the margin itself.
Getting back to brand safety. I think I highlighted a few facts that we've undertaken in 2017. We haven't seen the end of the tunnel of this exercise. I think 2018 is going to be a year where we will have continued discussions about brand safety because it's actually not an easy exercise in a relatively young industry to prepare and really create 100% brand safe environments. We haven't seen the end of the tunnel, I would say, on this specific one, although I must say that both the walled garden players and our AdTech businesses are aggressively and proactively addressing this issue. On the advertising and advertiser's mood, especially pointing out in the FMCG sector, it's early stage. The initial signs are, I would say, better than last year. The mood is better, but negotiations are still ongoing.
There are signs of moving some of the volumes back to TV. It's very early stage at the same time.
Any more questions from the floor before we take one question through the audio conference? Nothing? Operator, Steffi, could you open up the question, please?
Certainly. Thank you. As a reminder, ladies and gentlemen, to ask a question over the telephone, please press star one. We will take now a question from Silvia Cuneo from Deutsche Bank.
Hi. Good morning. Thanks for taking my questions. Just a follow-up on the German TV ad market. Do you expect to continue to gain advertising share from ProSiebenSat.1 after their audience weakness last year? Also, a second question, given that ProSiebenSat.1 has raised the programming spend guidance to 4%-5% growth, does your EBITDA guidance also reflect a competitive response? Thanks.
Okay. Thank you for your questions. The ad market share development in Germany, I think based on our favorable audience share performance of last year, but also the good start of this year, we expect to be well-positioned for the contracting negotiations of this year for the agencies and the advertisers. At the same time, we will have some big events for which we don't own the rights this year. All in all, we are modestly positive to gain a little bit of share in the course of this year based on our strong underlying performance. On your second question on programming spends, we will continue with our guidance on programming spend up slightly above the inflation level 2%-3%, despite the foreseen investments as we indicated in our storyline.
Therefore, we also try to really optimize the synergy potential within the group in building our local exclusive content offer for both the linear channels and the on-demand direct-to-consumer channels.
Thank you.
Thanks, Silvia. No more questions?
There are no further questions at this point. Thank you. We seem to have one question. Pardon for that. We have now one further question from Conor O'Shea from Kepler Cheuvreux.
Yes. Thank you. Just a couple of quick questions. I wonder, Elmar, if you could tell us in Germany in the fourth quarter, I think your broadcasting revenues were up by almost 5%. Could you say what the contribution from advertising was in that growth? Also for the Netherlands business, I think down -2% overall revenues in broadcasting, what the advertising drop was in Q4 alone. The second question on Belgium, you mentioned a very weak February, March. Do you think for now that's principally a TF1 impact, or is that a wider market impact? I think TF1 themselves have been looking at a more gradual buildup in their monetization of their Belgian French-speaking audiences. The third question, just a general question as to why you changed your disclosure in terms of profit by activity to EBITDA.
Is there any reason for doing that, is it to be more comparable to most direct peer in Germany, or is there some other reason for that?
Sorry, Conor, I didn't quite get your last question. Can you repeat it?
Sorry, yes. In terms of the disclosure to focus on EBITDA by regional activity as opposed to EBITA. Is there any specific reason for doing that? Is that to be more comparable with your most direct peer in Germany, or is there some other reason for doing that?
Okay, maybe I'll start with the last question because that's the one I still have in mind. There's no particular reason. We have given both EBITDA and EBITA now for a number of years, and we'll always continue to show both figures. Yet, if we talk to analysts, we often hear that they would like to compare us on a more direct basis to the main commercial rivals against whom we operate. Most of them tend to disclose EBITDA rather than EBITA. One of the reasons is also because our main shareholder is focusing on operational EBITDA, we felt that aligning it will make it easier for most of the stakeholders while still showing the EBITA that we have shown in the past in order not to lose information. Belgium. Here, yes, TF1 will have a certain impact, yet too early to quantify.
I think that it is largely also due to a market downturn in February, March. It's not possible to separate out how much of the decline is linked to the market entry of TF1 and how much is basically linked to macro changes or any kind of advertising intensity-related changes. We continue to monitor that. As I said earlier, you should expect Q1 in Belgium to be down by a rather high single digit.
Okay.
Okay. Maybe some last data on the advertising market. In Germany, the advertising market in the fourth quarter was flat, so 0%. For us, so for RTL Mediengruppe. In the Netherlands, we don't have the precise number right now, but it's single digit down, still down in the fourth quarter of last year.
Okay. Many thanks. Thank you.
Thank you. We now move on and have a further question from Klaus Kehl from Nykredit. Please go ahead.
Yes, hello. Klaus Kehl from Nykredit Markets in Denmark. Two questions from my side. First of all, you mentioned that the fast-moving consumer goods are in a slightly better mood, and they potentially could spend more on TV here in 2018 compared to 2017. Would you just in any way give us an indication of what that could mean for RTL or potentially what kind of percentage of sales do they constitute, or just to get a feeling for what this potentially could mean? Secondly, your tax rate going forward, what would be a reasonable tax rate to assume in 2018 and 2019? That would be my questions.
Maybe I take the first question, and on the tax-related question, Elmar will jump in. On FMCG, the sector in total is approximately 35% of the total market. If they were going to bring back volume to TV, it will definitely help us. At the same time, as I just pointed out, we are at the very beginning of March. We are in the middle of these contract negotiations. The initial signs are good, but it is really difficult to see whether we can really materialize and sign up the contracts for this year.
With regard to tax rate, I think that using the 28.5% for the model is probably an appropriate tax rate given the fact that recent decisions brought tax rates down in a number of territories. I think that it is fair to model with a lower tax rate than what most of you have applied in the past. 28.5% probably is a good proxy.
Okay. Thank you very much.
Daniel, further questions?
There don't appear to be any more questions either on the call or in the room. I want to thank everybody for participating today. I want to thank the management for their presentation and their time. For those of you here in London, we have, if you want to stay, a light sandwich lunch which is available, and then you can also have, obviously, access to the management on a one-to-one or one-to-many format. For those of you on the call, we'll obviously be in touch either by phone and certainly more formally around the Q1 results in the middle of May. Thank you once again, and enjoy the rest of the day.
Thank you.
Thank you. Thank you, ladies and gentlemen. This will conclude the call. Thank you for your participation. You may now disconnect.