Welcome to the Half Year 2017 Results Conference Call of the RTL Group. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Andrew Bucharest. Please go ahead, sir.
Good morning, everyone, and thank you for joining this conference call for our results for the first half of twenty seventeen. On Slide 2, you will find the agenda. First, the highlights, then a quick summary of the financials, followed by a review of our main business segments and an update on our strategy and outlook. I'd like now to introduce our speakers for today, our Co CEOs, Jurgen Goposch and Bert Abbot and the Group CFO, Elmer Heggen. As this is Bert's first analyst call, I would like to wish them both a warm welcome and of course, good luck.
Will now hand over to Guillaume, who will begin today's presentation on Slide 3.
Thank you, Andrew, and good morning from me as well. As we stated in March, the group has embarked on an ambitious road map to transform itself into a total video business. We're able to do this because of the Group's continued strong financial and market positions. Revenue continues to grow despite challenging TV advertising markets. This is partly a result of a revenue base that is highly diversified with strong growth coming from digital and platform revenue.
Our strategic approach highlighted by the investments made in digital, notably around AdTech, is accelerating and is consistent value creation is a priority and businesses must be aligned with this total video strategy. All of this is, of course, in response to a media landscape that is constantly changing, whether it be technology changes, consumer demands or the wider legal environment. We now move on Slide 4. On Slide 4, you will see that the group has had a good first half year. We delivered solid financial results in what has been overall a challenging TV advertising market environment.
With the TV ad markets reporting mixed performances, we have benefited from revenue growth at Fremantle Media in our digital and platform activities. As a result, group revenue increased by +3.5 percent to nearly €3,000,000,000 with EBITDA coming in at €626,000,000 Please remember that last year's operating results included a positive one off of €43,000,000 at the level of Group M6. Adjusting for this effect, and EBITDA was almost stable. The reported net profit for Adele Group shareholders came in at €320,000,000 The Board has decided to make an interim dividend payment for the first half of twenty seventeen amounting to €1 per share. This will be paid on the 7th September.
Moving to the next slide. The group's investments in digital and the growth in content revenue have resulted in TV ad revenue being below the 50% mark in terms of the overall revenue grew very strongly by 47.4 percent year on year to €389,000,000 and now represents 13.1 percent of RTI Group's total revenue, well on the way to our target of at least 15% within the next 3 to 5 years. Moving to Slide 6. Revenue generated from a variety of pay platforms is also an increasingly important business for the group. As at the end of June, this represented €159,000,000 an increase of 18.7 percent year on year.
The main drivers of this increase were our German and Hungarian businesses. In Germany, HD subscribers grew to 7,600,000 and in Hungary, we have a positive base effect as we are now able to claim retrans fees on our main channel RTI Club. On the next slide, Slide 7, we highlight the strategic direction that RTI Group is pursuing. We are in the process of transforming our business from a traditional linear TV model into what we call total video. This involves nurturing and investing in our family of TV channels, expanding into non linear consumer propositions, continuing to invest in growth Fremantle Media, our content arm, and developing scale in both ad tech and data capabilities.
This total video world will offer greater consumer targeting and offers and an enhanced drama slate from Fremantle Media, while broadening Fremantle's client and talent base. And finally, we will continue to invest in and increase our digital ad tech capabilities. To summarize, total video means maximizing consumers' attention and usage across our broad variety of video offers irrespective of the device. I will now hand over to Bert. Thank you, Guillaume, and good morning to everybody on my side.
Whilst we look to the future, we are also continuously working on optimizing the group's portfolio. On the next slide, you can see some of the recent initiatives and decisions that have been taken. The group continues to manage its portfolio actively. Investments are made where we believe we can build a viable long term business and divestments where this is no longer the case or where opportunities for value creation might be achieved. Today, we are announcing that we have exercised our option to acquire the remaining shares in SPOTX.
SpotX has a unique position in the U. S. Market with a publisher friendly and independent platform and as a result has grown to become the 3rd largest video ad serving platform in the U. S. SpotX is a profitable business with full year EBITDA margins over 20% and has a great management team that we are delighted will continue to stay on board.
We will work with them to take the business on to the next level of growth. Our largest transaction, which happens to be an intra group transaction, has already been announced and concerns group MCs and FTL Radio. The transaction is expected to close early in October. Elsewhere within the portfolio, we have made investments whether in content through new talent deals or via Fremantle Media and Digimove, our European largest MPN. And as you know, earlier this year, we have announced a review of strategic options around broadband TV.
This is an ongoing process, which we expect to be completed towards the end of this year. We will provide updates to the market as and when we have something concrete to announce. Lastly, we have decided to sell our business in Southeast Asia, which is as you remember was a cooperation between RTL and CBS. Both parties felt that our market position, while still good, was not enough to drive significant long term profitability, and accordingly, we have exited the business for July 15. And now on Slide 9, a few more words on Spodex.
As just mentioned, Spodex has successfully built up a leading position in the ad tech world around SSP and ad serving services and is able to offer a global holistic video ad stack. The ad exchange technology allows bidding on video ad impressions in real time and currently manages 12,000,000,000 ad decisions per day. The SupplySite platform is a platform developed for publishers to manage and optimize yields of their online video inventory across programmatic sales models. SpotX is recognized as the best in class SSP and currently serves more than 600 publishers. Considering SpotX pass growth, publisher friendly independent market position and its ability to constantly adapt business, we are confident that Sportex will successfully expand its addressable market by broadening its ad stack capabilities for the growing premium online video markets, the connected TV and the linear TV market segments.
Accordingly, SportX is expanding its services to app serving, inventory forecasting and other data related services in order to better serve and attract premium video publishers. Together with the management team of SpotX and Smartlip, we are working on an ambitious growth plan for our ad tech business. This plan includes close cooperation between SpotX and Smartclip and rolling out their solutions across all operations, including scaling up the business with further acquisitions and partnerships. The logic of this is clear. It fully leverages the complementary market coverage of both companies, it scales sales efforts and it creates an end to end platform from online to TV with a unified roadmap for both our U.
S. And the European markets. I will now hand over to Almar, who will take you through the group financials.
Thank you, Bert, and good morning from me as well. I would start with a brief look at the results for the Q2 of 2017 on Slide 11. Reported group revenue for this period was up 8.8 percent to EUR 1,573,000,000. The main drivers of this very strong revenue development were our German TV business with growth of 4.8% in the quarter and Free Mental Media, which reported astonishing growth of 34.5 percent, thanks to success for the 2 years of X2 launch of American Gods. This results in a reported EBITDA of €362,000,000 with a margin of 23%.
The group's adjusted EBITDA, which is just for the 2016 reported results for the one off compensation received by Boupemcis rose 4%. Moving to the next slide, a summary of the results for the 1st 6 months of 2017. Revenue rose 3.5% to just short of €3,000,000,000 with underlying revenue, which is just for scope changes and ForEx up 2.2%. The group's cost base rose 3.4%, largely due to an increase in authorized and royalties as a result of the growth experienced by Free Mental Media and in program rights, which investments were made in the grid, notably on our channel in Germany. This results in an EBITDA of €626,000,000 for the 1st 6 months of 2017 and a margin of 21%.
As just mentioned, last year's EBITDA was positively impacted by a one off gain at the level of MCs. Adjusting for this effect, EBITDA was almost stable year on year. The group's net debt at the end of the period was €1,000,000,000 broadly in line with last year. Let's now move on to Slide number 13. The net profit attributable to RTL Group shareholders for the period was down €21,000,000 at €320,000,000 compared to last year.
This is largely due to a lower EBITDA offset to a certain extent by a lower tax charge. The group's net result translates into earnings per share of €2.08 Let's now move on to cash flow on Slide number 14. Net cash flow from operating activities to €214,000,000 in the first half of twenty seventeen, mostly as a result of the investments the group is making into Fremantle Media's drama business. This requires an investment in working capital, including an acceptance of longer payment terms from the OTT customers. Accordingly, reported free cash flow decreased to €416,000,000 as of 30th June 2017.
All in all, the group's cash conversion ratio came in at 78% against 88% achieved last year. The income tax paid rose significantly to €264,000,000 largely as a result of lower receipts from the German tax ruling, but also timing differences related to prepayments made to the local tax authorities in some of our territories. I will now hand you back over to Guillaume, who will start with the business review on Slide 16.
Thank you, Elmar. Before starting to review our main business units, I'd like to highlight some of the achievements we've had over the 1st 6 months of 'seventeen. Our broadcast activities in Germany and France has outperformed the end market and also increased volume share. Fremantle Media has experienced rapid and successful growth in its drama activities with Motocom, and we'll relaunch American Idol on ABC next year. Growth perspectives are therefore good.
And in digital, our multi platform networks, or MPNs as they are now known, remain global leaders. Finally, VideoLAN, our SVOD platform in the Netherlands, has reported subscriber growth of 40% over the 1st 6 months of 'seventeen. Moving now to the business reviews on Slide 17 with Medenruppe F. E. S.
Deutschland. Our German TV business has had a very solid first half of the year with improvements in audiences and ad market share. In terms of audiences, 2017 has been good. Our family of channels reported an audience share of 29.1%, a gain of 0.9 percentage points over the same period last year. The lead over our commercial rival increased year on year by 1.8 percentage points.
The growth in audiences has come from VOXX, NITRO and Rcell Plus, which only started in June of last year. Worth highlighting is the continued excellent performance of VOXX. Ogen tests are up 0.3 points to 6.9% at the half year. And in July, VOX audience share was above that of the poor dividend channel for the first time ever, and the target group was 14% to 59%. Having been ahead in total audience by E3 plus since June 2016.
The net TV advertising in Germany is estimated to have decreased by approximately 2% to 3% over the 1st 6 months of 2017. However, our ad revenue in this period rose slightly, thanks to a gain in market share. In this context, overall revenue rose 3.5 percent to €1,075,000,000 while EBITDA was broadly stable at €365,000,000 Moving now to Slide 18. To further highlight the audience successes we have seen in the first half of twenty seventeen, this new chart shows the lead the family of channels have in both access primetime and primetime. For the 1st 6 months of 2017, our channels achieved an audience share of 28.7% in Access Primetime, 4.2 percentage points ahead of our commercial competitor.
This is again an improvement of 1.2 percentage points year on year. In Primetime, we achieved an audience share of 27.5%, a 4.3 percentage point lead, which is again an improvement of 0.5 percentage points year on year. Moving on to Slide 19. As you know, GroupM6 reported its result at the end of July. Performance was excellent with advertising revenue up 4.2%, significantly outperforming the market and its largest commercial rival.
Overall, revenue grew 2.5 percent to €664,000,000 with EBITDA coming in at €172,000,000 Adjusted for the one off effects from M6 Mobile, EBITDA was up 4.9%. Origin shares reached 21.8% for the family as a whole, a slight improvement on last year, which in itself is a major achievement given that some of the Euro 2016 football matches were broadcast on M6 last year. I will now hand over to Bernd, who will continue with the business review. Thank you, Guillaume. Moving on to Slide 20.
The combined audience share of the Dutch operation was 31.9%, the decline on the last year due mainly to the continued audience segmentation. The marketplace in the Netherlands remains tough. The TV ad market was estimated to be down just over 6% during the 1st 6 months of the year, while our ad revenue was down at around 9%. Lower advertising sales were partly compensated by higher digital and distribution revenue, but the overall revenue was down with 4.2% at the level of €226,000,000 EBITDA was down at €20,000,000 as a result of the lower advertising sales and the continued investments in digital, notably around our SVOD activities. Turning now to the other broadcast markets on Slide 21, Starting with Belgium.
In Belgium, the combined audience share was up 36.9%, up 0.7%. This results in an increased lead of 18.2 percentage points over the public broadcaster. Revenue was down at €96,000,000 with an EBITDA down at €19,000,000 due to lower profitability in the TV business. This is due to the weak TV advertising market, which was estimated to be down just over 8% in the 1st 6 months of 2017. In the net radio market, advertising markets estimated to be down 5.4%, our radio business in France reported a decrease in revenue to €79,000,000 EBITDA decreased to €6,000,000 reflecting the top line decline and an increase in the cost base.
In Hungary, the advertising market was down by an estimated 1.5%. Reported revenue came in at €51,000,000 a growth of €6,000,000 year on year, thanks to the cable distribution revenues that EBITDA came in at €80,000,000 from the reported €5,000,000 last year. Please note that we had a one off effect a positive one off effect in this year amounting to €8,000,000 In Croatia, revenue was stable at €19,000,000 in the TV market that was down almost 9%. EBITDA came in at a small loss of €3,000,000 due to higher programming costs. And finally, and a few words on Spain, where Atres Media reported its interim results last month.
The Spanish TV market was estimated to be stable during the reported period. Atres Media total revenue increased by 1.2% to €551,000,000 with the group's EBITDA falling slightly to €117,000,000 RTL Group reported a contribution to its EBITDA of €15,000,000 compared to €16,000,000 last year. I will now continue on Fremantle Media on Slide 22. Revenue increased moderately by 4.9 percent to €648,000,000 in the 1st 6 months of 2017. As can be seen in the revenue bridge, this is most thanks to the growth throughout the operations amounting to a net €37,000,000 EBITDA rose to €40,000,000 resulting in an EBITDA margin of 6.2% compared to 6.3% last year.
Given the half year performance, we are increasing our revenue guidance for Fremantle to 2.5% to a range of 2.5% and 5% growth for Fremantle Media in 2017. EBITDA will be higher than reported for the full year 2016. All in all, the number of broadcast hours of pre mental media content was 5,783 hours across 55 territories. The number of hours of new shows grew just over 8%, while returning hours negatively impacted by the non renewal of American Idol fell slightly by 1.6%. In terms of trading, the U.
S. Game show Family Feud hit a new record show with the best performance over the last 20 years, achieving a 7.7 household rating. America's Got Talent launched to an audience of 15,700,000 viewers on May 30, achieving its highest launch episode for the 6 years. With an average audience so far of 15,900,000 viewers and a total audience share of 16.5%, America's Got Talent is the highest rated entertainment series in the U. S.
For the 20 sixteen-seventeen season to date. In drama, as can be seen on Slide 23, it was all about American Gods. The show premiered in the U. S. On Starz on April 30 and has been available has been made available to more than 200 countries since May 1 through Amazon Prime Video.
The critically acclaimed series was Starz's best ever launch for our new series, with it performing on average more than 6 times higher than their prime time average share for the total viewers. And we are obviously delighted that the 2nd season has been orders. Other high profile drama include the hugely successful series, The Young Pope, which had the best premiere for a new series on Sky Italy and clocked up 1,000,000 viewers for the launch on HBO in the USA. Earlier this year, it was announced that the 2nd season called The New Pope has been ordered and it will include production later this year. In March, Fremantle Media announced the production of My Brilliant Friends starting in summer 2017.
The 8 episode drama series is based on the first of the quartet of best selling Neopolitan novels from Elena Ferrante, which has been published in more than 60 countries and have sold for more than 5,000,000 copies around the world. I'm moving on to Slide 24. Further big news for 2018 is that American Idol will be back on air. Its original host, Ryan Seacrest, has re signed alongside and currently Katy Perry has become a member of the jury. Auditions will start on August 17 and will end on September 14 in New Orleans.
Moving on to our digital activities, starting with the multiplatform network on Slide 25. As you know, our digital strategy has 2 main elements, aggregation and monetization. Our aggregation strategy is based on the YouTube NPM business led by Broadband TV, Stylehaul and Diffymove. Broadband TV actively operates in 10 languages in 26 countries. It continues to be the leading payer in all English speaking, Hispanic and Portuguese markets and is among the top players in France, Germany, Russia and Japan.
And StyleHole is the market leader in beauty, style and fashion category with over 12,500,000,000 viewers on YouTube in the first half of twenty seventeen, 3,200,000,000 likes and almost 50,000,000 comments on Instagram, consistently ranking above platform averages on engagements. Overall, as you can see in this slide, video development of our main MPN businesses is impressive. This has resulted in revenue growth of 78% of broadband TV and 57% for Star Hole in the 1st 6 months of this year. I will now hand back over to Guillaume, who will take you through the last section, future proofing our business and the outlook statement. Indeed, we continue to invest for our future on Slide 27.
The core elements of our total video strategy concerns adtech and data. Our adtech vision is to create the leading total video infrastructure covering the monetization of all forms of video. Prodex is the cornerstone of this holistic AdTech vision that will also integrate investments in so called cross screen optimization with video AMP, over the top addressable TV with Smart SIP and programmatic linear TV with clicks. In response to the new EU GDPR law on data privacy, the group has also made substantial steps through data alliances in both Germany and this year and is the 1st international total video sales house. RTL Ad Connect connects and offers exclusive solutions around high quality content across an extensive portfolio of media partners, consisting of more than 100 TV channels, for example, also including IPV ORANGE, 300 digital platforms and 30 radio stations in 12 countries.
In addition to TV and radio advertising sales, RTL Adconnex will also offer digital communication, multiplatform networks, YouTube channels or branded content campaigns in a brand safe environment. On Slide 29, you also have more details on our new U. S. VC investment into a space we are keen to understand and develop VR. Earlier this month, Otel Group acquired a 15% minority stake in Inception, an Israeli based leader in virtual reality entertainment.
Inception has a unique combination of a next generation content network, innovative technology in the areas of interactivity and user experience as well as content creation expertise. Just last week, Facebook announced that Inception has been selected as a beta partner for Facebook's camera FX program on one of only 30 companies worldwide that have been selected. We move now to the outlook on Slide 30. The strong set of financial results in the first half of twenty seventeen underline the importance and the success to date of our total video strategy. Despite tough comps, Artech Group continued to grow its top line and at the same time generate a healthy EBITDA margin.
The group remains highly cash generated, and we are paying an interim dividend once again of €1 per share. In terms of guidance, we therefore reconfirm the outlook given on 9th March, 'seventeen, assuming, of course, there would be no major changes in the economic climate across the Arteil Group's market. Therefore, we continue to expect moderate revenue growth for the full year and an EBITDA that is expected to be broadly stable year on year. So this concludes the formal section of the call. We thank you for that, and we are now available to answer any questions you might have.
Thank We will now take our first question from Lucas Boventor from Bored Research. Please go ahead.
Yes, good morning, everyone. Thank you for taking my questions. I have a couple of questions on the TV ad markets in Germany and France. First of all, in your opinion, what is the reason that is actually driving the decline of the market year to date in both markets? And apart from winning audience share, what's driving your outperformance in your view?
Is there anything else that is driving your performance here? And overall, when you speak to your clients, have you realized any changes in behaviors of your clients when it comes to ad bookings these days? And are you continuing to expect moderate growth for the French and the German market for the full year? And a second question relates to the margin in Germany that was slightly down year on year. What is actually driving that?
Is that resulting from the digital space? Thank you very much.
Okay, Lucas, Guillaume, I'll take your various questions.
Your first question was asking
what are the key reasons of the decline in the advertising market in Germany. Just to remind everyone, we estimate that the market was down by minus 2% to minus 3% for the first half. Well, obviously, we are talking to advertisers and advertising agency. As you know, typically, they would take full year commitment, and therefore, we remain positive on the full year. Being said, at least we believe that as far as RTL Group is concerned, we will grow by 1% approximately 1% our ad revenues.
Couple of reasons. First of all, as you know, advertisers made announcements recently or brands made announcement recently on the fact that they are revisiting their overall marketing budgets. Bert alluded to so called 0 based marketing. That might be one factor. As you know, WPP, which represents also a sizable share of the market, made their own announcement.
We believe that they represent around 40% of the German market. So you should really refer to their own comments on this. The overall macro outlook for Germany, as you know, remained fairly solid. And as far as we are concerned, we have been flat. So nothing to over worry about
as far
as we are concerned. But obviously, we are constantly monitoring the market and the announcements either of agencies or competitors. Your second question related to factors we explain our performance versus the upmarket decline. There, it's really about intrinsic performance. You pointed to housing share.
We believe that this is the key and the main reason. Your third question related to changes in behavior in ad buying. For the time being, I refer to so called budget reviews or marketing budget reviews by brands. This is the only, I would say, behavior change that we see. Whether this is structural or just conjecture driven, it's difficult to say.
But we can only repeat, and I think Procter and Gamble, for example, has been very vocal on that, is that TV is the only medium which provides Mayas, live and premium context advertising. And this is why we believe we've been outperforming the market. And finally, for Germany and France, here we are talking for us. We are not talking about the market. I can only repeat that for Germany.
We still believe that on a full year basis, based on H1 and our current trading in Q3, we will be around +1 percent for TV ad revenues. And for France, basically, M6 made their own release at the end of July, and they say that in their view, the market would be flat. For this year, as far as they are concerned, we believe that they will slightly outperform the market. German margin, yes, last point. This is, I would say, cyclical.
As you know, we're investing in programming, but we overinvested, so to speak, in H1. And that explains why the EBITDA margin has been just slightly down. I can only remind you that the level of margin is absolutely exceptional, among the highest in Europe and worldwide. So there is nothing to worry about in your view.
We will now take our next question from Lisa Yang from Goldman Sachs.
Good morning. Just to follow-up on the previous questions. I mean, your competitor has came out with a press release not long ago saying September was probably down mid- to high single digit and Q3 down mid single digit. So I'm just wondering if you're seeing any sort of any kind of deterioration in any of your markets so far, And it's still a bit early, but just based on the conversation with advertisers on September, are you seeing any kind of deterioration in any of your markets? That's the first question.
Secondly is on your EBITDA guidance for the year. I noticed that now you include the impact of the sale of the building. Just wondering if that was there before and is there any change to your underlying EBITDA guidance at all? Further is on the others line, which was up 11% in Q2. Just wondering what has dropped this line down given Broadband TV and Stylehold were both up significantly.
And lastly, on Fremantle, I mean, just wondering, you talked about a number of new shows coming up and American Idol being commissioned. This is a business that has been quite soft in the last few years. So do you think we have we're now entering the cycle where Fermental could be up very strongly for a couple of years? And where are we in terms of reaching that 10% margin target? Thank you.
Okay. I'm taking question number 1, and you're referring to September in particular. I'll talk about Germany and France, and Bert will say a few words about Holland, which are core markets. Germany overall, we are not overly concerned. Obviously, it's very early to talk about booking in September.
But what I can tell you is that based on what we see, we believe that our Q3 advertising revenues will be up for Q3 in the tune of 3%. Although, again, it's premature simply because September bookings just started, to make it extremely clear. So this is an early indication. As far as France is concerned, in September, we see there what I would call a positive trending. It's too early to give any guidance on September.
But so I would say on 2 core markets, we do not see signs of over worrying, so to speak. On the Holland If I fill in on the Dutch market, there we have seen a market decline of 6% in the 1st 6 months of the year, and the insights for the Q3 tend to trend in the same pattern as we have seen in the 1st 6 months of the year, with us also being in the level of minus 8% to minus 9%, so slightly losing share versus our competitors.
And briefly on the guidance. Whenever we give guidance or make an outlook statement, we always refer to reported EBITDA. Our intention to enter into a sale and leaseback agreement was already reported in the Q4 2016 and was always contained in our outlook statement. We looked into it in additional depth throughout the course of 2017 and decided to move along with the sale of our Paris based building simply because we do not use it any longer once that the teams will have relocated to Neilly next to the premises of MCs. We decided to wait for the quantization of RTL City here in Luxembourg as a consolidator period, but it was always included in the outlook.
Your third question refers to the lower growth in Q2 of other revenues at 11%. This is primarily due to a lower pace in revenue ramp up at spot exchange and at our German radio. Nothing to I would say nothing to be overly worried about. Yes. And finally, maybe on Fremantle, the road to recovery, as you described it, we have lifted our outlook for revenue growth for Fremantle.
So we will give guidance of 2.5 percent to 5% revenue uptake with EBITDA progressing versus last year. We had a very successful start in the scripted domain with American Golf and the Young Pope, And we actively which will be recommissioned, which is obviously very good news and have are increasingly developing our pipeline to develop the scripted division within Fremantle, which should lead to a continued increase of the revenues and EBITDA over
time. And the 10% margin, when do you think you will
be able to reach the target now?
I think 10% in the short term period will be a stretch, but we will definitely strive to continue our margins up to into the range of 7% to 9%.
Okay. Thank you very much.
Our next question comes from Julien Roch from Barclays. Please go ahead.
Yes. Thank you. As you've grown a lot in platform, digital and content, maybe if you could give us kind of a target as a percentage of revenue in the coming years? That's my first question. The second one is, could you give us an indication of margin in your platform revenues?
I know there's some internal cost allocation, but
at one level, it could be close to 100%.
And then the last question is, could we have indication of margin in digital this year and evolution in the next few years?
Julien, I'll take these questions. Well, we gave already guidance on our digital revenues, where we've got a very clear definition. You can refer to the statement on this one. We are reaching now 13% just north of 13% of our total revenues, which are purely digital for H1. And we gave guidance that we would reach between 15% 20% in the next 3 years.
I would say we're on a good path to actually reach these metrics.
Margins in platform revenues. As you rightly point, this is
a matter of allocation, but you can take the assumptions that they're fairly high, but we do not give any numbers on these platform revenues. Again, it's a little bit of question of internal transfer pricing, and these numbers could be seen one way or the other. But so yes, it's a profitable business. Margins in digital. If you refer to our digital margin overall, where, as we speak, slightly positive.
But as you know, there is a whole slate of different sources of revenues in there. We gave indication, I think you're aware of this, that in Nat Tech, we believe that margins should be in the tune of 20% to 25%. As we see, we are reaching these numbers. In the MCN business there, as you know, it's more difficult because this is more of an aggregation play with large distribution platforms with revenue shares. For the time being, we do not generate profits, I.
E, positive margins on MCNs. But let's say, midterm, we expect to reach margin in the tune of 8% to 12%. So make it 10%.
And so when you say 8% to 12%, you're talking just NPN or overall?
No, we're just talking NPNs.
Okay. And so when you reach 15% to 20% of revenue in digital, where roughly do you think the overall margin will be for digital?
Well, again, I think, as you know, digital encompasses a whole slate of different revenues. It's not only about ad exchange, it's not only about MPN, it's also about syndication, for example, of online video programs from free mantle to big platforms. It's also about gaming revenue that we generate with Doodia. Therefore, I hesitate to give you an overall target margin in distal, but by definition, this target margin will be lower than in broadcast simply because in broadcast, we operate in a finite world of channels. And therefore, the margin control is easier than in digital where you have got an infinity of supply.
So to summarize, it's a mix issue. So I would not want to give you a target margin in digital as we speak. Once all these businesses will mature and will ramp up, we'll have a better view on that. Obviously, in the long term, we're in the business of making money. So I hope that all margins will be positive.
And last question on Platform revenue, up 19% in the first half. What's a good estimate for the full year? And what do you think you can do over the next couple of years? Can we still see 10%, 15% growth in that business?
I think you can assume this, although I would say that most of the relative high growth is behind us. So we'll be leveling off in the next few years.
We will now take our next question from Chris Donan from HSBC. Please go ahead.
Yes. Thanks guys for taking my questions. First, coming back to Germany and your September trading. And then earlier question, I think the question was how much or why you took so much advertising share in the second and third quarter from your main competitor. And you alluded to audiences being one reason.
Could you elaborate a bit on that? Because I'm not sure we've seen such difference or huge gaps in performance driven by just audience shares in the recent past. I'll be curious what you really think is happening here. And then on the Netherlands, maybe you could talk a bit about the market. It seems to be in terms of pricing, there's a bit of a race to the bottom, which has accelerated.
I understand you're talking Q3 down 8% or 9%. I mean, what should we expect to happen in the Dutch market? Is it all audiences or absolute viewing going down? People going to Netflix? Any other sort of impact?
I think the pain in the market as far as earning money is concerned is quite high. So maybe you could talk about that a bit. And then another thing on the digital revenue. I was actually surprised to see that you mentioned American Gods being sold to Amazon helping your digital revenues. Why is the why is that content part of the digital revenue?
Or did I misunderstood something? So maybe you could talk about what is included in your digital revenues just to be safe here.
Okay. Back to Germany. I'm afraid I'll need to I have to repeat what I said before because we truly believe that the only reason why we've been outperforming is our audience performance. If you look at the numbers, we actually reached in the first half of twenty seventeen, 29.4% in terms of Origin share, whereas last year on a full year basis, we're at 28.7%. So we've basically gained 0.7%.
On the other side, our competitor, our main competitor for Zieben, was at 25.3%, and they ended up at 24.3%, so they lost 1 percentage point. And therefore, the gap between us and the competitor has increased on the one side. On the other side, we have also always stated we are the only firstly channel with audience share above 10%. And we believe that at some point, advertisers recognize that there is a certain premium for the market leader, whereas positive and underlying that lost their position or their ranking in the 1st week, plus the fact that VOXX again showed a nice increase not only in the 3 plus but also in the main target group, EUR 14,000,000 to EUR 59,000,000. So the combination of all these factors, in our view, has simply explained why we have gained market share.
We have for the first half market share north of 45%. Now of course, your question will be, yes, but will you maintain that in the second half? It's simply too early to say. As you know, the September fall season is getting in place now as we speak in terms of programming. So as we used to say, we'll count the beans at the end of the market in terms of ratings.
So we'll see. But these are primary it's all about Odonto share. The prices themselves in the German market have been relatively stable. So it's not an exciting factor. And now for the group for Yes, I will pick up your question on the Dutch markets.
Yes, market has been down 6%. We just indicated that we expect this trend to continue in the Q3 of this year. Actually, there's no there are a couple of reasons that we need to highlight in order to explain. I think one of it links into the statement of WPP where a lot of business consumer clients have are actively reducing their ad spends in the TV and digital domain. I think RTL Nederland traditionally has a very strong share with these clients and therefore takes an additional hit on this specifically.
Given the market developments itself, we do not want to enter into additional rebates. We really think that we should look at the long term potential of the asthma markets and therefore, refrain from being too aggressive, which has also led to us losing some of share. And then if you look at the market specifics in the Netherlands, you see linear viewing trend going down because of the huge uptake of Netflix. Netflix is now estimated to be above 2,000,000 paying subscribers in the Netherlands. And needless to say, we will need to adopt our pricing and commercial strategy accordingly to the new market conditions that we're facing.
Your last question was about American Golf. Simply, as you know, our definition of digital revenues are all revenues which generate which is generated by nonlinear video. And American Gods, by definition, being sold here to Amazon, I'm just talking about the revenue generated by Amazon, is at the heart of nonlinear video because this is a nonlinear video streaming platform. This is why we classify this product in particular into digital revenue. In the same manner, to give you a couple of other examples, when we generate revenues with our catch up or replay sites, again, this is non linear streaming of our own programming on our own platform.
We therefore classify this as digital revenue. Otherwise, you can refer to Andrew who will give you the full slate of what we classify as digital revenue. By contrast, everything which is related to e commerce, this is for us basically out, out. So it has to be non linear and for the most, video.
Okay. One final follow-up on SED1 versus VOXX. You mentioned the gap has almost closed, but I think SET-one still earned twice as much money as VOXX. So for this particular comparison, is the commercial target group really the relevant audience share to look at? Or isn't the gap explained by their 3 plus overall viewing?
What's your view on that? How quickly do you think
you can close that gap?
Yes. I was referring to VOX and POSIMON, by the way, and not the lines as I discussed. You're right. Ultimately, it's about individual target groups that which plays a difference. But also, I believe that there is an overall market perception that advertisers and brands also take into consideration.
And therefore, it's not only about individual target groups, but also about the overall, I would say, universe of 3% to 59%, where as I indicated now VOX is challenging Thank you.
Our next question comes from Laurie Davison from Deutsche Bank.
Hi, guys. It's Laurie here from Deutsche. First question, just to follow-up on the ad outlooks, just complete them. You mentioned September for France, but could we have a overall outlook for the French market in 3rd quarter? Second question is just a more general one.
Looking at all of your ad markets, every single TV ad market you're reporting on is negative. Now given that we're in what is a relatively good macro situation in Europe, Why is that? Is it the same things that you're seeing in Netherlands? Or are there country specifics at work here? The third question is just on the cash conversion for the full year.
You mentioned that the first half is weighted by negative working capital moves and some of the Fremantle growth. Can you give us a cash conversion for the full year?
Thanks. Yes. Laurie, I'll take the first question. For France, what I've seen is that September showed a positive trending. We will not give an overall outlook for the French market, neither for the German market, by the way, simply because there were 2 announcements made by WPP, which have been disruptive and for Zieben just did statements.
Therefore, I want to be careful about competitors. I just want to talk about ourselves. So just to repeat on this one, September is trading positively for M6. That's one thing. Second thing is in July last year, we had euro games on M6 that we didn't have last year that we didn't have this year.
And for Germany, I can only repeat there and I want to be more specific simply because of the uncertainty overall in the market. As far as we are concerned, our net TV advertising revenues will be up in Q3 by around 3%, again, based on the September current booking dynamics, and we haven't even started the month of September.
Okay. Can you actually just give an MC's Q3 then even if you're not willing to give the market?
No. And I'll tell you why because in 6 specific quarters, they've just made their release. I think I assume kind of come across their own investor relation. Maybe you can talk to them direct, might be a better way. Your second question was more generic.
Bert, do you want to take it? Well, I think, yes, it's fair to say the all markets have been in decline in the TV ad markets. The challenging TV ad market really for us is also a clear signal to accelerate our strategic execution on the plan by developing and ramping up our digital business and the initiatives by growing our platform businesses going forward, but also to develop more direct to consumer businesses to going further. So we're absolutely not in a time to relax motives. No, we are actively stepping up and increasing the level of investments and engagement and services to the consumer in order to basically tap into these new services as well because at the end of the day, we are trying to maximize the consumer attention of all our services of our video products across all devices and then independently of the platform.
And that's what we try to explain with our total video strategy. And that's also linked to the acquisition of the SpotX or the Step Up and SpotX through ownership because it really entails to a monetization model across all our video products for the future, and therefore, it's a cornerstone asset for us.
And on cash conversion, Laurie. The free to air broadcast business continued to generate very high levels of cash conversion. The ongoing investments in Dramat, they lead to a mechanical mix effect, and I would expect for the full year that the cash conversion is going to be between 85% 90%.
Great. That's very clear. Thanks a lot.
Our next question comes from Conor O'Shea from Kepler Cheuvreux. Please go ahead.
Yes, good morning. Thanks for taking my questions. A couple of questions. Just on the overall guidance, I think you have raised your revenue guidance on Fremantle, but you've maintained your group overall group guidance. So just wondering incrementally where which advertising markets do you see weaker than you did at the end of the first quarter?
That's the first question. The second question on the German market specifically, you have attributed to your advertising market share gains to audience share, but I think you also mentioned that you have overinvested a little bit in the first half of the year, I guess, on programming. Just in terms of the timing of your phasing of major program push and release, Do you think that, that may unwind a little bit as we get into the Q4 and maybe some of the audience share gains might even out a little bit. Is that consistent with what you're saying? And then the last question, obviously, the comments on the Netherlands are very helpful.
And obviously, Netflix, it's known for some time has been a major issue. Is that the same in the Belgian market, which is also heavily down? Or is that more of a cyclical issue at the moment? Thank you.
Conor, let me start with the revenue guidance. Yes, we've increased the revenue guidance for Fremantle whilst having kept the one for our consolidated accounts in line with what we communicated earlier this year. Bert already alluded to the rather soft aircraft environment that we currently face in the Netherlands, which is also true for Belgium and which would be equally true for our radio businesses. So that's why for the group as such, we continue to maintain the same guidance we gave earlier, I. E.
Moderate revenue increase between 2.5% and 5% for the full year. Okay.
For your question on German programming, first of all, let me give you a couple of highlights of the full season programming just to you a flavor about that. So it's not because we overinvested into H1 that we'll necessarily underinvest in H2. We'll have 4 European qualifiers of the German National Heal rolling out in September, October. We have got SuperSalon coming back. We've got Farmer, Once A Wife coming back.
We've got 2 big German series coming in, Alarm for Cobra and Bad Corp, which is a new series. So overall, we're coming in with a solid slate of programming. That's point 1. Point 2, as we know, we have always a certain leeway in the way we manage our programming costs. And therefore, it's still very much the ambition and the intention on full year basis to generate an EBITDA margin of north of 30% in Germany.
So we will not under invest on the one side. On the other side, we still have an ambition EBITDA margin on a full year basis for Germany. And depending on how we see Q4, obviously, Anker SchaferProd will always manage a great cost in such manner that she delivers the margin that I indicated. As far as Belgium is concerned, yes, you're right. This is really cyclical.
That's the way we see it. There is one additional factor that I wanted to mention is that in our view, in view of the future entrants of TF1 commercial outbreaks in Belgium. In fall, we believe that some advertisers have been retaining some budgets in expectation of the commercial offers, which will be offered by TF1 and this might be the other factor to explain the softness and the Belgian market.
Okay. Thanks, Gil.
Our next question comes from Catherine O'Neill from Citi. Please go ahead.
Hi. I just wondered if you could talk
a bit more about RTL Ad Connect in terms of how it works and what the sort of revenue model is? Is there how you see that expanding? Also on SpottX, are the current management teams still tied in, in some way? And with Facebook ramping up more sort of quality video, do you see any risk to both broadcast business and SportsX's business from that?
Good. RTL Ad Connect, it was really to give you some color on the group's initiatives. RTL Ad Connect is basically a sales team based here in Luxembourg, plus in various international offices, trying to organize sales on a more global basis than on a market by market basis. I think a very simple example, let's a Korean new advertiser doesn't really understand Europe, doesn't want to immediately delve into individual markets like Germany or France or Holland. They might knock at our door and ask us to organize a pan European advertising campaign, which, by the way, would not only include our own channels and our own footprint, but also IPV in the U.
K. And Rai in Italy with whom we've got commercial agreements. So we are catering for the specific target groups or target clients, wanting to have a global pan European approach before delving into individual markets. And by doing so, RTL Actonex is acting as a sales house, and they are remunerated with a certain sales commission. What is true for television is also true for radio, and we try now to use also RTAL connect as one pipeline to also deal with online video.
That's for ad connect. First, yes, on SPOTEX, management has signed up for the upcoming 4 years. So we are very comfortable with their the additional commitments that they have given. And if you look at the current performance of Spodex, you can really see in the ramp up of the publishers list that they've already progressed quite a bit in signing up premium content providers and broadcasters in the last periods. They are engaging into new partnership models also with AT and T and with the vocabox providers in the U.
S. So there's a lot of traction there at this moment. And needless to say, in the European markets, we will close engage with Smartlip to foster further forms of cooperation. And there are a lot of existing broadcasters within the group, but also existing partners of RTL Ad Connect are actually signing up with the SPOTX platform. So we're actively progressing in this specific field.
And the risk from do you see any risk from Facebook's plans on video and trying to really ramp up there for your linear business or your sort of digital businesses?
No. I think besides the huge growth prospects of Facebook itself, we consider huge growth opportunities for Spodex as well in the premium online video domain, but also if you look at the future business of SPOT X in the OTT and connected TV segments that they're actively developing.
So there are a lot
of growth opportunities for the SPOT X business itself.
Okay. Thanks.
Our next question comes from Richard Arie from UBS. Please go ahead.
Yes, good morning. Just two questions. Just to follow-up on comments on German TV ad market. Just so I'm clear that you're expecting full year plus 1% for RTL Germany, but Q3 to be up plus 3%. So based on the reported first half number, that implies Q4 would actually be negative.
Just so I'm clear on that. And if that's the case, what are the actual drivers of that unwind in the 4th quarter? I appreciate the comps are quite difficult because Q4 2016 was a reasonably strong quarter. So that's the first question. The second one, just going back to broadband TV.
Clearly, obviously, we've got to wait and see whether you exercise the option or even consider selling the asset. Just depending on that outcome, can you sort of frame how you would think about capital management as we go into the full year?
Yes. On Germany, so your statements were correct to start with as far as the year to date are concerned. 2nd, we are a little bit cautious on Q4 because simply if you look at Q4 last year, most, if not all, of the additional revenues were done in December, just on 1 month. In other words, if you look at the comps last year, if I recall correctly, October was flat versus 2015, November was flat, and then suddenly, we had a huge spike in December. So that's why we believe we are taking a relative view on our outlook for our own ad revenues on a full year basis.
And RBC
Yes, I think very briefly because this is an ongoing process, we announced to the market that continue to explore the opportunities and the options that we see around broadband TV. This exercise is not yet closed. It's not yet terminated. So it's early too early to predict the outcome. Just more generally on capital allocation, as you've seen, our net debt at the 30th June was just at €1,000,000,000 We've now taken the decision to distribute an interim dividend of €1, I.
E, €154,000,000 that we will grow and pay on the 7th September. We believe that we will continue to fully respect our net debt to EBITDA guidance, which is 0 point 5 times to 1 times. And we cannot preempt what we will finally do for the rest of the year. We will acquire the remaining shares in Sportex, as we also announced today, $445,000,000 Depending on what we do, on top of this, we will be again probably at the lower end to the middle of the 0.5 to 1 times at year end.
So assuming that status quo on broadband TV, there is possibility for the special dividends to be announced for the full year
based on the Yes, I
would say, but if I leave out broadband TV from the equation and just focus on the step up in products, I believe that by the end of this year, we'll be probably more to the lower end of the 0.5 to 1 times range.
Okay. Does that so should we read in that the actual special of last year is sustained rather than the step up? Or should we just wait and see what happens for broadband TV?
I think it's too early to say. I think we always said that we would like to build on the ordinary dividend that we 2 years ago increased by 20% to €3 a share. But it's today too early to preempt what we might do around broadband TV. Let's just see what options we have at the end of the process, and then we'll take a decision.
Okay. That's clear. Thank you very much.
We will now take our next question from Sonia Roussier from Commerzbank. Please go ahead.
Hi, thank you for taking my question. So I have a few questions. Regarding the TV advertising market. Is it possible to give us an overview of the behavior of the industry of the share of TV ads spent on a net basis per industry to have a color if the market has been impacted by general declining advertising budget or is really the TV ad share which has declined? 2nd question, do you continue to see an increase of the price at CPM on a basis in TV market in general?
3rd question regarding the online video advertising, which trend do you expect for the coming quarters? Poussin mentioned in Q2 that there was a slowdown also in the online video market. What did you see and what do you expect for the coming quarters? And last question regarding SportX. Is it possible to know how many you paid for the remaining stake?
And more important, which multiple it was? Thank you.
Okay. Your first question, if I understand correctly, was to say what is the share of TV in the total media market? The problem on this question is that the data are not available as we speak. We'll probably need to wait in a couple of at least for H1, we need to wait a couple of months before each relevant market organization, Nielsen and so on give these numbers. So I cannot give you any firm view on that one up and until we have got these official numbers, and then we'll see whether it will be gained or not share in the overall media spend.
In terms of PPM increases, typically, we try to contain these increases to a moderate number. That's true for all markets. Because as you know, when you increase price, you run the risk to have to generate less volumes. But it's true to say that in the last few years, you had always a moderate increase in CPM in our core markets. On the third question, the online video market, yes, I think in general, I would say there has been a slowdown based on the ongoing discussions on brand safety, discussions on many of the offers that has been given.
This trend continues tends to continue in the Q3 of the year. But despite all of this, our digital business has continued its growth base at 47% rate. So we are and even our digital businesses with the SPOTEX and BBTV have continued to grow very prominently. So yes, there are some issues in the market, but we are confident to continue our growth path for the second half. Elmar, on multiples, on spot X, anything you want to
No. I mean, I can we paid €145,000,000 for the remaining 36.4 percent and that basically puts a total EV on the company of €104,000,000
Okay. Just a follow-up on maybe on the question 1. I understand that you can't the data is not available, but do you see any specific industry which are restrained TV advertising maybe in the first half or some change in specific industries?
No, nothing I'm here talking about our main markets, Germany and France, nothing really of particular relevance. What I would say, well, this segment of the industry is totally either over increasing or over decreasing their media spend.
It appears that there are no further questions at this time. So I'd like to turn the conference back for any additional or closing remarks.
It's Andrew speaking. I just want
to thank everyone for their attention and questions today and to the management team for their presentation. I'm obviously around for
the rest of this week today and this week for any further questions you might have, and we will be in touch as a formal presentation around the Q3 results early in November. Thank you once again, and have a good day.
This concludes today's call. Thank you for your participation. Ladies and gentlemen, you may now disconnect.