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 Buckhurst. Please go ahead, sir.
Good morning, everyone, and thank you for joining this conference call for our results for the first half of 2017. On slide two, 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, Guillaume de Posch and Bert Habets, and the group CFO, Elmar Heggen. As this is Bert's first analyst call, I would like to wish him both a warm welcome and of course, good luck. I will now hand over to Guillaume who will begin today's presentation on slide three.
Thank you, Andrew, and good morning from me as well. As we stated in March, the group has embarked on an ambitious roadmap 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 its consistent value creation is a priority. 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 four.
On slide four, 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 FremantleMedia in our digital and platform activities. As a result, group revenue increased by +3.5% to nearly EUR 3 billion with EBITDA coming in at EUR 626 million. Please remember that last year's operating results included a positive one-off of EUR 43 million at the level of Groupe M6. Adjusting for this effect, EBITDA was almost stable. The reported net profit for RTL Group shareholders came in at EUR 320 million. The board has decided to make an interim dividend payment for the first half of 2017 amounting to EUR 1 per share. This will be paid on the 7th of 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 split. On the right-hand side of the chart, you can see that digital revenue grew very strongly by 47.4% year on year to EUR 389 million, and now represents 13.1% of RTL Group's total revenue. Well on the way to our target of at least 15% within the next three to five years. Moving to slide six. Revenue generated from a variety of paid platforms is also an increasingly important business for the group. As at the end of June, this represented EUR 169 million, an increase of 18.7% year on year. The main drivers of this increase were our German and Hungarian businesses.
In Germany, HD subscribers grew to 7.6 million, and in Hungary, we have a positive base effect, as we are now able to claim retrans fees on our main channel, RTL Klub. On the next slide seven, we highlight the strategic direction that RTL 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 nonlinear consumer propositions, continuing to invest in grow FremantleMedia, our content arm, and developing scale in both AdTech and data capabilities. This total video world will offer greater consumer targeting and offers, an enhanced drama slate from FremantleMedia, while broadening Fremantle's client and talent base. Finally, we will continue to invest in and increase our digital AdTech capability.
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. 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 third 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 intragroup transaction, has already been announced and concerns Groupe M6 and RTL 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 FremantleMedia and Dentsu, our European largest MPN. As you know, earlier this year, we have announced a review of strategic options around BroadbandTV. 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 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. Accordingly, we have exited the business per July 15. Now on slide nine, a few more words on SpotX.
As just mentioned, SpotX has successfully built up a leading position in the AdTech 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 billion ad decisions per day. The supply side 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 a best-in-class SSP and currently serves more than 600 publishers. Considering SpotX past growth, publisher-friendly independent market position, and its ability to constantly adapt its business, we are confident that SpotX 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, SpotX is expanding its services to ad 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 smartclip, we are working on an ambitious growth plan for our AdTech 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 Elmar, 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 second quarter of 2017 on slide 11. Reported group revenue for this period was up 8.8% 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 FremantleMedia, which reported astonishing growth of 34.5% thanks to the successful launch of American Gods. This results in a reported EBITDA of EUR 362 million 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 Groupe M6, rose 4%. Moving to the next slide, a summary of the results for the first six months of 2017.
Revenue rose 3.5% to just short of EUR 3 billion, with underlying revenue, which adjusts 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 FremantleMedia and in program rights, which investments were made in the grid, notably on our channel in Germany. This results in an EBITDA of EUR 626 million for the first six 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 [M6]. Adjusting for this effect, EBITDA was almost stable year-on-year. The group's net debt at the end of the period was EUR 1 billion, broadly in line with last year. Let's now move on to slide 13.
The net profit attributable to RTL Group shareholders for the period was down EUR 21 million at EUR 320 million 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 EUR 2.08. Let's now move on to cash flow on slide 14. Net cash flow from operating activities to EUR 214 million in the first half of 2017, mostly as a result of the investments the group is making into FremantleMedia'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 EUR 416 million as of 30th of 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 EUR 264 million, largely as a result of lower receipts from the German tax pooling, 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 the review of our main business units, I would like to highlight some of the achievements we've had over the first six months of 2017. Our broadcast activities in Germany and France have outperformed the ad market and also increased audience share. FremantleMedia has experienced rapid and successful growth in its drama activities with more to come, and will relaunch "American Idol" on ABC next year. Growth perspectives are therefore good. In digital, our multi-platform networks or MPN, as they are now known, remain global leaders. Finally, Videoland, our ad-support platform in the Netherlands, has reported subscriber growth of 40% over the first six months of 2017. Moving in now to the business reviews on slide 17 with Mediengruppe RTL 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 VOX, Nitro, and RTL+, which only started in June of last year. Worth highlighting is the continued excellent performance of VOX. Audiences are up 0.3 points to 6.9% at the half year. In July, VOX audience share was above that of the ProSieben channel for the first time ever in the target group of 14 to 59. Having been ahead in total audience, i.e. 3+, since June 2016. The net TV advertising in Germany is estimated to have decreased by approximately 2% to 3% over the first six months of 2017.
Our ad revenue in this period rose slightly, thanks to a gain in market share. In this context, overall revenue rose 3.5% to EUR 1,075,000,000, while EBITDA was broadly stable at EUR 365 million. Moving in now to slide 18. To further highlight the audience successes we have seen in the first half of 2017, this new chart shows the lead the family of channels has in both access prime time and prime time. For the first six months of 2017, our channels achieved an audience share of 28.7% in access prime time, 4.2 percentage points ahead of our commercial competitor. This is again an improvement of 1.2 percentage points year-on-year. In prime time, 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, Groupe M6 reported its results 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% to EUR 664 million, with EBITDA coming in at EUR 172 million. Adjusted for the one-off effect from M6 Mobile, EBITDA was up 4.9%. Audience 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 UEFA Euro 2016 football matches were broadcast on M6 last year. I will now hand over to Bert, 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%, a decline on the last year due mainly to the continued audience fragmentation. The marketplace in the Netherlands remains tough. The TV ad market was estimated to be down just over 6% during the first six 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 EUR 226 million. EBITDA was down at EUR 20 million 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 number 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 EUR 96 million, with an EBITDA down at EUR 19 million 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 first six months of 2017. In a net radio market, advertising market estimated to be down 5.4%, our radio business in France reported a decrease in revenue to EUR 79 million. EBITDA decreased to EUR six million, 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 EUR 51 million, a growth of EUR six million year-on-year, thanks to the cable distribution revenues.
That EBITDA came in at EUR 18 million from the reported EUR five million last year. Please note that we had a positive one-off effect in this year amounting to EUR eight million. In Croatia, revenue was stable at EUR 19 million. In a TV market, that was down almost 9%. EBITDA came in at a small loss of EUR three million due to higher programming costs. Finally, in a few words on Spain, where Atresmedia reported its interim results last month. The Spanish TV market was estimated to be stable during the reported period. Atresmedia total revenue increased by 1.2% to EUR 551 million, with the group's EBITDA falling slightly to EUR 117 million. RTL Group reported a contribution to its EBITDA of EUR 15 million, compared to EUR 16 million last year. I will now continue on FremantleMedia on slide number 22.
Revenue increased moderately by 4.9% to EUR 648 million in the first six 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 EUR 37 million. EBITDA rose to EUR 40 million, 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 a range of 2.5%-5% growth for FremantleMedia in 2017. EBITDA will be higher than reported for the full year 2016. All in all, the number of broadcast hours of FremantleMedia 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 15.7 million viewers on May 30, achieving its highest launch episode for the six years. With an average audience so far of 15.9 million 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 2016/17 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 made available to more than 200 countries since May 1st through Amazon Prime Video.
The critically acclaimed series was Starz' best ever launch for a new series, with it performing on average more than six times higher than their primetime average share for the total viewers. We are obviously delighted that a second season has been ordered. Other high-profile drama include the hugely successful series "The Young Pope", which had the best premiere for a new series on Sky Italia and clocked up 1 million viewers for the launch on HBO in the U.S. Earlier this year, it was announced that a second season, called "The New Pope", has been ordered, and it will go into production later this year. In March, FremantleMedia announced the production of "My Brilliant Friend", starting in summer 2017.
The 8-episode drama series is based on the first of the quartet of bestselling Neapolitan novels from Elena Ferrante, which have been published in more than 60 countries and have sold for more than 5 million 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, 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 multi-platform network on slide number 25. As you know, our digital strategy has two main elements, aggregation and monetization. Our aggregation strategy is based on the YouTube MPN business led by BroadbandTV, StyleHaul, and Dailymotion. BroadbandTV actively operates in 10 languages and 26 countries.
It continues to be the leading player in all English-speaking, Hispanic, and Portuguese markets, and is among the top players in France, Germany, Russia, and Japan. StyleHaul is the market leader in beauty, style, and fashion category, with over 12.5 billion viewers on YouTube in the first half of 2017, 3.2 billion likes, and almost 50 million comments on Instagram, consistently ranking above platform averages on engagement. Overall, as you can see in this slide, video view development of our main MPN businesses is impressive. This has resulted in revenue growth of 78% of BroadbandTV and 57% for StyleHaul in the first six 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 for 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. SpotX is the cornerstone of this holistic AdTech vision that will also integrate investment in so-called cross-screen optimization with VideoAmp, over-the-top addressable TV with massive and programmatic linear TV with Clypd. 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 France. On slide 28, you will find more details also on RTL AdConnect. This was launched in May of this year and is the first international total video sales house.
RTL AdConnect 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 IP France, 300 digital platforms, and 30 radio stations in 12 countries. In addition to TV and radio advertising sales, RTL AdConnect will also offer digital communication, multi-platform networks, YouTube channels, or branded content campaign in a brand safe environment. On slide 29, you also have more details on our new U.S. VC investment into a space we're keen to understand and develop, VR. Earlier this month, RTL 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 Effects program, 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 2017 underline the importance and the success to date of our total video strategy. Despite tough comps, RTL Group continues to grow its top line and at the same time generate a healthy EBITDA margin. The group remains highly cash generative, and we're paying an interim dividend once again of one euro per share. We therefore reconfirm the outlook given on the 9th of March 2017, assuming, of course, there will be no major changes in the economic climate across RTL Group's markets.
We continue to expect moderate revenue growth for the full year and an EBITDA that is expected to be broadly stable year-over-year. This concludes the formal section of the call. We thank you for that, and we're now available to answer any questions you might have.
Thank you. If you would like to ask a question, please signal by pressing star one on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, press star one to ask a question. We will now take our first question from Lukas Boehnert from Berenberg. Please go ahead.
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? Apart from winning audience share, what's driving your outperformance in your view? Is there anything else that is driving your performance here? 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? Are you continuing to expect moderate growth for the French and the German market for the full year? A second question relates to the margin in Germany that was slightly down year-over-year. What is actually driving that? Is that resulting from the digital space?
Thank you very much.
Okay, Lukas. 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. To remind everyone, we estimated the market was down by -2% to -3% for the first half. Obviously, we're talking to advertisers and advertising agency. As you know, typically, they would take a full-year commitment. Therefore, we remain positive on the full year. This being said, at least we believe that as far as RTL Group is concerned, we will grow by approximately 1% our ad revenues. Couple of reasons. First of all, as you know, advertisers made announcements recently, or brands made announcements recently, on the fact that they are revisiting their overall marketing budgets. Bert alluded to so-called zero-based marketing. That might be one factor.
As you know, [WBP], which represents also a sizable share of the market, made their own announcement. We believe that they represent around 40% of the German market, you should really refer to their own comments on this. The overall macro outlook for Germany, as you know, remains fairly solid. As far as we are concerned, we've been flat, nothing to overworry about as far as we are concerned. Obviously, we are constantly monitoring the market and the announcements, either of agencies or competitors. Your second question related to factors which explain our performance versus the ad market decline. There, it's really about intrinsic performance. You pointed to audience 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 is difficult to say. We can only repeat, and I think Procter & Gamble, for example, has been very vocal on that, is that TV is the only medium which provides mass, live, and premium context advertising. This is why we believe we've been outperforming the market. Finally, for Germany and France, here we're talking for us. We're 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 Plus 1% for our 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.
Okay, great.
German margin.
German margin, yes. Last point. This is, I would say cyclical. As you know, we're investing in programming. We over-invested so to speak, in H1. 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. There is nothing to worry about in your view.
Okay. Thank you very much.
We will now take our next question from Lisa Yang from Goldman Sachs.
Good morning. Just to follow up on the previous questions. Your competitor has come out with a press release not long ago saying, September was probably down mid to high single-digit and Q3 down mid single-digits. I'm just wondering if you are seeing any kind of deterioration in any of your markets so far. I know it's still a bit early, 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? Thirdly is on the others line, which was up 11% in Q2.
Just wondering, what has dragged this line down, given BroadbandTV and StyleHaul were both up significantly. Lastly, on Fremantle. Just wondering, you talked about a number of new shows coming up and "American Idol" being recommissioned. This is a business that has been quite soft in the last few years. Do you think we're now entering a cycle where Fremantle could be up very strongly for a couple of years? Where are we in terms of reaching that 10% margin target? Thank you.
Okay. I'm taking question number one, you're referring to September in particular. I'll talk about Germany and France, 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. 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. I would say on two 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 first six months of the year. The insights for the third quarter tend to trend in the same pattern as we have seen in the first six months of the year, with us also being in the level of -8% to -9%, so slightly losing share versus our competitors.
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 leasing agreement was already reported in the fourth quarter 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 Neuilly, next to the premises of M6, and decided to wait for the privatization of RTL City here in Luxembourg until a later period. 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 SpotX and at our German radio. I would say nothing to be overly worried about. Finally, maybe on Fremantle. The road to recovery, as you described it. We have lifted our outlook for revenue growth for Fremantle. We will give guidance of 2.5%-5% revenue uptake with EBITDA progressing versus last year. We had a very successful start in the scripted domain with "American Gods" and "The Young Pope", which will be recommissioned, which is obviously very good news, and 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.
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, we will definitely strive to continue our margins up into the range of 7%-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 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%. Then the last question is, could we have indication of margin in digital this year and evolution in next few years? Thank you.
Okay, Julien, I'll take these questions. Well, we gave already guidance on our so-called digital revenues, where we've got a very clear definition. You can refer to the position statement on that one. We are reaching now just north of 13% of our total revenues, which are purely digital, for H1. We gave guidance that we would reach between 15% and 20% in the next three 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. You can take the assumption, so they're fairly high, but we do not give a number 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. Yes, it's a profitable business.
Margins in digital, if you refer to our digital margin overall, we're, as we speak, slightly positive. 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 AdTech, we believe that margins should be in the tune of 20%-25%. As we speak, we're reaching these numbers. In the MPN 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 MPNs. Let's say midterm, we expect to reach margin in the tune of 8%-12%, so make it 10.
When you say 8%-12%, you're talking just MPN or overall?
No, we're just talking MPNs.
Okay. When you reach 15%-20% of revenue in digital, where roughly do you think the overall margin will be for digital?
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 MPNs, it's also about syndication, for example, of online video programs from Fremantle to big platforms. It's also about gaming revenue that we generate with Ludia. I hesitate to give you an overall target margin in digital. 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.
And-
To summarize it's a mixed issue. 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. I hope that all margins will be positive.
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. We'll be leveling off in the next few years.
Okay. Thank you.
If you find that your question has been answered, you may remove yourself from the queue by pressing star two. We will now take our next question from Christopher Donnan from HSBC. Please go ahead.
Yes, thanks, guys, for taking my questions. First, coming back to Germany and your September trading, and an earlier question, I think. 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. 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%. 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 that the pain in the market as far as earning money is concerned is quite high. Maybe you could talk about that a bit. 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 that content part of the digital revenue or did I misunderstand something? Maybe you could talk about what is included in your digital revenues just to be safe here. Thanks.
Okay. Back to Germany. I'm afraid I have to repeat what I said before, because we truly believe that the only reason why we've been outperforming is audience performance. If you look at the numbers, we actually reached in the first half of 2017, 29.4% in terms of audience share, whereas last year on a full year basis, we were at 28.7%. We've basically gained 0.7. On the other side, our main competitor, ProSieben, was at 25.3%, and they ended up at 24.3%. They lost one percentage point. Therefore, the gap between us and the competitor has increased on the one side. On the other side, we have also always said this, we are the only first league channel with audience share above 10%. We believe that at some point, advertisers recognize that there is a certain premium for the market leader.
Whereas ProSiebenSat.1 have lost their position or their ranking in the first league. Plus the fact that VOX, again, has showed a nice increase not only in the three plus, but also in the main target group 14 to 59. The combination of all these factors, in our view, has simply explained why we've gained market share. We have for the first half market share north of 45%. Of course, your question will be, yeah, but will you maintain that in this 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. As we used to say, we'll count the beans at the end of the market in terms of ratings. We'll see. These are primary the reason. It's all about audience share.
The prices themselves in the German market have been relatively stable. It's not an explaining factor. Now turning to Bert for Netherlands.
Yes, I will pick up your question on the Dutch market. Yes, market has been down 6%. We just indicated that we expect this trend to continue in the third quarter of this year. Actually, there are a couple of reasons that we need to highlight in order to explain. I think one links into the statement of WPP, where a lot of business consumer clients 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 ad spend markets, and therefore refrain from being too aggressive, which has also led to us losing some of share.
If you look at the market specifics in the Netherlands, you see linear viewing trends going down because of the huge uptake of Netflix. Netflix is now estimated to be above 2 million paying subscribers in the Netherlands. 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 Gods." Simply, as you know, our definition of digital revenues are all revenues which is generated by non-linear video. "American Gods", by definition, being sold here to Amazon, I'm just talking about the revenue generated by Amazon, is at the heart of non-linear video because this is a non-linear 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. You can refer to Andrew who will give you the full slate of what we classify as digital revenue. Everything which is related to e-commerce, this is for us, it's basically out.
It has to be non-linear, and for the most video.
Okay. One final follow-up on Sat.1 versus VOX. You mentioned the gap has almost closed, I think Sat.1 still earned twice as much money as VOX. 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?
Yeah, I was referring to VOX and ProSieben, by the way, and not the lines that I discussed. You're right. Ultimately, it's about individual target groups which plays a difference. Also, I believe that there is an overall market perception that advertisers and brands also take into consideration. Therefore, it's not only about individual target groups, but also about the overall, I would say, universe of people, so 14 to 59, where, as I indicated now, VOX is challenging ProSieben.
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 outlook, just complete them. You mentioned September for France, could we have an overall outlook for the French market in third 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. 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 was 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. Hi, Laurie. I'll take the first question. For France, what I said 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 two announcements made by WPP, which have been disruptive, ProSieben just did statements. I want to be careful about competitors. I just want to talk about ourselves. Just to repeat on this one, September is trading positively for Groupe M6. That's one thing. Second thing is, in July last year, we had UEFA Euro 2016 on Groupe M6 that we didn't have this year. 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 Groupe M6 third quarter then, even if you're not willing to give the market?
No, I'll tell you why, because Groupe M6 is publicly quoted. They've just made their release. I think I shouldn't come across their own investor relation. Maybe you can talk to them direct. Might be a better way. Yeah.
Okay.
Your second question was more generic. Bert, do you want to take care of that?
Well, I think, yeah, it's fair to say the all markets have been in decline in the TV ad market. 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. We're absolutely not in a time to relax modus. 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. At the end of the day, we're trying to maximize the consumer attention of all our services, of our video products across all devices and then independently of the platform.
That's what we try to explain with our total video strategy. That also links to the acquisition of the SpotX or the step-up in SpotX to full ownership because it really entails to a monetization model across all our video products for the future. Therefore, it's a cornerstone asset for us.
On cash conversion, Laurie, the free-to-air broadcast business continued to generate very high levels of cash conversion. The ongoing investments in drama, 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 overall group guidance. Just wondering, incrementally, 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 your advertising market share gains to audience share. I think you also mentioned that you have over-invested 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 may unwind a little bit as we get into the fourth quarter and maybe some of the audience share gains might even out a little bit?
Is that consistent with what you're saying? The last question, obviously the comments on the Netherlands are very helpful and obviously Netflix, it's known for some time as being 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 account in line with what we communicated earlier this year. Bert Habets already alluded to the rather soft advertising environment that we currently face in the Netherlands, which is also true for Belgium, and which would be equally true for our radio businesses. 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 fall season programming, just to give you a flavor about that. It's not because we over-invested into H1 that we'll necessarily under-invest in H2. We'll have four European qualifiers of the German national team rolling out in September, October. We've got Super Talent coming back. We've got Bauer sucht Frau coming back. We've got two big German series coming in, Alarm für Cobra and Beck is back!, which is a new series. Overall, we're coming in with a solid slate of programming. That's point one. Point two, as we know, we have always a certain leeway in the way we manage our programming costs.
Therefore, it's still very much the ambition and the intention on a full year basis of good generating EBITDA margin of north of 30% in Germany. 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. Depending on how we see Q4, obviously Anke Schäferkordt 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. It is really typical. That's the way we see it.
There is one additional factor that I want to mention, is that in our view, in view of the future entrance of TF1 commercial ad breaks 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 in the Belgian market.
Okay. Thanks, Guil.
Our next question comes from Katherine O'Neill from Citi. Please go ahead.
Hi. I just wondered if you could talk a bit more about RTL AdConnect in terms of how it works and what the sort of revenue model is there and how you see that expanding. Also on SpotX, are the current management team 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 SpotX's business from that?
Yep. RTL AdConnect, it was really to give you some color on the group's initiatives. Our RTL AdConnect 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 take a very simple example. Let's see. 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 ITV in the U.K. and RAI in Italy, with whom we've got commercial agreements. We are catering for the specific target groups or target clients wanting to have a global pan-European approach before delving into individual markets.
By doing so, RTL AdConnect 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 RTL AdConnect as one pipeline to also deal with online video. That's for AdConnect. Bert?
Yes. On SpotX, management has signed up for the upcoming four years, so we are very comfortable with the additional commitments that they have given. If you look at the current performance of SpotX, 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&T and with the Roku box providers in the U.S. There's a lot of traction there at this moment. Needless to say, in the European markets, we will close engage with smartclip to foster further forms of cooperation. There are a lot of existing broadcasters within the group, but also existing partners of RTL AdConnect are actually signing up with the SpotX platform. We're actively progressing in this specific field.
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?
I think besides the huge growth prospects of Facebook itself, we consider huge growth opportunities for SpotX as well in the premium online video domain. Also if you look at the future business of SpotX in the OTT and connected TV segments that they are actively developing. There are a lot of growth opportunities for the SpotX business itself.
Okay, thanks.
Our next question comes from Richard Eary from UBS. Please go ahead.
Good morning. Just two questions just to follow up on comments on German TV ad market. Just I'm clear that you're expecting full year +1% growth for RTL Germany, but Q3 to be up +3%. 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 fourth quarter? I appreciate the comps are quite difficult because Q4 2016 was a reasonably strong quarter. That's the first question. The second one, just going back to BroadbandTV. 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?
On Germany, your statements were correct to start with, as far as the year to date are concerned. Second, 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 one month. In other words, if you look at the comps last year, if I recall correctly, October was flat versus 2015, November was flat, suddenly we had a huge spike in December. That's why we believe we are taking a realistic view on our outlook for our own ad revenues on a full year basis. Are we-
That's helpful.
Yeah, I think very briefly, because this is an ongoing process, we announced to the market that we continue to explore the opportunities and the options that we see around broadband. This exercise is not yet closed, it is not yet terminated, it is too early to predict the outcome. Just more generally on capital allocation, as you've seen, our net debt at the 30th of June was just at EUR 1 billion. We've now taken the decision to distribute an interim dividend of EUR 1, i.e., EUR 154 million that we will go and pay on the 7th of September. We believe that we will continue to fully respect our net debt to EBITDA gear guidance, which is 0.5-1 times. We cannot pre-empt what we will finally do for the rest of the year.
We will acquire the remaining shares in SpotX, as we also announced today, for $145 million. Depending on what we do, on top of this, we will be again, probably at the lower end to the middle of the 0.5-1 times at year-end.
Assuming the status quo on BroadbandTV, there is possibility for the special dividends to be announced at the full year based on that.
Yeah. It is early to say, if I leave out BroadbandTV from the equation and just focus on the step up in SpotX, I believe that by the end of this year, we will be probably more to the lower end of the 0.5 to 1 times range.
Okay. 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 with BroadbandTV?
I think it is too early to say. I think we always said that we would like to build on the ordinary dividend that we, two years ago, increased by 20% to EUR 3 a share. It is today too early to pre-empt what we might do around BroadbandTV. Let us just see what options we have at the end of the process, then we will take a decision.
Okay. That's clear. Thank you very much.
We will now take our next question from Sonia Rabussier from Commerzbank. Please go ahead.
Hi. Thank you for taking my question, sir. I have a few questions first regarding the TV advertising market. Is it possible to give us an overview of the behavior of the industry, of the share of TV ad spend on net basis per industry, to have a color if the market has been impacted by general declining advertising budget, or it's really the TV ad share which has declined. Second question, do you continue to see an increase of the price CPM on net basis in TV market, in general? Third question regarding the online video advertising. Which trend do you expect for the coming quarters? ProSieben 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? Last question regarding SpotX.
Is it possible to know how many you paid for the remaining stake? 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 these data are not available as we speak. We'll probably need to wait on 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. I cannot give you any firm view on that one up until we have got these official numbers, and then we'll see whether TV gained or not share in the overall media spend. In terms of CPM increases, typically, we try to contain these increases to a moderate number. That's true for all markets. People, just as you know, when you increase price, you run the risk to have to generate less volumes.
Though 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, Bert?
The online video market, yes. I think, in general, you could 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 tends to continue in the third quarter of the year. Despite all of this, our digital business has continued its growth pace at a 47% rate. Even our digital businesses with the SpotX and BBTV have continued to grow very prominently. Yes, there are some issues in the market, but we are confident to continue our growth path for the second half.
Elmar, on multiple, on SpotX, anything you want to?
No, we paid $145 million for the remaining 36.4%, and that basically puts a total EV on the company of $404 million.
Okay. Just follow up on, maybe on the question one. I understand that the data is not available, but do you see any specific industry which are restrained TV advertising, maybe in the first half of some change in specific industries?
No, nothing. I'm here talking about our main markets, Germany and France. Nothing really of particular relevance where I would say, well, this segment of the industry is totally either over-increasing or over-decreasing their media spend.
Okay, thank you.
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.
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 Q2 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.