Good day, and welcome to the First Quarter 2017 Results Conference Call of RTL Group. Today's conference is being recorded. At this time, I'd like to turn the conference over to Andrew Buckhurst. Please go ahead, sir.
Good afternoon, everyone, and thank you for joining this conference call for our results for Q1 of 2017. Our speaker today is Elmer Heggen, the group's CFO, and he will now begin the presentation.
Thank you, Andrew, and good afternoon from me as well. Starting on Slide 3, the highlights of quarter 1. After an exceptional quarter 1 last year, 2017 has got off to a soft start, but this was expected, With advertising markets all showing negative growth outside of France and Spain and the already announced north of American Idol, it is of no great surprise that revenue is slightly down year on year at just over €1,400,000,000 If we were to adjust the reported number for the American Idol effect, then revenue would have grown by just over 4 Group MCs and the continued dynamic growth in our digital revenue. The lower revenue performance was also largely reflected in the group's EBITDA and EBITDA, which declined to €264,000,000 €218,000,000 respectively. The net profit for our Tier Group shareholders was stable at €137,000,000 thanks to a mechanical accounting effect amounting to €14,000,000 I will come to this later.
Our cash generation remained strong at 116% of EBITDA. Turning now to the financial review, starting on slide 5. Group revenue fell 1.9 percent or €27,000,000 to €1,400,000,000 Underlying revenue was down 3.9% after adjusting for consolidation of exchange rate effects. The ForEx effect in the Q1 results was a positive €7,000,000 while the main scope changes were €1,000,000 RTL Deutschland, Smartwhip and GroupMC's Tigral. Group operating Our EBITDA decreased to €264,000,000 resulting in an EBITDA margin of 18.8 percent for the quarter, down 1.3 percentage points.
Overall, reported EBITDA came in at EUR 218,000,000 with the EBITDA margin slightly falling to 15.5%. The group net debt position was at €390,000,000 at the end of the period, down from €576,000,000 at the end of last year. The net debt has since increased following the dividend payment made on 27 April amounting to €461,000,000 Moving on to the next slide. Despite the lower EBITDA, the net profit for the period was €137,000,000 compared to €138,000,000 last year. Lower depreciation, amortization and impairment in the Q1 2017, largely due to Group EMCIS helped as this the mechanical accounting effect I mentioned earlier.
This is a non cash gain linked to a re measurement to fair value of a pre existing interest and amounts to €14,000,000 In layman's terms, given that we had gained control of our business, in this case, Cladilumov that we were already a shareholder of, we were required to remeasure our holding at fair value. A DCF was used to value the business, which showed an increase in value over the period of ownership. The difference between the historical carrying amount and this new valuation has been recorded in the income statement as required under IFRS. Overall, this translates into an earnings per share of $0.89 stable on the $0.90 per share last year. Moving now to cash flow on slide number 7.
Our cash conversion ratio remains at a very high level, reaching 116% during the quarter. This is down on last year's exceptional level, mainly because of the changing operational business mix at Fremantle Media with stock building up in Q1 linked to American Gods and lower cash receipts due to the non renewal of American Idol in 2017. Tax paid slightly increased to compared to last year as the 2016 number included the refund received by one of our U. S. Entities.
I will now give you a brief overview of our main business units. Starting with Germany on Slide number 9. The order share performance for Meeting Group RTL Dorstmann was very good during the Q1 with growth across the full day and also in excess prime time. And so both time slots increased 0.3 percentage points year on year with the full day increasing to 29.5% and excess prime time to 29%. The gap to our commercial arrival increased substantially across the day and now represents 5.3 percentage points of audience share, up 3.8 points last year.
In the advertising market that we believe fell slightly by between 1% 2%, medium group has slightly outperformed, but still recorded a decrease in advertising revenue. Revenue grew 2.1 percent to €526,000,000 on the back of growing diversification and platform revenue, while EBITDA was stable at €168,000,000 resulting in an EBITDA margin of 31.9%. Looking now at GroupMCS on Slide number 10. Over the course of the Q1 of 2017, Group MCs once again grew its audience share by 0.4 percentage points to 22.2%. This performance, combined with the growth in the French TV advertising market of around 2%, meant that Group MCs outperformed significantly in terms of advertising revenue development.
Accordingly, revenue was up 3.5% year on year with EBITDA at €76,000,000 due to a lower result from the football club and the film business, S and D. Moving now to Slide number 11. The TV advertising market in the Netherlands was estimated to be down by around 5% in the Q1 of 2017. Revenue was down 4.6% year on year with EBITDA falling back to €1,000,000 Moving now to Fremantle Media on Slide number 12. As we mentioned in March, at the 2016 full year results presentation, phasing effects will be an issue for Fremantle Media in 2017.
And as expected, Fremantle Media reports a weaker or a weak quarter with revenue declining 19.4%. This is largely the result of the loss of American Idol. The revenue bridge on this chart shows the details of this decline. EBITDA fell to €13,000,000 largely because of the weak performance of the gaming business and the 1st full time consolidation of the losses of Europe's largest MCN TV move. However, as we also indicated in March, Fremantle Media's revenue profiles should revert back to growth in Q2 on the back of the sale of American GOTS to Staz and Amelen.
GOTS launched on the 30th April and amongst adults 18 to 49, the debut recorded a 0.4 rating, while amongst women aged 18 plus American Gods recorded the highest ever for Starz original series premiere. During the Q1 of 2017, Fremantle continued with its policy of investing in talent. 2 new UK based deals, Bandit TV and Dark Soup films were announced with both concentrating on the development of scripted series. Overall, for 2017, we reconfirm our expectations of a broadly stable revenue performance, but it improved full year EBITDA for Free Mental Media. Moving now to the digital businesses.
1st quarter revenue growth was strong, up 48% year on year, resulting in revenue of €178,000,000 2 thirds of this revenue growth was organic and was primarily driven by the very strong performance of our MCN business. The number of video views delivered in the Q1 of the year mirrors the revenue development. With growth of over 50%, these rose to €89,500,000,000 over 5 times the amount from just 2 years ago. This concludes the business review, and I will now turn to the outlook on Slide number 15. It should come as no surprise that we confirm the full year 2017 outlook given in early March.
While European advertising markets are currently challenging, we do expect some easing of the tough comparables as we go through the year. Advertising revenue in Q2 is not expected to show any significant growth, given the impact of European Football Championships last year, but we expect to benefit from a better revenue performance at Fremantle Media to offset this short term headwind. Accordingly, we continue to expect that group full year revenue will grow moderately, largely driven by the group's digital activities, while EBITDA will be broadly stable. Thank you. And we are now available to answer any questions you might have.
Thank you. And we'll go first to Annick Maas with Liberum.
Good morning. My first question is on the TV advertising market. I assume you've seen that Zivens has taken down their guidance, and they were speaking about the non commitment of some of the advertisers. So if you could just comment on what you're seeing on that front? Then secondly, on the American Idol win, when is that going to be impacting the numbers?
Thirdly, just on broadband TV and on products, if you could just get an indication on where we are at this stage with the remaining stakes that you plan to buy? And then just also, performance marketing rather than brand building marketing. So that would suggest that some of the advertisers that might actually not advertise in digital anymore don't go back to TV either. So is that a trend that you're seeing as well over this quarter? Thank you.
Thank you, Erik. I'll try to take one after the other. In terms of advertising market outlook for Germany, honestly, I think it's a bit too early to say. I continue to believe that there is no real reason why we would immediately revisit our growth targets for 20 17 when it comes to the German TV advertising market. But as I mentioned earlier, it's too early to say we're only 4 months into the year.
So maybe it's not going to be 2% to 3%, but 2% to 2.5%, who knows. But we are not overly pessimistic as we speak. I think that we continue to see a similar environment than what we have seen a couple of months ago. On American Idol, this is going to be, again, the Q1, it's going to be March 2018. And as far as I know, we are looking at a similar volume when it comes to the deal that was recently closed with ABC.
Broadband TV and SpotX, those are ongoing projects, ongoing discussions. There's nothing that I can report as of now because there are no really no news. I believe that we will have full answers and final answers for us to cover this year. But I would expect that this is going to take us probably until the Q4, rather the end of 2017. And then the last question, I'm not quite sure that I understood that performance versus brands?
Yes. So essentially, with all the issues around digital, you would assume that actually some of the advertisers are going back to TV because it's much it's offering a much safer environment. And one of the reasons why Posiden suggested that this is not the case is that you have a shift towards more performance driven media rather than brand building media. So is that something that you are seeing as well? Or if you could just your comments
on that? Honestly, I cannot give you a good enough answer. I need to reserve my answer. It's not something that I can challenge nor confirm. I need to talk to the colleagues within IP in order to get you get back to you with a more educated answer.
But it's not an observation that we have been confronted with this for the time being.
Okay, that's great. Thank you very much.
And we'll go next to Chris Donham with HSBC.
Yes, good afternoon. Thanks for taking my questions. First, sorry, I have to come back on advertising in Germany. Maybe you could give us a bit of color on how you see April, May June. I think that would be interesting.
Then on the Netherlands, could you comment on your own advertising performance? I think you said the market you expected it to be down 5 percent. How did you do yourself? And what did you sort of observe in the 1st couple of months of the current quarter? The dynamics in the Netherlands improved or worsened?
Or anything you can say on that would be interesting. Then on the momentum on the MCNs, style haul, broadband, again, more than 100% growth. I mean, do you see any reason why they should not continue this sort of momentum until the end of the year, assuming nothing major on the macro side, no sort of one off event taking down momentum. Yes, that would be it. Thanks.
Okay. Thank you, Chris. Coming now to April, May, June for the kind of German TV advertising market. And now I'm going to talk about the RTL figures. Last year, what we've seen in the Q2 was that April May were very good for us, because we were up in April 9%, we are up in May 6%.
But then obviously, due to the Euro 2016, which was on the public broadcast in Germany, we were down 13% to 14%. Now we will see a very different curve this year, because we cannot compare the seasonality of 2017 with the 2nd quarter in the sports year. So we'll have to see. I think that April was rather flat. We believe that May might be down, up to mid single digit.
But we obviously, on the back of last year's kind of euro, we should be up over the by some means in June. That would be our current estimate. So flat for April, up to mid single digit down for May, and then clearly up for the month of June.
But obviously, bookings are very short term, Chris. So these numbers obviously for May June are still moving around a bit, but that gives you a rough trend.
Then Chris, I think your second question was related to the Netherlands. So there we believe that in the Q1, the market was round the world was down by around 5%, and our revenue is down 4.8%.
Advertising was worse?
Advertising was worse. Obviously, we were helped with additional revenue being generated outside advertising. So, we believe that in the Q1, we have slightly lost advertising market share in Netherlands.
But it was against again our most difficult comps. If you look at the quarterly comps for Holland, they're very strange. So Q1 2016 was up 6%, Q2 down 6%, Q3 down 9% and Q4 down 13%. So as we go through the year, obviously, you'll see the comps getting easier in terms of advertising revenue, but we obviously stay pretty prudent overall for Holland.
And in terms of momentum in Holland currently on the advertising side?
April was weak again, but May is looking stable.
Okay. And small tag?
And then the last one was on the MCN. Can we carry on growing 100% plus?
I doubt. To be honest, I think that we'll continue to see strong growth. But honestly, if we look at both broadband and style in the Q1, they were all up at 100% or plus. This is probably not a sustainable growth. I would believe that this is likely to come down, but we have to see.
I mean, it's difficult to make a prediction. When you look at the overall consumption in terms of billions of video views, you see that this continues to be up. Now we mentioned it was 5 times the amount that we were on 2 years ago. But it's difficult to believe that this is going to continue to grow at 100%.
Okay. Thanks a lot.
And we'll go next to Adrian De Saint Hilaire with Morgan Stanley.
Yes. Good afternoon, everyone. Thanks for taking the questions. First of all, I think you mentioned on idle that it should have a similar impact in 2018, then it had a negative impact in 2017. So does that mean €90,000,000 of revenues and 2,000,000 of EBIT as the Q1 figures would suggest?
And then I've got 2 questions around France. Firstly, again, can you paint us a bit the picture that you expect for Q2 and who knows for Q3? And then would you expect any regulatory changes given the election of Mr. Macron as a President? Thank you.
Thank you, Andrea. On American Idol, it's not the only effect that we had to record in terms of difference to the Q1 2016, but it's the most predominant effect. It's too early to say. All I can tell you is that we expect the production to be of a similar volume. In terms of number
of hours?
Yes. So around 40 hours, and that is more or less the amount that we've produced for American Idol in the last season.
And the other problem, Adrian, is that it's going to start in March. It was going to go across Q1 and Q2, whereas American Idol, when it was on Fox, was clearly a Q1 only impact. So, it's going to get a little bit lost, shall we say, in the quarterly reporting.
Yes. So probably, we need to look at it over the course of the first half of twenty eighteen against the first half half of twenty seventeen in order to reflect the time shifted broadcast pattern. On France, regulatory changes, I think that this is going to last longer. I can't believe that this is going to be number one priority of the new government. We obviously hope that they will review regulation and start to amend it to the benefit of the entire industry.
But I think that this is a hope that we share already for quite a while. So far, we have not we have been not we have been rather disappointed because it has been extremely slow. But we hope that now the new government will take the matter. But until they will have their structures in place, the responsible ministers in charge, and then once that they will feel that this has become a sufficient priority, we're talking no longer 2017, it's going to be at least 18, if not 19.
And as you know, Adrian, you've got further elections in the next month in terms of the legislative. So, who's going to be the actual I mean, in the ministers in the government, who's going to be the prime minister of En Marche. I think there's a lot of unknown questions right now as to where we're going and what's happening. And your second question was around France and around advertising market performance in Q2 and if we had a crystal ball Q3. I think obviously with M6 broadcasting the Euro twenty 16, they've got very difficult comps through May, June July.
What we can say is that they've had a good start into Q2, and we're certainly not disappointed with their performance so far in the Q2. But as I said, got difficult comps coming up because of the Euro 2016 base.
Very helpful. Just coming back on idle, Actually, my point was, okay, should we assume that this is €40,000,000 maybe €90,000,000 of revenues, but that there is very little profit behind that? Or am I too harsh?
The profitability, as you know, already came down over the last seasons, which was at least helpful, so that when we unfortunately lost it, we hadn't fallen in a big hole.
One would assume, Adrian, given it's going to be relaunched on ABC, there's going to be some, should we say, investments in the show from both the broadcaster, but also from the producer, in which case margins probably will be, should we say, below the Fremantle average in order to reboot it and to relaunch it and hopefully then obviously go into multiple years and have another 15 years successful runs on this new closed platform of ABC.
And we'll go next to Laurie Davison with Deutsche Bank.
Hi, there. It's Laurie here from Deutsche. First question is on the advertising side. You stated that part of the reason for the Netherlands starting here, particularly weak patch, was the decline in linear viewing trends starting to bite. Are there any other markets now which you think that is spreading to?
That's the first question. 2nd question is just on the Fremantle growth for this year. So when we're thinking about the base for 2018, you said growth this year, but can you be any more specific on the EBITA for this year? And is there anything else going on for 2018 aside from your idle impact, which we should be thinking about for 2018, in terms of trajectory there? Thanks.
Starting with the Netherlands. I mean, of course, we already explained that when we presented the full year results that the Netherlands is strongly impacted by challenges it gets from non linear viewing opportunities, I. E. From SVOD. And that the ratings decline so far was the most pronounced within our footprint.
There are equally impacts on other broadcasters, yet they have been less severe when it comes to their ability to generate advertising revenue compared to the situation in the Netherlands. I think it's also fair to say that when you look at the Netherlands and look at the seasonality of 2016, we continue to compare against tough comps because the Dutch market was still pretty robust in the first half of twenty sixteen and only went into negative territory as of the summer break. So hopefully, the more we advance throughout the course of 2017, the easier the comps will become. And therefore, we will hopefully be in a position to show a less severe decline compared to the year to date figures. Now on the free metal media, I think what is important to note is that management is very happy with the greatest success.
If you look at the launches that occurred throughout 2016 2017, I think now with having had the first data on American Gods, it's fair to state that the young Pope, but also American Gods performed extremely well. We always had hope that American Idol will come back. The fact that it already now comes back in March 2018 is also good news. And
from what I
hear from Fremantle Management is that they are pretty confident that they should be in a position to get recommissioned on American Gods. So there should be a second season. So that as such is good news. So we believe that we should see some growth. But most of that growth will then again occur rather in 2018 than in 2017, because if we get recommissioned on American Gods, is by no means anything that we will be able to reflect in 2017, probably even not in 2018.
And the fact that Deutschland 86 might come then, at some stage, remark is also not going to be a 2017 event, but it's for future years.
If it's 2017, Laurie, revenue should be revenue growth of between 1% and 2% for Fremantle, given the loss of idle, but then obviously the delivery of our gods in the Q2. EBITDA is still expected to be around $120,000,000 for this year. Looking ahead into 2018, obviously, we've got idles coming back on ABC. We've got known commissions for Doricend 86, very hopeful as well for The Young Pope 2, confidence as Elmer said about American Gods 2 and other drama shows as well coming through like for example, The Rain for Netflix, etcetera, etcetera. So there are some yes, quite big shows we are hopeful of for growth in 2018.
And some of those who almost might not view coming in 2018. If you look at Marcos 2, I'm not 100% sure when it comes and whether this is going to fully impact the 2018 figure.
So is the 2018 step up going to be more than the 110 to the 120 region you're talking about from 2016 to 2017 in terms of EBITDA?
It could be.
Okay. And sorry, just to follow-up on the broadband TV and the ROFO option. Are you going to be able to have visibility on whether you're going to exercise that by the time you're making the decision on the interim dividend? Will that be factored into interim dividend decision? Thanks.
The meetings will be end of August. The process is basically just starting now.
It's not 100% sure, all of it. So to be absolutely straightforward and transparent, that's not something that we can promise or guarantee. It might be, but we are not 100% sure to be able to master the timing of what will come over the next month in a way that we know for sure before the board will reconvene on the back of the 30th June results.
Okay. That's very clear. Thanks guys.
And we'll go next to Julian Ross with Barclays.
Yes. My first question is on advertising. So we've probably been down 5% and RTO down 7%. The market seems to think that there's been a significant change in the trends in advertising. But presumably, you've only lowered guidance by 50 basis points and you're kind of saying that you're not sure that anything has changed.
So I mean has anything changed in terms of mood from advertisers in Germany or in other markets? Do you have any different type of conversation? Or you feel that nothing has changed and it's just kind of volatility on a month by month basis? That will be my first question. The second question is, if I look at consensus for RTL on Bloomberg, which for operating profit is 1 to 11 or Zone Finance is actually 1 to 40.
You unveiled €14,000,000 of exceptional in Q1. When you gave your guidance for 2017, you know about that 14 of exceptional? So do you feel that 14 of exceptional is in consensus and therefore the underlying number is actually lower? That's my second question.
Okay. Let's start with the German TV advertising market. I mean, for a number of years in a row, we have seen growth that on average is between 2% 3%. And if you look at the advertising market growth for 16%, it is even between 3% 4%, but potentially even more in the tune of 4% than 3%. So we continue to believe that growth between 2% 3% is reasonable to assume.
And we are not overly pessimistic on the back of a rather disappointing, if you may say, so Q1, because that is what we expected. If you look at the Q1 of 2016, we believe that the market has grown in the tune of 6% with us growing 4%. So the comps are extremely tough. And there is, in my view, no argument when we discuss with advertisers that let us conclude that we need to tune down the growth expectations for the full year of 2017. Again, it's early to say, too early to say, whether the 2% to 3% will also be applicable for 2017, maybe we need to bring it to the lower end, I.
E. To 2% to 2.5%. We don't know yet. But we remain confident for the time being, and we wouldn't be putting things into question on the back of a difficult Q1 as it was extracted. So to us, it didn't come as a surprise.
Operating profit, the guidance that we give compared to the reported figure of 2016, I. E, to the EUR 1.205 And obviously, we knew early in the year about the EUR 43,000,000 one off that Emsys has been able to negotiate with the Horon. So the EUR 43,000,000 were already baked into the actuals in the second quarter.
Puccini, were you asking about the 14 that we talked about?
Yes, which is a new thing. This is
something that is below EBITDA because it's a gain resulting from a re measurement, and it is not part of our EBITDA or EBITDA.
So EBITR or EBITDA.
Okay, fine. And so you're saying there's no change in advertisers' mood or views in Germany. Any other market where you've noticed any difference?
Not really. I mean, we discussed about the pronounced racing impact in the Dutch market. So obviously, we are subject to less ratings and less usage of linear viewing. But we haven't seen any meaningful change in behavior when we talk to agencies or advertising customers.
And I think, Julian, I mean, in our results call in March for the full year results of 2016, we said that the phasing is going to be an issue for the broadcast businesses and also for Fremantle. We also said there is the outlook is uncertain because of elections around Europe. Obviously, we started in Holland, we've had France, we've got Germany coming up, we've now got obviously the UK, we had the decision on Brexit. Advertisers hate uncertainty. And I think that this sort of this is more of a maybe a global mood without actually necessarily impacting in terms of their ad decisions at the end of the day and how much money they will spend with television.
But it just adds to or builds into a mood, which is, shall we say, starting negative against difficult comps. But globally, we're not seeing any particular issue in the advertising markets or with any particular advertisers saying we're going to cut television and it's going to be a bad year.
Okay. All right. Thank you.
And we'll go next to Conor O'Shea with Kepler Cheuvreux.
Yes. Thank you for taking my questions. Just a first question on the German market. Just to follow-up your comments, Andrew, on uncertainty. Obviously, the German election in the 3rd quarter, could that also be a destabilizing factor?
And I wonder if you could break down of your €11,000,000 revenue growth of RTL Germany in the Q1 year on year. How much of that came from HD carriage distribution revenues or and program sales? That's the first question. 2nd question on the Netherlands market. You've referenced the timing consumption.
Obviously, well known that Netflix's penetration is among the highest in Europe there. But I wonder could you share in terms of any data points on the decline in terms of average number of minutes per day, let's say, over the last 2, 3 years in that particular market? And then the final question just on the RTL Radio France sales process. I was just wondering if you could update where we are on that. And if you could confirm what the underlying level of operating profit of that business was in 2016, sort of post the restatement and excluding any exceptionals?
Thank you.
Okay. Maybe we start with last question first. I think it's fair to say that the underlying level of profitability when it comes to our French radio business is in the tune of €20,000,000 So if you were to strip out the corrections that we had to record due to the accounting errors, but also normalized for the accelerated depreciation when it comes to the move to NII. And basically, if we fully normalize things that make it an ordinary course year 2016, we are around €20,000,000 of EBITDA. German elections and the impact, if we look at other election years in the past, it never had a significant impact, neither in the positive nor in the latter February.
It was pretty new to at the final end. And I would also believe that the German elections as such, and they will be reasonably late because they will only be in September, should not have that much of an impact on the environment. It's just, as Andrew mentioned, advertisers don't like uncertainty. And once that you believe that there is a certain likelihood that things will pin out very much different from what stakeholders have anticipated earlier, this then can have an impact on the overall advertising climate. But there is no paid advertising around elections on the broadcasters.
This is not really something which leads to big peaks or declines in those quarters where post actions take place.
VIVA projects in terms of timing?
Timing, I think that we continue now to make progress. Obviously, here, we are a bit in the hands of the CSA, the French regulator. It's difficult to make a forecast as of when he will be coming back to us with his final verdict. But we are confident that we should be in a position to close, hopefully, that transaction throughout the course of Q3. We have to see.
But again, this is not something that we can guarantee already confirm, but we hope that execution of that project takes place in the Q3.
Okay. And program sales growth or HD distribution revenue?
No, I
mean, the $11,000,000 you were referring to. First, I mean, it's obviously the full consolidation of SmartVip, which is included. Then obviously, there's a mix of diversification activities and platform revenues, because we continue to increase the number of paying HD Homes in Germany. This went up again. So it's a mixed bag, so to say.
It comes from various impacts, but also some scope entries like SmartVrip.
Okay. So advertising was
flat to down?
Slightly negative. Slightly down. And
the overall 2% revenue growth was coming from diversification platform activities that basically accounted for the difference.
Okay, great. And just final on the Dutch market in terms of consumption data. Do you have any data points on that you could share?
Not off the top of my head. In terms of percentages, the total market last year, 2016 on 2015, was down about 7% or 8% year on year in terms of viewing time in minutes, but I can't give you the number of minutes off the top of my head.
And
then if you look at the younger demos, they were down more than that. You're talking sort of low double digits, 10% to 12% to 14%.
Okay. The 7% to 8% is for 15%
Total audience. Plus. The 3% plus. Exactly. Yes.
Okay, great. Thank you. Very helpful. Thanks.
And we'll go next to Claus Teal with New Credit Markets.
Yes, hello. Two questions from my side. First of all, could you update us on your CapEx plan here for 2017? And secondly, what's the likelihood for selling American Gas to other channels here in 2017, yes, selling Season 1? That would be my questions.
Okay. On American Guard, obviously, the international rights outside the U. S. Were sold to American Amazon, sorry, for the export exploitation for 12 months. But this is basically now a potential upside of Fremantle to try to sell the product internationally.
And I think that here, the natural customer could be the various pay TV platforms, because I think that this is a product that fuels pay TV exploitation better than free to air. And they basically start to take the product into the market as we speak. So that only starts now. But on the basis of the success in the U. S, they should be in a position to sell it in a number of territories internationally.
And that would also happen for 2017?
Yes. That's the start of sales as we speak. So we should say some impact already this year, potentially additional impact in the future 2018, especially if we will get recommissioned on American Gods 2, because obviously then also the catalog value of the 1st year risk will continue to increase. On CapEx and on MREL in general, as we pointed out earlier, we will have to make decisions that are related to assets that were the majority owned, like broadband TV, but also SportX. Those decisions are due for the second half of this year.
So as we said earlier, hopefully, we will know at least for what are the other project by August, what this means in terms of cash that we will be able to reinvest into the quality of our portfolio. But again, as we said in prior years, on average, I think it's fair to model that we would spend €200,000,000 to €250,000,000 on M and A. There might be single years where it's a bit more. This year, as you say, as you know, we will have to make up our mind on a number of step ups. So it could potentially be more in a single year.
But I think EUR 200,000,000 EUR 250,000,000 is a good average to model.
And what about underlying CapEx? What will be a normalized run rate excluding M and A?
As we have shown in the past, it's probably around 1% to 2%. Right. Thank you. Thank you.
And we'll go next to Catherine O'Neill with Citi.
Hi. A couple of questions on the digital side. Firstly, I just wondered if you're planning anything more around sort of SVOD. I know you've got Odeo land in the Netherlands. And like I see, you've done a deal between Fremantle and RTL Deutsch Land on the library.
So I just wondered if that's an area you're thinking of moving into more. And secondly, profitability for your digital division. It looks you obviously had very good revenue growth, but it looks like the losses are similar. Are there any signs across any of the assets, particularly the MCNs, of moving towards sort of breakeven point?
Okay. Let's start with the profitability of digital. You're right that the profitability of digital is clearly below average. If you take our entire investment footprint, digital is on average below. On the other side, if you look at the various businesses, the profitability very much differs from what we talk about.
If you, for example, take the catch up TV activities, they can be and they are extremely profitable. But they are not representing the bulk of the revenues that we generate. The bulk of the revenues that we generate is still with the MCN business. The MCN business is not yet breakeven. We expect to continue to converge to breakeven with increasing RPMs in the quarters to come.
But it will take us until the second half of twenty eighteen, beginning of twenty nineteen until we believe also our MCM businesses will eventually breakeven. If you take other meaningful digital businesses within our portfolio, Let's take the HeadStack, SpotX, for example, that is already a profitable business. But again, if you compare the margins that we create in these businesses, for example, with meeting open Deutschland, we are below average. And therewith, the strong growth in digital will eventually also to increases in absolute profit. But for the time being, digital is margin dilutive.
So the return on sales will not grow with the growth of the digital portfolio.
Okay. And then the on sort of SVOD or pay VOD, is there any change in stance there? Is that something you're thinking about?
I think here, it says, just note that in Netherlands, we are the most advanced with the video land being in the market now for quite some time. We continue to strengthen our SVOD platforms, also VideoLANs in the Netherlands. And we continue to exploit opportunities for other export offers within our broadcast footprint. But there's nothing that we can announce as we speak. It's too early.
We continue to explore opportunities and hope that we'll be in a position to announce something throughout the course of this year.
Okay. Thank you.
And we'll go back to Laurie Davison with Deutsche Bank.
Sorry, guys. Just two follow ups. Firstly, on cash conversion, we didn't touch on that. You stated before that you expect to see a return towards the 100% cash flow conversion this year on your reported metrics. Is that still on?
Can you finesse that? And are we going to be getting back to 100% free cash flow conversion from 2018 given the monetization of some of the production investment that you've put in, in Fremantle? And the second follow-up was just on the French market. You said that MCs had a good start second quarter. Have you seen any evidence of cuts in the overall market ahead of the elections there?
Thank you.
Okay. Laurie, yes, I mean, I think that the 100% you referred to were more of the upper range of the bandwidth that we've used in the past. But don't forget that we cash in, in the Q1 on a basis of a pretty strong Christmas business and especially December 2016 was particularly strong in Germany and most of the cash in only occurs in the Q1. So the 116% are not really telling, but I believe that it's fair to assume that we should expect the full year cash conversion rate to be north of 90% and can get close to 100%. But as you also said, that obviously, the more we do in terms of supplying content to, for example, ad hoc platforms, the more difficult it will be because there the payment cycles are less favorable.
It takes longer to cash in. And also the more that we produce, referring again to American Gods, where partially we have to accept to go into a deficit funding position that also is not particularly helpful to boost cash conversion to 100% or even above. But yes, I think that we should be within 90% to 100% as we pointed out earlier for the full year of 2017.
French ad market election.
Yes. There I think no, we haven't really seen I mean, the Q1 was good, as you also mentioned. No negative impact coming from this action, because business was good. The market was up, not only MCs, but obviously MCs outperformed in a market that was slightly up by an estimated 2%. No, we don't believe that that was
a negative And we haven't seen anything in Q2 either yet, Laurie.
And so you haven't got visibility on Q2 or?
We haven't seen any election impact in France on the Q2 numbers.
Okay. Got you. Very clear. Thank you.
And we'll go next to Chris Jonin with HSBC.
Yes. Another follow-up from my side. You discussed VideoLAN earlier. And maybe you could give us a bit of an update on what we should expect in terms of the drag on profitability this year? Are they still on the sort of 10% EBITA cash burn?
Or what sort of level should we expect for 'seventeen? And then I'd be curious how you view the sort of Discovery joining in on 7 TV on a sort of joint Hulu like catch up offering in Germany. Is that something that you may be interested in joining in on? Or would you be still be afraid of what the cartel office has to
say here?
Okay. I'll start with the VideoLAN. First, I think it's important to note and that is also good news that they continue to ramp up the number of subscribers as we speak. They have gained already since the end of 2016, well, quite a big chunk in the tune of 50,000 additional subscribers, which I think is promising. If you talk about the overall impact it might have on the 2017 full year EBITDA, it's probably in the tune of €10,000,000 to €15,000,000 to give you a ballpark figure.
That is probably what you should expect for the full year.
And your second question was then on the ProSieben OTT Discovery business? Yes. I mean, as you're aware, I think 4 or 5 years ago, we tried to do a similar thing with Proseopen, set up a common platform, a shop in shop if you like, with ad sales being handled by the respective parties and that was refused by the regulatory authorities in Germany. I think the regulatory environment has been this morning quite clearly as well by the CEO of Proseeban. I think we share his views on the environment.
The idea makes sense. In many cases, operationally, what we've tried to do so far is to basically package those with the cable operators. So, where we haven't been able to package it with, so to say, other broadcasters, we've used the cable operators to form their own, so we say, shop in shop. But that's a less than ideal solution for a consumer where you could have a one place site or platform to go to find all the content. In theory, yes, I think we're open to that type of deal, Where it goes to in terms of negotiations, in terms of regulation, I think it's probably a little too early to call, but it's going to be complicated in terms of discussion.
Okay, thanks.
And there are no further questions in queue. I'd like to turn it back over to Andrew for any additional or closing remarks.
Thank you, everyone, for joining the call, for your questions today. And we obviously look forward to speaking to you again around the half year results, which will be released on the 30th August. I'm available for the rest of this afternoon. Obviously, if you've got any further questions on models and detailed numbers, and we'll speak during the course of the next few months. Goodbye from my side.
Goodbye. Have a nice day.