Gentlemen, please stand by. Good day. 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. Thank you for joining this conference call for our results for the first quarter of 2017. Our speaker today is Elmar Heggen, the Group's CFO. He will now begin the presentation.
Thank you, Andrew. Good afternoon from me as well. Starting on slide three, the highlights of quarter one. After an exceptional quarter one last year, 2017 has got off to a soft start. This was expected. With advertising markets all showing negative growth outside of France and Spain, and the already announced loss of "American Idol," it is of no great surprise that revenue is slightly down year-on-year at just over EUR 1.4 billion. If we were to adjust the reported number for the "American Idol" effect, revenue would have grown by just over 4%, reflecting the strong Q1 results of Groupe M6, and the continued dynamic growth in our digital revenue. The lower revenue performance was also largely reflected in the group's EBITDA and EBITA, which declined to EUR 264 million and EUR 218 million respectively.
The net profit for RTL Group shareholders was stable at EUR 137 million, thanks to a mechanical accounting effect amounting to EUR 14 million. I will come to this later. Our cash generation remained strong at 116% of EBITA. Turning now to the financial review, starting on slide five. Group revenue fell 1.9%, or EUR 27 million to EUR 1.4 billion. Underlying revenue was down 3.9% after adjusting for consolidation and exchange rate effects. The ForEx effect in the Q1 results was a positive EUR 7 million, while the main scope changes were at Mediengruppe RTL Deutschland, Smartclip, and Groupe M6, iGraal. Group operating expenses declined by EUR 33 million or 2.7%, largely as a result of a lower production revenue at FremantleMedia. Our EBITDA decreased to EUR 264 million, resulting in an EBITDA margin of 18.8% for the quarter, down 1.3 percentage points.
Overall, reported EBITA came in at EUR 218 million, with the EBITA margin slightly falling to 15.5%. The group net debt position was at EUR 390 million at the end of the period, down from EUR 576 million at the end of last year. The net debt has since increased following the dividend payment made on 27 April, amounting to EUR 461 million. Moving on to the next slide. Despite the lower EBITDA, the net profit for the period was EUR 137 million, compared to EUR 138 million last year. Lower depreciation, amortization, and impairment in the first quarter 2017, largely due to Groupe M6, helped, as did the mechanical accounting effect I mentioned earlier. This is a non-cash gain linked to a remeasurement to fair value of a pre-existing interest and amounts to EUR 14 million.
In layman's terms, given that we had gained control over a business, in this case, Divimove , 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 EUR 0.89, stable on the EUR 0.90 per share last year. Moving now to cash flow on slide number seven. 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 FremantleMedia, 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 compared to last year, as the 2016 number included a 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 nine. The audience share performance for Mediengruppe RTL Deutschland was very good during the first quarter, with growth across the full day, and also in access prime time. Both time slots increased 0.3 percentage points year-on-year, with a full day increasing to 29.5%, and access prime time to 29%.
The gap to our commercial rival increased substantially across the day and now represents 5.3 percentage points of audience share, up 3.8 points last year. In advertising markets that we believe fell slightly by between 1% and 2%, Mediengruppe slightly outperformed but still recorded a decrease in advertising revenue. Revenue grew 2.1% to EUR 526 million on the back of growing diversification and platform revenue, while EBITDA was stable at EUR 168 million, resulting in an EBITDA margin of 31.9%. Looking now at Groupe M6 on slide number 10. Over the course of the first quarter of 2017, Groupe M6 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 Groupe M6 outperformed significantly in terms of advertising revenue development.
Revenue was up 3.5% year-on-year, with EBITDA at EUR 76 million due to a lower result from the football club and the film business, SND. Moving now to slide 11. The TV advertising market in the Netherlands was estimated to be down by around 5% in the first quarter of 2017. Revenue was down 4.6% year-on-year, with EBITDA falling back to EUR 1 million. Moving now to FremantleMedia on slide 12. As we mentioned in March at the 2016 full year results presentation, phasing effects will be an issue for FremantleMedia in 2017. As expected, FremantleMedia reports 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 EUR 13 million, largely because of a weak performance of the gaming business and the first full-time consolidation of the losses of Europe's largest MCN, Divimove. However, as we also indicated in March, FremantleMedia's revenue profiles should revert back to growth in Q2 on the back of the sale of "American Gods" to Starz and Amazon. "Gods" launched on the 30th of April, amongst adults 18 to 49, the debut recorded an 0.4 rating, while amongst women aged 18 plus, "American Gods" recorded the highest ever for a Starz original series premiere. During the first quarter of 2017, Fremantle continued with its policy of investing in talent. Two new U.K.-based deals, Bandit TV and Duck 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 an improved full-year EBITDA for FremantleMedia. Moving now to the digital businesses. First quarter revenue growth was strong, up 48% year-on-year, resulting in revenue of EUR 178 million. Two-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 first quarter of the year mirrors the revenue development. With growth of over 50%, these rose to 89.5 billion, over five times the amount from just two years ago. This concludes the business review, I will now turn to the outlook on slide 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 the European Football Championships last year, but we expect to benefit from a better revenue performance at FremantleMedia to offset this short-term headwind. 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, we are 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 are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, it is star one at this time. 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 ProSieben has taken down their guidance, they were speaking about the non-commitment of some of the advertisers. If you could just comment on what you're seeing on that front. Secondly, on the American Idol, when is that going to be impacting the numbers? Thirdly, just on BroadbandTV 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. ProSieben mentioned this morning that they see a slight shift towards performance marketing rather than brand-building marketing. That would suggest that some of the advertisers that might actually not advertise in digital anymore don't go back to TV either. Is that a trend that you're seeing as well over this quarter?
Thank you.
Thank you, Annick. 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 2017 when it comes to the German TV advertising market. As I mentioned earlier, it's too early to say we're only four months into the year, so maybe it's not going to be 2%-3%, but 2%-2.5%. Who knows? 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 first quarter. It's going to be March 2018.
As far as I know, we are looking at a similar volume when it comes to the deal that was recently closed with ABC. BroadbandTV and SpotX, those are ongoing projects, ongoing discussions. There is nothing that I can report as of now because there are no news. I believe that we will have full answers and final answers throughout the course of this year, but I would expect that this is going to take us probably into the fourth quarter, rather the end of 2017. The last question, I am not 100% sure, [inaudible], was that performance versus brands?
Essentially, with all the issues around digital, you would assume that actually some of the advertisers are going back to TV because it is offering a much safer environment. One of the reasons why ProSieben suggested that this is not the case is that you have a shift towards more performance-driven media rather than brand-building media. Is that something that you are seeing as well, or if you could just add your comments on that?
Honestly, I cannot give you a good enough answer. I'd need to reserve my answer. It's not something that I can challenge nor confirm. I'd need to talk to the colleagues within IP in order to get back to you with a more educated answer. It's not an observation that we have been confronted with for the time being.
Okay, that's fair. Thank you very much.
We'll go next to Christopher Johnen with HSBC.
Yes. Good afternoon. Thanks for taking my questions. First, sorry, have to come back on advertising in Germany. Maybe you could give us a bit of color on how you see April, May, and June. I think that would be interesting. On the Netherlands, could you comment on your own advertising performance? I think you said the market, you expect it to be down 5%. How did you do yourself, and what did you observe in the first couple of months of the current quarter? Have the dynamics in the Netherlands improved or worsened or anything you can say on that would be interesting. On the momentum on the MCNs, StyleHaul, Broadbands, again, more than 100% growth.
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? Yeah. That would be it. Thanks.
Okay. Thank you, Chris. Coming now to April, May, June for the German TV advertising market. Now I'm going to talk about the RTL figures. Last year, what we've seen in the second quarter was that April and May were very good for us because we were up in April 9%, we are up in May 6%. Obviously due to the Euro 2016, which was on the public broadcaster in Germany, we were down 13%-14%. We will see a very different curve this year, because we cannot compare the seasonality of 2017 with the second quarter in a sport year. We'll have to see. I think that April was rather flat. We believe that May might be down up to mid-single digit. We obviously on the back of last year's Euro, we should be up probably by some means in June.
That would be our current estimate. Flat for April, up to mid-single digit down for May, and then clearly up for the month of June.
Obviously, bookings are very short-term, Chris, so these numbers obviously for May and June are still moving around a bit. That gives you a rough trend.
Chris, I think your second question was related to the Netherlands. There, we believe that in the first quarter, the market was down by around 5%, and our revenue is down 4.8%.
Advertising is worse.
Advertising was worse. Obviously, we were helped with additional revenue being generated outside advertising. We believe that in the first quarter, we have slightly lost advertising market share in the Netherlands.
It was against, again, almost difficult comps. If you look at the quarterly comps for Holland, they're very strange. Q1 2016 was up six, Q2 down six, Q3 down nine, and Q4 down 13. 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.
In terms of momentum in Holland currently on the advertising side?
April was weak again, May is looking more stable.
SpotX?
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. Honestly, if we look at both Broadband and Divimove, or in the first quarter, 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. 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 five times the amount that we were on two years ago. It's difficult to believe that this is going to continue to grow at 100%.
Okay, thanks a lot.
We'll go next to Adrien de Saint Hilaire with Morgan Stanley.
Yes. Good afternoon, everyone. Thanks for taking the questions. First of all, I think you mentioned on "Idol" that it should have a similar impact in 2018 than it had a negative impact in 2017. Does that mean EUR 90 million of revenues and EUR 2 million of EBIT as the Q1 figures would suggest? I've got two questions around France. Firstly, again, can you paint us a bit the picture that you expect for Q2 and who knows for Q3? Would you expect any regulatory changes, given the election of Mr. Macron as a president? Thank you.
Thank you, Adrien. On "American Idol," it's not the only effect that we had to record in terms of difference to the first quarter 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.
Around 40 hours. That is more or less the amount that we produced for American Idol in the last season.
The other problem, Adrien, is that it's going to start in March, it's going to go across Q1 and Q2. Whereas American Idol, when it was on Fox, was clearly a Q1 only impact. It's going to get a little bit lost, shall we say, in the quarterly reporting.
Probably we need to look at it over the course of the first half of 2018 against the first half of 2017 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 1 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. I think that this is a hope that we share already for quite a while. Far, we have been rather disappointed because it has been extremely slow. We hope that now the new government will tackle the matter.
Until they will have their structures in place, the responsible ministers in charge, and then once they will feel that this has become a sufficient priority, we're talking no longer 2017, it's going to be at least 2018, if not 2019.
As you know, Adrien, you've got further elections next month in terms of the legislative. Who's going to be the actual, 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. 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 UEFA Euro 2016, they've got very difficult comps through May, June, and July. What we can say is that they've had a good start into Q2.
We're certainly not disappointed with their performance so far in this second quarter. As I said, they've got difficult comps coming up because of the UEFA Euro 2016 base.
Very helpful. Just coming back on "Idol," actually my point was, okay, shall we assume that this is 40 hours, maybe EUR 90 million 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, Adrien, that given it's going to be relaunched on ABC, there's going to be some, shall we say, investment in the show from both the broadcaster but also from the producer. In which case, margins probably will be, shall 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.
Okay. Very well understood. Thanks, Andrew and Elmar.
We'll go next to Laurie Davison with Deutsche Bank.
Hi there. It's Laurie here from Deutsche. First question, just on the advertising side. You stated that part of the reason for the Netherlands starting to hit a particularly weak patch was the decline in linear viewing trends starting to bite. Are there any other markets now which do you think that is spreading to? That's the first question. Second question is just on the Fremantle growth for this year, just 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? Is there anything else going on for 2018 aside from the Idol impact, which we should be thinking about for 2018, thinking about the trajectory there? Thanks.
Starting with the Netherlands. 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. 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 2016 and only went into negative territory as of the summer break.
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. On FremantleMedia, I think what is important to note is that management is very happy with the creative success. If you look at the launches that occurred throughout 2016 and 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.
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," There should be a second season. That as such, is good news. We believe that we should see some growth. Most of that growth will then again occur rather in 2018 than in 2017 because if we get recommissioned on "American Gods," that is by no means anything that we will be able to reflect in 2017, probably even not in 2018. The fact that "Deutschland 86" might come then at some stage, the market is also not going to be a 2017 event, but it's for future years.
2017, should be revenue growth of between 1% and 2% for Fremantle, given the loss of Idol, but then obviously the delivery of Gods in the second quarter. EBITA is still expected to be around EUR 120 million for this year. Looking ahead into 2018, obviously we've got Idols coming back on ABC. We've got known commissions for "Deutschland 86." Very hopeful as well for "The Young Pope 2." Confidence, as Elmar said about "American Gods 2," and other drama shows as well coming through, like for example, "The Rain" for Netflix, et cetera. There are some quite big shows we are hopeful of for growth in 2018.
Some of those formats might not be coming in 2018. If you look at "American Gods 2," I'm not 100% sure when it comes and whether this is going to fully impact the 2018 figures.
Is the 2018 step up going to be more than the EUR 110-EUR 120 region you're talking about from 2016 to 2017, in terms of EBITA?
It could be.
Okay. Sorry, just to follow up on the BroadbandTV 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 the interim dividend decision? Thanks.
Well, the meetings will be end of August. The process is basically just starting now.
It's not 100% sure, Laurie. 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 of June results.
Okay. That's all very clear. Thanks, guys.
We'll go next to Julien Roch with Barclays.
Yes. My first question is on advertising. With ProSieben down 5% and RTL down 7%, the market seems to think that there has been a significant change in the trends in advertising. ProSieben only lowered guidance by 50 basis points, and you are kind of saying that you are not sure that anything has changed. 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 is 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 EUR 1,211, or Zonebourse is actually EUR 1,240. You unveil EUR 14 million of exceptional in Q1. When you gave your guidance for 2017, did you know about that EUR 14 of exceptional?
Do you feel that EUR 14 of exceptional is in consensus and therefore the underlying number is actually lower? That is my second question.
Okay, let us start with the German TV advertising market. For a number of years in a row, we have seen growth that on average is between 2% and 3%. If you look at the advertising market growth for 2016, it is between 3% and 4%, potentially even more in the tune of 4% than 3%. We continue to believe that growth between 2% and 3% is reasonable to assume. We are not overly pessimistic on the back of a rather disappointing, if I may say, first quarter, because that is what we expected. If you look at the first quarter of 2016, we believe that the market has grown in the tune of 6%, with us growing 4%. The comps are extremely tough.
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 is 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%-2.5%. We do not know yet. We remain confident for the time being, and we wouldn't be putting things into question on the back of a difficult first quarter as it was expected. 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 million. Obviously we knew early in the year about the EUR 43 million one-off that M6 has been able to negotiate with Orange.
The EUR 43 million were already baked into the actuals in the second quarter. Julien, were you asking about the EUR 14 that we talked about?
Yes. Which is a new thing.
This is obviously something that is below-
Yeah
EBITDA, because it's.
An EBIT.
gain resulting from a remeasurement, and it is not part of our EBIT or EBITDA.
Okay.
It is EBIT, but it's not EBITA or EBITDA.
Okay, fine. 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. We discussed about the pronounced rating impact in the Dutch market, where obviously we are subject to less ratings and less usage of linear viewing. We haven't seen any meaningful change in behavior when we talk to agencies or advertising customers.
I think, Julien, there are 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 the outlook is uncertain because of elections around Europe. Obviously, we started in Holland, so we've had France, we've got Germany coming up. We've now got, obviously, the U.K. We had the decision on Brexit. Advertisers hate uncertainty. I think that this is more of 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. It just adds to or builds into a mood which is, shall we say, slightly negative against difficult comps.
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.
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 third quarter, could that also be a destabilizing factor? I wonder if you could break down of your EUR 11 million revenue growth of RTL Deutschland in the first quarter, year-over-year. How much of that came from HD carriage distribution revenues and program sales? That's the first question. Second question on the Netherlands market, you've referenced declining consumption, obviously well known that Netflix's penetration is among the highest in Europe there. 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 two, three years in that particular market?
The final question, just on the RTL Radio France sales process. I'm 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 is fair to say that the underlying level of profitability when it comes to our French radio business is in the tune of EUR 20 million.
Okay.
If you were to strip out the corrections that we had to record due to the accounting errors, but also normalize for the accelerated depreciation when it comes to the move to [Nei].
Yeah.
Basically, if we fully normalize things and make it an ordinary course, year 2016, we are around EUR 20 million of EBITDA.
Okay.
German elections and the impact. If we look at other election years, in the past, it never had a significant impact, neither in a positive nor in a negative way. It was pretty neutral at the far end. 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 ads environment. It is just as Andrew mentioned, advertisers do not like uncertainty. Once that you believe that there is a certain likelihood that things could pan out very much different from what stakeholders have anticipated earlier, this then can have an impact on the overall advertising climate. No, there is no paid advertising around elections, on the private broadcasters.
This is not really something which leads to big peaks or declines in those quarters where those elections take place. What's the other?
Viva project in terms of timing.
Timing, I think that we continue now to make good 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. We are confident that we should be in a position to close, hopefully, that transaction throughout the course of the third quarter. We have to see. Again, this is not something that we can guarantee or already confirm, but we hope that execution of that project takes place in the third quarter.
Okay. program sales growth or HD distribution revenue growth in Germany?
No, the EUR 11 million you were referring to.
Yeah.
Firstly, it's obviously the consolidation of Smartclip, which is included. obviously, it'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. it's a mixed bag, so to say. It comes from various impacts, but also some scope entries, like Smartclip.
Okay. advertising was sort of flat to down.
Slightly negative.
Slightly down.
Okay.
The overall 2% revenue growth was basically coming from diversification platform activities, that basically accounted for the difference.
Okay. Great. 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.
Okay.
In terms of percentages, the total market last year, 2016 on 2015, was down about 7% or 8% year-over-year in terms of viewing time in minutes, but I can't give you the number of minutes off the top of my head.
Okay.
If you look, obviously, 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 2015-
Total audience
plus.
The pre stuff, all stuff. Exactly. Yeah.
Okay. Great. Thank you. Very helpful. Thanks.
Once again, if you'd like to ask a question, please press star one. We'll go next to Klaus Thiel 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? Secondly, what's the likelihood for selling "American Gods" to other channels here in 2017? Yeah, selling season one. That would be my questions.
Okay. On "American Gods," obviously, the international rights outside the U.S. were sold to Amazon, for the export exploitation for 12 months. This is basically now a potential upside of Fremantle to try to sell the product internationally. I think that here, the natural customer could be the various pay TV platforms, because I think that this is a product that suits pay TV exploitation better than free to air. They basically start to take the product into the market as we speak. That only starts now. 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.
That could also happen for 2017?
Yes. They start the sales as we speak. We should see 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 first series will continue to increase. On CapEx, and on M&A in general, as we pointed out earlier, we will have to make decisions that are related to assets that we majority own, like BroadbandTV, but also SpotX. Those decisions are due for the second half of this year. As we said earlier, hopefully we will know at least for one or 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.
Again, as we said in prior years, on average, I think it's fair to model that we will spend EUR 200 million to EUR 250 million on M&A. There might be single years where it's a bit more. This year, 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. I think EUR 200 million to EUR 250 million is a good average to model.
What about underlying CapEx? What would be a normalized run rate, excluding M&A?
As we have shown in the past, it's probably around 1% to 2%.
Right. Thank you.
Thank you.
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 SVOD. I know you've got Videoland in the Netherlands, and I see you've done a deal between Fremantle and RTL Deutschland on the library. I just wondered if that's an area you're thinking of moving into more. Secondly, profitability for your digital division. You obviously have 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 breakeven point?
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. They are not representing the mark of the revenues that we generate. The bulk of the revenues 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. It will take us until the second half of 2018, beginning of 2019, until we believe also our MCN businesses will eventually breakeven.
If you take other meaningful digital businesses within our portfolio, let's take the ad stack, SpotX, for example, that is already a profitable business. Again, if you compare the margins that we create in these businesses, for example, with Mediengruppe RTL Deutschland, we are below average. Therewith, the strong growth in digital will eventually result to increases in absolute profit. For the time being, digital is margin dilutive. The return on sales will not grow with the growth of the digital portfolio.
Okay. Then on SVOD or PVOD, is there any change in stance there? Is that something you're thinking about?
I think here it's fair to note that in the Netherlands, we are the most advanced, with Videoland being in the market now for quite some time. We continue to strengthen our SVOD platforms, also Videoland in the Netherlands, and we continue to explore opportunities for other SVOD offers within our broadcast footprint. There's nothing that we can announce as we speak. It's too early. We continue to explore the opportunities, and hope that we'll be in a position to announce something throughout the course of this year.
Okay, thank you.
We'll go back to Laurie Davison with Deutsche Bank.
Sorry, guys. Just 2 follow-ups. Firstly, on cash conversion, we didn't touch on that. You stated before that you expect to see a return towards 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 Fremantle? The second follow-up was just on the French market. You said that M6 has 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 think that the 100% you referred to were more of the upper range of the bandwidth that we've used in the past. Don't forget that we cashed in in the first quarter on the 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 first quarter. 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 it can get close to 100%. As you also said, that obviously the more we do in terms of supplying content to, for example, SVOD 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 debt versus funding position, that also is not particularly helpful to boost cash conversion to 100% or even above. Yes, I think that we should be within 90%-100%, as we pointed out earlier, for the full year of 2017.
French ad market election.
Yeah. There, I think, no, we haven't really seen. The first quarter was good, as you also mentioned. No negative impact coming from the election because business was good. The market was up, not only M6, but obviously M6 outperformed in a market that was slightly up by an estimated 2%. No, we don't believe that that was a negative.
We haven't seen anything in Q2 either yet, Laurie?
So you haven't got visibility on Q2, or?
We haven't seen any election impact thus far on the Q2 numbers.
Okay. Got you. Very clear. Thank you.
We'll go next to Chris Johnen with HSBC.
Yes, another follow-up from my side. You discussed Videoland 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 2017? Then I'd be curious how you view the sort of Discovery joining in on 7TV, 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 still be afraid of what the Cartel Office has to say here?
Okay. I will start with Videoland. First, I think it is 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 is probably in the tune of EUR 10 million-EUR 15 million, to give you a ballpark figure. That is probably what you should expect for the full year.
Your second question was on the ProSieben OTT Discovery business.
Yep.
As you are aware, Chris, I think four or five years ago, we tried to do a similar thing with ProSieben, set up a common platform, a shop-in-shop, if you like, with ad sales being handled by the respective parties, that was refused by the regulatory authorities in Germany. I think the regulatory environment has been discussed this morning quite clearly as well by the CEO of ProSieben. I think we share his views on the environment. The idea makes sense. In many cases, operationally, what we have tried to do so far is to basically package those with the cable operators. Where we haven't been able to package it with other broadcasters, we have used the cable operators to form their own sort of, say, shop-in-shop.
That is 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 are open to that type of deal. Where it goes to in terms of negotiations, in terms of regulation, I think it is probably a little too early to call, but it is going to be complicated in terms of discussion.
Okay, thanks.
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. We obviously look forward to speaking to you again around the half year results, which will be released on the 30th of 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.
Ladies and gentlemen, this concludes today's conference. Thank you for your participation, and you may now disconnect.