Good morning, ladies and gentlemen. Thank you for holding. Welcome to MTG Q3 Earnings Call. At this time, all participants are in a listen-only mode. After the presentation, participants will have the opportunity to ask questions, at which time instructions for the questions and answer session will be given. If any participant has difficulties hearing the presentation, please press star followed by zero for operator assistance. Presentation slides to accompany the call are available via the link on the homepage of mtg.com. I will now hand the call over to your host, MTG President and CEO, Jørgen Lindemann, who is joined on today's call by MTG CFO, Maria Redin, and Anders Jensen, CEO of NENT Group. Please go ahead.
Thank you, operator. Good morning, everyone. Before we get into the numbers, let's take a few minutes to update you on our preparation to split MTG into two separate listed companies. Kinnevik has completed the distribution of its MTG shares. We have now continued our work towards the split of MTG, including the appointment of three new and highly qualified NENT Group board members. We now expect to list NENT Group in March next year, subject to shareholder approval at an EGM to be held in Q1 2019. MTG and Nordic Entertainment Group have been operating as two separate organizations since the beginning of July, with separate boards, management teams, and corporate brands. We are now entering a very intense phase. You should therefore expect costs associated with this process to accelerate in Q4 and Q1. We will keep you regularly updated on our progress.
If you turn to slide number three, you can see that our sales were up 3% on an organic basis. Operating profits before IAC were up 28%, despite SEK 7 million of costs associated with the proposed split. The growth level was lower than in previous quarters. This reflects the lower linear TV consumption levels, a football World Cup year with the coverage on rival channels, the timing of revenue flows in our production business, and the decision to scale down non-strategic esports businesses at ESL. The underlying businesses remain healthy. If we move to slide number four, you can see that the group reported sales were up 9%. Positively impacted by 5% currency and 1% from the net effect of the consolidation of Kongregate and the divestment of Trace.
Our Nordic and international entertainment businesses have continued to deliver higher sales and profits, while sales and profits for our studio business was down. MTGx reported higher sales and was profitable on both EBITDA and EBIT basis. I will now hand the call over to Anders for his comments on the Nordic entertainment and studio businesses.
Thank you very much, Jørgen, and a very good morning to you all. Please turn to slide number 5. Nordic Entertainment sales were up 2% on an organic basis, and profits were up 7% to a new all-time high for Q3. This was in fact the 8th consecutive quarter of profitable growth, and it underlines the potential of the business moving forward. Free TV and radio sales were up 3% on a reported basis, but down slightly at constant FX rates. Continued double-digit organic growth in Viafree and our Swedish radio business was offset slightly by lower free TV revenues, which reflects lower linear viewing levels and the coverage of the football World Cup on rival channels.
Our Swedish radio business has been an important revenue driver these past few years, and the performance has now accelerated further following the launch of our new radio licenses in the beginning of August. These have increased our reach at a lower license cost. We paid SEK 365 million during the quarter as an upfront investment for these licenses, which run over the coming eight years. Nordic Pay-TV sales were up 8%, and Viaplay continues to be the main driver of this growth. The premium sports package has performed particularly well in the quarter as the Premier League season has kicked off again, and we saw great pickup around the European team win in the Ryder Cup Golf. Our Viaplay originals continue to perform well, with "Conspiracy of Silence," "Ingen utan skuld" in Swedish, being one of the most successful launches so far.
We also premiered our first Danish Viaplay original, "Couple Trouble," "Hundehund" in Danish. We secured a number of very important long-term sports rights in Q2, such as the English Premier League, the World and European Handball Championships, and Formula 1 motor racing. This momentum continued into Q3, as we also acquired the exclusive Danish rights to the 2020 UEFA European Football Championships. This allows us to continue to be the undisputed home of premium sports, and the local content champion continued to be vital USPs for Viaplay. If you please move to slide number 6. MTG Studios sales were down 23% on an organic basis when excluding the move of Splay from MTGx to Studios, and profits were therefore down compared to the last year. Scripted sales were down significantly as two major productions, "Thicker Than Water" and "The Ambassador," was postponed from Q3 to Q4.
As stated before, the scripted pipeline looks very promising, so I feel confident that Studios growth will head into positive territory from Q4. Non-scripted sales were also down in Q3, while Splay One sales were up. Reported sales and EBIT for what will become the operating segments of NENT Group were therefore up 3%. This shows that we can deliver high profits even when we have temporary shifts between quarters
I've several times before stressed that NENT Group is robust and agile enough to deal with challenges as and when they arise. This is yet another perfect example of this. That's it for my comments. Back to you, Jørgen.
Thank you, Anders. If I can ask you now to move to slide seven, you will see the sales for Nova and Bulgaria, which is our only remaining operating assets in the international entertainment segment, were up 10% on an organic basis, and profits were up 67% compared to last year. This marked yet another great performance by the Nova team, who have established market-leading positions in both online and offline entertainment segments. The Bulgarian regulator announced its decision in July to disallow the proposed sale of Nova to PPF Group. We appealed the decision to the Supreme Administrative Court of Bulgaria on 30th of July, 2018. We are now waiting for the hearing, which is due in March at the latest. We have applied for earlier hearing. PPF is also appealing the decision.
Nova will remain within MTG if the sale is not completed by the time of our split. Moving to slide eight, you will see that MTG sales were up 12% on an organic basis and 28% on reported basis. EBITDA came in at SEK 78 million, which is the fifth consecutive quarterly EBITDA profit. The segment also reported its second quarterly operating profit. Our esports sales were up 6% on a reported basis and stable at constant exchange rates. The operating loss was significantly reduced compared to last year and to Q2 following strategic decision when it comes to scaling down loss-making non-strategic businesses and reducing our fixed cost base. Sales were also up 50% in Q3 last year, which provide a tough comp.
ESL revenue from owned and operated events were up 16% on a reported basis. This was offset by lower work for higher volumes and lower DreamHack revenues due to the move of DreamHack Atlanta from Q3 to Q4. We now expect esports sales to be down in Q4 at constant exchange rates. This is primarily a function of a lower-than-expected work for higher events and tough comparisons with 80% growth reported in Q4 last year. We expect esports to deliver good growth levels next year. The temporary current slowdown in the second half is primarily due to three things. Firstly, the strategic decision to scale down non-core business such as content production services for the likes of Hulu and Disney and industry services, which are essentially work-for-hire production for the non-publishers such as Rocket League, Elite League, that we used to produce for Asus in Asia.
Secondly, lower sales for our Counter-Strike subscription service, ESEA, which has clearly been impacted by the booming battle royale segment in general and by the success of Fortnite in particular. Thirdly, very tough comp as our esports business enjoyed over 50% growth in Q3 and last year and 80% in Q4, as I just mentioned. The growth in our own operated business is very healthy, which is why we do expect sales growth for 2019 to accelerate. Own operated represents 65% of ESL's total nine months revenue, compared to 50% for the whole of 2017. The strategic shift in our revenue base is largely accomplished, and we have also addressed the cost mix, which is driving sequential improvements in profitability, which we expect to continue in Q4. Moving to online gaming, the combined sales for InnoGames and Kongregate were up approximately 29% on a pro forma basis.
InnoGames sales were up 30% in EUR and 40% when translated into SEK. The key driver was an exceptional performance by Forge of Empires, which released a number of key content updates during the quarter. The commercial launch of Warlords looks very promising following great user reviews, good retention metrics, and encouraging monetization levels. Looking forward, we expect InnoGames year-on-year sales growth to moderate significantly in Q4 compared to Q3, as the quarter will have less content updates. We also expect EBITDA to be down compared to last year as a result of a significant step-up in marketing spend driven by investment in the clear potential of Warlords. As we have said before, it is typically taking two years for new games to become profitable.
Kongregate sales were down in the quarter, and we expect sales to be down in Q4 due to the postponement of several important game launches to next year. Zoomin.TV's revenue were down 16%. The company is going through a major transformation, and we took a non-cash cost of SEK 164 million as an IAC in the quarter following the writing down of balance sheet items. To sum up, for MTG, Q3 was the fifth consecutive quarter of EBITDA profits. Our esports business enjoyed continued healthy own and operated sales growth, but limited overall growth as we strategically scaled down a number of non-core areas. We expect esports sales to be down in Q4, but with a substantial improvement in profitability and for the growth to accelerate in 2019 compared to 2018 and profitability to improve.
Our online gaming business had an exceptional performance in Q3, and the growth rates will moderate in Q4, while EBITDA will come down as we ramp up marketing. We continue to work on the transformation of Zoomin.TV, but this will, as stated before, take some time. That concludes my comments, I will now hand the call over to Maria for her comments.
Thank you, Jørgen, and good morning, everyone. If you please turn to slide nine. Reported sales were up 9%, and the operating income before items affecting comparability was up 28% compared to last year, as Jørgen just explained. We have in the quarter increased our ownership in ESL by 8.4% to 82.5% for a cash consideration of SEK 104.9 million. As a part of the transaction, the previous 2019 put and call options have now been replaced with the put options for the minority owners to sell the remaining shares to MTG from July 2022. The sellers also have a right to receive an additional purchase price in the event that we divest the minority of our shares in ESL at a higher valuation than the basis of this transaction.
The remaining liability related to the ESL option, thereafter, is then the contingent consideration is valued at SEK 324 million, based on the conditions in the agreements, which resulted in non-cash revaluation gain of SEK 182 million that we reported as an item affecting comparability in the quarter. We also took SEK 164 million non-cash cost in the quarter, related to Zoomin.TV as an item affecting comparability. The cost arises from the write-down of assets following a thorough review of the balance sheet that we made after we acquired the remaining shares in the company in May. We do not expect any additional write-downs, but it will take time to turn around this business. Evidently it is time to slide 10. Net cash flow from operations improved significantly in the quarter as expected. This following a reduction in our working capital related to sports rights prepayments made last year from prolonged football rights.
Our net debt increased to SEK 3.1 billion, which corresponds to 1.6 times trailing 12 months EBITDA, before items affecting comparability. That is it for my comments, and back to you, Jørgen.
Thank you, Maria. If I can ask you to turn to slide number 11. The momentum that we have seen for quite some time now continued into Q3. Yes, the organic sales growth was lower, but that was due to a number of specific factors. Nordic Entertainment business has performed well against challenging market conditions, delivering its eight consecutive quarter of profitable growth. Our studio business has a healthy pipeline that we expect to start contributing from next quarter. MTGx reported double-digit organic sales growth and was EBITDA profitable for the fifth consecutive quarter. We have made material progress in our preparation for the split of MTG into two separate listed companies, which we expect to complete before the end of Q1 next year. That concludes our commentary on the results. Over to you now, the operator, to start the Q&A session, please.
Thank you. Ladies and gentlemen, we are now ready to register questions. If you would like to ask a question, please press star one on your telephone keypad and you will enter a queue. Should you wish to cancel, please press star two. The first question comes from Viktor Höglund from SEB. Please go ahead, sir. Your line is open.
Yes, good morning. Thanks very much for taking my questions. I have a few questions here. Sorry for that. If we start on MTGx, you say that esports should be negative in Q4 year-over-year, I suppose that's in reported numbers including FX and so on, but what do you mean negative? Is that a small negative or a big negative? Just any kind of comment around that would be great. Looking into 2019 on esports, you say that you have 16% growth in owned and operated at 65% of sales. White label should be more like for like from Q1. We know that from comments in Q2. Does the owned and operated trend represent some kind of trajectory we can think about in 2019, or what do you think about that?
In InnoGames, you say that trends should moderate on sales, it looks like they were about twice the revenue trend that we've seen historically in Q3. Very strong revenue trends in Q3. What do you mean moderate here? Is that back to normal levels or lower or higher? If possible, could you maybe comment if MTGx was roughly cash flow neutral or negative or positive in the quarters we understand? I have a few more questions, maybe I should let somebody else in. I can try and ask them later on. Thank you.
Yeah. First on your question on esports. As we have said all the time, is that the focus right now is, of course, to make sure that the owned and operated or the content, the products which are strategic for us, that we continue to invest into those. As you can see from the result as well in the quarter, they are growing. Also, despite that we have flat revenue in the quarter, we are improving the profitability of the business. That of course, shows that the revenue, which is not contributing, and we don't believe is contributing long-term, is going up. Therefore, when we talk about Q4, the fact that we raise it means that it is going to be negative and is also then going to be negative, you can argue more than 10% at least.
I cannot give you a more exact figure, obviously, because we have a range of events coming in to Q4 now as well, and we have also one more event from DreamHack coming in. The fact that we raised it just is important that we understand that the underlying businesses, as you see, the owned and operated is performing very well and is also in this quarter a big significant chunk of the revenue generated in the esports business. Look at owned and operated, goes to 2019 the same. What we see is that owned and operated continued to increase. We saw 16% in this quarter, and that is also what we believe, of course, we're going to have in 2019. We have prolonged now a range of sponsors and got a range of new sponsors on board on better terms, obviously.
That is Intel, that is Mercedes, that is DHL, that is Dell, and so forth. Many new sponsors are coming in and now that they can see and also prolong, now that they can see the return on investment Of their marketing investment is actually paying off. That of course gives us confidence that 2019 will be a fine year, a focused year as well for our esports business. When you talk about Inno and third quarter, it was an exceptionally good quarter, Q3, on the back of more content releases. That is of course the way it works when the customer, they start to consume and start to come, not to an end of all the content, but start to end on the content that we have produced. Obviously, you produce more, and that is what they are consuming now.
Therefore you had an exceptionally good quarter. Q4, we have a lot of focus on Warlords, and the marketing in Q4 is mainly towards Warlords. That is what we're looking at. As we also said, it takes normally a 2-year to get such a game profitable. It looks promising right now, and that is why we have decided to put some extra money behind Warlords in Q4. Then on the cash flow, Maria.
Yes, on the cash flow front, MTGx was not cash flow positive for the quarter. You also should remember, we did have EBIT profitability for the quarter for X, but as Jørgen said, Inno did have a strong quarter, and we should remember we own 51% of InnoGames whilst we consolidate, of course, 100% of the cash flow. Over time, you may see a dividend going out as well to the minorities in that company.
Okay. Can I add a question or do you want me to wait?
Please come. Please ask the question.
Okay. On Nent, if I may. The free TV was weak in Q3, you say to several reasons, which most of them we already knew. Just the underlying market here and the trends into Q4 and 2019, what's your feeling here in your position, the market demand out there? Moving all the seasonality aside and the special effects on Q3, do you still expect free TV, including Viafree and radio and so on, to continue and grow, or how's the demand?
Yeah. Hi, Viktor. Thanks for the question. The Q3 for free TV was under, like you said, under pressure from the World Cup in football and also a little bit of the weather, even though we don't like to blame the weather. The underlying markets are strong. Norway was a bit weaker in the third quarter, Denmark and Sweden strong. You can see that visibly in the radio sales. The prices across our ad sales is very healthy and moving upwards. We see the market is coming back now in the fourth quarter. I'm quite confident that we will see a good pickup on the back of Q3 with the components that we had against us in Q3. Viafree and Viaplay is doing very well as our consumer demand is high and the markets are strong.
I think it's a sign of robustness to be able to take some headwind in the markets in a quarter and still deliver a good organic growth and good profitability increases.
Fantastic. Thank you very much and congrats on a strong quarter overall.
Thank you.
We will now take our next question from Martin Arnell from DNB Markets. Please go ahead. Your line is open.
Hi, guys.
Hi, there.
My first question is to you, Anders, regarding the advertising marketing in Scandinavia. You mentioned that free TV sales were down in Q3 in local currencies. Just if you look into next year, and I guess you're in the negotiations now, have you noticed any effect of the Swedish gaming regulation, for example, and do you expect continued price hikes for next year?
Hi, Martin. On the price side of things, I'm quite positive. We have seen competition go out with very firm statements on price increases in line with or actually exceeding our expectations at their end. All media houses have now signaled price increases as a consequence of continued strong demand in the market and the key reach products being a more and more scarce resource. The negotiations have started. It's looking positive. I don't see any negative impacts from the coming new regulation regarding gambling and betting. Actually, the contrary. Given the scarce resources you see in the market, there will be a higher demand than available inventory. This will allow us to capitalize on it, both in terms of prices, but also in terms of more consistent and higher sell-out ratios.
The outlook for our advertising businesses in AVOD free TV and radio is looking fairly solid.
Okay, great. Thanks for explaining that. I want to ask on Bulgaria. Could you just repeat what you said there? You have applied for an earlier hearing than the scheduled hearing in March. Was that correct?
Yeah, that is correct. As I said earlier, we have appealed it to the Bulgarian Supreme Administrative Court. We did that the 30th of July. They came back with a date in March, we asked to have that date moved forward. That is the status right now.
You think your case is how strong is your case there to really have them change their mind?
I think our case is very strong. Obviously, from a legal point of view, I think we are very surprised that the outcome was like it was in all fairness. That's why we have appealed it and also the buyer has appealed it. I think we are in agreement there. We will now try to get a ruling earlier, and that is what we're working on. We have a date in March right now.
Could you just go through briefly the plan B?
The plan B is to continue to grow the business and make sure that it, over time, finds a home which can help grow the business even further. It is a fantastic business for us, but obviously, I think we have laid out very clearly that the equities stories or the stories we are having is a Nordic very strong story for NENT and then a global online game. Therefore, Bulgaria, we should find a partner over time, but in all fairness, they are delivering very well as it is right now. There's no rush for us. It's quite important to understand as well, with 10% growth in revenue and 67% profit growth, that's fine, to put it mild. He's also delivering very well on the online businesses as well down there. Still a performance for them.
Obviously, there was an idea in making sure that we had a clear strategy on the Nordic business and on global online businesses. Therefore, we would like to find a new home for the Bulgarian businesses. That is what we still would like to do.
Okay, thanks. Just a final question from me on MTGx. What did you say your owned and operated events was in % of total esports sales? Secondly-
Can you repeat that?
Sorry. Just secondly also, on Warlords, the margin outlook for next year clearly depends on how much you sort of invest in the marketing for that. How sort of aggressive could you go there in marketing? Would it be sort of a sharp EBITDA decline in the outlook for next year due to that?
Yeah. When you look at the owned and operated, what we are saying as well in writing is that it is 65%. If you look at the first nine months, it is 65% of the revenue in esports is owned and operated. Look at 2017, it was 50%, and when we acquired the companies in 2015, it was 30%. It has been a quite aggressive shift in the revenue streams at the same time growing revenue as well quite significantly. What we are doing right now is that we make sure that we can articulate the value creation we have around our events, and that is of course what our sponsors they're seeing, thus the prolongation of a range of media partners and also sponsors and also new publishers coming on board, new games coming on board as well this quarter.
Just to give you an example, we are hosting the big global FIFA event. The FIFA tournament is something we are doing now, and we have the final now in Paris, the 26th of October. That strategy is on track. When it comes to Warlords and when it comes to investment and decline in EBITDA next year, I think we do it in a controlled way, you can say. Right now it is an opportunity for us because we see some good traction and we see some good key KPIs, and therefore we want to give it a shot here in Q4. I don't think we have guided or cannot guide yet for 2019. Obviously, we have always said that the gaming vertical or the gaming segment should be profitable and also the fact that we will have good margins in that segment as well.
Okay, thank you very much.
We will now take our next question from Henrik Möller from Nordea. Please go ahead, sir. Your line is open.
Thank you. Can you hear me?
Yes, we can.
Okay. A couple of more questions on esports. Firstly, I'm just trying to get a picture of what the like-for-like growth in owned and operated actually is. Either you can tell me exactly what it was or can you give me a view of how the number of events in specifically owned and operated has changed in this quarter and also what we should expect for Q4 in terms of number of tournaments or events?
Yeah. When you look at the owned and operated like-for-like quarters, Q3, it is up 16%. That of course shows that we have more sponsors, more revenues and ticketing and more media and so forth. That, as I say, that looks good for us. The same is also what we can see into Q4, that the owned and operated will continue to be a biggest part of the revenue generated despite the fact that we are going down. That's on track. The owned and operated is, of course, as we have said earlier, that is the strategic partnership that we're having with the publishers, where we then can do much more around sponsorship and the content and so forth. That is a quite important strategic thing for us.
What we had at go off is concentration where we, for instance, for Hulu, as I said last quarter as well, decided to produce something upfront and before that we actually had commitment. To show people and eventually see if there was an opportunity for original content also for esports. That is not normally what we do. I think Anders in his business, normally you get a deal signed with a partner and then you start to produce. That is of course what we want to do now as well. Once we have a contract with a partner, then of course we would like to produce the content. That is these small things which we are changing, which of course make sure that we focus on the right revenues going forward and also that helps
The profitability of the business as well. That is what we should expect in Q4. That is also what we should expect next year.
Okay, just a clarification here. The 16% growth in this quarter was based on the same number of events as last year?
Yeah. It was actually even one event less, actually. DreamHack has moved to Atlanta, DreamHack Atlanta has moved to Q4. There was one event less, actually.
Q4 year-over-year will have the same number of events, if I understand correctly, right?
Q4 will have one more event this year, I think. Stefan, he said no, it is the same amount of events. Sorry.
Yeah. You have terminated another event. Okay. That is good. One event less in Q3 and the same amount in Q4. That seems like growth could accelerate in Q4 on the back of owned and operation, I would argue. Okay, one question on Nordic Entertainment. It has been covered slightly in the call here, but can you give us some more flavor on the split between radio and free TV growth in the quarter? Because I know you had strong growth in radio and pressure in TV from other events on other channels, but also the strong weather, I guess, impacted somewhat. Can you give us some more flavor on that, please? You still there?
Yes. Can you hear me?
Yep.
Okay. Let me start over, just to make sure nothing was lost. Free TV was down slightly at constant FX rates, for the reasons that we discussed. Radio is up double digits, fairly strong radio in Norway, despite the market being a bit weaker. Radio is clearly something that is a good destination for advertising when TV is slowing down a little bit. That gives us some resilience when we have quarters that are facing some headwind. I would not be over dramatic about the decline in free TV in Q3. The obvious effects are there, the World Cup in football, slight weather impact, of course, and that was in our plans. Overall, ad sales as a whole is doing a decent quarter Q3.
Okay, thank you very much. One last question to Maria, perhaps. What should we expect on central costs going forward?
We remain what we previously communicated. We have at NENT, you should expect around SEK 250 million annual run rate, and that the remaining MTG around SEK 200 million.
Okay. Thank you very much.
We will now take our next question from Rasmus Engberg from SHB. Please go ahead, sir. Your line's open.
Yes, hi. I wanted to ask first one question to Anders. Can you explain a little bit, what the PUT decline has been this year across, if you want to aggregate the market, that's fine with me. Secondly, in terms of price increases, is it still that Sweden is leading, followed by Denmark and then Norway? Or how does the outlook look in your mind?
Yeah, good morning. If you take the PUT first, the PUT has been quite sluggish this year, I think it's fair to say that it's partly weather driven. On an aggregate level, we are looking at a double digit, slightly above 10, in decline across the Nordics. It varies a little bit. We have seen hikes up to 20%, 25% during the summer and then bouncing back quite good again. Currently, the PUT is doing slightly better, in terms of lower decline than we anticipated. It's a bit sluggish. It's fair to say that the price increases that we are targeting and expecting will be of a higher number than the PUT decline. Yes, it has been Sweden leading, on the back of a very strong market, and then Denmark and Norway.
We do expect to see Denmark coming back a bit stronger now as well, we have indications also from competition that is sort of the ambition. Overall, I would say that the situation prevails. The market is slightly down as a consequence of changed consumer behavior. The demand from advertisers remains high. TV continues to be the preferred media of choice when it comes to reach, the prices will continue to go up. In the meantime, we continue to develop our AVOD business, which is growing very healthy, both on price and on absolute sales.
Can you explain a little bit in the MTG Studios business, was Splay at breakeven, how did you manage to deliver such a high result when you had the huge sales drop organically? Rather, can you say something about the future of this business, maybe is more important?
Absolutely. Splay is moving forward very strong, the merger between Nice One and Splay into SplayOne gives us a very strong starting point. The underlying Splay business continues to grow, we add new components. That is a positive for the outlook for the Studios business. We have seen some delays and the decline in sales is both from the previous quarter discussed delays of commissions, we had two productions being not decommissioned, only delayed, and that gave us a direct impact bouncing back directly in Q4. What I can say, which is a little bit about the outlook, is that the demand for scripted is beating previous expectations, and the number of productions going from development into being commissioned productions is looking very healthy. I think we are in a very good position to capitalize on the increased demand for content.
Our Studios business will continuously play a very important and maybe even increasing role for our future Viaplay success. Both are good demand in the market and a good increased pipeline of development for Viaplay gives a good outlook for Studios, I think.
Right. I have some questions on the esports in particular. Are you prepared to say anything about the profitability of esports for next year? Do you think it will be at EBITDA positive? Specifically, you have said that Q4 will be weak. Is it not always so that Q1 is the seasonally weakest of all the quarters in the esports business, or is there a change in that in 2019?
I think the ambition is for 2019 to make esport EBITDA profitable as that is something we have communicated earlier, that is something we stand for. Q1, as you say, is typically a bit weaker quarter. I think if you look at Q4 as well, what we have said is that despite the decline in revenue, we do expect lower losses in esport. It is a function of the fact that we are trying to make sure that revenue, which is not helping us, that we don't do those deals anymore, to make sure that we're focusing on what we think is strategically important, that is the owned and operated. That is the transformation we're doing. We will have the same event at least next year.
Obviously we do expect that the owned and operated will then do better next year, and that is also on the back of what we are seeing right now with the sponsors that we're getting in. As I said, they're prolonging the contracts with us, so they can articulate now return of investment on the investments that they do into esport, which is great news, of course. Many new are coming in, and also the prolongation of sponsors.
How long does your Facebook contract for Counter-Strike, how long is that? Is it one more year, or?
Yeah, that was one more year for the Pro League, yes.
Okay. All right, thanks.
Once again, if you would like to ask a question, please press star one. We will take our next question from Mikkel Laursen from Carnegie. Please go ahead, sir. Your line is open.
Yes, good morning. Yeah, I have a few questions. First of all, regarding InnoGames, can you tell us the EBITDA margin for Q3 and how much you capitalized of R&D?
No, we do not explicitly provide the EBITDA margin. You have it when we acquire the assets, as you see, it was a stellar performance in the quarter, you could expect that the EBITDA margin was higher in the quarter than what we said that the average run rate was when we acquired the asset. When it comes to the capitalization, in line with the previous levels in InnoGames, there is no change there.
How much are you approximately investing in R&D?
I don't have the exact number for Inno capitalization in front of me. I can get back to you separately on that one.
Okay. That would be great. Okay, when it comes to esports, you said earlier that you expect limited growth in the second half, and now you had 6% and you expect negative in Q4. What is the reason for this? It sounds like it will be a bit lower than limited.
Yeah, no, it will be lower than limited. I think we also gave the reasons. Some of the reasons were obviously that the esports services, we are doing less unique content. Some of the content deals have not been prolonged. Then some assumptions on cooperation of winning some of new public contract which has not taken place yet, has not materialized into Q4 either. It is a range of things which has changed. Again, I think important is that we demonstrate that these owned and operated businesses, that they continue to grow, and that is the focus that we are having. Also, as I said earlier, that to demonstrate that sponsors can make money on their eyeballs going into esport is something that we can prove now. That, of course, should help the businesses and the tournaments that we're having going forward.
Okay, excellent. Wanted to have clarity there. Also, can you talk about your distribution strategy for esports? Is it working with the current setup? Is this a reason for the relative weakness in the second half? How are you looking at this going forward?
Yeah. The distribution is actually doing very good, meaning that we have more takers of esports. It's quite significant, actually. It is a broad range of takers. As I said earlier, you have Vodafone distributing also now they make a new tournament in Italy. You have Telefónica, you have AT&T. You have a range of OTT platforms, like Rogers in Canada. You have Viaplay as well in the north, Anders? Thank you very much.
You have, of course, a range of linear broadcasts as well, particularly your cable companies, particularly in areas where broadband or mobile broadband is not that penetrated. It is a wide range of takers. I think interesting, of course, is that particularly where we measure it also on the linear TV channels right now, you have some of the public service broadcasters have shown a lot of events. That has generated very good traction and very high ratings amongst the young target groups, of course, which is a problem with the current product levels that particularly the young ones are leaving. There is a broad range.
More partners come on board because now they can see the effect of the products as well, that it also can drive people to free TV, to cable companies, to OTT platforms, and of course, all the online partners we're having like Facebook, like YouTube, like Twitter, like Twitch, and so forth as well. It is a wide range.
All right. Thanks.
We will now take our next call from Viktor Höglund. Please go ahead, sir.
Hello. Sorry, my line was a bit weird there for a while. Did I hear right that you think owned and operated could accelerate ahead, or did I hear wrong? Thank you.
We think that the owned and operated will do better next year. That is what we expect. We expect to grow owned and operated in 2019.
Better than the 16% in the quarter or just better than AT&T in general?
Better than AT&T in general.
Fantastic. Thank you very much.
We will now take our next question from Julija Matoševic from Morgan Stanley. Please go ahead, ma'am.
Hi. Good morning. Sorry, also a quick question from me. The first one on media rights in esports. It seems like the news flow actually has slowed down a little bit. Before, we heard a lot about you signing deals with linear broadcasters and Facebook and Twitch. Could you please speak a little bit about trends there? What are the plans when the deal with Facebook terminates? That's the first question. The second as well, my line was a bit wobbly, and I misheard 2019. Do you expect profitability for esports? Is it breakeven? Again, in terms of what you've just said about 2019 organic growth in esports, is 16% growth essentially a new trend that we will see? Thank you.
Yeah. When it comes to the media rights, as I said earlier, we have more takers on media rights. I think lowering cut of it, which we had some 6 months ago. I think we have 38 takers of the signal, which is quite significant. More companies are taking esports more, also now telco companies. As I said, AT&T is the recent one who we have made a bigger deal with and also prolonged the Arena of Valor partnership with them, and Tencent is also now in the second year. That is what we see. We don't announce all the new ones coming on board, but we see good traction there.
When it comes to the Facebook deal, very happy with the partnership with Facebook, and hopefully we will see strong traction also when we are going to prolong that contract, or that contract is expiring to see who will then would be the distributor of our Pro Leagues going forward. Hopefully, there will be an opportunity for many. When it comes to the owned and operated, what we are seeing is that we are getting more sponsorship deals in and we get more media rights in and so forth. The 2 segments which are forecasted to grow in esports going forward, and there we are growing as well. We do expect that to continue also in 2019.
That concludes the question and answer session. I will now hand the call back to Jørgen Lindemann for his concluding remarks. Thank you.
Thank you all for your time today. We will announce our Q4 results on February the 5th and hope to see as many of you before then. We also look forward to keeping you up to date with our further work to split MTG and list NENT Group. Thank you for your continued interest in the business, our performance, and potential, and goodbye for now.
That concludes today's conference call. Thank you for your participation