Good morning, ladies and gentlemen, and thank you for holding. Welcome to MTG's 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 question and answer session will be given.
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, Lindemann, who is joined on today's call by MTG SFO, Maria Reddin and Anders Jensen, CEO of NAND Group. Please go ahead.
Thank you, operator, and 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 2 separate listed companies. CienaWig has completed the distribution of its MTG shares, and so we have now continued our work towards the split of MTG, including the appointment of 3 new and highly qualified Nen Group Board members. We now expect to list Nen Group in March next year, subject to shareholder approval at an EGM to be held in Q1 2019. NTT and Nordy Entertainment Group have been operating as 2 separate organizations since the beginning of July with separate boards, management teams and corporate brands.
We are now entering a very intense phase, and 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 3, you can see that our sales were up 3% on an organic basis and operating profits before IAC were up 28% despite $7,000,000 of costs associated with the proposed split. The gross level was lower than in previous quarters, but this reflects the lower linear TV consumption levels, the Football World Cup year with the coverage of on vital channels, the timing of revenue flows in our production business and the decision to scale down non strategic e sport businesses at ESL. The underlying businesses remain healthy.
If we move to Slide 4, you can see that the group reported sales were up 9% and positively impacted by 5% currency and 1% from the net effect of the consolidation of CombiGate 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 Stulip business was down, NGGX 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, Jurgen, and a very good morning to you all. Please turn to Slide 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 Via Free 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 DKK365 1,000,000 during the quarter as an upfront investment for these licenses, which run over the coming 8 years. Nordic paid TV sales were up 8% and Envaya Play continues to be the main driver of this growth.
The premium sports package has performed particularly well in the quarter as the Premier League seasons 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, in Swedish,
being one of
the most successful launches so far. We also premiered our first Danish via play original couple travel on the Holland 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 continue to be vital USPs for Via Play.
If you please move to Slide 6. MTG Studios sales were down 23% on an organic basis when excluding the move of Splay from MTG X to Studios and profits were therefore down compared to the last year. Scripted sales were down significantly as 2 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 1 sales were up.
Reported sales and EBIT for what will become the operating segments of NAND 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 stressed before stressed that NAND Group is robust and agile enough to deal with challenges as and when they arise, and this is yet another perfect example of this. That's it for my comments. Back to you, Jurgen.
Thank you, Anders. And if I can ask you now to move to Slide 7, you will see the sales for Northern 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 Noah 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 Norva to Group. We appealed the decision to the Bulgarian Supreme Administrative Court on 30 July 2018, and we are now waiting for the hearing, which is due in March at the latest.
We have applied for earlier hearing and is also appealing the decision. Noah will remain within MGG if the sale is not completed by the time of our split. If we then move to Slide 8, you will see that MGG sales were up 12% on an organic basis and 28% on reported basis. EBITDA came in at $78,000,000 which is the 5th consecutive quarterly EBITDA profit. The segment also reported a 2nd quarterly operating profit.
Our East Board 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 provides a tough comp. ESL revenue from owned and operated events were up 16% on a reported basis, but this was offset by lower 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 hire events and tough comparisons with 80% growth reported in Q4 last year. We expect Esports to deliver good growth levels next year and a temporary current slowdown in second half is primarily due to 3 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 essentially work for higher production for the non publishers such as Rock League, Elite League that we choose to produce for ASUS in Asia. Secondly, lower sales for our Counter Strike subscription service, ICA, which has clearly been impacted by the booming Bell Royale segment in general and by the success of Fortnite in particular. 3rd, very tough comp as our e sports business enjoyed our 50% growth in Q3 and last year and 80% in Q4 as I just mentioned.
The growth in our owner operated business is very healthy, which is why we do expect sales growth for 2019 to accelerate. Owner operated represents 65% of VSL's total 9 months revenue compared to 50% for the whole of 20 17. So 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 form a basis. InnoGames sales were up 30% in euros and 40% when translating Swedish kroner.
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 War Lovers looks very promising following great user reviews, good retention metrics and encouraging monetization levels. Looking forward, we expect Innogyam's year on year sales growth to moderate significantly in Q4 compared to Q3 as the quarter would 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 2 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. Sumin TV's revenue were down 16%. The company is going through a major transformation and we took a non cash cost of 164,000,000 dollars as an IAC in the quarter following the writing down of balance sheet items. So to sum up, for HDX, Q3 was the 5th consecutive quarter of EBITDA profits. Our Esports business enjoyed continued healthy owned and operated sales growth, but limited overall growth as we strategically scale down a number of non core areas.
We expect Esports sales to be down in Q4, but we have 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 Xum'In, but this will, as stated before, take some time. That concludes my comments. So I will now hand the call over to Maria for help us.
Thank you, Jorgen, and good morning, everyone. If you please turn to Slide 9. Reported sales were up 9% and the operating income before items affecting comparability was up 28% compared to last year, as just explained. We have in the quarter increased our ownership in ESL by 8.4% to 82.5% for a cash consideration of DKK100.9 million. As a part of the transaction, the previous 2019 put and call option have not been replaced with the put options for the minority owners to sell the remaining shares to Centige 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 DKK324 1,000,000 based on the conditions in the agreements which resulted in non cash revaluation gain of $182,000,000 that we reported as an item affecting comparability in the quarter. We also took $164,000,000 non cash cost in the quarter related to Seamin as an item affecting comparability. The cost arises from the right in general 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 turnaround this business.
If we then please turn 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 for prolonged football rights. Our net debt increased to $3,100,000,000 which corresponds to 1.6 times trailing 12 months EBITDA before items affecting comparability. That was it for my comments and now back to you, Jorgen.
Thank you, Maria. And 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. The Nordic Entertainment business has performed well against challenging mile conditions, delivering its 8th consecutive quarters of profitable growth.
Our studio business has a healthy pipeline that we expect start contributing from next quarter. MVGX reported double digit organic sales growth and was EBITDA profitable for the 5th consecutive quarter. We have made material progress in our preparation for the split of MGD into 2 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 then, operator, to start the Q and A session, please.
The first question comes from Victor
I just have a I have a few questions here, sorry for that. But if we start on MTG X, you say that esports should be negative in Q4 year over year. I suppose that's 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 comments around that would be great. And looking into 2019 on eSport, 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. So I mean, does the owned and operated trend represent some kind of trajectory we can think about in 2019?
What you think about that? And in InnoGames, you say that trends should moderate on sales. But it looks like they were about twice the revenue trend that we've seen historically in Q3. So very strong revenue trends in Q3. So what do you mean moderate here?
Is that back to normal levels or lower or higher? And if possible, could you maybe comment if MTG X was roughly cash flow neutral or negative or positive in the quarter, so we understand. And I have a few more questions, but maybe I should let somebody else and I can try and ask them later on.
Yes. First on your question on eSport. As we have said all the time is that the focus right now is, of course, to make sure that the owner operated or the constant products which are strategic for us that we continue to invest into those. And as you can see from the result as well, in the quarter, they are growing. And also despite that we have flat revenue in the quarter, we are improving the profitability of the business.
And of course, shows that the revenue, which is not contributing, we don't believe this contributing long term is going up. So 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. But I cannot give you a more stat 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. But the fact that we raised it just it's 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 e sport business. Look at owned and operated, gross to 'nineteen the same.
What we see is that owned and operated continue 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. And that is Intel, that is Mercedes, that is DHL, that is Dell and so forth. So 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 more.
So that of course give us confidence that 2019 would be a fine year, a focused year as well for our e sports business. When you talk about Inu and Q3, it was an exceptional good quarter in Q3 on the back of more content releases. And that is, of course, the way it works. When the customer base 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.
And therefore, you had an exceptional good quarter in 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. And as we also said, it takes normally a 2 year to get such a game profitable. But it looks promising right now and that is why we have decided to put some extra money behind Warlords in Q4.
And then on the cash flow, Maria?
Yes, on the cash flow for MJXA, it was not cash flow positive for the quarter. And you also should remember, we did have, I mean, EBIT possibilities for the quarter for X. As Jorenz said, Ingrid did have a strong quarter and we should remember we earned 51% of Ingo gains whilst we consolidated of course 100% of the cash flow. So over time, you may see 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, Karl. Please ask the question.
Okay. So on NAND, if I may, the free TV was weak in Q3, you say, to several reasons, which we already most of them we already knew. Just I mean, the underlying market here and the trends into Q4 and 2019, what's your feeling here in your position, the market demand out there? I mean, moving all the seasonality aside and special effects on Q3, do you still expect free TV, including via free and radio and so on, to continue and grow? Or how's the demand?
Yes. Hi, Victor. Thanks for the question. The Q3 seat 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 sort of blame the weather. But the underlying markets are strong.
Norway was a bit weaker in the Q3, but Denmark and Sweden strong. You can see that visibly in the radio sales. And then the prices on across our ad sales is very healthy moving upwards. So we see the market is coming back now in the Q4. So I'm quite sort of confident that we will see sort of a good pick
up on the back of
Q3 with the components that we had against us in Q3. Via Free and Via Play is doing very well as our consumer demand is high and the markets are strong. So and I think it's a sign of robustness to be able to take sort of some headwind in the markets in the quarter and still deliver a good organic growth and good profitability increases.
We will now take our next question from Martin Arnell from JMP Markets. Please go ahead. Your line is open.
Hi, guys.
Hi, Dan.
So my first question is to you, Anders, and it's regarding the advertising marketing in Scandinavia. You mentioned that free TV sales were down in Q3 in local currencies. And 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 sort of do you expect continued price hikes for next year?
Yes. 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 sort of our expectations on their end. And 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 sort of gambling and betting. Actually, the contrary, given the scarce resources you see in the market, there will be sort of a higher demand than available inventory. And this will allow us to capitalize on it both in terms of prices, but also in terms of more consistent and higher sale out ratios.
So the outlook for our advertising businesses in AVOD, free TV and radio is looking fairly solid.
Okay, great. Thanks for explaining that. And then I want to ask on Bulgaria. What could you just repeat sort of what you said there? You have applied for an earlier hearing than the scheduled hearing in March.
Was that correct?
Yes, that is correct. As I said earlier, we have appealed it to the Bulgarian Supreme Administrative Court. We did that the 30 July. They came back with a date in March, and we asked to have that date moved forward. So that is the status right now.
And you think your case is I mean, how strong is your case here to really sort of 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. But so that's why we have appealed it and also the buyer has appealed it. So think we are in agreement there. So we will now try to get a ruling earlier, and that is what we're working on.
But we have a date in March right now.
And 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 equity story or the stories we are having is a Nordic, very strong story for Net and then a global online game. So therefore, Bulgaria, we should find a partner over time. Plus in Northland, as they are delivering very well as it is right now.
So 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. And to put it mildly, and he's also delivering very well on the online business as well down there. So stellar 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.
And therefore, we would like to find a new home for the Bulgarian businesses. And that is what we still would like to do.
Okay. And just a final question for me. On MTG X, what did you say your owned and operated events was in percent of total esports sales? And secondly, your sorry, just secondly also on Warlords, I mean the margin outlook for next year clearly depends on how much you sort of invest in the marketing for that. And 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?
Yes. We look at the owned and operated. What we are saying is what I'm writing is that it is 65%. If you look at the 1st 9 months, it is 65% of the revenue in e sport is owned and operated. Look at 2017, it was 50% and when we acquired the companies in 20 15, it was 30%.
So it has been a quite aggressive shift in the revenue streams, at the same time growing revenue as well quite significantly. And 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 are 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 an example, we are hosting the big global FIFA event. The FIFA tournament is something we're doing now and we have the final now in Paris, the 26th May of October. So that strategy is on track.
When it comes to war logs and when it comes to investment and decline in EBITDA next year, I think we do it in a controlled way, you can say. It's just that 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. So I don't think we are we have tied or cannot guide yet for 2019. But 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.
Okay. Thank you very much.
We will now take our next question from Henrik Maube 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 first. I'm just trying to get a picture of what the like for like growth in owned and operated actually is. So 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?
Yes. When you look at the owner operated like for like quarters, Q3, it is up 16%. And that, of course, shows that we have more sponsors, more revenues on ticketing and more media and so forth. So that, as I say, that is that looks good for us. And the same is also what we can see into Q4 that the owner operator will continue to be a big part the biggest part of the revenue generated despite the fact that we have we are going down.
So that's on track. And that is the owner operator 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 continent so forth. And that is a quite important strategic thing for us. What we had to go on is concentration where we, for instance, for UHU, as I said last quarter as well, decided to produce something upfront and before that we actually had commitment, but to show people and eventually see if there was an opportunity for a bit of content also for e sports. And that is not normally what we do.
I think Anders in this business, normally you get a deal signed with a partner and then you start to produce. And that's, of course, what we want to do now as well. So once we have a contract with an partner, then of course, we would like to produce the content. So that is these more 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. So that is what we should expect in Q4.
That is also what we should expect next year.
Okay. But just a clarification here. So the 16% growth in this quarter was based on the same number of events as last year?
Yes, it was actually even one event less actually. We had since Dreamhack has moved to Atlanta. So Dreamhack has is moved to Q4. So that was one event there, actually.
But Q4 then year on year will have the same number of events, if I understand it correctly, right?
Q4 will then have one more event this year, I think. So therefore, it's Stefan, he said no, it's the same amount. Sorry.
Yes. You've terminated another event. Okay. But that's good. So one event less in Q3 and the same amount in Q4.
So that seems like growth could accelerate in Q4 on the back of my in owned and operated, 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?
Yes. Can you hear me? Yes. Okay.
Yes, I'll let it start over just to make sure nothing was lost. 3 TV was down slightly and at constant FX rates for the reasons that we discussed. Radio in Sweden up, that was a bit fairly strong radio in Norway despite the market being a bit weaker. So radio is clearly something that is a good sort of destination for advertising when TV is slowing down the news. And that gives us some resilience when we have quarters that are facing some headwind.
But I wouldn't be overdramatic about the decline in free TV TV in Q3. The obvious effects are there. The World Cup in football, slight weather impact, of course, and that was in our plans. So overall, ad sales as a whole is doing a decent quarter in Q3. Okay.
Thank you very much.
And one last question to Maria perhaps. What should we expect on central costs going forward?
I mean, we remain what we previously communicated. We have at Nens, you should expect around SEK 250,000,000 annual run rate and the remaining MTG around $200,000,000
Okay. Thanks very much.
We will now take our next question from Rasmus Enberg from SVB. Please go ahead, sir. Your line is open.
Yes. Hi. I wanted to ask first some 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? And then secondly, in terms of price increases, is it still that Sweden is leading followed by Denmark and then Norway?
Or how does it how does the outlook look in your mind?
Yes, good morning. Well, if you take the pad first, the pad has been quite sluggish this year, and 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 percent 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 pot is doing slightly better in terms of lower decline than we anticipated. So it's a bit sluggish. But it's fair to say that the price increases that we are targeting and expecting will be of a higher number than the PAD decline. And 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.
And we have indications also from competition that is from the ambition. So 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, and the prices will continue to go up.
And in the meantime, we continue to develop our AVOD business, which is growing very healthy, both on price and on absolute sales.
And then can you explain a little bit in the Studios business, was it was Play at breakeven and how did you manage to deliver such a high result when you had a huge sales drop organically? Or rather, can you say something about the future of this business maybe is more important?
Absolutely. Now Splay is moving forward very strong and the merger between NICE 1 and Splay into Splay 1 gives us a very strong starting point. So the underlying Splay business continues to grow and then we add new components. And so that is a positive for the outlook for the Studios business. And we have seen some delays and the decline in sales is both from the previously quarter discussed delays of commissions and then we had 2 productions being not decommissioned, only delayed and that gave us a direct impact bouncing back directly in Q4.
And what I can say, which is sort of 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, very healthy. So I think we are in a very good position to capitalize on the increased demand for content. And our studios business will continuously play very important and maybe even increasing role for our future ViaPlay success. So both serve good demand in the market and a good increased pipeline of development for ViaPlay gives a good outlook for studios, I think.
All right. And then 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 yet EBITDA positive? And 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 'nineteen?
Yes. I think the ambition is for 'nineteen to make Esports EBITDA profitable. As we that is something we have communicated earlier and that is something we stand for. And 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, lower losses in the spring.
And 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. And to make sure that we're focusing on what we think is cheating and that is your own operator. So that is a transformation. And we will have the same event at least next year. And obviously, we do expect that the owner operator 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're doing into eSport, which is great news of course. So many new are coming in and also the prolongation of sponsors.
And how long does your Facebook contract for Counter Strike, how long is that? Is it 1 more year or?
Yes, that was 1 more year for the total year.
Okay. All right. Thanks.
We'll take our next question from Mikael Larsen from Carnegie. Please go ahead sir. Your line is open.
Yes, good morning. I have a few questions. First of all, regarding Innogains, can you tell us the EBITDA margin for Q3 and how much you capitalized on R and D?
No, we don't explicitly provide the EBITDA margin. You have it when we acquired the assets and as you see it was a stellar performance in the quarter. So 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 assets. And when it comes to the capitalization, I mean, there is in line with the previous levels in game, so there's no change there.
So how much are you approximately investing in R and D?
I don't have the exact number for Inno capitalization in front of me, but I can get back to
you separate on that one. Okay.
That would be great. Okay. So 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. So what is the reason for this?
It sounds like it will be a bit lower than limited.
Yes. No, it will be lower than limited. And I think we also gave the reasons. And some of the reasons were obviously that the e sports services, are doing less. We are doing less unique content.
So some of the content deals have not been prolonged. And then some assumptions on cooperation of winning some of the new public contract, which has not taken place yet, has not materialized into Q4 either. So it is a range of things which has changed. Again, I think important is that we demonstrate that these on and operated businesses that they continue to grow and that is the focus that we're having. And also, as I said earlier that to demonstrate the sponsors can make money on the eyeballs going into e sport 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. I wanted to have clarity there. And also, can you talk about your distribution strategy for esports? Is it working, the current setup?
Is this the reason for the relative weakness in the second half? And how are you looking at this going forward?
The distribution is actually doing very good, meaning that we have more and more takers of eSport. It's quite significant actually, and 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 Telefonica, you have AT and T. You have a range of OTT platforms like Rogers in Canada.
You have Viaplay as well in the morning, Anders. Thank you very much. And you have, of course, a range of linear broadcast as well, particularly in cable companies, particularly in areas where broadband or mobile broadband is not that penetrated. So 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.
We have some of the public service broadcasters had shown a lot of events and that has generated very good traction and very high ratings amongst the young target groups, of course, which isn't a problem with the current part levels that particularly young ones are leaving. So there is a broad range, more comes, more time come on board because now they can see the effect of the products as well, that it also can drive people to free TV, 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. So it is a right range.
We will now take our next call from Victor Hoglund. Please go ahead, sir.
Hello. Sorry, my line was a bit weird there for a while. But just wanted to, did I hear right that you think owned and
operated could accelerate ahead? Or was that did I hear wrong?
Yes. We think that the owner operator will do better next year. That is what we expect. We expect to grow owner operator in 2019.
Better than the 16% in the quarter or just better than 2018 in general?
Better than 18 in general.
Fantastic. Thank you very much.
We will now take our next question from Julia Matteocehuk from Morgan Stanley. Please go ahead, ma'am.
Hi, good morning. Sorry, also a quick question for 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 Vinya broadcasters and Facebook and Twitch.
Could you please speak a little bit about Transa? What are the plans when the deal with Facebook terminates? That's the first question. And the second as well, my line was a bit wobbly and I misheard. 2018, do you expect profitability of Esports?
Is it breakeven? And 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.
Yes. When it comes to the media rights, as I said earlier, we have more and more takers on media rights. I think Loring Catawhich, which we had some 6 months ago, I think we have 38 takers of the signal, which is quite significant. So it is more companies are taking esports, more also now telco companies, as I said, AT and T is the reason one who we have made a
bigger deal with and also
prolonged the arena of value partnership with them and Tencent is also now in the 2nd year. So that is what we see. We don't announce every all the new ones coming on board, but obviously good traction there. And then 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 projects going forward. Hopefully, there will be an opportunity for many.
When it comes to the owner operated, what we are saying, what we're seeing is that we are getting more sponsorship deals in and we get more media rights in and so forth. Also the 2 segments which are forecasted to grow in e sports going forward and there we are growing as well. And we do expect that to continue also in 2019.
That concludes the question and answer session. I will now hand the call back to Lindemann for his concluding remarks. Thank you.
Thank you all for your time today. We will announce our Q4 results on February 5 and hope to see as many of you before then. We also look forward to keeping you up to date with our further words split NTG and ListNeb Group. Thank you for your continued interest in the business, our performance and potential and goodbye for now.