Good morning, ladies and gentlemen, and thank you for holding. Welcome to MTG's Q2 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 Q&A session will be given. If any participant has difficulty hearing the presentation, please press the 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 Nordic Entertainment.
Thank you, operator, good morning, everyone. Just 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. We have made significant progress during Q2. MTG and Nordic Entertainment Group have been operating as two separate organizations from the beginning of July, with separate boards, management teams, and corporate brands. A lot of work has been done on the operational cut-off to ensure that the two companies can operate separately. We remain committed to the split, the process has been delayed following Kinnevik's decision to distribute its MTG shares to its shareholders in Q3. We simply want to await this process and make sure that the new owners get a chance to properly get to know us before voting on the split.
It is therefore clear that the split will not be completed in 2018. We will, of course, keep you regularly updated on our progress and hope to speak to as many of you as possible throughout this process. There are, of course, costs associated with this process, including restructuring related redundancy costs, which are included in the items affecting comparability, while legal and other fees related to the split are included in our corporate overhead costs. If you turn to slide number three, you can see that sales were up 9% on organic basis, which marks the eighth consecutive quarter of organic growth of at least 5%. Our strategic decision to disrupt ourselves, transform our cost base, and reinvest the proceeds into digital content and products have clearly paid off. Our products and services are more relevant, available, and popular than ever before.
Our digital sales were up 76% in Q2 and accounted for 36% of total sales. Operating profits before items affecting comparability were up 12% and would've been up 19% if adjusted for the EUR 32 million of costs associated with the proposed split of MTG and the terminated merger agreement with TDC. The fact that we have continued to deliver sales and profit growth while at the same time making significant steps towards splitting MTG into two separate listed companies, demonstrate our clear vision, effective and differentiated strategy, and most importantly, an exceptional team of people who love what they are doing and are highly motivated. Moving to slide number four, you can see the group reported sales were up 18%, driven by the 9% organic sales growth, 4% currency, and the consolidation of InnoGames and Kongregate.
The very positive trend in the performance of our Nordic and International entertainment business continued into Q2, as both segments reported higher sales and profits. MTG Studios reported low organic sales and profits, but this primarily relates to timing differences in the production schedules and the forward pipeline looks promising. MTGx sales were up 25% on organic basis, and the EBITDA loss of SEK 19 million last year was turned into a SEK 34 million profit this year after the consolidation of InnoGames. I'll now hand the call over to you, Anders, for your comment on the Nordic Entertainment and MTG Studios business.
Thank you very much, Jørgen, and a very good morning to you all. I think it's fair to say that this has indeed been yet another eventful quarter. We have successfully launched our new NENT brand. We have set a number of both linear and streaming records, and we have acquired several key sports rights for the coming years. If you can please turn to slide number five. Nordic Entertainment sales were up 7% on an organic basis. I think this is again, a fairly impressive performance in a quarter where we last year delivered 8% growth. Comparison with last year makes the 7% very strong. The FIFA World Cup kicked off on rival channels. We have also seen this exceptional heat wave combined with the ongoing push reduction.
The outperformance was possible due to the continued growth in our streaming services, Viaplay and Viafree, as well as our very successful coverage of the Ice Hockey World Championships. In free TV and radio, sales were up 8% as a result of higher prices, continued double-digit growth in Viafree and our Swedish radio business. The rating boost that we received from the Ice Hockey World Championships delivered a lot of value to us as well. The final was viewed by 3.2 million people in Sweden, with TV3 reaching a daily audience share of more than 60%. Its highest ever share since 1994 when the measurements started. Also in Denmark, our TV3+ channel had its best quarter ever in terms of audience share. Viafree continued its double-digit growth, and the recently launched classic sports and food verticals has been a great success for us.
More unique viewers than ever, and then a more equal gender mix, adding to the reach of the Viafree product. The sports verticals that we launched in April enables users to watch selected live events, documentaries, magazine shows, and highlights from our unique range of sports rights free of charge. We have now started to actively push users to log in to Viafree, which will enable better targeting and also, very importantly, a better upsell potential to Viaplay. Our Swedish radio business has continued to deliver double-digit organic growth in favorable market conditions, with continued market share gains. The timing of this momentum is obviously very important, given the upcoming launch of the new radio licenses that starts August 1st. It will significantly increase our reach at a lower license cost than before and also significantly lower to that of our competitors.
Rix FM was awarded one of the three national licenses, we have now also announced the launch of Star FM, which is based on 18 regional licenses and will become the fourth national network. These are eight-year licenses, the total cost is close to SEK 400 million, this is an upfront investment that we'll be taking during Q3. For pay TV, our Nordic pay TV sales were up 11%, continuously driven by Viaplay as the main driver of growth as sports is leading the way. The Champions League coverage broke its unique viewer record four times during the quarter, driven by the fact that several English teams did well in the knockout stages. On the original side of things, our Viaplay originals continue to perform well with the latest, "Rig 45", being off to a flying start.
We have two new originals in production, "The Inner Circle", based on the novel by Per Schlingmann, and "Cold Courage", our first Finnish original series. During the quarter, we secured several key long-term exclusive sports rights, including an extension of the English Premier League. We acquired the German Bundesliga, the French Ligue 1, and the South American Copa América football. We also secured the world and the European Handball Championships and the European Champions League Cup. We also extended the Formula One motor racing rights. It is safe to say that we continue to be the undisputed home of the premium sports in the Nordic region. It is vital, of course, as sports and local content are and will remain our key USPs.
The profits in Nordic Entertainment were up seven percent to a new all-time high for the second quarter, this is now also the seventh consecutive quarter of profitable growth, which underlines the health and the potential of this business moving forward. If you please move to slide number six. MTG Studios sales were down 13% on an organic basis, as in Q1, we saw a decline in our scripted sales due to timing differences in the production schedules. However, the scripted pipeline and the order books looks very promising and is supported by a 40% increase in the number of signed development deals. I expect this trend to gradually reverse over the coming quarters. Non-scripted sales were also down as healthy growth in the Nordic region was offset by lower international sales with fewer productions of the "Survivor" formats.
Last quarter, I talked a lot about the opportunities I saw in accelerating our digital-first productions, this is one of the reasons why we have acquired the remaining shares in the Splay networks and merged Splay with Nice One to create SplayOne. This is a new type of digital storytelling provider with smart distribution and well-established influencer networks. Our ambition is to build a Nordic-branded entertainment powerhouse. More and more brands are looking to create a competitive edge and cut through the noise in an effective and relevant way, this is exactly what we want to help them to do with SplayOne. Profits were down slightly compared to last year, which is then primarily reflected as the consolidation of Splay. For the business that will make up the NENT Group, we are in great shape in very competitive markets.
We have demonstrated time and again that we can deliver profitable growth while continue to invest in the best content and deliver the best products. More and more of our sales are digital. We have the market-leading streaming content solutions with both Viaplay and Viafree. The NENT brand is launched, the company is set up, it's able to operate separately. We're looking at new ways to drive growth from both existing and adjacent products and services. That's it for my comments. Back to you.
Thank you, Anders. If I can ask you to go to slide number seven, you can see that the sales from the International Entertainment segment were up 7% on an organic basis. Profits were up 44% compared to last year. We have closed the divestment of Trace, leaving our Bulgarian business as the only remaining asset in the International Entertainment segment. We have signed an agreement to divest Nova Bulgaria, but the closure of the sale is taking longer than expected because we have a phase two regulatory review. We still feel comfortable that the deal and expect to receive an approval before the end of the year.
If you turn to slide number eight, you can see that MTG sales were up 25% on an organic basis and 63% on a reported basis. We have turned an EBITDA loss of SEK 19 million a year ago into a profit of SEK 34 million this year. Our esports business delivered 44% sales growth in the quarter. ESL revenue from owned and operated events were up over 60%. We welcome key new scale sponsorship partners such as DHL and AT&T. As you know, we're focusing on our owned and operated tournaments and leagues. This is where the long-term value lies in terms of revenue ownership, profitability potential. Owned and operated accounted for 67% of revenues in Q2 compared to 55% a year ago. ESL white label events revenues were therefore down. DreamHack sales were up over 60% after successful events in Marseille and Austin.
This was the first quarter with our new title sponsor, Corsair. We have also signed agreement with the new partners such as Cinemax and Invicta. Our esport losses were reduced slightly compared to Q1, but up compared to last year. There are three key reasons why ESL sales and profits fell a bit short of our expectations. Firstly, the mixed impact where we lost a couple of large white label events in the first half of the year, the biggest being "Madden." As I said before, we are much more focused on our own brands rather than work for hire. This has also led to some negative fixed cost absorption effects. Secondly, we launched two completely new owned and operated events this quarter, one in U.K. and one in Brazil. These investments are important to reach our long-term objective to keep ESL as a global esport mega brand.
We had 4 owned and operated events in the quarter compared to two last year, and for the remainder of the year, we had the same number as last year. We have strategically invested money into the booming battle royale segment of the gaming market. We are well-positioned given the events that ESL and DreamHack have both been running with PlayerUnknown's Battlegrounds or PUBG, and it is our ambition to become as strong here as we are in the first-person shooter segment. As always, there is still room for improvement, of course, which is why we launched the restructuring that we talked about briefly on the Q1 call. This program is meant to bring down our fixed cost and make sure that we focus our resources on ESL core strategic owned and operated, selected large games opportunities, and strategic product innovation.
We will outsource more of the functions that we feel are non-core, and we will also increasingly say no to business which we do not feel add long-term value so that we can invest our time and money where it matters. Looking forward for the remainder of the year, we expect limited esport sales growth in the second half as continued growth in the owned and operated segment is offset by the decline in white label and industry services. Given, of course, the tough comps last year, where we enjoyed 50% growth in Q3 and 80% growth in Q4. As a consequence of the measures we are taking, we then also expect losses to come down in the second half, but we do not expect the business to be profitable.
Moving on to online gaming, the combined sales for InnoGames and Kongregate were up approximately 10% on a pro forma basis. Forge of Empires recorded its highest daily revenue ever, but we had had relatively few game updates and events in the quarter combined with lower ROI on our advertisement. We are now carefully starting to ramp up our marketing for our new game, Warlords, ahead of the full commercial launch in Q3. Kongregate sales were stable in the quarter. Kongregate has a healthy pipeline, and we expect to launch between six and seven games in the second half. Zoomin.TV revenues were down 12% due to slowdown in the German and Brazilian content and advertising businesses. We have now acquired the remaining shares in the company, and we are working hard to transform Zoomin.TV from a traditional YouTube model into a broader content provider and branded entertainment creator.
Zoomin.TV is first and foremost a Gen Z entertainment company, but also a fantastic global marketing vehicle for our esport and our gaming businesses. To sum up, on MTGx, Q2 was the third consecutive quarter of EBITDA profits. Our esport business again grew sales around its owned and operated tournaments, and we refocused away from less profitable and value-creating third-party white label events. Growth will be limited in the second half of the year given the tough comps and while we make this transition in product mix. Losses are gradually coming down, and we will be further reducing during the second half of the year as we continue to restructure the cost base to reduce fixed costs. Importantly, we are investing to make sure we are taking the leading position in the battle royale segment, just as we have done successfully in the past with the first-person shooter segment.
Online gaming business has continued to deliver higher margins than expected, and we expect the growth rate to pick up in the second half as both InnoGames and Kongregate launch new games. We now have full control of Zoomin.TV, and we are working to transform the business, but this will take time. That concludes my comments. I will now hand the call over to you, Maria, for your comments.
Thank you, Jørgen, and good morning, everyone. If you please turn to slide nine. Reported sales were up 18% in the quarter. This included a 9% organic growth and a 6% contribution from acquired businesses, primarily driven by the consolidation of InnoGames and Kongregate. The current impact was a positive 4% in the quarter. Operating income before items affecting comparability was up 12% compared to last year. Our entertainment businesses of InnoGames continue to be the key profit drivers. Q2 was burdened by €32 million of transaction costs. Items affecting comparability totaled a negative €13 million and included a net gain from the trades in the Zoomin.TV transaction, which were then more than offset by the restructuring cost in ESL, which Jørgen just talked about, and [then hence] relating to redundancy costs in relation to the formation of the new leadership team.
If you please turn to slide 10. Net cash flow from the operations were up 20% in the quarter, but were broadly stable compared to last year for the first half of the year, reflecting the working capital buildup in Q1 this year. Our net debt increased to SEK 2.3 billion, which corresponds to 1.3 times trailing 12-month EBITDA before items affecting comparability. Remember that we have paid out our highest dividend ever during the quarter, and that we are yet to receive the payment for our shares in Nova, which amounts to approximately SEK 1.7 billion.
That's it for my comments, and back to you, Jørgen.
Thank you, Maria. If I can ask you to turn to slide 11, just to sum up, where you can see we delivered 9% organic growth and 12% profit growth, meaning that the strong momentum we have seen for quite some time now continued into Q2. Our Nordic Entertainment business performed very well against very difficult comparisons, which was again driven by our market-leading streaming positions. MTGx reported healthy organic sales growth and was EBITDA profitable for the third consecutive quarter. We have made material progress in our preparation for the split of MTG into two separate listed companies. The process has been slightly delayed following Kinnevik's decision to distribute its MTG shares to its shareholders, we remain committed to the split and convinced that it will drive further growth and shareholder value for both businesses. 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 your 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 Victor Höglund from SEB. Please go ahead.
Good morning, thanks for taking my question. One question here on Nordic Entertainment Group. You mentioned costs in Q3 related to content, I think it was. My line was a bit bad. Can you just repeat what you said and explain that a bit? That would be great. Then for Jørgen, I suppose, on esports here and InnoGames. On the esports parts, what is it really you are saying for the second half here? How should we think about that? Then when white label mix and everything is back to levels you want in 2019, what kind of growth levels do you expect to see then for esports? If it's back to the 30%, 40% growth or has something happened that makes you want to take down expectations on that?
For InnoGames, do you expect growth to improve from Q3 and ahead, or is that too early? Thank you.
I think we need to Anders, I have a question to Anders. The line at our place was a bit bad as well. I'm sorry. Could you repeat the question to Anders?
Yeah, that was a comment you made in the beginning where my line was bad on costs from Q3 and onwards related to auctions you won, I suppose. Can you just repeat what you said and explain a bit how we should think about that?
Yeah, we were talking about the radio licenses, Victor. We acquired the national license and a number of regional licenses in Sweden, and the total cost for that was the SEK 400 million cost that we will take in Q3. It covers the coming eight years of national licenses also.
Okay, perfect.
Just to clarify that is a cash effect that we will see there, not a cost effect in change increase. There can be three, there's a cash effect, and then the license is once over eight years.
Okay.
One important addition to that, Victor, to keep in mind is that we acquired these licenses at significantly lower cost than competition. Our cost per year, the coming eight years, despite this significantly improved position, is lower than what we've had historically. It's a pure cash effect, and it's a strong platform for us the coming eight years.
Perfect.
On the InnoGames part and the gaming part, I think we would like to see increased growth in the second half. As we said, we are launching Warlords in the third quarter, and we're also having six or seven new games coming out of Kongregate. There we would like to see increased revenue growth, of course. On the esports side, what we have said all the time is, of course, that we would make sure that we focus on long-term valuable partnerships. That is what we see in this owned and operated, which is quite different from being just a production company. What we see, and please bear in mind, we are still in July, and there is some time before the second half ends.
What we can see right now is that we will see double-digit growth, we think, in our owned and operated. That is the events. We'll have the same amount of events, but obviously on the back of the sponsorship and media deals and so forth we have done, we do see double-digit growth on that. We will see decline in the white labels as well, and we have lost events. I can give you an example that there's two events which we have lost, which is quite a significant loss as well. Again, a decision in all fairness, where we are saying that we don't want to facilitate these loss-making events going forward, and we see strong competition as well in the white label. Where we are unique is, of course, in the owned and operated. That is where our focus lies.
Not to forget, obviously, that we had very strong growth last year. We were 80% in Q4. Still happy about the owned and operated performance, and that is where we also put our investments as well. I also mentioned the battle royale genre, and that is interesting for us as well to continue to invest in. As you know, PUBG and Fortnite and others in that genre has done extremely well within a very short time, and of course, we want to take part of that. As I also said, we already have a strong relationship with the PUBG guys, both in DreamHack and then also in ESL. That is how we look at the second half right now.
Okay. Just moving a bit over to 2019, I understand you don't want to give a guidance or anything like that, if you think about The things you say now with white label coming down, events are gone, that would be like for like in 2019. What kind of underlying growth rates are you seeing? Is it in line with the market growth, 30 something, or is it less than that? How do you view your position into 2019 versus the market and what kind of growth that can-
I think that the ambition is, of course, to continue this owned and operated, and that is, as I said earlier, where we see a lot of interest from sponsors and medias and so forth. That is where we see the great potential. Also, if you look at the value drivers forecasted by Newzoo and the guys for the next three years, it is in that segment, is the sponsorship and media rights, where we should see the biggest growth rates. At this stage, we don't guide for 2019. I think the three-year horizon CAGR from 2019 to 2021 is something around plus 20%, something like that. That is what we'll be looking at in terms of market growth. Again, we are growing our owned and operated, and that is where we can monetize on media rights and sponsorship and so forth, and stronger partnership.
That is the key important for us, which we have said all the time. We have now managed to get some of the loss-making products out, and [audio distortion] also lost some of the white label, which is quite important. We are not happy about that, of course, we did decide not to move on at low prices.
Okay. Thank you.
We will now take our next question from Mikael Laséen from Carnegie. Please go ahead.
Yes, hi. Good morning. I also had a question regarding ESL. Can you say something about the cost that you had this quarter restructuring charges? SEK 101 million for NENT and ESL, what you have done.
Hi. Yes. We had two restructuring costs, one for ESL. We had things to slide about in Q1 as well. It's about resetting the organization based on our strategic focus. In total, we took SEK 48 million charges. It relates to roughly taking down positions, over 90 different positions in the company, and it's about resetting the organization in that sense. You should expect, of course, that to help drive the fixed cost base down in the second half of the year. When it comes to NENT, what we've been doing there is, I think you've seen, we set the new management team in place. We're therefore also restructuring the local organization, and by doing that, we have a one-off cost in the quarter. Those are the two costs adding up to SEK 101 million.
Okay. It's only ESL that you have done these changes for, nothing for NENT?
No, it's additional. To make up for the SEK 101, we also had SEK 53 million of charges for NENT. It is a combined SEK 101.
Okay. Good. Just to clarify what you mean with limited growth, is it 5%, 10% for the second half for esports?
I said, it is still early in all that. I think if we're talking about double-digit growth, which we do expect in our owned and operated, the important part for us, we will have negative growth in the white label. That is what we're seeing right now. In some of the content deals that we had last year, we will not have this year. Of course, they were not giving us anything. It will be single-digit as we see right now. Again, please, it is early, and of course, you do have, hopefully orders out and hopefully you will get more.
As we see right now, what we can see is, of course, the media deals we have, the sponsorship deals we have, and so forth, which relates to the owned and operated, and we then also can see that we have lower ingoing on white label. I think it will be some round, whatever, single-digit, and then bear in mind that we had a super strong Q4 last year with 80% growth.
Okay. How much of ESL's revenues is coming from white label, approximately?
That we haven't given, I can tell you that we see the owned and operated in the quarter is up 60%, and also that 67% of the revenue in the quarter comes from owned and operated. Then obviously leaves the bucket of the rest, which will then be a third, something like that, where you have the white label solutions. You have also what we call industry services, where you have a lot of round with different events and so forth. Around a third of the revenue where owned and operated stands from now 67%. Remember, when we acquired the company, I think the owned and operated was 30%, and we were basically a production company. Obviously what we saw was that a range of the revenue streams were not developed, and that is what we have developed now.
We have changed that trend completely now, which we're happy about, that we see owned and operated growing, and we see the white label, the production things goes down. We want to do white label, but when it makes sense strategically, meaning that we also then can convert them into being an owned and operated partner going forward. That is, of course, the ambition that we are having. That is how we see the revenue mix.
Okay. Thank you. My final question is regarding a competitor here and Telia or partner, maybe Telia potential acquisition of the TV4 group, Bonnier Broadcasting, C More. What is your view on that and the implications for Nordic Entertainment? Can you say something about that, please?
Anders, I reckon you have a view on that?
I think it's hypothetical because there is no presentation of a deal yet, of course. I receive this question many times, my answer sort of remains the same. We conduct our business indifferent of who owns what. We consider both these two companies that is now in the limelight of this discussion, Bonnier Broadcasting and Telia, as our partners. We hope to continue to develop that partnership with both of them. If and when something happens with the transaction and they present a new strategy, we have something concrete that we can actually comment on. Currently, it would be pure speculation, I would prefer not to add to the speculations.
All right. Fair enough. Thank you.
We will now take our next question from Martin Arnell from DNB. Please go ahead.
Yes. Good morning, everyone. My question is firstly on this lowered communication for MTGx. You touched a lot on it already, but I'm just trying to understand what's changed incrementally here from the start of the year in Q1. You're talking about this white labeling. I understand that, but that was also an issue before, and the number of events in the second half of the year, is that something that you didn't know before, or could you just help me to understand what's the incremental change from when you reported the Q1 numbers? Thank you.
Yeah. I think we have said all the time that we have the transformation of the focus. We want to make sure that we capture the future growth. That lies in the media partner deals and also in the sponsorship. That is what we have been focusing on. What we have seen then is that we have lost content deals as well. In the second half, there's a content deal which we had the first half last year, which is not materializing in the second half. That part has changed. We didn't get a prolongation. We have lost a fairly big white label solution, white label contract as well. It was quite big, or lost but decided not to go to those levels. That has obviously impact on the second half.
What we have seen as well, as a consequence of this battle royale genre products being much stronger. It also has an impact, of course, on our subscription business in SEA, where we are having in the Counter-Strike product. We are seeing lower revenue in our subscription business in SEA due to the fact that we see more people are playing obviously PUBG and then Fortnite, and we see an impact on that on our Counter-Strike product. It's a mix of things, which you have seen throughout the year. I think, again, quite important to see is if you compare Q2 2017 to Q2 2018, you see a range of new sponsors. That's important. You see a range of new media deals. That's important.
It is a very competitive white label market because that is probably where most people can produce an event eventually, but they can't deliver what we're delivering on the owned and operated, and that is where we going forward see more value instead of just being a production company. A combination of less white label, a combination of lost original programming, content, which was a bigger deal, that is why we see lower revenue growth. Again, we had an 80% growth in Q4, and that is something to mention, to be fair. Good news.
Yeah
is that when we look at the pipeline right now for our owned and operated second half, we see double-digit growth on the back of the long-term partnerships that we have with media companies and the sponsors and so forth, which is our focus area.
Okay, great. Thanks for clarifying that.
No problem.
These white label deals, I understand you exited them. These content deals that you lost, can you add any flavor why you lost them?
Because they were not good enough, the partner didn't want to belong. In all fairness, it was not that profitable either, to be clear, that content part as well. It was quite a sizable deal, in all fairness. Whatever, this is part of the new regime, meaning that we would like to make sure that the revenue we are having, we can see long-term it can deliver value, it can deliver profit. Again, we're not going away from white label. We are just making sure that the white label productions we are making, those white label production, we need to be able to see that they can one day be an owned and operated.
We would love to show, which we are doing, we have some 30 publishers, IP owners who we are working with. Hopefully we can demonstrate for them that their game can not just be a white label production one-off, but can actually grow into be a big global tournament with us. We can facilitate that with the media deals we're having, the sponsorship deals we are having, and so forth. Where we can see an opportunity for a white label to be transformed, we will take that. We will not make losses on a white label deal just to get a deal. That is you have seen us doing since we acquired the company. As I said earlier, 30% of the revenue came from owned and operated when we acquired the company, 70% was production, now that has reversed completely.
It is 70% coming from owned and operated, or in this quarter, 67%.
Do you think that you will be able to be at growth on white labeling for the next year?
That is not the focus. The focus is to go owned and operated. The focus is when we see news, when we see the forecast for the revenue streams, then we do see that sponsorship and media rights are the ones which should be growing. These partnerships should be the ones to be growing. Yes, hopefully we are a credible, strong white label partner, and we will continue to have that strategic view that the white label, which makes sense long-term, we will continue to do. We will not say no to that, obviously, and we also are ready to lose money on a white label in theory, if we can see long-term that it will give us something on owned and operated. If we need to show the partner that we are something unique, we are ready to take that bet.
Right now we are taking a lot of bets also with the Battle Royale channel, where we are going out and we are posing a lot with PUBG. We have a lot of [audio distortion] events. We had the PUBG and the [Castle Beach] event. We have PUBG coming up now. We were producing as well the PUBG Global Invitational, which then had a final in connection to [Castle Beach] itself. There is a lot of investment being made there, which is quite important, and that over time hopefully should bring strong revenue and profit to us.
Yeah, just a final question on this Esports. When you think about expansion for the next years, just so we get a feel for how many events we should be expecting next year, owned and operated, are you targeting any new big markets right now, or have you paused that sort of expansion journey?
No, we have not paused the expansion. I think, first of all, in the second half of the year, we expect the same amount of events that we had last year. That is what we are looking at right now. The next year, I will say as well on the owned and operated side, without having the full calendar out, we expect the same amount of owned and operated as it looks right now. Good news is, obviously, that we have revenue attached to these owned and operated, as I said as well, these long-term partnerships we are having with sponsors and media rights and so forth. I think it's quite important that we are optimizing, we are making sure that the business we are creating is long-term sustainable.
What we don't want to create is to continue to have some historical productions which we cannot see materialize going forward in owned and operated. It's also why we changed a lot of people now as well, also with original programming, that we want to make sure that we are getting paid well for the original program, just like we have done historically with our production companies. If that is not the case, we don't produce it. It may have given us revenue, but it definitely also gave us cost and losses. That is what's changed in all fairness, the good news is, as I said earlier, that the owned operated will grow double digits as we see it right now in the second half.
Okay, thanks a lot for that.
We will now take our next question from Henrik Nilsson from Nordea. Please go ahead.
Hi, good morning, thank you for taking my questions. Staying with the Esports business, the partnership with Facebook seems to not really have been applauded by the gaming community that much. What have you done in order to improve the experience, what are the trends you've seen during the quarter, and if possible, also now in July? Thank you.
No, you're right. I think we had a fairly tough start if you look at the communities and also the UI experience and so forth. That's something obviously we are working with them about. Facebook is a fantastic partner for us, it's a fantastic partner for the score. Obviously, with their global reach, with their marketing opportunities, it's a very important partner, what we will continue to do is, of course, to explore even further opportunities with Facebook. The relationship or the partnership or the communities, I think, is more happy as it is right now.
As you know, those products moved away from Twitch, it was with YouTube, which also was very successful, Facebook obviously had a very good plan on how to increase the reach and the relevance of those probably even further, that is what they are delivering to us as well. We are happy with the partnership. You're absolutely right, the start we had was not what we had expected, so that we have enhanced.
The lowered guidance for the second half here, should we not interpret as having anything to do with this partnership being?
I think it is.
having a.
It's quite important here when we talk about the second half. The second half is a consequence of us saying yes or saying no to more of the deals which are not profitable. What we also have said for the second quarter, which you need to bear in mind, is that we will have lower losses than the second half last year. That, of course, must be then a consequence that the revenue we get in, if it is not growing that much as we are saying, will be good revenue. That is, of course, the journey we are, as I've said. Again, it is a pure focus matter. Whatever, I probably could produce for the whole world, esports on a white label solution and pay the bill, but that we don't want to do.
We want to invest with the people and the games which we long-term can see can be transformed into an owned and operated.
I understand. Just to understand the mix effects here going forward, I don't know if it is possible at all to split out the profitability of the owned and operated versus the white label, or at least give a comment on where it stands relative to the current average of the profitability.
We cannot do that. Of course, the white label, as you have heard me say sometimes, white label is to a large extent a fixed margin. Obviously those should be profitable, those white labels, if we would engage with them, or they are loss-making because they make strategic sense for us, that we can transform them into an owned and operated. Therefore it is a mixed bag, but you will see that the white label that we do to a large extent should give us a positive contribution. We have the exceptions in the battle royale genre and other places where we want to invest in order to make sure that we become as important in the battle royale genre as we are in the first-person shooter genre. I think that is quite important. It is a mixed bag.
It's a bit difficult to give you some variation on this.
I fully understand. There were some talks about the restructuring cost as well. Part of that is related to ESL. How do you view now the setup and organization in ESL and I guess specifically to owned and operated, if that is where the future is. In terms of structural cost, do you have the organization in place that you need to drive this going forward in the near term? Do you have a lot more investment need to be able to support the growth?
Yeah. It's a tough question. Obviously, we have a lot of strong new people on board. I think what we are missing right now is some key executive positions. We just got a new CFO on board. We have operating officer in David and so forth. The 92 position is a consequence of us, as I also said earlier in my speech, is a consequence as well of us having lower fixed cost base and outsourcing more. Three years ago, it might be people thought it was a USP to be able to produce something. I think we see particularly now that more production companies and others can actually produce. We don't need to have 100 people internally who can produce stuff, that we can rent outside. We need people internally who can create super strong relevant stories, tournaments, sponsorship offers, and so forth.
These are the people we are focusing on. You will see more optimization here and there and shifts in competence and so forth, like you have seen in all our other businesses. Well, that is an ongoing journey. I think this one was a bigger one, where we definitely wanted to make sure that we didn't have a fixed cost base in something around white label and other places which we didn't find that strategic and important as such, and rather go out and rent equipment, if we are, whatever, do something in South Africa instead of flying 100 people to South Africa. Like we have done when we are producing home sports event around the world. It's not that Anders, he takes a Boeing and fly all the people around the world to produce something. You also use local equipment and so forth.
That is just optimizing the models around it.
Okay. Thank you. One or two last questions from me. You mentioned that Splay were weighing on the results in Studios. If I heard you correctly, it is the entire explanation of the decline in Studios. Splay is obviously then loss-making. What are you doing to improve on that, and what do you think the outlook to manage to improve it is?
Well, on Studios, the decline that you see is a combination of the constellation of Splay into Studios and also the fact that we have some calendar effects with more productions kicking in where we get paid later on. As I mentioned, we have a very strong order book with 40% up also in development, so it looks very promising. There is a shift in the market from non-scripted to scripted that we are capitalizing on and building a lot of capacity up on. That is what you're seeing. On Splay, the merger between Splay and Nice One, creating SplayOne allows us to benefit from two sort of distinct competencies in one organization, that will yield both some sales opportunities going forward, but also obviously some efficiency measures in the fact that we merged two organizations.
The impact from Splay, I would argue, is a one-off. There is a delay in terms of the productions, I'm quite sort of optimistic about the outlook for Studios.
Okay. Very good. Thank you.
Again, as a reminder, to ask a question today, please press star one. We will now take our next question from Yulia Matsenko from Morgan Stanley. Please go ahead.
Hi. Good morning. Thank you for taking my question. I do apologize, I missed in the beginning of call due to technical issues. Could I just confirm with you timing of split and what is the reason behind the delay? That is my first question. Then the second question on advertising outlook in Nordic Entertainment. I also wanted to confirm when is the next price negotiation takes place on CPM. Then I will follow up with a question on esports. Thank you.
When you're talking about the split, I think as you know, Kinnevik had an EGM where they have distributed their shares to their shareholders. That has meant at the same time that we have put our IPO on pause for a short period, meaning that we wanted to make sure that we were to engage with our new shareholders to make sure that they understood the strategic rationale behind the split, which we support and I think they will support as well. That is just to make sure that everybody is on the same page. That is what we have said that we are postponing it. I think the next window will be March, I think, where we can deliver a full For the result will be presented full [quarter] and full year result. That is the next window. Nothing has changed.
We definitely believe that there's a very strong rationale for creating those two equity stories or to enhance those two equity stories. That is also which we have said, where you were not then on the call, something we have worked hard on. Actually, the NENT management, the NENT company, is working completely on a standalone basis now, like the NENT companies are doing. The company has been split, you can argue. We just want to be mindful that we get all shareholders on board. I think that is fair, to be prudent and make sure we articulate our story to them. Then we have the next window coming up in March. I think that was on the split and I think that was.
Yeah. Your question is on the ad sales markets. Overall, the ad sales markets for the Nordics are looking quite strong. We delivered double-digit growth in our advertising video-on-demand platform. That combined with price increases is compensating for the decline that you see in traditional linear viewing. Combined, that is a very strong development. In addition to that, we see strong development in radio, particularly in Sweden. Ad sales is looking fairly strong. Good demand. It's a matter of having the right mix, where the reach is delivered by TV and the growth is delivered by AVOD and now also radio. We will negotiate the next round of yearly contracts early next year. The discussions typically start towards the end of this year.
We are in a strong position, very much driven also by the recently acquired strong sports assets, where handball is a very strong free-to-air asset that we will capitalize significantly on in both Sweden and in Norway. Overall, the ad sales business as a portfolio is looking quite strong.
Great. Thank you very much for this. In terms of esports, you mentioned a battle royale trend. Is there a reason behind InnoGame's poor performance? That's the first question. The second one, I was just wondering, you are doing a lot of things for PUBG. Are you going to do anything for Fortnite as well? It's a growth segment. People are quite keen to see it in a sales portfolio. Thank you.
Yeah, I don't think that the performance in InnoGames have anything to do in all fairness with the battle royale. I think InnoGames, as we have said, the performance there is strong. We have had issues when it comes to return on investment on some of the campaigns, and we have not launched that many new games updates either. Now we will then have Warlords coming into Q3, and that we have full marketing launch now. Hopefully that will enhance also InnoGames performance. When you talk about the battle royale genre and Fortnite and so forth, of course, we think that is very interesting. Of course, you have dialogue with them and others in that genre. PUBG, of course, is proof of the pudding with all the events that we have done with them. That we continue to explore.
Of course, we will have conversations with everybody in the battle royale genre as well. As I stated, we would like to be as strong in that genre as we are in the first shooter segment.
Thank you. The last question from me, please. Any guidance on esports profitability? Esports is not going to be profitable in the second half of 2018. Do you expect to see it turning profitable in 2019? Thank you.
As you say, when we see right now and the mix we're having right now for 2018 second half, obviously, it would be lower losses, as we have said. That is also a consequence of the change that we have been doing for quite some time, we're not guiding on any financials for 2019.
Great. Thanks a lot.
We will now take our next question from Martin Arnell from DNB. Please go ahead.
Yeah, just a question to you, Anders. If you could say something about the price inflation in the new Premiership contract that you recently announced, are you still thinking that viewingship of the Premier League football will increase in the Nordics this year and in the coming years?
There was inflation. As you know, we don't give the exact numbers. The inflation was within sort of the business case range that we carefully calculated, we still deem it a very strong rise at the price that is still relevant. Is there still growth? Yes. Let me put it like this. If you take sort of Viaplay as a complete proposition, of which Premier League is one very key asset, the penetration on an aggregate basis across Nordics es port services per household is hovering around 50%. You can then argue that the coming years, that number will increase significantly. A good part of that will be the combination of TV movie series and sports.
Yes, there is still growth to be driven in esport and having a very strong proposition, including the Premier League, puts us in the pole position to take a more than fair share of that market share to be sort of handed out the coming years. Yes, making sure that you have sort of a balanced and very strong sports portfolio, making sure that you set your propositions right on all the Hollywood content, then add originals to that. That we believe and continuously believe very strongly is the right thing to do to drive streaming service growth for us going forward. It's looking very promising.
Okay, thanks a lot.
That will conclude today's question and answer session. I will now hand the call back to Jørgen Lindemann for his closing remarks.
Thank you all for your time today. We will announce our Q3 results on October 23rd and hope to see as many of you before then. We also look forward to keeping you up to date with our further progress on the split of MTG. Thank you for your continued interest in MTG, and I wish you all a great summer. Thank you.
That concludes today's conference call. Thank you for your participation. You may now disconnect.