Thank you, operator, and good morning, everyone. Q3 has been another quarter of profitable growth for FTG with sales up 12% at constant exchange rates and EBIT, excluding associates, up 32%. The 5% organic growth that we have been able to deliver despite some advertising markets across our territories reflects the benefit of our operating structure and model as we combine cyclical advertising revenues with pay TV subscription sales and scaled content production with fast growing online operations. We are We are the video entertainment business and consumption of video entertainment is growing. We are capitalizing on this growth by understanding and investing in the changes in consumer behavior and the shift from offline linear experience to multi screen on demand viewing in particular.
These changes are nothing new for us, but they are accelerating and the fact that we have been able to grow the sales and profits for our combined Nordic Free and Pay businesses by 7% and 11% respectively shows the strength of our integrated business model as lower linear free TV POP levels has been offset in revenue terms by growing video on demand revenues from our Buyer Play and Bell TV catch up services. On a group wide basis, our online advertising sales have more than doubled and ViaPlay has only ever sold more subscriptions in 2 other quarters, one of which was during the Olympics earlier this year. The profit growth also demonstrates that we are constantly adjusting our cost base and investment levels in order to ensure that we maximize the earnings in our traditional businesses, so we can invest in our future growth. Our aim is to be the leading digital entertainment company in each of our markets and to shape the future of entertainment for our consumers and customers by providing the very best possible products. Now before we get into the different business area performances, I would like to address the amendment to the Russian March Media Law, which have now been enacted.
These amendments will reduce the committed level of aggregate foreign ownership of Russian mass media from 50% direct ownership to 20% direct or indirect ownership or control from the beginning of 2016. It's a complex situation and affects our shareholding in CVC Media, the Radicle satellite platform and our MiniPay channel business. CDC is, as you know, an American company that owns Russian legal entities, so that is the first issue. Furthermore, the American company is listed on NASDAQ and owned by a wide range of international investors, including MTG. As you can read from CTC corporate announcement, CTC is evaluating the actions it can take in order to comply with the law and to preserve shareholders' interest and has formed an advisory committee of 3 non executive board members to work considering all of our alternatives for our Russian operations and investments.
It is too early at this stage to predict the outcome for each business and what action we will take, but we are identifying and evaluating the alternatives available to us in order to comply with the law. We have built up these entertainment businesses in Russia since 2000 and the channels are some of the most watched Russia. So we will do all we can to preserve the interest of all our stakeholders. This is a tough situation for everyone and clearly not one that we or anyone else would have anticipated. And so this is where we are, and please accept that we are doing all that we can to arrive at a workable solution in these far from ideal circumstances.
I wanted to deal with this upfront so that you can see where we are and what we can say. We do not have any further comments at this stage. We will come back with more information to all of you as soon as we are in the position to do so. I will now briefly review the performance of our businesses before we take your questions. So let me start with Scandinavian 3 gs operations where sales were down 1% at constant exchange rates and profit were up slightly.
Our sales were up in Norway and Denmark in stable markets, while our sales were down in a declining market in Sweden. The commercial pot levels, people using television linear
viewing, has continued to decline, especially in
Sweden, and this is happening in a number of markets. This result in a sold out situation for our channels, which is what we are seeing. As we discussed previously, there is a clear historic correlation between pot and price levels, especially given TV's position as very effective and only national 80% reach meter, delivering predictable and large prime time audiences at attractive CPTs. It is a supply and demand creation, but there is a time that induces annual agreement market structures. We will soon begin the upfront negotiations for next year and our rate cards will show price increases due to the strong demand for TV advertisement.
In addition, our Panscan and AVOD sales were up 83%, and we have continued to add new digital products, including formats from Disney's maker studio, multi channel network, that is the home to global stars like PewDiePie, the web TV advertising market is currently projected to grow by further 40% in Sweden and Norway in 2015. The Scandinavian advertising markets are soft as we head into Q4, and we continue to expect full year OpEx at constant exchange rates to be up low to mid single digit percentage points when including the Olympics. If we then move over to the Nordic Pay TV business where revenue was up 8%, account exchange rates and profits were up 19%. Wireplay is a principal growth driver here. And as I mentioned earlier, just recorded its 3rd biggest ever quarter in terms of customer added.
Q3 was also the 2nd biggest ever quarter for ViaPay in terms of absolute year on year sales growth, wholly beaten by the Olympics quarter earlier this year. We have continued to build on this strength by adding even more exclusive content this quarter. Most important was the extension of our broad based relationship with Viacom to now include Nickelodeon Kids content on an exclusive basis. We used to share these rights with Netflix, but it's not the case anymore. We now have them exclusively.
Fireplay is now the clear number 1 in this key kids genre with both Nickelodeon and Disney content. To give you a feel for the impact, the number of starter streams for kids and family and animated content at biothree tripled this month compared to October last year. Moving away from bioplay, our combined satellite and third party premium subscriber base was stable quarter on quarter. Our operating margin increased to 13% and our profits were up for the 3rd consecutive quarter. If we look forward, we will push hard with our bioplane marketing in the Q4 given the momentum and addition of the new content as Bayer placed clear number 1 when it comes to sports, movies and now also kids content.
We still retain our previous outlook for a higher full year when compared to last year. Shifting the focus now from the Nordy to the international operations, our free to be emerging market sales were down 1% at constant exchange rates and reflect the balance between double digit constant exchange rate growth in Baltics and Bulgaria, which was offset by the 11% decline in the Czech Republic due to tough comps and the highly competitive ongoing market environment. The OpEx increased following the launch in Tanzania and the consolidation of Netinfu, the market leading online business in Bulgaria. Segment losses, therefore, increased in the quarter. Moving forward, remember that NetInfo is in the Bulgarian year of year comps for Q4, so the growth rate will come down.
The policy should continue to perform well, but we do expect Czech sales to be down again and further impacted by our effective sold out position in the market. Cost for the segment should also be down year on year as comps ease in Q4. The Czech comps should ease next year and please remember that our Q3 year to date sales in Czech Republic are still well above 2012 levels. And now to our Pay TV operations in the emerging markets where sales were up 25% at constant exchange rates and primarily driven by the consolidation of Tres. The organic growth was 5% and was driven by the mini paid channel business, which now includes Trex.
The total number of subscriptions has therefore now increased to 131,000,000 in 139 countries. Segment profits were up despite material currency headwinds and primarily reflected the consolidation of trade. The Russian advertising ban on pay TV channels takes effect from the beginning of next year. As stated before, our Russian advertising sales totaled to SEK103 1,000,000 in 20.13, and we expect the negative EBIT impact of the change to be approximately half of this year's ad sales. The full impact would be seen in 2015, but we are already feeling the impact now in Q4 this year as advertisers start to prepare for the upcoming change.
We do expect Q4 profits to be down due to both this and the impact of the investments that we are making in the expansion of the Tracing Mobile Entertainment Services in Africa. And finally, to NICE Entertainment, NTTX, NTT Radio, where sales almost doubled at constant exchange rates following the consolidation of NICE. Sales were up 35% on an organic basis and reflected the growth in both our content and radio business. The quarterly highlight included 3 major driver productions by Strix. MT and E continues to develop according to plan and facilitate our digital development across the group, and the significant EBIT swing to profits reflect the improvement in profitability in the range operations in Sweden and Norway and higher profits for the Nice Group.
So in summary, it was the 2nd consecutive quarter of profitable growth. This demonstrates that the investments we have made are paying off and that we have the right set off to capitalize on the changing consumer trends seen across our markets. This is also what lay behind our corporate rebrand that we announced at the beginning of this month. We are migrating our business and our new identity, our mission statement, vision and values all reflect this. We are a diverse organization and we thrive on that.
We embrace changes. There is plenty of it at the moment. So it is all about keeping focused, doing what we love and bringing people closer to the products and experiences that they love. Finally, our strong balance sheet with attractive and diversified funding structures provide us with the platform for further investments and shareholder returns in order to create long term shareholder value. This flexibility will now have increased further after the quarter following the early redemption of the DKK 250,000,000 CDR Group convertible bond, which was announced yesterday by CDR.
That concludes our comments on the results, and we will now be happy to answer your questions. We have a lot of people on the call today and we want to answer each of your questions. So to allow time, please limit yourself to more than 2 short questions each. Operator, can we have the first question, please?
Thank you, sir. Ladies and gentlemen, we are now ready to First question comes from Stefan Nelson from SEB. Please go ahead. Your line is open.
Thank you. Hi, Jorgen, Matthias.
Just like
to focus my questions on the cost side. Regarding free to Air Scandinavia, you have I think you talked about that last quarter that you are a bit more cautious on costs. But at the same time now you've lost a bit of market shares in Sweden quite a lot. So how do you see this going forward in order to regain your shares?
Stefan, there's nothing really different compared to what we stated before. I think we're as you've seen this year, we are trying to increase the efficiency of the spend that we're doing. And you've seen us improving that efficiency a little bit throughout this year, and I think that's what we're going to try to continue to do. So there is no fundamental change from what how we've been operating, I think, throughout this year.
Okay. But maybe you could give us some more flavor in that case on how to turn around the free TV audience share, because obviously, prices go up, it doesn't help you much if your ratings continue to decline.
No, Jurgen, I completely agree with you. And of course, without saying that if you look at the Q3 performance, performance, it is something in Sweden, in particular, that we are focused on. Of course, you can see Denmark is doing somewhat good. You can also see that Tier TD6 actually did better. Now this quarter had a good quarter.
But it is a focus area and it is a lot about making sure that we get the returns on the investments that we do in Programme. And now as you can see as well, we have changed the setup and we have a new guy in and who's looking at particularly, of revenue through Sweden with fresh eyes. So that is the post area right now.
Okay. But should we expect kind of OpEx for free to air to go up more next year because you want to regain market shares now that you're also raising prices?
I think what we're trying to say is that primarily it's not the cost issue and investment issue, it's an efficiency issue of what we already spent. But from guidance on cost development, we regret for doing that as well.
Okay, fine. My second question regarding also on the cost on the margin side for PayTV. I mean, you're growing solidly now. At the same time, we're not seeing that much operating leverage. So kind of could you give us a should we continue to see your spending program increase so much that even if you continue to grow, we should not really expect any margin expansion from here?
I think what we're trying to explain is that we there is a very highly competitive market out there and there's a lot of competition and the board. So we do expect to be able to continue to invest in growing the profits and growing the business. And that could and how that translates into the margin, that's still a bit early to say right now. That's something we are looking at right now in the budget process, for example. But I don't think we should anyone should really expect a sharp increase in margin, if that's what you're asking, given the competitive landscape we have right now.
I'm just a bit concerned because you signed a lot of deals, not listed that impact your P and L as of 2013. I'm just seeing a scenario where a lot some of these deals expire in 2016 and then we'll see another hit to the margins from where you are today kind of including new Premier League rights if you get them. If you could elaborate just on that, I mean, if you see that this could be the case
in 3 year cycles? The view we have right now is, I think it's the underlying business is doing really well. But I think we are continuously reinvesting a lot of that into the new products and the new businesses. And the balance there, how that comes out, that is very difficult to predict because it's not entirely up to us. So but I don't think that we have any major cost inflation items on the existing products that we see coming up going forward.
Okay. Thanks. That is some flavor. Thank you.
We take our next question from Nishi Yang of Goldman Sachs.
My first question is on free to ask Canyon. Can you help us understand the impact of the decline in linear viewing that you're talking about? Maybe you quantify the impact in Q3. And should we expect a similar impact in Q4 given you're not able to raise prices, so revenue growth of about flat to slightly down? And for next year, I mean, do you think that the price rises will be high enough and most of all sustainable in order to offset the decline?
Because it does look like it's just a secular trend in Scandinavia now. So that's my first question.
Yes. I think when you look at the pot level and also which we discussed last time last quarter, then it differs from country to country. Now Sweden, you see that Sweden has been affected quite heavily by a pot level decline this quarter and last quarter as well. But what you see is then that Norway, for instance, in commercial part is increasing in Norway. So it is very different from market to market.
I think the conclusion is that also from what we have seen in Denmark, where we last year saw a decrease in product levels, but truly better this year, is that TV continues to be very attractive media, it's a rich media where you get 80% and no other media is able to do that. So the demand is still there. And of course, we have seen as well that there is an equation between the demand and the price increases. And that has for separation in Denmark where we have seen the decline 1 year ago, it has materialized to higher prices which in Denmark because advertisers, they do like advertisement. So that is the focus now is to make sure that we improve the product and of course make sure that we set the prices right according to the demand, which we've seen in the market in the past.
Okay. And the idea of the level of kind of price increase you need to offset that next year?
What we're looking at right now is of course to understand the market and how we can set the prices and how our products look like and that is what we are looking at right We cannot predict the price increases for 'fifteen.
Okay. My second question is on Pay TV. I mean, the growth accelerated to plus 8%. I'm just wondering what's really driving that given the ARPU was only up 2%, you continue to lose subscribers in DTH. And I've also been seeing some press reports about signs of the SVOD market being slowing down a little bit or showing signs of maturation.
So keen to have your thoughts on that.
I mean, the simple answer to the question is via play and the asphalt development that we had, which is really driving the growth in the whole area. Obviously, to some extent also price increases across the board have been previously done. I think that's what just to put some perspective on that, that's also what gives us the comfort as well to kind of increase the content lineup for BioPlay within the clothing exclusivity and the new Disney deals and the local kids' comp, for example. Of course, we have expectations that's going to be driving some growth on that product. Okay.
And just the last one, I mean, given the share price of MTG, I mean, why are you not considering buying back your shares?
The buyback, I think, is something that, obviously, I think we discussed it a few times before as well. It's something that we're looking at always. We have the mandate in place. Of course, it is something on the table at all times. But so far, we don't have anything else to comment on.
Okay, good. Thank you very much.
We take our next question from Rasmus Enberg of SHB. Please go ahead. Your line is open.
Yes. Hi. Good morning. Can I start with FreeTV? I didn't actually quite pick up what you said.
Are you sold out in Sweden or in all markets for Q4? And was that the case for Q3 as well?
When it comes to Q3, in Sweden, we were sold out. Up. And of course, if you see the steep decline in pot levels, that is the motivation for that. At the same time, as you saw us, we lost most that Tier 3 didn't perform versus last year. So we delivered less Tier Ps as well.
In the other markets, we had a good delivery our TMPs.
But what is the implication for this in the the Q4 is so big that we really need to get some sort of understanding of what the impact of this is compared to Q3. Is it a worse situation that you sold out throughout the quarter already? Or how should we think about that, do you think?
I think the conclusion I think we can draw is this or you should probably draw is that, of course, it's not a quick fix. So a low put level in the Q4, we don't know that for a full quarter yet, but of course, there's an impact on the sold out ratios and so on. So it's not a quick fix into the Q4.
And then just a follow-up question. When you talked about Pay TV Emerging Markets, you said that you expected Q4 EBIT to be down. Was that correct? And was that sequentially or year on year?
It's mainly sequentially compared to Q3 of this current quarter. But if you look at the very strong performance last year in the 4th quarter, it's obviously year on year as well. Okay. Thanks.
We will take our next question from Sami Sarkomis of Nordea. Please go ahead. Your line is open.
Hi. I have a question regarding expectation management for Russia. So how quickly do you think there will be news flow regarding the solutions you will be finding on the assets you have in Russia, is that going to be something we could hear already before the year end? Or will it take like 1 year to come up with solutions, I. E.
Divestments or restructurings? Thanks.
[SPEAKER STEPHEN ROBERT BINNIE:] Yes.
What I can tell you, of course, is that the law has been passed by the time of the President's decision of October. And what we are doing right now is, of course, that we together with our local people, we analyze all the options that we are having. And that is the process that we're in right now. And as I said as well, this is a very it's a tough situation and therefore we simply need to understand the options and that is what we are looking at. And once we have something, we will of course get back to you.
This is not for us. We don't want to rush anything through. We want to make sure that we come out with a fresh solution. That is what we are looking at right now.
We will take our next question from Martin Arnell of ABG Sundal Collier. Please go ahead. Your line is open.
Yeah. Hi, guys. My first question is on pay to the Nordics and the 3rd party subscriber
Yes.
Yes.
I think what we are doing right now is, of course, that we constantly enhance our products. As you know as well, we are very strong products in the market. We work very close as well with the different partners that we're having in order to move forward their position as well and therefore our positions in terms of the product. So this is pure craftsmanship that we have enhanced our products in different areas, in different countries.
And should we see 3rd party as a growth case going forward?
I think what we have said is that the combined premium, we have not we don't believe that the 3rd party will offset the decline that we will have in DTH. But yes, this quarter was it was a good quarter and we have supported a lot with the parties, but going forward, I don't think we should expect still that 3rd party will offset the decline in DTH.
Okay. Thanks. And then a question on free TV, maybe a follow-up on the cost side of the business here. I mean, where are you in the progress here of restructuring? And I think you have a new head of FreeTV in MTG Sweden, which was out in talking in media about potential cost reductions here in Sweden.
Can you give some more flavor on that?
I think what we're looking at, of course, is to make sure that we spend the money the right way, as we have said. And also as Matthias said earlier, it is about returns on the investments, it's about to get more out of the product that we're investing in. And of course, what we're looking at is we can do things smarter and that is basically what the new EVP, what he's been looking at right now, which is to say the way that we are set up, can we do things smarter in order to be able to invest more in the product, that is basically what he's been looking at, look at currently.
And just for the Turkish state, I think you said something about the major restructuring or something. I mean, there are a lot of people listening to the call and particularly our employees as well, don't don't want to expect us to do a company we have. This is normal business. There's nothing else, efficiency and so on.
Okay. Thanks.
We will take our next question from B. Leidar of Danske Bank. Please go ahead. Your line is
open. Thank you. I have a question on the Russian mini pay operations. I'm just trying to get my head around how that business is structured. So how does the content for the sort of Russian facing product work?
Is it sort of global rise that you use when you repackage and sell channels in Russia? Or is it sort of pure Russian content, which are easy to carve out if you would sell that asset?
Hi, Bill. It's really a difference between different types of channels. So the most successful ones, the Russian movie channels, for example, they are mainly localized content already. But some examples, of course, you have international complex like Explorer for instance. So it's a mix, you can say.
And I guess you're thinking about whether that needs to be sold or something and then how difficult it is or
Exactly, exactly.
That's something we have to look at. That will be one of the options we look at.
And then a follow-up sort of on the PUT levels in Sweden. Have you sort of done your analysis of where sort of the eyeballs are at the moment? So is it mainly SVOD? Or is it piracy, YouTube? Have you could you give us any flavor on where you're sort of losing your viewers?
Yes, I think it is a bit or lower. I think as I said earlier as well, the positive thing is for us, if you combine now the free and pay business, we are growing revenue by 7% and profit by 11%. And we are growing our AVOD business quite a lot and we grow our SVOD business. As you know, with Viaplay, which we said has the 3rd best quarter ever in terms of net intake. So it is, of course we are trying to make a lot of products which can facilitate these declines to make sure when people are leaving that they can come to us and they have offers with us.
So that is of course what we're focusing on right now.
And just a final question on the AVOD. Have you ever mentioned sort of the percentage of sales that AVOD accounts for in free cheese candy?
We haven't mentioned it, but it is still not material. It is I think it is growing very fast, but it is not the material that the vast amount of money still comes of course from advertising revenue and also of course distribution revenue. So it is low single digit.
Okay. Thank
We take our next question from Fred Kuig of DWC. Please go ahead. Your line is open.
Yes. Hi, there. I'm sorry if this question has been asked. I was a bit late to the call. But can you give a bit more color on the Czech market?
Clearly, you've still got a difficult comparable from last year. But can you give some overall comments on how the advertising market as a whole is doing? How it did in Q3, your thoughts for Q4 and maybe whether you think that 2015 is shaping up to be okay?
Yes. I think the Czech market in Q3 did well as far as we can understand. We didn't we were down as you can see from the report, but the Czech market did well. I think for us, good news is that our channels have started to grow. So our main channel, Prima, grew their share in Q3.
And what we expect in 2015 is to have a more normalized market. 2013 was an extraordinary market in many ways for us. And therefore, we do expect 2015 to come back to more normal market conditions.
What does that mean exactly? Can you give some color? I mean, do you think that you have some pricing power? Anything anecdotal from just advertisers in general? Do you think that the market should see growth?
Yes. As we have said, I think it's all over Europe. I think people are anticipating of course that online video and TV advertisement is going to take bigger, bigger share of the advertising pie in each of the markets. So that is something we do expect as well in check to happen, it goes without saying. So we are preparing for that.
And of course, we have a strong product. And now we just need to get some normalized conditions in the market and then we will do good again. Okay. Thank you very much.
That concludes the question and answer session. I will now hand the call back to Jurgen Madsen Lindeman for concluding remarks.
Thank you, operator, and thank you all for your time today. We will announce our Q4 results on February 4, and I look forward to seeing as many of you as possible on our Capital Market Day, which will be hosted in Stockholm on 2nd December. So thank you for your continued interest in MTG. Have a great day.