Thank you, operator, and good morning, everyone. Q3 has been another quarter of profitable growth for MTG, 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 scale content production with fast-growing online operations. We have 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. They are accelerating, and the fact that we have been able to grow the sales and profits for our combined Nordic free and paid businesses by 7% and 11% respectively shows the strength of our integrated business model as lower linear free TV pod levels has been offset in revenue terms by growing video-on-demand revenues from our Viaplay and Viasat catch-up services. On a group-wide basis, our online advertising sales have more than doubled. Viaplay has only ever sold more subscriptions in two 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 mass media law, which have now been enacted. These amendments will reduce the permitted 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. This is a complex situation. It affects our shareholding in CTC Media, the Raduga satellite platform, and our mini-pay channel business. CTC 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 announcements, 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 three non-executive board members to work on the appointment of international and local financial and legal advisors. We at MTG are 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. 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 in 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. 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, and 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. Let me start with Scandinavian free TV 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 pod levels, people using television linear viewing, has continued to decline, especially in Sweden, and this is happening in a number of markets. This results in a sold-out situation for our channels, which is what we are seeing. As we discussed previously, there's a clear historic correlation between pod and price levels, especially given TV's position as very effective and only national 80% reach media, delivering predictable and large primetime audiences at attractive CPTs.
It is a supply and demand creation. There is a timeline due to the 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 advertising. In addition, our Pan-Scandinavian AVOD sales were up 83%, and we have continued to add new digital products, including formats from Disney's Maker Studios multi-channel network. That is the home to global stars like PewDiePie. The Venchi advertising market is currently projected to grow by further 40% in Sweden and Norway 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.
We move over to the Nordic Pay-TV business, where revenue was up 8% at constant exchange rates and profits were up 19%. Viaplay is the principal growth driver here, and as I mentioned earlier, just recorded its third biggest ever quarter in terms of customer added. Q3 was also the second biggest ever quarter for Viaplay in terms of absolute year-on-year sales growth, only 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 content on an exclusive basis. We used to share these rights with Netflix. This is not the case anymore. We now have them exclusively. Viaplay is now the clear number one 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 on Viaplay tripled this month compared to October last year. Moving away from Viaplay, 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 third consecutive quarter. If we look forward, we'll push hard with our Viaplay marketing in the fourth quarter, given the momentum and addition of the new content as Viaplay is clear number one when it comes to sports, movies, and now also kids content. We still retain our previous outlook for a higher full-year margin this year when compared to last year.
Shifting the focus now from the Norway to the international operations, our free-to-air 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 office increase followed the launch in Tanzania and the consolidation of Netinfo, 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 comps for Q4, so the growth rate will come down. The Baltics 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 and year-to-date sales in Czech Republic are still well above 2012 levels. 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 Trace. Organic growth was 5% and was driven by the mini-pay channel business, which now includes Trace. The total number of subscriptions has therefore now increased to 131 million in 139 countries. Segment profits were up despite material currency headwinds and primarily reflected the consolidation of Trace. 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 SEK 103 million in 2013, and we expect the negative EBIT impact of the change to be approximately half of this year's ad sales.
The full impact will 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 Trace mobile entertainment services in Africa. Finally, to Nice Entertainment and the GH and the G range, 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 three major drama productions by Strix. GTH continues to develop according to plan and facilitate our digital development across the group.
The significant EBIT swing into profits reflect the improvement in profitability in the radio operations in Sweden and Norway and higher profits for the Nice group. In summary, it was the second consecutive quarter of profitable growth. This demonstrates that the investments we have made are paying off and that we have the right setup 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, and there is plenty of it at the moment. 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 SEK 250 million Chyron Group convertible bond, which was announced yesterday by Cheiron. 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. To allow time, please limit yourself to no more than two short questions. Each operator, can we have the first question, please?
Thank you, sir. Ladies and gentlemen, we are now ready to register questions. If you would like to ask a question, please press star 1 on your telephone keypad and you will enter a queue. Should you wish to cancel, please press star 2. First question comes from Stefan Nelson from SEB. Please go ahead. Your line is open.
Thank you. Hi, Jørgen, Mathias. Just like to focus my questions on the cost side regarding free to air Scandinavia. 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. How do you see this going forward in order to regain your shares?
Hi, Stefan. There's nothing really different, I think, compared to what we stated before. As you've seen this year, we are trying to increase the efficiency of the spend that we're doing. 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. There is no fundamental change from how we've been operating, I think, throughout this year.
Okay. Maybe you could give some more flavor in that case on how to turn around the free TV audience share. Because obviously if prices go up, it doesn't help you much if your ratings continue to decline.
Jørgen, I completely agree with you. Of course, it goes without saying that if you look at the Q3 performance, it is something in Sweden particular that we are focused on. Of course, you can see Denmark is doing somewhat good. You can also see that TV6 actually did better. Now this quarter had a good quarter. 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 program. Now, as you can see as well, we have changed the setup and we have a new guy in who's looking at particular, of course, the issues we have with Q3 Sweden with fresh eyes. That is the focus area right now.
Okay. 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 a cost issue, an investment issue, it's an efficiency issue of what we already spent. From guidance on cost development, we refrain from doing right this moment.
Okay, fine. My second question regarding also on the cost on the margin side for pay-TV. You're growing solidly now. At the same time, we're not seeing that much operating leverage. 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 there is a very highly competitive market out there's a lot of competition and the new product being launched across the board. We do expect to be able to continue to invest in growing the profits and growing the business. 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. I don't think 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 least that impact your P&L as of 2013. I'm just seeing a scenario where some of these deals expire in 2016, 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, if you see that this could be the case in three-year cycles.
The view we have right now is I think it's the online business is doing really well, but I think we are continuously reinvesting a lot of that into the new products and the new businesses. The balance there, how that comes out, that is very difficult to predict because it's not entirely up to us. 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 adds some flavor. Thank you.
We take our next question from Lisa Yang of Goldman Sachs. Please go ahead. Your line is open.
Good morning. My first question is on free to air Scandinavia. Can you help us understand the impact of the decline in linear viewing that you're talking about, maybe quantify the impact in Q3? Should we expect a similar impact in Q4 given you're not able to raise prices, so a revenue growth of about flat to slightly down? For next year, do you think that the price rises will be high enough and most of all sustainable in order to offset that decline? It does look like it's just a secular trend in Scandinavia now. That's my first question.
I think when you look at the pod level and also which we discussed last time, last quarter, it differs from country to country. Sweden, you see that Sweden has been affected quite heavily by pod level decline this quarter and last quarter as well. What you see is that Norway, for instance, in commercial pod is increasing in Norway. 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 pod levels, but doing better this year, is that TV continues to be very attractive media, continues to be very attractive return of investment media. It's a reach media where you get 80% and no other media is able to do that. The demand is still there.
Of course, we have seen as well that there is an equation between the demand and the price increases. That has, for separation Denmark, where we have seen a decline one year ago, it has materialized to higher prices, which is in Denmark because advertisers, they do like the advertisement. 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 see in the market we've seen as well.
Okay. Any idea of the level 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. That is what we are looking at right now. We cannot predict our price increases for 2015.
Okay. My second question is on pay TV. The growth accelerated to +8%. I'm just wondering what's really driving that. The output was only up 2, you continue to lose subscribers in DTH. I've also been seeing some press reports about signs of the SVOD market slowing down a little bit or showing signs of maturation. Keen to have your thoughts on that.
The simple answer to your question is Viaplay and the SVOD development that we have, which is really driving the growth in the whole area. Obviously, to some extent, also price increases across the board have been previously done. Just to put some perspective on that's also what gives us the comfort as well to kind of increase the content lineup for Viaplay within the global exclusivity and the new Disney deals, and the local kids content, for example. Of course, we have expectations that's going to be driving some growth on that product.
Okay. Just the last one, given the share price of MTG, 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. So far we don't have anything else to comment on.
Okay, good. Thank you very much.
We will take our next question from Rasmus Engberg of Handelsbanken. Please go ahead. Your line is open.
Yes. Hi, good morning. Can I start with free TV? I didn't actually quite pick up what you said. Are you sold out in Sweden or in all markets for Q4? Was that the case for Q3 as well?
When it comes to Q3, in Sweden, we were sold out. Of course, if you see the steep decline in pod levels, that is the motivation for that. At the same time, as you saw as well, Rasmus, that TV3 didn't perform versus last year, we delivered less TRPs as well. In the other markets, we had a good delivery of our TRPs.
What is the implication for this in the fourth quarter 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're 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, or you should also probably draw, is that of course it's not a quick fix. A low pod level, in the fourth quarter, we don't know that for a full quarter yet, but of course has an impact on the sold-out ratios and so on. It's not a quick fix until the fourth quarter.
Then, just a follow-up question. When you talked about pay TV emerging market, you said that you expected Q4 EBIT to be down. Was that correct? Was that sequentially or year-on-year?
Mainly sequentially, compared to Q3 of this current quarter. If you look at the very strong performance last year in the fourth quarter, it's obviously year-on-year as well.
Okay, thanks.
We will take our next question from Sami Sarkamies of Nordea. Please go ahead. Your line is open.
Hi. I have a question regarding expectation management for Russia. 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 one year to come up with solutions, i.e., divestments or restructurings? Thanks.
Yeah. What I can tell you, of course, is that the law has been passed, signed by the president the 15th of October. 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. That is the process that we're in right now. As I said as well, this is a tough situation and therefore we simply need to understand the options, and that is what we are looking at. 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 clear solution. That is what we are looking at right now.
As a reminder, if you would like to ask a question, please press star one on your telephone keypad to enter the queue. We will take our next question from Martin Arnold of ABG Sundal Collier. Please go ahead. Your line is open.
Yeah. Hi, guys. My first question is on pay-TV Nordics and the third-party subscriber base, which was up in the quarter. What have you done differently here this quarter?
Yeah, I think what we're doing right now is, of course, that we constantly enhance our products. As you know as well, we have 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. This is pure craftsmanship that we have enhanced our products in different areas, in different countries.
Should we see third-party as a growth case going forward?
I think what we have said is that the combined premium, we don't believe that the third party will offset the decline that we will have in the DTH. Yes, this quarter was a good quarter, and we have covered a lot with the parties. Going forward, I don't think we should expect still that third party will offset the decline in DTH.
Okay, thanks. A question on free TV, maybe a follow-up on the cost side of the business here. Where are you in the progress here of restructuring? I think you have a new head of free TV in MTG Sweden, which was out 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 Mathias said earlier, it's about returns on the investments. It's about to get more out of the product that we're investing in. 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 with his experience 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 constantly.
Just for the sake of state, I think you said something about the major restructuring or something. There are a lot of people listening to the call, and particularly our employees as well. Just so they don't expect us to come with a big hammer. This is normal business. It's nothing else. Efficiency and so on.
Okay, thanks.
We will take our next question from Ville Laar of Danske Bank. Please go ahead. Your line is open.
Thank you. I have a question on the Russian mini-pay operations. I am just trying to get my head around how that business is structured. How does the content for the Russian-facing product work? Is it sort of global rights that you use when you repackage and sell channels in Russia? Is it sort of pure Russian content which are easy to carve out if you would sell that asset?
Hi, Ville. It is really a difference between different types of channels. The most successful ones, the Russian movie channels, for example, they are mainly localized content already. Some examples, of course, you have international content like [audio distortion] , for instance. It is a mix, you can say. I guess you are thinking about whether that needs to be sold or something, how difficult it is or
Exactly.
That's something we have to look at. That will be one of the options we're looking at.
A follow-up sort of on the pod levels in Sweden. Have you sort of done your analysis of where the eyeballs are at the moment? Is it mainly SVOD or is it piracy, YouTube? Could you give us any flavor on where you're sort of losing your viewers?
Yeah, I think it is a bit all over. 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%. 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 third best quarter ever in terms of net intake. 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. That is, of course, what we're focusing on right now.
Just a final question on the AVOD. Have you ever mentioned sort of the % of sales that AVOD accounts for in Free TV Scandinavia ?
We haven't mentioned it is still not material. I think it is growing very fast, it is not the material. The vast amount of money still comes, of course, from advertising revenue and also, of course, the distribution revenue. It is low single digit.
Thank you.
As a final reminder, if you would like to ask a question, please press star one on your telephone keypad, and you will enter the queue. We take our next question from Fred Kuig of DWC. Please go ahead. Your line is open.
Hi there. I'm sorry if this question has been asked. I was a bit late to the call, can you give a bit more color on the Czech market? Clearly, you've still got a difficult comparable from last year, 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? Thanks.
Yeah, I think the Czech market in Q3 did well as far as we can advance. 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. Our main channel, Prima, grew their share in the third quarter. What we expect in 2015 is to have a more normalized market. 2013 was an extraordinary market in many ways for us. Therefore, we do expect 2015 to come back to more normal market conditions.
What does that mean exactly? Can you give some color? 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?
Yeah. As we have said, I think all over Europe, I think people are anticipating, of course, that online video and TV advertisement is going to take bigger share of the advertising pie in each of the markets. That is something we do expect as well in Czech to happen. It goes without saying. We are preparing for that, and of course, we have a strong product. Now we just need to get some normalized conditions in the market, then we will do really well.
Okay. Thank you very much.
That concludes the question and answer session. I will now hand the call back to Jørgen Madsen Lindemann for his concluding remarks.
Thank you, operator, and thank you all for your time today. We will announce our Q4 results on February the 4th, and I look forward to seeing as many of you as possible on our Capital Market Day, which will be hosted in Stockholm on the 2nd of December. Thank you for your continued interest in MTG. Have a great day.