Good morning and good afternoon, ladies and gentlemen, and thank you for holding. Welcome to the MTG Q1 2013 results conference call. For your information, today's conference is being recorded. At this time, all participants are in a listen-only mode. After the presentation, participants will have an opportunity to ask questions, at which time instructions for the question and answer session will be given. If any participant has difficulties hearing the presentation, please press star followed by zero for operator assistance. May I also remind you that you can find presentation slides on MTG's website at mtg.se. Before we start, may I remind you of the forward-looking information and safe harbor statement under the U.S. Private Securities Litigation Reform Act of 1995, that this report contains forward-looking information based on the current expectations of MTG management.
Although management deems that the expectations presented by such forward-looking information are reasonable, such forward-looking information is subject to risks and uncertainties, and no guarantee can be given that these expectations will prove correct. Accordingly, the actual future outcome could vary considerably when compared to what is stated in the forward-looking information due to such factors as the prevailing economic and business environments in certain markets and the impact of the Eurozone crisis in particular, commercial risks related to expansion into new territories, political and legislative risks related to changes in rules and regulations in the various territories in which the group operates, exposure to foreign exchange rate movements and the U.S. dollar and euro currencies in particular, and the emergence of new technologies and competitors.
These risks and uncertainties are described in more detail in the 2012 annual report, which is available from the group's website at www.mtg.se, and in the group's registration statement on the Form 20-F, which is available from the website of the U.S. Securities and Exchange Commission. I would now like to hand the call over to Jørgen Madsen Lindemann , MTG President and CEO, who is joined on the call today by Group CFO, Mathias Hermansson . Please go ahead.
Thank you, operator, and good morning and good afternoon, everyone. Q1 is a seasonally smaller sales period, but our results do indicate a clear positive momentum across the business. The standout points from these results are the higher than anticipated growth in the emerging market free TV operations and the clear improvement in the performance of our Scandinavian free TV operations. Both of these have been achieved despite continuous soft ad market environment. Viaplay has continued to report strong subscriber intake and achieved record numbers of daily viewers again this quarter. We raised prices for our Viaplay top-tier package in both Sweden and Denmark during the quarter, and we have continued to make adjustments across the organization in order to improve our operational and financial performance. We have also continued to innovate so that we can further accelerate our development.
It is still early days in 2013, but we can see that the changes we have made over the past six months to strengthen the group are having the desired effect. We are also on track with the investments that we are making to drive the future growth of the business and to build the media house of the future. Group sales were up 2% at constant exchange rates and up 5% for our continuing operations if you exclude the business that we have closed and sold since the beginning of last year. Profits were down as expected, given the investments that we are making, but we have a high cash conversion level, and our cash flows were boosted by the ongoing dividend stream from CTC Media. We therefore ended the quarter in a net cash position.
Let's start our review of the operation with the Scandinavian free TV business, where segment sales were down 1% at constant exchange rates. We grew our sales and took substantial ad market share in Denmark, but reported lower year-on-year sales in Sweden and Norway. IRM has not yet published its Q1 data for the quarter, but we expect that the Norwegian market continued to grow in line with the IRM forecast of 3.5%, up from their original 2% growth projection. IRM has changed its Q1 forecast for the Swedish market from plus 2% to minus 2% and also reported that January and February were down 4.7% on a combined basis. No independent numbers are available for the Danish market as usual, but agency handling invoicing on a gross basis, as measured by DRB, was most probably down by around 10% in Q1, according to media comments.
The vast majority of our annual agreements have now been signed at higher net prices than in 2012 in each of the markets. Sweden is our largest market, and the combined audience share for our four channels was significantly up quarter-on-quarter and increased sequentially during the quarter to the highest ever level for the month of March at 35.2%. Based on what we know today, we also think that we gained advertising market shares in the quarter. TV3 and TV6 shares were slightly down year-on-year, but up quarter-on-quarter, while TV8 was stable and TV10 was up on both measures. This enhanced performance reflects the positive impact of the measures that we have been taking for several quarters now.
Our show selection and execution have improved, and we are reordering more formats than we have done for a number of seasons, as well as achieving a higher success rate with new shows. Additionally, TV10 will also have a higher penetration level from the middle of the year following the new distribution agreement that we signed with Telenor. Our goal is to increase our audience share and ad market shares going forward, as well as to expand our still low, but fast-growing regional advertising market share. Turning now to Denmark, the combined target audience share for our Danish media house was up year-on-year and quarter-on-quarter after TV3 was made available on the Boxer and Canal Digital terrestrial and satellite platforms. Our two now wholly owned TV3 Sport channels were included in the media house offering for the first time this quarter.
Viacom's MTV and VH1 channels were also included in our media house advertising sales package for the first time. These factors resulted in a substantially higher reach and advertising market share. Underlying ratings were also good for TV3 as a number of reordered formats repeated their earlier success. TV3+ audience share was stable on both measures and will also benefit from inclusion of the Boxer and Canal Digital platform during the year. TV3+ viewing was down, but we expect a pickup when the channel begins to air English Premier League football from the start of the new season in August. We expect to continue to take significant advertising market shares going forward. Turning finally to our smallest free-to-air operation in Scandinavia, the combined target audience share for our two channels in Norway was also up quarter-on-quarter and stable year-on-year.
Key new local productions and new series of established shows rated well on TV3 and Viasat 4 continued to grow its audience share. The combined target audience share was also up year-on-year in March from 18.6%-19.3%. As in Sweden, the measures we have taken are having an impact, but we are small in Norway and the tide takes longer to turn. We are working on our plans to invest in a third channel, which will be launched later in the year and provide the opportunity to really build and extend our market presence in Norway. We also continue to develop our AVOD offering in all three countries. Our Nordic traffic levels are growing and the Danish operation had more traffic in the first quarter of 2013 than during the whole of 2012.
We launched a new sports clip site in Sweden in January called viasatsport.se and we also now have a music video portal. Our live TV second screen service is growing and we will roll it out on new platforms this year. We are also adapting the way we commission local content to fully embrace the opportunities provided by the combination of our viewers' engagement in linear and online on-demand TV with social media and second screen usage. OpEx for Scandinavia free TV business was up 2% at constant exchange rates. We have announced that we plan to launch a third channel in Norway during the second half of the year, which means that OpEx at constant exchange rates will be in mid-single digit percentage point range for the full year.
Given the quarter-on-quarter development in 2012 and the planned channel launch, we expect the cost growth to gradually accelerate through the remaining quarters of this year and with a clear weightening. Segment operating profits were down year-on-year, but we still delivered an operating margin of almost 30% in this seasonally low sales period. Now let's move on to the Nordic pay-TV business, where revenue were up 3% at constant exchange rates and primarily reflected the inclusion of 100% of the result of the Danish TV3 Sport channel business. Underlying sales were excluding the TV3 Sport revenues were slightly up year-on-year at constant exchange rates. Viaplay's continued rapid expansion ensured that the total subscriber base continued to grow with the service achieving record new numbers of daily viewers in the quarter. The services are now available on almost all types of internet connected devices.
The top-tier price increases in Sweden and Denmark have not resulted in lower sales or increased churn levels. The satellite subscriber base continued to decline in the quarter as expected and mainly due to the competitive pressures in the Danish market. However, Nordic premium satellite subscriber ARPU continued to grow as expected due to the higher HD penetration levels and previously introduced price increases. The development in the third-party network subscriber base was impacted by a downwards restatement of subscriber volumes by a distribution partner. We continue to expect that the number of third-party subscribers will grow during 2013, but not offset the satellite decline.
Our platforms and offerings are now stronger and more available than ever before with more HD and catch-up services, more Viasat channels, including TV3 Sport 1 and 2 and Premier League, and more third-party channels, including the SBS channels, C More, Canal 8 Sport, and Canal 9 in Denmark, TV2 Zebra in Norway, and Sky Sports News across the Nordic region. We are also gearing up towards the Olympics next year and have already launched a dedicated Olympic channel called Viasat 2014 on our satellite platforms. Segment OpEx increased significantly year-on-year as planned, as we invested in premium movie and sports content and the development of Viaplay, and also consolidated and expanded the TV3 sport channel business .
Segment profits were down, and we report an operating margin of 11.1%, which is in line with our outlook for full year 2013 margin of approximately 10%-12%, and a higher margin in 2014. We move on to the free TV emerging market business. This was again the standout performance of the quarter, with 25% sales growth at constant exchange rates. The growth was driven by the sales cooperation in the Czech Republic and Bulgaria, healthy underlying sales growth, and increased advertising market shares in almost all of our operating territories, as well as the consolidation of the gains in Latvia from June last year. The sales cooperation is structured in a way that we acquire partners' commercial inventory at a fixed annual wholesale price, and sell the inventory as part of the media house offering at the seasonal price variations.
This is boosting our numbers, I still want to stress that even if we strip out these effects, the growth at constant exchange rates are in the double-digit territory. Segment OpEx was also up significantly, partly driven by the sales cooperation, but also by further investments in programming in order to capitalize on the ongoing momentum. The successful launch of our fourth channel, Prima ZOOM, and the consolidation of LNT. Despite losses in Hungary and investments in Ghana, segment operating profits improved year-on-year for the sixth consecutive quarter and more than tripled year-on-year with an increased operating margin. Looking at the three largest market in turn, let us start with the Baltics, where our sales were up 23% at constant exchange rates and include the newly consolidated LNT operations in Latvia, as well as year-on-year sales growth for the Estonian operation and stable sales in Lithuania.
The Latvian and Estonian TV ad market are both estimated to have grown in the quarter, while the Lithuanian market is estimated to have declined. We are the largest media house in each market, and our Latvian media house audience share has been substantially boosted by the addition of the LNT channels. As we indicated last quarter, our smaller channels are benefiting from the recent digitization of the Lithuanian market, while we are facing increased Russian language program competition for the TV3+ channels in Estonia in particular. Turning it into the Czech Republic where our sales were up 29% year-on-year at constant exchange rates in a TV advertising market that is likely to have declined in the quarter. This clear and substantial outperformance reflect a number of factors. Firstly, the sales cooperation with Barrandov, which has boosted our audience share by over 6 percentage points to approximately 44%.
Secondly, organic sales growth and advertising market share gains, thirdly, the successful launch of our new channel, Prima ZOOM, which has already achieved a target audience share of over 3%. Q1 was a major milestone for our Czech business as we became the largest free TV media house in the country for the first time on a quarterly basis when measured by advertising market share. Finally, to Bulgaria, where our sales were up 29% at constant exchange rates in a TV advertising market that we estimate to have continued to decline due to the uncertainty surrounding upcoming elections. The combined audience share for the media house increased significantly from 29% last year to 34%, following successful performance of a number of key local producers. We also took substantial advertising market shares when combined with our strategic sales cooperation with 9 third-party channels in Bulgaria.
Let's move on to the pay TV operations in the emerging markets where segment sales were up 10% at constant exchange rates following continued year-on-year subscriber intake for the satellite platforms and wholesale mini pay channel business. The satellite platforms in Baltics, Russia, and Ukraine have added 49,000 net new subscribers in the last year. The subscriber base was slightly down compared to Q4, but this reflects the usual seasonal effects. We have just added 7 new Ukrainian free TV channels to our Ukrainian satellite offering, which together account for over 20% share of viewing in the market. We now have virtually all Ukrainian free TV channels on our platform, and we have also launched additional time zone services for key Russian regions, including Siberia.
The wholesale mini pay business has added more than 19 million subscriptions over the past year and more than 1 million subscriptions in the last quarter alone. We also launched a new cooperation with Polsat around 3 new co-branded channels in Poland in March, based around our popular Viasat Explorer, Viasat History, and Viasat Nature formats. Sales of the premium package of 4 HD channels in Russia, Ukraine, and the CIS, which started at the beginning of December, are progressing according to plan, and the package is already available on several leading networks. Segment OpEx was up substantially year-on-year, while stable quarter-on-quarter as expected, and in line with the previously outlined investment program. Segment therefore reported a small operating loss in the quarter, and we continue to expect a breakeven result for the full year and rising profitability levels in 2014.
We are continuing to review our Viasat satellite package and pricing structure in Ukraine in the absence of any timeline for free TV channel encryption, which would be a clear catalyst for rising pay TV penetration. Finally, just a quick word on the other business segment where the reported sales and cost decline mainly reflects the sale of Bet24 operations in May last year. Segment sales were, however, still down 17% at constant exchange rates when excluding Bet24. This mainly reflected the impact of MTG Radio Sweden no longer operating the NRJ licenses from the beginning of 2013.
This was offset to some extent by the growth in the Norwegian radio business, and we have said all along that SBS should not be able to take over the operation of the NRJ licenses and assume a dominant position in the market, with some regions of Sweden now only having one commercial radio station. This potentially sets the markets back to conditions not seen since the early '90s when it comes to listeners' choice, and we are pushing this case with the regulatory authorities in Sweden, of course. Segment operating costs have been reduced across the board, but the segment still made an operating loss for the quarter. In terms of outlook for these other businesses, the Swedish radio cost base have now been adjusted.
The Norwegian radio business is expected to continue to grow, and the revenue and cost flow in the production business will continue to fluctuate depending on production schedules and format sales. Now over to you, Mathias.
Thank you. Group sales for our continuing operations grew 5% year-on-year at constant exchange rates. The reported results were yet again impacted by the exceptionally strong Swedish krona that we all see right now. To give you some flavor that in the end of the quarter, the Czech krona, for example, was 9% weaker than a year ago, and the euro and the euro-related or pegged currencies were around 5.5% weaker against the Swedish krona, which clearly impacts both profitability and growth when we report our numbers. Our sales performance was therefore a lot better in constant exchange rates than at reported rates for all our business segments, and especially for the emerging market segments.
The overall sales growth was driven by the emerging markets operations, as you heard, and particularly the free TV operations, which benefited from the first-quarter impact of these new sales cooperation agreements, both in Czech and Bulgaria. We would like to stress again that even without these contracts or agreements, we saw underlying double-digit sales growth in the area in virtually declining markets across the board. Group operating expenses was up as expected as we pursue the pay-TV investment plan that we outlined last October. These investments are all about driving future growth of the business and our Nordic and emerging pay TV market operations. OpEx was also up slightly for the free TV Scandinavian operations as planned, and reflected selective program investments and the usual inflation in our normal Hollywood output deals.
While the substantial increase in free TV emerging market costs primarily reflected the impact of these new sales agreements as we discussed earlier, as well as the launch of Prima ZOOM and the consolidation of LNT. As you will see, this year-on-year impact will, of course, be different over the course of this year when the comps become easier later on in the year. As previously discussed, group's profits were reduced year-on-year due to these investments, also combined, bear in mind, with the continued weak advertising markets across our territories. If we then look at depreciation and amortization, they were up quarter-on-quarter and year-on-year, primarily reflecting CapEx associated with the move to a single U.K. office location in London. The new and improved state-of-the-art London playout facility is right now being developed over this year and will be fully functional early next year.
This will obviously impact CapEx levels this year, which are still expected to be modest and represent less than 2% of group sales. Even if we invest, we keep them at a low level. As previously indicated as well, the increase in CapEx all reflects the acquisition of the more capital-intense Cirkus business from last September and the ongoing investment in our technical development of the Viaplay service. The Cirkus business, just so you know, has won two out of three major landlord tenders in Stockholm just recently and is developing according to plan. Obviously, the more successful we are, the more we will invest in that business. Our effective tax rate was 29% in the quarter, or actually 26% if you exclude the higher tax rate coming from the Russian CTC business.
We continue to expect the full-year 2013 overall tax rate to be in the middle of the range 25%-30% that we discussed before. Our asset-light operating structure enabled us to generate high cash conversion levels, and 80% of group EBITDA for our wholly owned operations was converted into operating cash flow in the quarter. This excludes all impact from dividends and associated income from CTC. We reported the usual seasonal negative working capital change in the first quarter, but we ended the quarter on the lowest working capital level in relation to sales ever for a first quarter. Previously indicated, you should expect working capital to increase overall this year due to the scaling of the group and also the increase in our programming investments that we've talked about for the last six months.
We made no investments in shares in the first quarter of this year. We ended the quarter with a net cash position of SEK 17 million compared to a net debt position of SEK 1 million last quarter. We already announced that we're proposing to increase this year's annual dividend by 11% to SEK 10 per share, which is equivalent to 42% dividend payout ratio. Given our ambition to be one of the fastest-growing media companies in Europe, we continue to focus on investments that will accelerate the group's future growth and development in order to create long-term sustainable value. Now back to you, Jørgen.
Thank you, Mathias. A brief summary before we move to the Q&A. Q1 is a seasonally slow sales period. We have shown clear outperformance in the emerging markets free TV operation and improvement in the Scandinavian free TV operations, despite low ad market growth at this stage in almost all territories. We will invest in our new channel in Norway during the second half in 2013. We are impressed with the investment that we are making in the Nordic and emerging market pay TV operations. Both businesses are growing their top lines. We have continued to make adjustments across the organization in order to improve our operational and, of course, financial performance. We have also continued to innovate so that we can further accelerate our development, new products, new services, new channels, and new collaborations.
We are bringing in new talent and expertise to help us build the media house of the future. We ended the quarter in a net cash position and are reviewing a wide range of organic and M&A-led expansion opportunities. It is still early days in 2013. We can see that the changes that we have made over the past six months to strengthen the group are step by step having the desired effect. That concludes our comments on the results. We will now be happy to answer your questions. We have a lot of people on this call today and 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 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 Stefan Nelander from SEB. Please go ahead.
Thank you. Hi, Jørgen and Mathias. Two questions. First a question on free TV, where it seems that you've started to turn the corner in terms of ratings, at least stabilizing. However, obviously, profitability-wise, you're down at maybe 2005 down level. Could you kind of try to help us out to understand how you hope to achieve higher margins? Or if we should actually expect lower profitability for the free-to-air business going forward as well than in the past?
When it comes to the free TV and to the performance, of course, as you say, we have seen some improvements in the way that we have selected shows and so forth. Still, it's very important to underline that that is something that we constantly are working on. Obviously, the more shows which will work for us, the easier it will be for us the coming seasons to pick the right shows, of course. We don't need to go out and invest in so many new shows, of course. That is quite important for us. As you say as well, Sweden had a good March, where we saw actually all-time high in terms of share for the media house.
Okay. Now you're investing mid-single digit. What are your assessments on the growth potential for this business ad market-wise and market share-wise from here? Is it possible to kind of comment on that?
When it comes to advertising market, of course it is very difficult to say. As you saw yourself, Stefan, that you have seen that IRM have downgraded the Swedish market from +2% to -2%. We see good trends in the Norwegian market, which of course is good for us going forward, also due to the fact that we'll be launching a third channel in the Norwegian market. The Danish market came out with a 10%, probably, or comes out with a 10% decrease as we see right now. It is very difficult to estimate. What we pursue now is that we will continue, of course, to see opportunities, the third channel in Norway will increase our spending.
You will see that accelerate during the quarters going forward now with the highest level in the fourth quarter in 2013, of course, on the back of the new channel launch in Norway.
Okay, fine. Thanks. My second question is regarding the comments Mathias had in the report about that you are a growth company and are considering a number of growth targets like acquisitions. Could you comment on where you're looking and maybe more specifically or hypothetically, do you think you would be allowed to buy C More?
First of all, of course, what is interesting for us is to look As we've said all the time in the emerging markets, we have very good traction right now in the emerging markets. There we're looking at free TV opportunities, pay TV opportunities, production companies, online businesses as well. The same, of course, goes for Africa, which also is going to develop very fast as we see right now. Also, our free operation in Ghana had a very good traction this first quarter. In terms of M&A, it is mainly in Eastern Europe and it is in Africa where we're looking.
Okay, on C More, would you be allowed, do you think, hypothetically, for competition authorities to acquire that business?
I don't know. I've seen some writing about it. It depends. I don't know what it is. The rumors are flowing around. Let's see what it is and what they want to do with it. That is not something that we have seen yet. It is difficult to comment on still.
Okay. Thanks for now.
Our next question comes from Adrien de Saint Hilaire from Exane.
Yes, good afternoon, everybody. Jørgen, Mathias, and everyone. I've got two questions, please. First of all, about pay TV Nordics. I've seen that TDC intends to have a new pay TV offering in H2 2013, which seems to be a lot more unbundled. I was wondering if you have any answers to that offering and how you think it will impact your pay TV business. That would be my first question.
From what I've heard, at least, is that they will keep, to a large extent, the structure that they have today, they will give opportunities for a la carte as well, where you can choose different channels. These channels will probably be priced differently than they are priced if you accumulate all the channels that they have in the package right now. I don't know. I've not seen it completely, we need to see that. I think for our own channel, we are present in the YouSee package and in the high penetrative packages, that will of course continue.
Okay. My second question is about CTC Media. Obviously, Hans-Holger Albrecht has stepped down as chairman, the new co-chairman will be Lorenzo Grabau, if I'm not mistaken. I was wondering if you could comment on his nomination with regards to your M&A ambitions in Eastern Europe.
It is the nomination committee of the CTC who has nominated Lorenzo, there's an AGM coming up the 13th of April where we believe or we expect him to be elected to the board. On CTC, I cannot comment. In general, of course, the Russian market is utterly interesting. No doubt about that. Everything you read is that we have a strong growth in the advertising market. I believe that the market in 2014, I think it seems to be the biggest in Europe, as is predicted right now for many of the media agencies, which of course is fantastic. You have the whole digitalization taking place right now in Russia, which we, of course, are part of with our mini-pay channels and also our HD offering. Of course, Russia as such is very interesting for the group.
Sure. My question was actually more given his former role as an M&A banker in media, should we view his nomination as a mark of greater interest for you to potentially buy out your minority partners?
No, you should see the nomination of him that he can add value to the company in the further development of CTC, and that is the CTC nomination committee who have asked him to step in, and of course, that is their display.
Okay. Thank you very much.
Thank you.
Our next question comes from Lisa Yang from Goldman Sachs. Please go ahead.
Hi, good afternoon. First question is on the pay TV Nordic. Just wondering what was the impact of the restatement of sales by your third-party partner in Q1, and in which country does that relate to? Secondly, just on your performance in the free to air emerging markets. Is there any one of that impacted your actual performance in the first quarter? I know that CME tried to increase their prices and that might have benefited you. Just wondering if you think that share gain is sustainable going forward. Thank you.
Hi, Lisa. Mathias here. On the first question, I think the impact of the restatement is that without that restatement is that one of the effect, and it would be largely stable, the third-party subscriber base .
On your second question, when it comes to free to air in emerging markets, no, there is no one offer. I think underlying, you can see that we have improved our ratings in our media houses in Czech and Bulgaria. Bulgaria is very strong. Of course, we continue to focus on our performance when it comes to rating in the media houses. I think the good thing is, of course, that the inclusion of the partnerships that we have done into our offering has been received so positive. We have a very strong traction with a strong sales growth in declining market growth going forward.
Of course, what the competition will do, we don't know, but we are strong when it comes to our reach, when it comes to our commercial viewing due to our own performance and partner performance, and therefore, we do believe that we should take our fair share of the market going forward.
Great. Thank you very much.
Our next question comes from [Bilada] from Danske Bank. Please go ahead.
Thanks. Two questions, if I may. Firstly, with regards to the satellite subscribers in the Nordics, could you give us some flavor on where you're losing subscribers and the visibility in the customer base for the rest of the year? Thanks.
Yeah. It has not changed since we talked last time, the call. It is Denmark, which is our main issue, meaning that the competition in Denmark is very strong, and we're losing subscribers in Denmark. Sweden, which is our, by far, the biggest market. The platform is doing well. And of course, also after the inclusion of our new Olympic channel, full dedicated Olympic channel, Viasat 2014. Of course, that has strengthened the platform as well, and also with the inclusion of Sky Sports News on the Swedish platform as well. The decline we see, unfortunately, coming from the Danish market, and we expect 2013 to decline in DTH segment. We do expect segment to grow in the third-party networks, but the third-party networks will not offset the decline we will have on the DTH. Still, we are growing combined when you include Viaplay.
We have a very strong traction when it comes to paid subscribers, DTH combined with third-party networks and combined with Viaplay.
One final question on the ARPU. Looking at the value-adding services like multi-room subscriptions and Viasat+, it seems to have flattened out or leveled out in the past couple of quarters. Could you just give us any indication of how much contribution those kind of services have added to ARPU growth? Secondly, is Viaplay cannibalizing on those kind of value-adding services?
You see some of these we keep in the report, but actually they're not ARPU driving. For example, Viasat+ has not been ARPU driving for a while. That was why we still kept that in there for disclosure purpose. When you look at it, you see a little bit of a trend where actually we slap more of the ARPU increases into the normal headline prices. For example, the Viaplay TV Everywhere solution for our customer is not charged extra for in Denmark and Norway, for example. That's charged more in the headline price instead. These services kind of drive ARPU, but not in the same way probably as they used to do. We have to think about how we disclose this in the future, I think.
The second question was, you said, if Viaplay is impacting this. Yes and no. In Sweden, yes, we charge for Viaplay and HD together. In Denmark and Norway, as I said, no, we don't charge extra. We look at putting it in the headline price and stuff.
Okay, thanks.
Steve?
As a reminder, ladies and gentlemen, if you wish to ask a question, please press star one on your telephone keypad. Our next question comes from Mikael Larsen from Carnegie.
Hello. Hi. A couple of follow-ups on the last question there. Can you just summarize what you expect for ARPU growth this year in pay TV Nordic and also the satellite subscriber development ahead? What is driving that? Have you seen any impact from the new deals that you made last year so far?
When it comes to the first question of what we expect from ARPU, I think we started to talk about it last year, even that we're expecting a lower level of growth than before in ARPU. That is probably going to low to mid-single digits ARPU growth, and I think that's going to stay like that.
Okay. A couple of percent then.
The second question, I didn't really hear it so sorry.
If you have seen any positive signs on subscriber stability in your premium subscriber base from the recent deals that you've made?
I know. I think what we can say is in Denmark, of course, is that we have strengthened the product, and that is what we are marketing right now. Now I think the game is to make sure that everybody understands that we have a much more enhanced product than we used to have. Of course, the inclusion of the Premier League as well from the fall 2013, now that we have the Premier League on our sports channels on our TV3+, of course, should make a better product as well. Combined, we do foresee a stronger product, or we do foresee that we've stabilized the downturn in the DTH right now as we see right now. That is, of course, something that we do expect for the Danish market.
Right now, the messaging is about to make sure people understand that actually we do have a very strong offering, which we have not had to the same extent the recent years.
Just a question on the Viaplay. If you could comment and give more color perhaps on the trends that you see. For example, the typical subscriber, what is happening with the Viaplay box, the Russian side, how that is developing.
If we take Viaplay as such, the product as such is doing very well. We see that in many ways through many KPIs. First of all is, of course, that we have a higher subscriber intake, more and more customers comes into Viaplay. That is, of course, great. We see the usage of Viaplay also increasing, which of course is indication that people really like what people really feel that they get value for money. That's, of course, a very strong thing going forward, that we have a product that people really believe that it is worth what they're paying for. The traction for Viaplay is very strong right now.
When it comes to Russia, in Russia it is more used right now as a multi-screen service for the deals that we are making with the cable operators or IPTV operators in Russia. When you buy our packages, our movie packages, you get also the same content on Viaplay. That is how we use it right now in Eastern Europe, in Russia.
Okay. Thank you.
Our next question comes from Rasmus Engberg from Handelsbanken. Please go ahead, your line is open.
Yes. Hi, guys. Can I ask you about your expectations for the pay TV margin to improve in 2014? What is the driver for that growth? Is it that the Viasat is going to stop declining, or is it that the cost growth is really low? Or how should we think about that guidance, really?
I think it's basically, I guess, as we discussed before, just to recap a little bit, I think what we talked about six months ago or something, we said we're taking the cost base up one notch basically because we're investing more in fixed cost, content cost, et cetera, and Viaplay. We don't expect that to massively change in 2014. Of course, the upside of it is that you start investing first in fixed cost and then you get the upside in terms of increased revenues. That's where you're going to see, for example, in the case of Viaplay where the cost base is largely fixed in that way. Then obviously, in the case of Denmark, we believe that there's a natural level of customer base that we're moving towards, which means that the churn level should come down in Denmark.
Would you say? As I recall now over the last 10 or so years, your content cost inflation in pay TV has, I think, been somewhere around 7%-10% per year. Now maybe that is lower now, but do you really need 7%-10% top line growth to see improving margins? Would 5% be enough? How should we think about that?
I think it's still a bit too early to have a guidance on cost increases in 2014 already now.
The reason I'm asking is obviously that you're not growing at all now. What we really should be penciling in for next year for margins to really go up. Can you help us somewhere on that line?
No, I think just to be clear, I think we are growing right now.
Oh, yeah?
The investments we're doing will of course expect to have some impact on the top line moving forward as well. As we said, you invest first and then pay TV is normally a very slow type of business, sequential. It's going to take a little bit longer time.
All right. Okay. Secondly, now would you say that you have particularly easy comps in ratings in the second quarter compared to last year? I mean, of all the weak ratings over the last three and a half years, I guess that was the low point. Is there anything out there that we should be aware of that could upset your ratings?
Yeah. I think in general, of course, we want to focus on each of the slots, as you know, to make sure that we improve our ratings going forward. We have some formats as you know, are doing fine and some is not doing that well. We have ice hockey coming up. If the Swedes would perform very well, which they will of course, the World Championship, then you will have certain competition. If they would go out early, you would have a different competition. I think that is very difficult. I think for us it is of course good to see that we are doing better on some of the shows. As you know, that is then easier for us to take these shows into the coming year, so we don't need to invent so many new shows.
Yeah.
We are happy at least right now that we are performing a bit better. Of course, as you know, Rasmus, there's a lot of work to be done in order to make sure that we have very strong programs in all our slots.
It's only the ice hockey which is the out of the box event in this quarter.
I would love to sit with TV4's and Kanal 5 SBS program plans right now. I don't. I cannot say that. I cannot say what they will do. Of course, that is very difficult. I think focus is, of course, for us to pick, and that is on time slot on the day to be better than last year.
Hopefully we see good traction going forward.
All right. Thanks.
Our next question comes from Johan Grabe from Nordea. Please go ahead. Your line is open.
Hello. Just more or less a philosophical question, maybe. Have you identified any behavioral change among your viewers where Viaplay or some other OTT alternatives are actually stealing viewers from free TV? When do you think this perhaps will be a growing problem?
No, we have not seen that they are stealing. I think the good thing in Sweden, for instance, is that the online viewing is measured. When we take our programs linear and we take the same program online and we combine these two, then we can see that we grow our reach. That is actually to the better, what we are seeing right now. That's, of course, a big focus area for us is to make sure, as I said as well in my speech, that it is important for us to make sure that we embrace this new world and that all our programs, that we have online components. That is what we're focusing on a lot right now to broaden the presence of, and availability of our programs.
We would like to embrace it and do not see it as a great threat at all.
Okay. My second question is perhaps related. When will you start to live stream your free TV channels?
As it is right now, I think what we are doing is looking at opportunities, how to make sure that the product that we talk about live streaming is not just about we live streaming our channels. It is about to have the right product in general. We have a very strong product when it comes to our third-party networks and to DTH, and we have a very strong product on Viaplay for the people who would like to see movies now and then and sports now and then and so forth. It depends when the day that we have a online streaming product, that is something we will look at the day that we can perform that. That is not the case right now.
Therefore, the full focus for us is, of course, to roll out Viaplay to as many households as possible in the Nordic, and of course, to grow our partnership, the basis we have with our partners on pay TV and also our DTH platform.
Thank you.
That concludes the question and answer session. I will now hand back to Jørgen Madsen for his concluding remarks.
Thank you, operator, thank you all for your time today and for your continued interest in MTG. I would like to remind you that we have our Capital Markets Day on the 13th of June in Stockholm, where we very much hope to see as many of you as possible then. The day will feature presentations by the management team and as always, MTG entertainment at its very best. Thank you and goodbye for now.
That will conclude today's conference call. Thank you for your participation, ladies and gentlemen. You may now disconnect.