Good morning and good afternoon, ladies and gentlemen, and thank you for holding. Welcome to the MTG fourth quarter 2012 results conference call. 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 one, followed 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 following 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 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 2011 annual report, which is available from the group's website at 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 will now 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. Good morning and good afternoon, everyone. The Q4 results reflect both the investments that we are making and the measures that we are constantly taking to improve the performance of each of our businesses. We're innovating across all of our businesses and accelerating their development. We have also added to the management team to make even more possible as we build the Media House of the future. We have continued to enhance our platforms, channels, and services across our markets. We're also launching new products, which will enable us to broaden our reach and benefit from higher pricing levels. We have now signed a number of channel distribution agreement with Telmore across Scandinavia that are strategically important. The same is true of the deal with Boxer in Denmark.
A lot of the changes that we have made and the deals that we have signed are more marginal gains, and these will together add up to something more significant over time. All of this increased activity and speed is about driving the future growth of Modern Times Group in key areas of content, technology, and geographical expansion. I will now move straight to our comments on each of the business segments. Let's start with the Scandinavian free TV operations. The official TV advertising market data for the quarter isn't out yet, but we expect that the Swedish and Norwegian market did grow by less than net 2.5% and 5% that IRM forecasted for each market. No forecasts are available for the Danish market, but agency-handled invoicing on a gross basis, as measured by DRB, was most probably down between 3% and 8% in the quarter.
Our Scandinavian free TV sales were down 6% at constant exchange rates in the quarter with lower year-on-year sales in all three countries. Sweden is our largest market, and our combined audience share was down year-on-year, and this mainly reflected lower ratings for our secondary channel, TV6, which airs almost exclusive acquired programming. Both TV8 and TV10 increased their audience share, while main channel TV3 was slightly down on a full day basis, but up in key prime time slots where we have focused our attention and investments. The spring schedules are now being launched, and we have reordered more formats than in the recent seasons in order to build continuity in key slots, as well as a number of new international and locally produced shows.
The off-prime daytime slots have shown some improvement so far in 2013, and we are now working on the fall schedules to make further improvements for TV3 in particular. TV10 will also now benefit from higher penetration following the agreements with Telenor to include the channel in Canal Digital's cable TV package and broaden out the availability in the V2 network later this year. Our overall 2013 gross rate card prices are up, and the negotiations with the agencies are ongoing. We do expect the market to grow in 2013, and our vision is clear: to gradually regain the audience and market share that we have lost. Furthermore, we have the upside of growing our regional and online audience and advertising market shares. Turning to Denmark, the combined audience share for our three channels was down year-on-year.
TV3+ continued to grow its share, and both TV3+ and TV3 Puls achieved higher prime time ratings. The agreement that we have signed with Telenor and Boxer to make TV3 and TV3 Puls available on local digital, terrestrial, and satellite networks are strategically very important, as our channel will now be available on all the major platforms. Both channels' penetration will increase by over 10 percentage points during the year. This is already resulting in some higher audience shares, higher advertising market shares as we deliver a better product with more reach and higher carriage fees. A number of hit formats are about to premiere on TV3, while TV3+ will benefit as it starts to add coverage of the English Premier League football from the summer.
We have also entered into a new sales agreement with Viacom and begun selling advertising airtime on their MTV and VH1 channels as part of our Media House channels package. This adds approximately two percentage points to our reach and will further support our advertising market share. As in Sweden, our 2013 gross rate card prices are up, and the negotiation with agencies are ongoing. It is unclear whether the market will grow in 2013, but we will take market shares and expect to grow our revenues. In addition, the catch-up services for our Danish channels are the most-watched commercial channels online in Denmark, and we are attracting an increasing share of the growing online or AWOT media spend.
Turning finally to our smallest retail operation in Scandinavia, the combined audience share for our two channels in Norway was down year-on-year and reflected lower ratings for both TV3 and Viasat 4, as a number of locally produced formats did not perform as well as anticipated against the competition. We did see some improvement in December as all-day and prime time rating for both channels were up year-on-year. TV3 ratings so far in 2013 reflects the fact that competing channels have launched key own productions earlier this year, while Viasat 4 ratings are up year-on-year. Our choice of format and execution is improving with the new management team, and we are in the process of launching a number of key shows, including formats that have worked well before.
Work is also on the way on this year's fall schedule, and we are investing further to identify and secure new formats. We are doing more scouting, more pilots, and more testing than ever before, and we are working with much longer planning and commissioning horizons. In addition to improving our execution, it is also essential that we launch additional complimentary channels in Norway in the same way that we have done in both Sweden and Denmark. This will, of course, increase the reach that we can deliver to advertisers. We have announced today that we now have concluded a distribution agreement with Telenor that will enable us to launch and distribute a third channel in the cable network, and we plan to launch this new channel later in the year.
Overall, our 2013 gross rate card prices are up, the negotiation with agencies are ongoing, and the market is expecting to continue to grow in 2013. Moving back to the overall Scandinavian free TV business, our upbeat pace was down slightly less at constant exchange than the 6% reduction we reported as we deferred certain programs investments into 2013. We will increase our investments further in 2013, and that started the first quarter as we look to regain ground or build on more positive momentum in each market. The level of investment will depend, of course, on both the availability of good shows and the market development. But as before, we do not anticipate any major increases. Overall segment operating profit were down year-on-year in Q4, but we still delivered an operating margin of almost 22%. Now let's turn to the Nordic pay TV business.
We are on track with the plan that we laid out to you at the Q3 results and making the investments and operational adjustments that we described at the time. Revenue were up 3% at constant exchange rates following higher HD and Viaplay subscriber intake after the investments we have made, as well as one-off pay-per-view revenues from Mikkel Kessler title fight in Denmark. The overall subscriber base continued to grow as Viaplay rapidly grew its OTT online subscriber base. The service is now available on almost all types of internet-connected devices, including the Sony PlayStation 3, the Microsoft Xbox 360 games console for the first time, and we have launched new versions of Viaplay app on the Apple iOS and Google Android platforms.
We also raised the price for Viaplay's top package in Sweden by 25% in January, which demonstrates the flex in the model and the popularity of the sports content, which we have secured on multiyear deals. The satellite subscriber base continued to decline in the quarter, which was due mainly to the competitive pressures in the Danish market that we have described last quarter as well. However, Nordic premium satellite subscriber ARPU was up 4%, following the HD subscriber intake, as well as price increases. Nearly 60% of our premium satellite subscribers now have HD subscriptions. The decline in the number of satellite subscribers is not fully offset by the growth in the third-party network subscriber base, but we have now strengthened our offering through further strategic deals with Telenor.
Our Danish satellite platform and pay TV channel package now include SBS Danish free TV channels, Kanal 4 and Kanal 5, and C More's channels, C More Sport and Canal 9 for the first time. We have also rebranded the fully owned TV 2 Sport and TV 2 Sport Premier League pay TV channels as TV3 Sport 1, TV3 Sport Premier League, and launched a new TV3 Sport 2 channel. This means that Viasat subscribers can now watch Danish, English, Spanish, Italian football league games, as well as Champions League football, all of the major free TV channels, and premium movie and documentary channels. We have also broadened the availability of our Norwegian pay TV offering by making another deal with Telenor to include all of our channels and catch-up services on the Canal Digital cable TV platform for the first time.
Looking forward, we continue to expect the total Nordic pay TV subscriber base of both Viasat and Viaplay subscribers to grow, but we also continue to expect that the ongoing decline in the satellite premium subscriber base will not be fully offset by the growth in the third-party network premium subscriber base in 2013. Segment OpEx was up more at a constant exchange rate than the reported 7% increase in Q4 and reflected the investment that we have been making in premium movie and sport content and Viaplay. Segment profits were therefore down in the quarter, and we had a margin of just under 16%. Looking forward, we do expect our Nordic pay-TV revenues to continue to grow at constant exchange rates in 2013.
Following the acquisition of the remaining shares in TV 2 Sport, the Nordic Pay-TV business is still expected to report an EBIT margin in the previously provided range of approximately 10%-12% for the full year 2013 and a higher margin in 2014. We then move on to the free TV emerging market business, this is the standout performance of the quarter. Our sales were up 8% year-on-year at constant exchange rates. We grew our sales and increased our advertising market share in almost all of our territories. We also benefited from the consolidation of the LNT operations in Latvia. Sales were up even more by 10% when excluding the result of the Slovenian operations that we closed down in the first quarter of last year. Combined sales for the largest market, Baltics, Czech, and Bulgaria, were even up more by 12%.
Segment operating costs were up at constant exchange rates in the quarter as the impact of the closing down of the Slovenian operations and the ending of the depreciation charges for the Czech and Bulgarian terrestrial broadcasting licenses were more than offset by the consolidation of the LNT operations and ongoing program investments in the Czech Republic. Segment operating profits were therefore up 55% in the quarter with a substantially increased operating margin of over 15%, while combined profits for the largest market were up 35% with a margin of 17%. Looking at the three largest markets in turn, let us start with the Baltics, where our sales were up 39% at constant exchange rates and included the newly consolidated LNT operations in Latvia, as well as year-on-year sales growth for the Lithuanian operations.
The Latvian and Lithuanian TV ad markets are estimated to have grown in the quarter, while the Estonian market is estimated to have declined. We are the largest media house in these markets, and our Latvian media house audience share has been boosted to over 60% by the addition of the LNT channels. We are facing increased Russian language programming competition for the TV3+ channels in Estonia, while the analog switch-off in Q4 in Lithuania has benefited our smaller channels, but also increased the number of rival channels with national distribution. Secondly, to the Czech Republic, where our sales were up 4% year-on-year at constant exchange rates in a TV advertising market that we estimate to have grown slightly in the quarter. Our media audience share continues to grow.
We have this month launched the fourth national free TV channel, Prima Zoom, which targets male 35-plus viewers, complements the existing channel portfolio, and already has a household penetration of over 90%. Like the sales cooperation with Viacom in Denmark I mentioned earlier, we also started selling advertising airtime on TV Barrandov channel at the beginning of this year, and the combined target audience share for our channel plus the Barrandov channels would have been 47% in Q4, which places us head-to-head with CME as market leaders now. Finally, to Bulgaria, where our sales were up 5% year-on-year at constant exchange rates in a TV advertising market that we estimate to have declined in the quarter. We now have a substantially higher combined audience share following the investment we have made in successful locally produced programming.
In Denmark and Czech Republic, we also have a strategic sales cooperation in Bulgaria and currently sell advertising airtime for the Discovery Channel, for TLC, the Disney Channel, Cartoon Network, for FOX Crime, FOX Life, 24Kitchen, and the National Geographic Channel. These additional channels would have boosted our target audience share by 10 percentage points to 42 in Q4, again placing us head-to-head with CME as market leaders now. Overall, we have not yet seen any significant or sustained trend shift in advertising spending or pricing across these markets, but we have a clear operating momentum, and we are investing in programming and the new Czech channel launch in order to further increase our market shares moving forward.
Also the pay TV operation in the emerging markets where segment sales were up 19% at constant exchange rates, following continued healthy subscriber intake for our satellite platforms in the Baltics, Russia, and Ukraine, as well as high mini-pay channels subscriptions growth in Russia in particular, in what is the seasonally strongest sales period of the year. Our satellite platform added a net of total 52,000 new subscribers year-on-year and 41,000 subscribers in Q4 alone, while we have also added more than 19 million wholesale mini-pay subscriptions over the past year and more than eight million subscriptions in Q4 alone. We have been selling our premium package of four HD channels in Russia, Ukraine, and CIS since the beginning of December, and two of the largest Russian cable TV networks have already signed contracts to distribute the package.
The lower than anticipated increase in segment operating costs in the quarter reflected the focus on operational improvements that I mentioned earlier, including general and administrative cost savings and the renegotiation of content rights, which offset, to some extent, the previously announced investment in the three new HD pay TV channels in particular. The level of investment in Ukrainian UATV prepaid satellite service was lower than anticipated, and will also be lower in 2013. This is because we are reviewing our UATV package and pricing structure in light of the popularity of the low-cost DTT offering introduced last year, and there being no clear timeline yet for the free-to-TV channel encryption, which will accelerate pay TV penetration when it comes. We therefore report a small operating profit in the quarter compared to the previous anticipated operating loss of up to SEK 20 million.
Looking forward into 2013, we expect the investments we are making to generate healthy ongoing revenue growth levels and for the segment to achieve a break-even EBITDA result for the full year following the operational performance and adjustment I have mentioned. This compares with our previous expectation for a loss of less than SEK 50 million. Finally, just a quick word on the other business segment where the reported sales and cost decline mainly reflected the sales of Bet24 operations in May. Segment sales were down 2% in the quarter at constant exchange rates when excluding the contribution from the Bet24 operations. The decline mainly reflect the lower Swedish radio advertising sales, as we ceased operating the 20 energy licenses in Sweden at the end of the year.
It was offset to some extent by the growth in the Norwegian radio business and MTG Studios operations, but not completely. We continue to believe that SBS should not be allowed to take over the operation of the 20 energy licenses and assume a dominant position in the market, with some regions of Sweden now only having one commercial radio station. This potentially set the market back to conditions not seen since the early 1990s when it comes to listener choice. Segment operating costs were up at constant exchange rates when excluding the Bet24 operation, which reflected the consolidation of the Paprika Latino production business and increased MTG Studios production cost, but lower radio cost. Segment operating profits were therefore substantially down and the segment broke even in the quarter. In terms of outlook for these other businesses, the Swedish radio cost base has now been adjusted.
The Norwegian radio business is expected to continue to grow, but the revenue and cost flows in the production business will continue to fluctuate, depending on production schedules and format sales. This is all for me for this time. Over to Jonas.
Thank you. Group sales for our continuing businesses were up 4% year-on-year at constant exchange rates in the fourth quarter, reflected sales growth across three of our four broadcasting divisions. Currency exchange rate movements did again play a part in this quarter, with fairly large swings in exchange rates between the Swedish krona and the Danish krona and euro in particular. Our sales performance was therefore better at constant exchange rates than at reported rates for all of our business segments, especially for the emerging market segments where the delta was up to 5 percentage points during the quarter. Group OpEx was up year-on-year at constant exchange rate as well, even more so when you exclude the operations we have discontinued or sold.
This reflected the ongoing investments that we've been making in the fourth quarter, as we discussed, that we will continue to make throughout this year. Group operating income, excluding associated company, was down year-on-year as the higher profitability in the emerging markets' free TV operations was offset by lower profits for the Nordic operations. Our share in earnings of CTC Media reflected the impairment of their analog broadcasting license in the third quarter, following the announcement of the terms for a second DTT multiplex. The part of these charges that it is related to Peretz is accounted for in our equity rather than as an impact over the P&L, as we sold this channel to CTC Media in 2008, we didn't record again on that channel.
Meanwhile, total depreciation amortization were up in the quarter as we consolidated the more capital-intensive Sitios open network operator, this will be the case moving forward as well. Our effective tax rate was below 25% in the quarter and for the year, as anticipated. As we said in Q3, we currently expect our full year 2013 effective tax rate to be in the middle of the 25%-30% range. When it comes to cash flow generation, we had a very strong fourth quarter, also a very strong full year. We managed to convert 93% of group EBITDA into net operating cash flow for our fully owned operations. The conversion level was higher than previous years and quarters due to the positive working capital change that we saw.
We generated over SEK 1.9 billion of net cash flow in 2012, which was 7% higher than in 2011, we invested SEK 300 million of that during the year in new businesses, in Paprika Latino, the Eastern European studios, LNT, and the CTAs, as we discussed before. Group CapEx were up in the fourth quarter, which was mainly due to the ongoing investments in Viaplay also the consolidation of CTAs. We expect CapEx to increase slightly from the 1% of revenues during this year we saw. For 2012, we still expect this asset-light CapEx model, that we believe is very beneficial for us, to be the same moving forward. Following the strong cash flow quarter, we reduced our borrowings by a net SEK 377 million in the fourth quarter, reduced our net debt from SEK 800 million to virtually zero for the full year.
We continue to be in a strong and stable financial position, therefore we're proposing to increase the ordinary dividend by 11% to SEK 10 per share to the AGM this year, which is equivalent to 42% payout ratio. Our focus is still to be a growth company, we will continue to invest organically and through M&A transactions to accelerate the future growth and development of the group. We've continued to review a number of targets in both existing and new markets, we are doing this at a time when a large number of our competitors do not have the financial flexibility that we have, we don't have the same options that we have, this we believe is and will be a clear competitive advantage moving forward. Now back to you, Jørgen.
Thank you, Mathias. Just a quick summary before we move to the Q&A. The Q4 reflects the investment that we have been making as well as the adjustments that we make every day to improve the performance of each business line and the group overall. The emerging markets free TV assets are almost all performing well taking further advertising market shares in markets that will return to higher level of growth over time. Our Scandinavian free TV ratings are a major priority, the deals that we have done with Telenor and Boxer are major steps forwards for us. Viaplay is performing well and growing rapidly, we are constantly improving the customer experience and clearly have the strongest content offering in this key area.
We have also enhanced our satellite pay TV platform and channel offerings in the Nordics. This will of course help us moving forward. The emerging market pay TV operations have shown strong growth. We now have an even more large-scale mini-pay channel distribution agreement in place. We are innovating across the board with new products, services, channels, and corporations. We are bringing in new talent all the time to help us build the Media House of the future. Finally, we are proposing a higher dividend giving our very strong balance sheet. We are hunting down and reviewing organic and M&A-led expansion opportunities across our current and new markets in order to further accelerate our development and drive the group's future growth. That concludes our comments on the result. We will now be happy to answer your questions.
We have a lot of people on this call today. We want to answer each of your questions. Please allow time. Please limit yourselves to not more than two short questions. 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 followed by the digits one on your telephone keypad. You will enter a queue. Should you wish to cancel, please press star followed by the digit two. The first question comes from Stefan Nelson of SEB. Please go ahead.
Yes. Starting off, just to understand your pay TV guidance, do you still expect the 2013 sales growth to be flat excluding TV2? If you don't expect Viaplay to compensate for a decline in premium subscribers, what do you see will drive the ARPU to kind of help you reach flat?
Hi, Stefan, it's Mathias. When it comes to the first question, I don't think we said anything firmly on revenue. We still have to see how the year develops. The second question, I didn't understand, or I didn't hear.
Okay. The growth is just including TV 2. That's how I should understand the revenue guidance.
Yes, it can happen a lot during a year, that's why we're not so firm on any firm guidance on this.
Sure. Okay. I'll use my second question. What do you see in terms of ARPU going forward? The whole households are not growing anymore, do you see any opportunity to raise ARPU, will the distribution deals that you've signed support that in any way?
What we are seeing right now is, of course, as we said as well, that the DTH platform as such, we will see a decline in 2013 as well, we believe. If you take the DTH platform, the third-party partners we have, and Viaplay combined, we expect to grow our combined base. That is also what we have seen right now is, of course, there's a very good traction on Viaplay, and therefore combined, we will see subscriber growth in 2013. That is what we expect.
Sure. Just on the distribution deals, how will that help your pay TV business, the traditional one going into 2013, the ones you signed in Norway and Denmark?
I think Norway is very spectacular in that respect, that we are going to have all our pay TV channels in Canal Digital cable universe. Of course, that will increase our footprint there. Of course, we will be exposed to more new clients, and that is interesting for us. When it comes to the distribution deals as such, we will also have a new channel, as we mentioned as well. It will be a new channel in Norway going into the basic tier in Canal Digital cable. We made a distribution deal with them in Denmark, where Canal Digital can now distribute TV3 and TV3 Puls. At the same time, we are now able to distribute Canal 4, Canal 5, C More channel eight and nine to our DTH subscribers, which of course makes our DTH package in Denmark much stronger.
In Sweden, the deal consists of TV10, which will go into basic cable in Telenor in Sweden, which of course will increase the penetration of TV10, making TV10 available to more customers. Overall, it's quite an important strategic deal that we have concluded with Telenor in the different Nordic markets.
Right. Okay. Mainly it helps your free TV, I guess, more than your pay TV.
No, it helps pay TV, of course, as well because we are coming out broader and we have more opportunities to sell. For instance, in Norway, our pay TV channels, our movie channels, and our sports channels, we thought we would be more customers in Norway. We have the opportunity to buy these channels. That will help our pay TV channels. In Denmark as well, we have a better package now. We have been without the C More channels and the SBS channels since we started, basically. Of course, now we are on an even playing field with some of the other distributors in Denmark. Of course, that should help an improved package, should help our pay platform in Denmark as well.
Okay, great. Thanks so much.
We will now take our next question from Lisa Yang of Goldman Sachs. Please go ahead.
Hi, good afternoon. My first question would be on Viaplay. I would appreciate really any details you can give. I understand you won't reveal the subscriber trends, but at least the churn, the output trend, target breakeven. Just wanted to have your thoughts on the Netflix launch. They commented they had a very successful launch in the Nordics. Have you seen any impact on Viaplay? That would be my first question.
Yeah. When it comes to Viaplay, I think what we have seen is that the product has been very well received. We see that we are gaining subscribers month by month, it is a very appealing and attractive product that we are having in our Nordic regions. When it comes to Netflix, I think the interesting thing is, of course, that the total market is a big potential. The more operators you have in the market, the more interest you will have as well from consumers and so forth. What we are seeing right now, of course, with us, is that we now have with the product that we are having the opportunity to reach all households in the Nordic region with our movie offering and with our sports offering. That is, of course, what we are focusing on.
What do you think differentiates yourself from your competitors? It's more your sport offering, or is it also technology?
No, I think it is very clear when you look at the content offering. We have invested a lot in movies, if you look at our movie lineup, it is a very strong movie lineup. We also have own unique produced content in our offering as well. We have our own produced content in Viaplay as well, which you get as a Viaplay subscriber, which is unique. Then, of course, we have on top of that the sport. The product as such is very strong. Of course, we are constantly analyzing what we should do with the products, how to improve them, price points, and so forth.
Therefore, as you probably have noticed as well recently, we increased the prices in Sweden for Viaplay for our sports offering with more than 25%, or 25%, exactly because we saw there was a big consumer attraction to the product. Of course, it is interesting for us to make sure that we constantly put more content into the product to make sure that we are a very good offer when consumers have to choose these kind of services.
Okay. My second question, if I may, would be on pay TV Nordic. Since you gave the pay TV guidance at last Q3 results, have you seen any changes at all in the competitive dynamics, especially in Denmark? Can you also quantify the one-off impact of the pay-per-view revenue in Denmark in Q4?
I think what we are saying and what it is important is that we're expecting a 10% to 12% margin in 2013. We have seen in the Q4 that we have a higher HD intake. It looks like that our investments that we have done in HD seems to be good in terms of subscribers as well. Viaplay as well, of course, has increased as well as subscribers in the fourth quarter. I can't split off the different items for you. Kessler, he will fight again. I can promise you in the month of May, I think he will meet a guy in England, so he will come in the second quarter again, hopefully. If he wins, we'll continue to do a lot of interesting pay-per-view events.
Okay, thank you.
We will now take our next question from Baldur of Danske Bank Markets. Please go ahead.
Hi, I have two questions. On free TV Scandinavia, could you just reiterate what you stated about the pricing environment in Sweden, Norway, Denmark for 2013, what you've seen so far?
Yeah. What we are seeing right now is that we have seen, for us, our gross rate card prices in all the three countries we have gone out with has increased. We have seen as well that of course during the negotiation we're having right now, we still see very good traction for our products. We have very interesting target groups. Pricing wise, we have increased our rate card and that is what we can say for now.
In terms of audience share gains, you clearly state that you aim to grow those figures. How should we view programming spend or OpEx growth 2013? Is it the mid-single digit range that you have in the past? You deferred some programming spend into 2013 according to the report.
Yeah. When it comes to audience growth, there are many ways of doing that, and as you know as well, we have increased our penetration for TV3 and TV3+ in Denmark with over 10 percentage points. That is a way of growing. Already now we can see that TV3 Denmark is up 20% versus last year in the month of January. This is one way of doing it. Yes, we are investing more in the programs as it is right now. Q1 OpEx will be up.
Is it fair to assume that mid-single digits, is that a fair assumption for 2013 in terms of OpEx programming spend growth?
I believe, Mathias, I think we deliberately decided not to give a firm outlook for this because it varies, as you've seen throughout 2012. What is clear, we've continued to invest in programming, and as Jørgen said, it will be up, and it will be up in Q1 as well, just to make sure we understand that, everyone. How much it will be up, of course, it depends on the availability of programming and also the market and the competitive dynamics in the market, I think. Remember as well that the Norwegian channel launch will come in throughout the year and not in the first half of the year, I guess.
Okay, thanks.
We will now take our next question from Adrien de Saint Hilaire of Exane. Please go ahead.
Yes, hello. Good afternoon, everybody. A few questions on the emerging markets. First of all, on pay TV. Shall we expect the growth to remain close to 20% since because you've launched a new offering in Russia and Ukraine, or was the 20% growth just a factor of easier comparatives?
Yeah, of course, we are very happy with the development we are seeing in the emerging markets right now. As you say yourself, it's been a very fine quarter. The mini pay subscriptions, as you know as well, were up with 8 million. Also we have launched our premium movie offering. To give you an expectation for the full year, I think is very difficult. It is big markets and of course we are negotiating with a lot of potential partners right now, both for our mini pay channels and our movie channels. It is very difficult for us to give you an expectation there.
Mathias, here, just to be clear as well, just so people don't get too carried away. I think Q4 was a very strong quarter when it comes to growth rates. Even though we believe, of course, we should grow very fast and this will be probably one of the fastest-growing segments we have, there is some level of gravity as well. The larger you become, the more difficult it is to keep up the high growth rates itself.
Okay. On the free TV side in emerging markets, can you discuss about start of the year ad trends? I'm particularly interested in Czech Republic, where it seems that you have had a very strong start into the year.
It is very early stages, so it would be difficult for me to give any guidance, any expectations on that. Of course, what we know is that we have increased our share for the Premium portfolio. Zoom has increased as well. The commercial viewing for the Total House. We also have the TV Barrandov in our portfolio now. We have enhanced our product in Czech. The market development, it is too early to say.
Okay. If I can just sneak in one last question, can you continue to grow and expand margins in free TV emerging markets, despite the fact that you're launching new channels, for example, in Czech Republic?
It depends on many things as well. It depends on market development and so forth. Right now, the people in the countries are doing very well. They innovate a lot. We have a very good traction when it comes to the ratings. They are doing fine. It is a long-term game in Eastern Europe also for free TV, of course. That depends a lot on markets and performance and so forth.
Okay. Thank you very much.
We will now take our next question from Rasmus Engberg of Handelsbanken. Please go ahead.
Yes. Hi, guys. I'm going to make another attempt to get something on the free TV Scandinavia on the cost side there. You did lose ratings here and your costs were down. Do you think you can turn around this business without committing significant investments on the cost side, or how do you see that?
First of all, I think it is important that we proceed investments. It is not enough just to put a lot of money into the schedule if you don't have the right ideas and if you don't execute well. I think that is what we have been struggling with the last year. Now it's doing much better. As you know, TV3, they were up in the third quarter on the channel full day, full quarter basis. What we see now as well, actually, in Sweden is that the prime time where we have invested the money is actually up as well in the fourth quarter. Unfortunately, we then see the daytime and nighttime is struggling a bit more, so the overall share is down. For us, Rasmus, it is about execution. It is about going out, finding the right formats, and then investing.
We are finding more formats now. We are taking more formats from spring 2012 into 2013, from fall 2012 into fall 2013. That, of course, means that then we have to find less new shows, and that, of course, put a different pressure on our programming people so they can focus on the shows that we actually can see we want to continue build on, and then, of course, the new shows which we want to have into the schedule. Yes, we will invest more. We are investing more already in the first quarter in terms of program, because we see, to a large extent, a better execution and a better show selection. That is what we are seeing right now. You saw the spinoff of the Svenska Hollywoodfruar, which turned out to be very successful. It was a test.
We had few programs, but had a rating almost similar to the original format. That is, of course, something which makes me happy that we have this innovation and, of course, that we can see that it is possible to make very good shows also on the things we're broadcasting right now, which then will put less pressure on us finding more new shows, which is tough.
Can you give some sort of indication on what Given you will, of course, know what you're going to broadcast in Q1 and most likely for most of Q2 as well, what types of cost increases should we be looking at, would you suggest? Are there cost increases at all in free TV?
For the year, it is very difficult. It depends, first of all, on market development.
Sure.
If the market will continue to be, or the market be very strong, of course, we want to invest more. If we find shows, of course, we want to invest. That depends a lot of the market development. In Q1, as you say, we know it. Yes, we will increase the spending. It is a lower single-digit number that we increase our program spending with in Q1.
Fair enough. Thank you.
It is not because we don't want to be more specific. Of course, it depends a lot on the market. It depends a lot of the shows out there. We don't want to throw good money after bad money. That's why we want to make sure that the things that we are broadcasting will have an impact.
Is that a reflection that you're a little bit uncertain of where the market is actually going to go in this year, or how should we sort of interpret that?
I don't know. I think if you talk to IRM, they expect the market to go up in Sweden and to go up in Norway. That is what they have said so far, and that is, of course, based on the intelligence that they have. In Denmark, we have no clear view right now how the market will perform full year, since we don't have the same expectations systems in Denmark that IRM, that they have in Sweden and Norway.
All right. Thanks. Fair enough.
As a reminder, to ask a question at this time, please press star one on your telephone keypad. We will now take our next question from Filippo Lo Franco of JP Morgan. Please go ahead.
Yeah. Good afternoon, everyone. I have two questions, please. The first one is on free-to-air TV Scandinavia. You say that you're asking for a gross price increase. My question is that what should make you so confident that eventually you will have a net price increase, given that your audience share continue to be weak? It's somewhat related to the strength, maybe, of the advertising market that make you think that advertiser will accept to pay higher prices. This is question number one. Question number two is on pay TV Nordics. Overall, you continue to lose subscribers. When do you think that we are going to see stabilization? Or maybe should we expect a continued decline in the number of subscribers? Thank you.
When talking about Free TV Nordic, what we are seeing right now is that we see price increases on rate cards for all the broadcasts between 5% and 10%, largely. That is because there is a demand, of course, and that we also see that TV as an advertising medium continues to be very strong. It is something that the advertisers, of course, have focus on to get a good return on investment and that you get through TV. At the same time, of course, we have very good target groups. Our channels are very well-positioned as well, and we have very interesting target groups on our channel. That, of course, makes our proposition appealing to the advertisers. You have the Danish situation now as well, where you are increasing your penetration by 10 percentage points.
Of course, that makes our product in Denmark much more appealing in terms of reach and so forth than it was before the increase. Now in Norway as well, with the opportunity to launch a new channel, of course, we will have a better product there. That is why we definitely believe that we will see price increases and for our sake, of course, we will see a better product in some of the markets. In terms of subscribers-
Sorry to interrupt you on this. The fact that the TV is a strong medium, it's something that is related with the overall advertising market, or it's because it takes share from the declining print media?
Yeah. What you see is that we do take share of the full advertising market, TV and online, they do take share.
Yeah.
Yeah. Two largest competitors, yeah. You talk about the Nordic subscriber. We do expect 2013 that we will decline in DTH subscribers. Again, it is largely related to Denmark. The Swedish platform is doing fine. We have very good product there. In Denmark we do see fierce competition. Of course, we do expect as well now that we have added a lot of new channels to the Danish platform, that we will hopefully see a better traction for the platform now than we saw in the past. Now we have a more complete offering, which we didn't have just a few months ago. Of course, that should help the Danish platform. All in all, we will lose DTH subscribers in 2013, we expect, but mainly due to Denmark.
Okay. Fantastic. Thank you very much. Bye bye.
Yep.
We will now take our next question from Anders Wennberg of Brummer & Partners. Please go ahead.
Hello, Anders Wennberg here. On the pay TV ARPU development, of course, ARPU has been driven by two things. It's been driven by price increases, but also been driven by growth of all these products, Viasat+, Multi-Room, HDTV, et cetera. A lot of this, you give data and report on a lot of these sub-sectors or sub-products, and a lot of them seem to be slowing down or even declining down a little bit Q on Q in Q4. Isn't that going to make it a bit harder to continue drive up ARPU for the pay TV business?
I think it is a trend that we've seen, we talked about for quite some time. I think that the high ARPU growth rate you've seen historically is not going to stay at or as high as we've seen it. Gradually it's going to come down the ARPU growth, I think. Which is a natural thing. I think you probably know that we charge extra for the Viaplay multiscreen in one country, but it's included in the offer in the two other countries. Yes, it is slowing down a little bit, but that's the name of the game, I think.
Okay. Secondly, also, I wonder if you can help us quantify, I know people tried before, but the boxing thing in Denmark and also the positive FX movements in the pay TV business and on the free TV and on side the deferral of the cost into next year. Can you say anything about the size of these effects?
I think as we said, the boxing in Denmark was mainly a revenue effect and less of an EBIT effect. We don't want to tell the whole world how much money we had to turn over that event. That's the reason why we don't want to say it. It's not 100% of the overall delta, let me put it that way. It's part of it.
Is it the majority of the delta, or?
I'm not going to tell you more than that, sorry. Then the same with FX. It's a mix of everything. What we discussed is the difference between the largely the same as Q3 revenue base and the new revenue base is the boxing. It's some of the FX. Also, I think, which we didn't stress as much is the intake of Viaplay subscribers in the fourth quarter is much stronger than we expected, which is obviously quite good, particularly as we increase the price on sports, et cetera. It seems to be a good product in market.
Good. On the cost side, in the free-to-air business, how much was that deferred into next year?
Well, I think we had some outlook for the full year, I think, that's the difference, the delta you saw now and what the outlook was.
Okay, thanks.
We will now take our next question from Will Smith of Jefferies. Please go ahead.
Yeah, thanks, guys. Just one question from me. You mentioned that net debt's down near zero now. We're all aware with the investments going into content and the increase in the dividend that you just highlighted today. Can you talk a little bit about where you see an efficient capital structure and how you're thinking about cash returns looking out over the next couple of years, given the payout ratio hasn't changed?
Well, I think the policy payout rate didn't change, I guess, but the actual payout ratio changed up, I think, 10 percentage points, I think. I think what we started to talk about today is we believe fundamentally right now that it's very good to have a very strong balance sheet, that there's a lot of opportunities out there that we want to be able to capture when they come by us. We see, I think, some of our competitors being fairly weak. Some of our competitors are selling assets, selling content, and cannot afford to launch as many products as they wish program. That's a fundamental belief, I think. Over time, sorry to be a little bit boring, but it is a board decision at the end of the day how our leverage position will be.
I think given what we just said, in the short term, I think we feel quite comfortable with the fairly low leverage in the balance sheet.
Great. Very clear.
That concludes the question and answer session. I will now hand the call back to Jørgen Madsen for his concluding remarks.
Thank you, operator, and thank you all for your time today and for your continued interest in MTG. We look forward to talking with you over the coming weeks and months to keep you updated on our progress. Thanks for now, and goodbye.
That concludes today's conference call. Thank you for your participation.