Good morning and good afternoon, ladies and gentlemen, and thank you for holding. Welcome to the MTG second 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 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 trade 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 www.mtg.se, and in the group's registration statement on 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 Hans-Holger Albrecht, MTG President and CEO, who is joined on the call today by Group CFO, Mathias Henningson. Please go ahead, gentlemen.
Thank you, operator, and good morning and good afternoon, everyone. Before I start, I trust that you all have by now seen that we have made some changes to the presentation of the result statement in order to make it easier to read and to include relevant forward-looking information. Let me maybe start this conference call with a quick overview before we dive into the operating areas. Our sales were stable year-on-year in the second quarter as the growth in our Nordic and Emerging Market Pay-TV businesses offset the decline in our advertising-financed Free-TV business in Scandinavia and the emerging markets. However, Q2 operating costs were only up 1% as savings in the emerging market Free-TV operations and a healthy operational gearing in the emerging markets Pay-TV business balanced the investments in the Nordic free and paid businesses.
As a result, the margin of 16% for the Free-TV Emerging Markets business is the highest for more than three years. The Pay-TV Emerging Markets margin more than doubled to 21%, and the margins of 23% and 18% for the Free-TV Scandinavia and Pay-TV Nordic business are amongst the highest in the industry. As we described at our recent Capital Markets Day, this is the moment to invest further, we believe, to drive subscriber intake in our Pay-TV business. We do not see the need for the same level of investment on the Free-TV side, where it is more to do with execution in markets that have not changed in terms of outlook in the last three months.
We have, like always, work to do in Scandinavia to take back and increase our advertising market shares. We have taken further advertising market shares in the majority of our emerging market territories. Last, financially, we are in a very strong position, like always, with low gearing and substantial available liquid funds. Our cash flows have enabled us to reduce our net debt by 55%, or almost SEK 1 billion since the end of Q2 last year. This also includes the payment of an increased annual dividend payment of SEK 600 million in Q2 this year. We have done some deals in the first half of the year. For example, disposing of the non-core betting operations, as well as buying the complimentary LNT Free-TV business in Latvia and the Paprika Latino emerging markets production studio. You should obviously expect more from us moving forward.
Much about the general overview. If we then dive into the operations and starting as usual with our Free-TV business in Scandinavia. As you have seen, probably the official market data are not out yet. We expect that the Swedish and the Norwegian TV markets have been growing in the second quarter, while the Danish market is expected to have declined. Our sales were down 3% at constant exchange rates as we lost TV advertising market share in Sweden and in Norway. Still, we increased our share if it comes to Denmark. Our Swedish ratings were negatively affected by the fact that both the Ice Hockey World Championships and the Euro 2012 football were shown on competing channels in the quarter. Whereas we showed the Ice Hockey last year. That's mainly affected, obviously, our ratings on TV3 and on TV6.
In Norway, the Euro 2012 was less of an issue as the national team did not qualify. The competition has increased with the growth in the new channels that has been launched. The measures that we are implementing have started to have an impact, and our audience shares are more stable quarter-on-quarter. In Denmark, our combined Danish Media House audience share is slightly up compared to the first quarter. Here too, we saw some effects from the Euro 2012. We continue to focus on enhancing our execution and work with the programming schedule and sales initiatives. In the course of the fall, we have presented our full program lineup to advertisers and media in each of the countries and have received positive feedback so far.
As all of you know, the proof obviously will be in the ratings and the sales delivery in the fall, which will start after the summer break. In terms of cost, segment OpEx was up 4% in the quarter, which was substantially less than the 14% growth in cost we saw in the first quarter. We have been making programming investments, but as I've mentioned, we did not broadcast the Ice Hockey this year in the second quarter. The big increase in Q1 was largely due to the fact that you remember, that we launched our spring schedules much earlier this year. This did, of course, mean that our operating income was lower than last year, but please be aware that both Sweden and Denmark delivered higher profits in Q2 this year than last year.
We talk about the outlook, the outlook for the remainder of 2012 is for continued TV advertising market growth in Sweden and in Norway, but the picture is less clear if it comes to Denmark. Our objective is, of course, to take back and increase our Scandinavian advertising market shares. This, as I mentioned earlier, has more to do with the execution of the fall schedule than incremental investment. Therefore, we anticipate that the full-year OpEx for the Scandinavian free TV business will grow at a normalized mid-single-digit percentage point level rather than the previously anticipated mid-to-high single-digit percentage point levels. Much about the free TV in Scandinavia.
We then move to our Nordic Pay-TV business, where we have seen revenues up 5% at constant exchange rates and premium satellite subscriber ARPU was up 7%, following the previously introduced price increases and the continued take-up of our value-added services. Our overall premium subscriber base was down compared to the first quarter, but our third-party network subscriber base continued to grow. The satellite subscriber base was down in Denmark and in Norway, but was stable in the biggest market, Sweden. Our Viaplay online Pay-TV subscriber business has continued to grow as we further enhance the service and the content offering. The newly launched Viaplay set-top box in Sweden now offers customers a unique proposition of Viaplay's streamed on-demand content, 24 streamed linear Viasat channels, and on top, access to six DTT free view channels via an additional aerial connection.
The near 18% operating margin in Q2 reflects both the healthy top-line growth and the ongoing investments we are making in Viaplay and our overall premium content and channel portfolio. Therefore, profits were stable year on year. We go to the outlook for the Pay-TV business in Scandinavia, we continue to expect sales growth to be driven by rising satellite premium ARPU and third-party network subscriber growth. Now is the time, we believe, to invest in our linear channels and the Viaplay on-demand service to drive further growth, which is why we are adjusting our anticipated full-year operating margin from approximately 18% to approximately 17%.
We took TV ad market share in the majority of the emerging market territories, but we have not seen any shift in competitive behavior or overall media spending trends due to the adverse macroeconomic situation and the environment there. Sales for emerging markets free TV operations were down 1% at constant exchange rates when you exclude the contribution from the Slovenian broadcasting operations that we discontinued in February this year, and bear in mind that the MTG operations were only included by the beginning of June this year. Looking at our largest operations in the Baltics, Czech Republic, and Bulgaria, sales were actually stable year-on-year.
Operating costs for the second quarter were down 11% in the quarter, which reflects, again, the discontinuation of the Slovenian operation, as well as the ending of the depreciation of our broadcasting licenses in the Czech Republic and Bulgaria, and ongoing cost optimization measures, which were offset to some extent by the selected program investments and the launch of TV8 in Slovenia last October. Operating profits were up 26% year-on-year for the segment and also for the three largest markets. Let's start with the Baltics, where we have seen that the Estonian TV advertising market is estimated to have grown slightly in the second quarter, the Latvian market to have been stable, and the Lithuanian market to have been down year-on-year.
Sales for our combined Baltics free TV operations were up 5% at constant exchange rates, and we estimate our TV ad market share to have increased in both Estonia and Latvia and has been stable in Lithuania. Our pan-Baltic audience share was stable at 40.5%, as audience share gains in Latvia were offset by a slightly lower combined viewing share in Lithuania. As I mentioned before, we have completed the acquisition of the LNT free-to-view group of three Latvian channels and have consolidated the operation from the beginning of June. Move to the Czech Republic, where the Czech TV ad market is estimated to have declined year-on-year in the quarter, our sales were down 2% at constant exchange rates, but we estimate that we took further ad market shares in the quarter.
Please also remember that we launched the Prima Love channel over a year ago now, so the numbers are comparable for the first time in this respect. It reflects, obviously, the substantial increase in audience share we have seen, which was up over seven percentage points or over 20% year-on-year and over two percentage points quarter-on-quarter. Very strong performance as it comes to the ratings in the Czech Republic. Last but not least, move to Bulgaria, where our combined Media House sales were stable in the quarter, and the TV ad market is also estimated to have been stable. Our ratings were slightly down in the quarter, which was mainly due to the Euro 2012 coverage being broadcast on the state-owned free TV channels, which also sell for that market, just to remember you, advertising.
In terms of the overall outlook for the emerging markets free TV operations, as before, we are yet to see any trend shift in competitive behavior or a return to growth in advertising spending or pricing. However, clearly costs are down, and we do not see the need to increase our level of investment beyond what we have already done ahead of a return to sustained market growth. We are now restructuring and integrating the recently acquired LNT free TV operations in Latvia, so the reduction in operating costs will be lower in the second half of the year than the first half.
Now last but not least, to the pay TV operations in the emerging markets, where we have seen sales up 12% at constant exchange rates following continuous subscriber growth for our satellite platforms in the Baltics, Russia, and Ukraine, as well the mini-pay subscription growth in Russia in particular. We have added a net total of 96,000 new satellite subscribers over the last year and nearly 12 million wholesale mini-pay subscriptions. Operating costs for the segment increased by just 3% and reflected the balance between the ongoing investments we are making in the development of our satellite platforms and lower cost for the wholesale mini-pay channel business, which included a number of positive currency effects this quarter. Segments profits therefore more than doubled year-on-year.
Outlook for this business area, we do expect, obviously, continued subscriber intake in 2012 on the satellite platforms and continued growth in the number of mini-pay subscriptions. As before, we also continue to expect higher full-year profits in 2012 than in 2011, but that the increase in the second half of the year will be lower than the more than 200% increases you have seen during the first half of this year. This reflects the fact that now is the time to invest again in our premium content and channel offerings and the roll-out of Viaplay in Russia in order to drive future growth. Finally, just a quick word on the other business segments where we have a few significant impacts. Firstly, we sold the Bet24 operations at the beginning of May, so that reduced the sales and cost for the segment when compared to last year.
Secondly, the sale did give rise to a net gain, but it was offset to a large extent by a resulting write-down of goodwill and trademarks. Thirdly, both our Swedish radio and MTG Studios business reported lower sales, which were not fully offset by the growth in the Norwegian operations. Fourthly, we are investing in the MTG Studios business, which also increased our costs. In terms of outlook for this other business, we do not expect any major changes moving forward this year other than the consolidation of the profitable Paprika Latino business in Q3 or early Q4. Much about the operational side. I will hand over now to Mathias to run you through the figures.
Thank you. The translation effect of currency movement largely disappeared for the group as a whole in the second quarter, although it had some effects within the different segments. For example, both sales and cost growth for free TV emerging markets were higher at constant exchange rates than at reported rates, whereas the opposite was the case for the pay TV emerging market segment. Our net income for the quarter was impacted by a number of non-operating items. I'll let you know there are three of them that I'll talk to you about. The first one is the depreciation and amortization charges were lower and will now remain lower after we ended the amortization of the Bulgarian and Czech broadcasting licenses.
Secondly, the change in the value of the option element of the CION group convertible reflected a change in CION's group's share price between the balance sheet dates Q1 and Q2. The effect is included in the financial net items gave rise to a SEK 88 million negative non-cash impact in the quarter, compared to a SEK 81 million positive effect in the first quarter of this year, a SEK 30 million positive effect in Q2 of last year. Thirdly, our tax rate looks lower in the quarter at 23%, but this included some positive tax impact from prior periods, the underlying effective tax rate during the quarter was 27% when you exclude the CION effect as well, that I just mentioned.
For the first six months, the same underlying tax rate was 24%, this is slightly lower than our full-year expectation of 25%-30%, we still expect the full year to come out somewhere between 25% and 30%, probably closer to the 25% based on where we are today. Group sales were stable year-on-year in the quarter, operating income excluding associated income was down for the reasons Hans-Holger just mentioned. However, we converted 77% of our EBITDA into operating cash flow when we exclude the CTC Media earnings and dividends. This is still very high, I think we discussed that at the Capital Markets Day as well. We also reported higher positive change in working capital in the second quarter than we did last year.
Our net operating cash flow was therefore up by more than 8% year-on-year in the quarter when excluding the lower dividend payment received from CTC this year. As Hans-Holger mentioned, we invested around SEK 100 million in shares from the acquisition of LNT in Latvia, we also sold Bet24 for EUR 13.5 million, of which we received the main part in the second quarter. Then the last part of that was received in the third quarter. Group CapEx remains low still, this overall resulted in a net cash flow used in investing activities of SEK 58 million during the second quarter. We increased our ordinary dividend by 20% to SEK 600 million, this was paid to the shareholders in May.
The net of this resulted in the net debt level of SEK 778 million, which is a reduction by 55%, or almost SEK 1 billion since the second quarter of last year. The net debt EBITDA level has been largely stable at around 0.3 times trailing EBITDA over the last three quarters in a row right now. We had almost SEK 5.7 billion of available liquid funds at the end of the period, when we include unutilized credit and overdraft facilities. On top of that, the stock market value of our shareholding in CTC was over SEK 3.3 billion at the close of trading on the last business day of the quarter.
We are therefore clearly in a strong financial position, and we will continue to invest both organically and through M&A transactions in the group's growth and development, as well as, of course, to continuously monitoring the shareholder returns moving forward. Now back to you, Hans-Holger.
Thank you, Mathias. Maybe before we come to the Q&A, just a quick summary of the key highlights from my point of view as it comes to this conference call. As you have seen, stable sales as the long-term growth in the pay TV business is offset by a short-term decline in the free TV business, which we expect to be fixed, obviously, going forward. It demonstrates one more time for me as well, the kind of benefits of being an integrated broadcaster with a model of a 50-50 split of revenues between advertising and subscription. However, as well, only 1% of group OpEx growth. Again, it shows a kind of balance between the lower cost term and a healthy operating leverage we have seen in the emerging markets and the investments in the Nordic markets, and clearly a lower level than we have seen in the first quarter.
That is something which is moving in the right direction as well and shows the strengths of the integrated model. If you take a kind of helicopter view, the results are amongst the best in class if it comes to margin for Nordic free TV and pay business. We have substantially increased the profitability levels in emerging markets, which indicates again, once growth returns to those kind of places, we are in a very strong position in terms of profitability there as well. We don't see any change in the ad market outlook if it comes to our Scandinavian Free-TV business. Of course, anticipated market share gains across most of the emerging territories and a better position if it comes to our ratings in the fall, if it comes to Scandinavia.
We believe it is time to invest in the pay TV business to drive further subscriber growth, no need for more investments or increase of investments if it comes to the Free-TV business at this stage. Since all this is about execution, as I mentioned earlier, and not money. Overall, I think the company is in a very good shape financially and operationally, and with a strong cash flow and the substantially reduced net debt, we have a lot of flexibility going forward, whatever the world will bring. Some key deals done and more is to come as it comes to the growth in terms of organic growth and M&A growth. We're going to focus, as always, on investments if it comes to content, technology, and countries as we have done it in the past.
That concludes my comments and 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, so to allow some time, please limit yourself to no more than two short questions if possible. Operator, can we have the first question then, 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 today will come from Stefan Nilsson of SEB Enskilda. Your line is open. Please go ahead.
Thank you. I'll limit myself to the pay TV area then. Just on your new guidance, could you give us a bit more flavor what you're going to invest in, and do you expect this to lead to any revenues in the short term, or is this completely long-term investment?
It is the kind of normal level we have and the normal investment areas we have. It's Viaplay, obviously. It is in combination with Viaplay and Viasat investments in content, and to a certain extent as well as it comes to sports rights, obviously there as well. Last but not least, since we believe it will be a bit more competitive in the fall in terms of OTT players in the market, we have reserved some more money to be able to spend on the marketing side in particular as it comes to Viaplay. It's nothing structurally more short-term initiative as well.
Okay, got it. The second question is more referring to your other pay-to-business and the continued decline of DTH subs, which is not compensated anymore by third-party subscribers. Should we expect this trend to continue, that the growth in subs will have to come from Viaplay to offset your other subscribers? Is there any non-recurring thing here that we should take into account?
Yeah. For us, it's nothing, or for me, it's nothing which worries me really in that sense. It's the normal process we see in the value chain and sales channels we have currently, where DTH is declining and will decline structurally, obviously, in the next coming years, whereas the virtual operator model is still growing, but of course, on a slower pace going forward as well. Then we have seen the pickup in terms of new customers as it comes to Viaplay. We are not providing any subscriber numbers at this stage for many reasons. One is the competitive situation. If we would tell you the subscriber figures, I'm sure you will be positive surprised. We can see that there is a positive trend on the OTT side which offsets the negative trends we have on the DTH side. Therefore, it's a normal process.
Obviously, we can always argue if it comes to ARPU and margins, the fact that we have a low price strategy today on Viaplay doesn't mean we're going to have it in the next 10 years.
You think still that the third-party operator subscribers can offset the DTH decline in the next two, three years, or is that no longer the case?
Yeah. It depends, of course, on how fast the DTH is moving on to new distribution forms. If you have a trend a bit like in the past, I'm positive.
Okay. Thank you.
Our next question today comes from Bilel Da of Danske Bank. Your line is now open.
Yes, thanks. I have a couple of questions about the pay TV in Europe. Could you please elaborate a little bit more on what kind of investments you'll be making in the second half of this year?
Yeah. Just to repeat it's mainly in Viaplay, and there it's a combination of content and particular marketing. As we were planning some one-off marketing campaigns. It's normal content if it comes to Viasat in itself, and it's some impact of sports rights. One of the deviations is marketing.
No, I was actually referring to pay TV emerging markets. You're guiding for lower growth for the second half of this year compared to the first half. Is that mainly due to higher cost inflation rather than slowing top line?
No, this is really investment opportunity we see in new business and growth opportunities. It's not the investment in static business. It's two things or three things. It's content, premium content, particularly in the combination for Ukraine and for Russia, because we believe there's an opening to drive business even further. It is the investments we are doing in Viaplay in Russia, which we believe has a big opportunity long term going forward as said. It is those two areas which are the key investment areas we see for pay TV.
Finally, on top line growth in pay TV emerging markets. At which point would you say that you would start to focus on ARPU? Focus has been on volumes in the past couple of quarters, and obviously there's room for growth from a volume perspective as well. Do you see any time where you can actually be more aggressive on price?
Yeah, we are strong believers of entering new markets with more aggressive pricing, then eventually increase prices. It's the same trend we have seen in Scandinavia as well. The focus is still a lot on subscriber intake rather than ARPU growth. It moves gradually as well, of course. You will see in the next two or three years ARPU price or ARPUs coming up as well. If you look at the most important thing at this stage and the bigger opportunity, is subscriber intake.
Okay, thanks.
Thank you.
Our next question today comes from Adrien de Saint Hilaire of Exane. Your line is now open.
Good afternoon, everyone. Quick questions, please. Given that Q3 is showing a similar comp base in Q2 in freeTV Scandinavia, should we expect similar growth rates in Q3 than in Q2, i.e., around minus 3%? Are you seeing any benefits from your investments already? That's my first question.
As you know, we don't give any concrete forecasts and not even for a small quarter like the third quarter. Structurally, of course, the third quarter should be better because you don't have an impact in terms of Euro 2012 and the Ice Hockey, and at least the ratings have been moving a bit more positive. The downside can be, always that we don't know, when I see stupid things like good weather in Scandinavia, puts the foot levels drastically down. It's hard to forecast on the spot, but structurally, of course, the third quarter should be easier than the second quarter.
Right. Then I have two questions around costs. Can you give us the OpEx growth in freeTV Scandinavia if you exclude Ice Hockey?
I'm afraid we can't do that. I'm sorry.
Okay. Maybe another one. What's the net impact on costs in the free TV emerging markets from the integration of LNT and the closure of Slovenia?
I think the closure of Slovenia is around SEK 30 million per year.
Then you will have in the third quarter, it will take some one-off costs in terms of when we start merging LNT into the business. LNT itself will be loss-making in the third quarter as well, since that is a very small quarter.
Right. We agree that these are SEK 30 million costs per year saved, or is it?
EBIT.
EBIT, okay. All right. Last question on M&A. There has been some noise recently around some assets being for sale in Russia, including Tricolor or including ProfMedia. Can you tell us what is your view on those assets and more generally on M&A, given that, well, the decline in equity markets means that valuation is cheaper. What is your view on M&A in Eastern Europe?
Obviously, we're monitoring the situation in Russia and the whole of Eastern Europe because that's the kind of territory where we would like to invest if we find the right opportunities. If it comes to the Russian pay side, it indicates two things. A, of course, the market is getting more interesting, and more and more players are seeing good potential there. Hence, the interest from local players, but as well international players like HBO is going up. If it comes to pay Russia, we are in a very strong position because we have been there for more or less than 10 years now. We have a strong portfolio in terms of premium channels. We have our own satellite platform in a 50-50 venture with Raduga. We, as I mentioned before, we invest more into premium content in combination with Ukraine and launch Viaplay.
We control very well our destiny there, and we are, just a reminder, we are the largest pay TV channel operator in terms of ratings, for example, in the Russian market. If there's an opportunity, we look at it, and we can look at it from a pure business perspective. We are not forced to do any structural deal in order to achieve any kind of position. If opportunities are coming up, obviously, we look at them. If it comes to other plays in Eastern Europe, we haven't seen that kind of trend yet, that assets are coming up in the current environment. One of the suspects where you could have expected some assets to be sold was rescued by one of the shareholders. It's to be seen.
Once again, if it comes up, we look at it and we take those opportunities, it will be more mid-sized deals than large-sized deals if you talk about the impact on the balance sheet.
All right. Thank you very much.
As a reminder, ladies and gentlemen, if you wish to ask a question today, that will be star one on your telephone keypad. Once again, that is star one to ask a question. Our next question comes from Filippo Lo Franco of JP Morgan. Your line is now open.
Yeah. Hello, everyone. I have three questions. The first is on free-to-air TV Scandinavia. You say that you want to take back and increase Scandinavia advertising share, more with execution than incremental investments. Can you give us a couple of examples how you're going to get this?
It sounds very simple, but it is sometimes the best solution you can have. The first thing, of course, is that we have finished all the production lines and planning already by now, which we never had before. We know exactly what kind of quality we can get on the shows, and we are in the fine-tuning stage in order to get the best out of it. To be ready in order to broadcast, we are much more advanced this time than we have been in previous years. Second point with it is we focus a bit on the kind of things which has been working very well for us. Shows like "Top Model," for example, or "Swedish Hollywood Wives," formats which have been running very well, we continue to run, and we extended the number of episodes.
You have a much safer bet in terms of what kind of shows you're getting in. The third point is, if you look at the lineup of new productions like "Göta kanal" or whatever, there's a long list of new things. We have a larger variety of shows, so it's not like in the fall last year when we were betting everything on a similar format like Hollywood non-show, "Queen of Talent," we are much broader this time in terms of genre. Therefore, I'm pretty convinced that we should see a positive impact if it comes to Sweden and if it comes to Denmark in terms of ratings. In Norway, the situation is a bit more complicated because we are the number 3 there, and as number 3, it's tougher to defend the position and, therefore, we expect more stable situation if it comes to Norway.
To put all three things together, I think we should have a more positive outlook for ourselves for the fall.
The two question on pay TV. The first is a very simple one. Do you think that with additional investment, the net subscribers base should increase in the future or should be stable overall?
Yeah. If you balance, in one point in time, the point will come pretty soon, I guess, as well, once we have a clear picture of what the competition will do. If you take a holistic approach for the future, how you look at the pay TV business, you have to combine our DTH customers with the virtual operator or third-party channel distribution networks and the OTT customers and the Viasat customers. In that three combination, you're going to see a positive subscriber movement going forward. That's the fundamental belief. Obviously, as I said earlier, today, the importance of a customer is still different between an OTT customer and a DTH customer, but that will become more even as well over the next coming years.
Okay, thanks. I did understand well that we should expect some kind of a growth in the number of net subscribers. Do you think that, therefore, that we should have a margin, given the change in the mix of the subscriber, should we expect margin to go back to 18% or more, or should they stay at 17%? My guess is that they should go up again in the medium term.
Yeah. Just to be very clear, Filippo, on this point, it's a combined subscriber look of all three distribution forms I mentioned. One of them we don't really have the figures yet, just to be precise there. If it comes to the margin, structurally, the business is a good margin business and we should be able to go back to margins of 18%. You always have, as you know as well, you always have investment periods or competitive issues like, for example, higher marketing spend for a quarter, which then can change the picture a bit. Structurally, it is a business which delivers margins around 18%, as we have always said before, there's no change in the future in my point of view.
Okay. Thank you, Hans-Holger. Bye-bye.
Thank you.
We take our next question from Mikael Larsson of Carnegie. Your line is now open.
Yes. Thank you. Hi. Just a quick question on pay TV emerging markets. If you could talk about perhaps the cost drivers, not only this fall but also next year, how you manage the cost side.
Yes, I think because somebody asked about the ARPU as well in those markets. Obviously, the driver for ARPU will be the investments we're doing, like now in the fall in premium content and then technology like HD and those kinds of things, once those markets are ready. Therefore, the cost will go up, but it will be a very balanced approach. You try to grow with the flow, and then the more the revenues come through, the more you're going to invest into those kinds of things. Therefore, I would foresee a pretty stable situation. Again, there can be peaks or differences for one or two quarters, but in general, the kind of situation you've seen so far is the guideline going into the next year. Once you increase prices, you're going to invest more into new services as well at the same time.
You should have a good scalability there in the coming quarters.
Yeah, again, it's a bit as well on depending on competitive landscape. I'll give you one example. Will HBO launch in Russia or not, which has been always a long rumor? It will have, of course, maybe short-term competitive issues in terms of marketing and those kinds of things. The world is a bit more complex in those markets, unfortunately, than it is in Scandinavia, for example.
Yeah, okay. Thank you.
Thank you.
We take our final question today from Bilel Da of Danske Bank. Your line is now open.
Hi. One final question on pay TV Nordics. Could you give us an update on the competitive environment? Obviously, there's been some talks the past six months about Netflix entering the Nordics and potentially also HBO launching channels or online platforms. Could you elaborate on your view about the programming strategy and what kind of implications that might have on pricing of those kind of assets?
Yeah. If it comes to Netflix and their launch in the fall, we see them as competitor, we take them serious, obviously, and we're gonna welcome them with a nice marketing campaign, as we indicated earlier. It's nothing which concerns me at this stage because we have secured most of the rights that we want to have, or a lot of movie rights, for example. We have a superior offering because we have sports, which they don't have, and we have a superior offering when it comes to TV programming. They will make their entrance. They're gonna be probably a fact, but it's something we feel very well prepared, and most of the investments we need to take, we have been taking already in that region.
Plus the fact, again, which they don't have, we can utilize content cost, for example, across all platforms and not just one OTT platform, which makes us much stronger. It indicates a second point, obviously, that that's the world pay TV is moving to, and that's the competitive landscape we are going in. I assume, for example, the old question about Canal Digital and Telenor won't be a question anymore in the future because if you look at the situation, OTT is a much stronger distribution form for the future, and therefore, the focus for us as a company is really on those kinds of things and technologies than other structures. That's the landscape we watch nowadays more than the old competitive landscapes.
Okay, thanks.
Thank you.
That concludes the question and answer session. I will now hand the call back to Hans-Holger Albrecht for his concluding remarks. Thank you.
Thank you, operator, and thank you all for your time today and for your continued interest in MTG. As always, we look forward to talk to you over the coming weeks and months, and we will keep you updated on our progress. In the meantime, thank you and goodbye for now.
That concludes today's conference call. Thank you for your participation.