Good morning, ladies and gentlemen, and thank you for holding. At this time, all participants are in a listen-only mode. After the presentation, participants will have the 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 zero for operator assistance. I will now hand the call over to your host, Matthew Hooper, Head of NENT Group Corporate Affairs.
Thank you very much, operator. Welcome everybody to NENT Group's Q2 conference call. I am joined here in Stockholm today by our President and CEO, Anders Jensen, our CFO, Gabriel Catrina, and our Head of Investor Relations, Stefan Lycke. During today's earnings call, Anders will provide comments on the quarterly results, key strategic developments, and the progress we are making as the leading streaming entertainment and content production company in the Nordics. After this, Gabriel will comment on the financial performance and position of the group, and then we will open up for a Q&A session. Slides to accompany our comments are available at nentgroup.com/investors. I will now hand the call over to Anders for his comments.
Thank you very much, Matthew. Good morning, everyone. Q2 was yet another quarter in which we have delivered on our key operating and financial objectives with 6% organic sales growth, 5% higher profits for our combined business segments, and very important, 20% growth in our Viaplay subscriber base in what is typically and seasonally a quiet quarter. These results again, clearly demonstrate the benefits of our unique business model, the relevance of our strategy, and the execution skills of our team. We're building a company that is well-positioned to both drive and benefit from the shift to online and on-demand entertainment consumption. Our reported operating income before IAC was down slightly as predicted.
This was due to the higher central operation cost that we now have as a separately listed company from the end of the first quarter, as well as the anticipated extraordinary one-off investment in the vital work of establishing our brand, culture, and values. This is not the forward run rate, and we maintain our outlook for a central operation EBIT impact of approximately SEK 250 million for the full year.
Given that we had no IACs this quarter, total operating income was up. The most important operational performance indicator for our business is Viaplay subscriber intake. Put simply, capturing the streaming opportunity is the key factor in driving long-term value for our shareholders. Viaplay added a net 65,000 paying subscribers in Q2 compared to a net loss of 25,000 in Q2 last year.
the strong performance seen in Q4 and Q1 has continued into Q2, and the Viaplay subscriber base have now grown by over 20% in the last 12 months. This has been possible because of the investments we have made into our Viaplay originals, new exclusive sports deals, additions to our acquired Hollywood portfolio of movies and series, and further enhancements of the user experience, as well as the signing of new long-term B2B partnerships to make Viaplay as broadly available as possible.
Subscription sales account for 60% of group revenues, and Viaplay accounts for 60% of group subscriptions. Both are growing at very healthy levels. Advertising only accounted for 26% of our sales in the quarter, that percentage will continue to fall given the growth in the rest of our business.
Our unique business model is all about agility and the ability to buy content for all windows and to monetize them flexibly. We have shown many times in the past that we are agile enough to both seize opportunities and deal with challenges while continuing to deliver profitable growth. Now is no different. Turning to the broadcasting and streaming segment, sales were up 4% on an organic basis, and EBIT was up 2%.
This was taking in account our years as MTG, the 11th quarter of profitable growth. It clearly demonstrates the positive effect of our early and proactive investments into taking a leadership position in the Nordic streaming markets. Subscription and other sales were up 8% on a reported basis and accounted for 70% of the segment sales. The Viaplay subscriber base grew to over 1.4 million, and our total subscriber base to over 2.4 million.
The continued growth of Viaplay was driven both by high gross intake and lower churn levels. Our investments in the Viaplay platform and the content offering are clearly working, both in terms of customer intake and very importantly, retention of those customers. The originals are a key part of this. We now have a total of 29 originals premiered. We have 16 more announced. It is this high quality, local, and very relevant content that together with our unrivaled live sports offering, that is the key differentiator for us. It's not just about what we offer, but also how we offer Viaplay.
we have continued to add technical functionality to the platform, including the ability to create personal profiles and the introduction of Fixi, a virtual character that our tech team have created to guide kids through Viaplay and to encourage them to take an interest in both technology and physical exercise. The combined Viasat direct-to-consumer and third-party subscriber base increased slightly to 956,000 as growth in our pan-Nordic third-party business and broadband TV offering in Sweden more than offsets the gradual decline in the satellite base.
Advertising sales were down 3% on a reported basis and accounted for 30% of the segment sales. The growth in Viafree and the Swedish radio operations was offset by lower linear TV sales and lower Norwegian radio sales. Viafree reported double-digit growth levels, and the service now has over two million registered users and approximately 3.6 million downloaded apps across the region.
Our Swedish radio business also delivered double-digit growth as we took further audience and market share. Our target audience share of 45% was up from 40% last year. Radio ad sales were down in Norway in fairly weak market conditions. TV ad sales were down as continued price inflation was offset by overall lower viewing levels and the fact that we aired the Ice Hockey World Championship on our Swedish free TV channels last year, but not this year, and the impact of the general elections in Denmark.
The Swedish and Norwegian TV advertising markets are estimated to have been fairly stable in the second quarter, while the Danish market is estimated to have been down. We have continued to see comments about the potential regulation of betting and gambling advertising across the Nordic region.
I addressed this at our Q1 results, the markets where we operate are at very different stages of their investigations and considering different approaches. The Swedish government investigation will, for example, report back in October next year and could require changes in constitutional law if limitations are to be introduced. The Norwegian government has conducted a consultation and, as far as we are aware, plans to send draft legislation to the parliament later this year for review in spring next year ahead of a potential implementation in 2021.
The new government in Denmark will also look into this, there is a lot less of this category of advertising in Denmark. We at NENT Group will, of course, comply with the laws and regulations that apply to us in our markets. We are following these important discussions carefully.
We are not a regulator, and we will not assume the responsibility of being one. This discussion should, of course, apply equally to all media platforms, including print, radio, TV, and online media. Clear and sustainable regulations, roadmaps, and timelines are always good for everyone. We look forward to the conclusion of these investigations. What I can tell you is that betting and gambling represented approximately 25% of our total TV and radio advertising revenues in 2018. Just under 24% in Q1 and just over 21% in Q2, with quite a variance between the countries. The main effect was the absence of the Ice Hockey World Championships on our Swedish channels, which attracted significant betting advertising last year.
It is also fair to say that the betting and gambling companies rush for market share in Sweden is subsiding now, while Norway continues to see a decline in the category spent. As I also said in Q1, the issue that TV is facing today is not lack of demand from advertisers, but rather shortage of inventory supply. I do not expect any changes in the future to have a major effect on our sold-out ratios or pricing power. We will naturally and gradually reduce the proportion of this category of advertising on our channels and services as the competitive heat in this sector calms down.
Just to be very, very clear, excluding the impact of the Ice Hockey in Sweden, our total ad sales would have been flat in Q2 this year compared to last year, we do not expect any major movements up or down in our overall advertising revenues in H2 this year compared to last year. We will, of course, then have the Ice Hockey back in Q2 next year.
Profits for the segment were up 2% and included a US dollar FX transaction headwind of approximately SEK 20 million. Gabriel will comment later on the FX effects, but we do expect to continue to deliver profitable growth for the full year, not least as we have now announced price hikes for many of our traditional pay-TV products, as well as for the Viaplay Sports package in Denmark. Moving on to the Q2 content highlights.
We premiered five new Viaplay originals in the second quarter, including "Visning" in Norway, which is our most successful original to date. It also topped the charts as the series with the most unique viewers during Q2. Second on the chart was another of our originals, "Those Who Kill" in Denmark, that we premiered in Q1. We also announced six new originals in Q2, including "Home Invasion" and "Shadowplay" with international high-profile costs.
We have yesterday announced our latest original and sixth documentary format, "Manson's Bloodline." We have announced several important content partnerships in Q2. We extended our partnership with the Danish Superliga and The Open Championship. By the end of these deals, we will have had more than 25 years of partnerships with both the Danish Superliga and the Champions League, which is something quite unique in our industry.
We have also secured new sports rights, such as the five-year exclusive pan-Nordic deal for all of the hugely popular Alpine and cross-country skiing championships from 2021. Just this morning, we announced the winning of the pan-Nordic rights to the International Skating Union for four years, starting this fall. This gives us a very strong position in winter sports, and both of these significant rights moved to us from public service TV for the first time.
Finally, we are also supporting the development of new events, such as the W Series in women's motor racing. We have seen very good viewing across our extensive sports portfolio in general, and football in particular, which was a major contributor to the very low churn levels for Viaplay as the Premier League run-in and the Champions League's later stages ran later than usual.
We broke our viewing records for the Champions League twice during the knockout games between Ajax and Tottenham, then Barcelona versus Liverpool. More broadly, the deals that we did in Q1 with NBCUniversal and MGM have strengthened both our linear and on-demand offerings, which is very important in the summer period. We are building for the future by developing more and more of our own IPs. After investing into FilmNation at the beginning of this year, we have now also taken a minority stake in Picturestart, a new U.S. studio founded by successful studio executive Erik Feig, which will create, co-finance, and produce premium scripted content for young adult viewers around the world.
Erik has produced and supervised films with a collective global box office takings of over $14 billion, including "La La Land," "The Hurt Locker," "Twilight," and "The Hunger Games." This focus on Nordic storytelling and content with a very global appeal not only makes our content more attractive to viewers on our platforms, but also to third-party networks, which is why we have signed new long-term and large-scale distribution partnership deals with the likes of Telia and Tele2 in Q2, after similar deals with Boxer and TDC in Q1.
If we move to NENT Studios, it is great to see that the strong performance in Q1 has accelerated further in Q2 with organic sales of 35% up. As you will remember, we talked last year about the delay in a number of productions. We are now seeing those come through after sales started growing again in Q4 last year.
The main driver of this growth is the scripted category, where we have seen a significant increase. Splay One also continued to generate double-digit sales growth as the demand for branded content and influencer campaigns continues to be very healthy. The high sales growth also filtered through to operating profit, which almost tripled in the quarter. The forward pipeline of signed development deals and contracted productions looks very healthy and should fuel further growth in 2019.
The ambition is to gradually increase the number of productions being done in-house for our own channels and for our own services. International sales already accounted for 18% of total sales in Q1 this year, up from 13% last year. I will hand over the call to Gabriel for his comments on our financial performance and position. Over to you, Gabriel.
Thank you, Anders, and good morning, everyone. Starting with the P&L, sales increased by 7% on a reported basis and were driven by 6% organic growth as well as 1% contribution from FX. NENT Studios accounted for 14% of sales, advertising sales for 26%, and the remaining 60% is from subscription and other related sales.
The combined operating profit for our business segments, that is before central operations and Items Affecting Comparability, was up 5%. The negative EBIT contribution from central operations was up from SEK 44 million to SEK 80 million as a result of us now being a standalone and separately listed company, but also including additional investments to establish the corporate brand, culture, and values.
As Anders mentioned, this is in line with what we have stated at the Q1 call and the guidance given at the CMD that the negative EBIT contribution from central operations will be approximately SEK 250 million for the full year. The total EBIT before Items Affecting Comparability was therefore down slightly from SEK 464 million to SEK 465 million, but does not really reflect the underlying strength of the operating business.
With no IACs this year, our total EBIT was up 10% in Q2. Net interest amounted to a negative SEK 14 million, and that included SEK 5 million related to the effect from IFRS 16. Interest costs will go up in Q3 as we gradually move away from short-term financing to a more balanced profile. This now includes the successful $1.5 billion bond that we issued during May. The effective tax rate in the quarter was approximately 21%.
We do expect our normalized tax rate to be approximately 20%. You would see quarterly and even yearly swings. Moving on to the cash flow. Our net cash flow from operations was down slightly compared to last year. This reflected the timing differences in the working capital driven by content and sports rights payments, which I talked about on the Q1 call. Our CapEx amounted to SEK 45 million, and our operating free cash flow therefore totaled SEK 521 million versus SEK 571 million a year ago. Working capital will swing between the quarters, which is why I think it's more relevant to look at the operating free cash flow over the half year, which almost doubled compared to last year.
We still expect the full year working capital movement to be roughly in line with last year, following investments in originals as well as the increasing internal sourcing of content from our studios. We also maintain our full-year CapEx guidance of 1%-1.5% of sales. As you know, we made a SEK 219 million dividend payment during the quarter.
The second dividend installment of SEK 219 million will be paid out in October. Our net debt ended the quarter at SEK 4.2 billion, which is 2.3x our trailing 12-month EBITDA before Items Affecting Comparability. This is in line with our target level of being below 2.5x . The financial net debt was therefore SEK 3.6 billion. That includes the remaining part of the dividend payment, but excludes the operational leases. Finally, let's have a look at the business outlook.
We do expect to continue to generate positive organic growth. This is primarily due to the growth that we see in Viaplay. We remain committed to delivering higher profits for our business segments in 2019. Do remember that we will have higher central costs versus last year, which is why we have only committed to deliver total group EBIT growth from 2020 and going forwards.
We continue to expect a transactional headwind of approximately SEK 100 million from the appreciation of the US dollar this year, of which roughly SEK 20 million impacted Q2, and will progressively increase during the rest of the year. To summarize, we keep our guidance to deliver profitable growth going forward while continuing to scale our streaming business. That's it for my comments. Now back to you, Anders.
Thank you very much, Gabriel. Let me end by reminding you of our equity story and the investment case for Nordic Entertainment Group. NENT is very well-positioned to benefit from the shift to on-demand and online entertainment consumption following the aggressive investments that we have made and continue to make into streaming. We have the most relevant content mix of sports acquired and original programming.
We are also investing to make sure we have the right talent and skill sets to be able to capitalize on the significant growth and value potential that we see ahead of us. Finally, we have a very clear capital allocation strategy. We are committed and remain committed to profitable growth, but we are at this point not focused on maximizing profits. The key long-term value driver will be to drive volume growth for Viaplay by investing in content, people, and technology.
We have also committed to paying a progressive dividend as we deleverage. This concludes our commentary on the results. Over now to you operator to start the Q&A session, please.
Thank you. 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 the hash key. The first question comes from the line of Sebastian. Please go ahead announcing your name and company.
Yes. Good morning, Sebastian. Yes. Thank you for taking my question. I have a question about the ARPU, do you see the same ARPU levels on the subscriber intake during the quarter on the current subscriber base and also what components drives the strong intake in the quarter, thank you.
Good morning thank you for the question. The ARPU is very stable as we see of both the lower churn in sports and higher intake in activities movies It is basicly stable which is very positive of course.
The same question about only Viaplay, is it the same answer on that?
You were talking about ARPU in general, or did I misunderstand you? Because I was answering both questions regarding Viaplay.
Yes. That's correct. Sorry, the ARPU development in Viaplay intake compared to the current base is the question.
Yeah. The ARPU is stable. Flattish development, that is the consequence of lower churn in sports, higher sales in TM, which means that we are fairly stable on the mix.
Thank you very much for that.
Thanks.
Thank you. Your next question comes from the line of Mikael. Please go ahead, announce your name and company.
Yes. Hi, good morning. I have a few questions also, first on Viaplay. Can you comment a bit on more engagement figures, what you see in your subscriber base in terms of viewing time and started streams and overall churn so we get a feel for how the underlying development really is?
Yes. Well, what we see overall is that we see stable development. The engagement is increasing in the sense that the viewed hours are increasing. The started streams is a consequence of what content we have on the platform. As I alluded to in the call, we have some significant success with some of the originals that is driving up the usage on those particular formats and the sports, given the very interesting ending of Premier League and Champions League, is also up.
Combined, I would argue that the engagement from our customers on our content is on an increasing level. Very important to see that people are staying on longer on the content that they consume, which is sort of probably one of the reasons why we see reduced churn. There is more to watch, and people watch longer of it.
Okay, thanks. When it comes to price expectations going forward, can you say something about that?
Yes, on the tip-
The overall Viasat packages.
Viasat, we are on the traditional pay TV platforms. We are now doing the adjustments that we had planned. That is following our plan and is built into the outlook that we have provided. On Viaplay, we are now announcing price increases on sports in Denmark as a first step, and we are following the development of Netflix price increases that we now see sort of traveling through Europe. If and when they come to the Nordics, we will increase to the same levels.
We think it's a bit premature to start to create our own price category. We don't want to, sort of, in any way, offset the very healthy growth patterns that we see right now. We believe that pricing power is one of the key tools going forward.
As the category gets more and more interesting and people are trading down on traditional TV packages, this is still cheap.
All right, thanks. Another question regarding subscriber revenue. Can you explain the licenses and royalty side, what is happening there? The underlying subscriber revenue grew by about 4%, while subscriber growth was in total 12%. What is the difference between those two, if you can clarify that, please?
Can you repeat the difference between
The underlying subscriber revenue, if you look at excluding licenses, royalty, and productions.
As we guided in Q1, if you see the effect of the content, it is roughly SEK 40 million for the quarter on the content licensing. Then you also have the revenues of TVOD are going up as well in the quarter, which is also driven by all the investments that we have done in content on Viaplay.
How should we estimate licenses and royalties going forward? What is your own expectations? How should you think about that?
It will vary from the quarters, depending on what kind of deals that we are doing. We have announced a sharing of Premier League with TDC in Denmark, which will impact this, where we do make some margin on these, what you would call content deals going forward. You shouldn't expect above and beyond that any significant increases.
Just to add, it will be a bit higher on the back of that deal in Denmark in Q4, it will be very similar to what you see now in Q2.
Okay. My final question is about your comments about gambling segment and betting. Can you repeat your exposure? You said 25% in 2018, 21% in Q2, you mentioned another figure, I missed that.
Yeah, let me take you through it. I appreciate there are many variables on this. If we take it from the top, in the second quarter, our total revenues coming from advertising sales was 26% of the total sales in the group. Of that part, 21% was related to gambling and betting revenues. The correlating number in Q1 was 24%, last year it was 25%.
There is a decrease, if you just take the betting money that we got from the Ice Hockey World Championship last year and just put them on top of what we have sold this year, our development would be flat. The decline is for us, given that we are so forward-leaning on sports, is a lot less negative than you may see other media outlets talking about. We are continuously sold out.
There is no lack of demand in the market, the pricing power remains fairly strong. We don't expect then any significant either up or downturns in the second half of this year when it comes to advertising sales. It is very important to remember that our growth in subscriptions more than offset whatever decline you may see.
Given that we are investing so heavily in Viaplay and all the content that we are putting to the market, we are market makers. We are driving down people's viewing of traditional linear TV, that's a very conscious decision. We have a format and a model that we think work very well for us. Our continued investments in sports make us an attractive provider of advertising for the betting companies.
Perfect. That's helpful. Thanks.
Thank you. Your next question comes from the line of Martin. Please go ahead and announce your name and company. Your line is open.
Hi, this is Martin Arnell with DNB. First question, can you just elaborate a bit more on the Viaplay sub intake in Q2? I guess this is typically a slow period for the intake there.
Good morning, Martin. Yes, you are absolutely right. Historically, if you look a couple of years back and the numbers that we disclosed, historical numbers for last year, Q2 was a slow, and in fact, actually a negative development quarter, given the seasonality in sports. This year, we have turned the tables. You have a 90,000 sort of swing positively between the second quarter in 2018 and this year.
That is related to three main categories. Lower sports churn because of later league finishes in Premier League and Champions League. Added new sports content during the summer, like the Copa América, the Champions League qualifications in Sweden and Denmark, and the fact that people then only have one month to sort of churn and return, and fewer customers are seeing the benefit of doing that, given that we have good content. Lower sports churn.
Secondly, we have significant continued pull in the market for our TV series and movies package. That is, of course, on the back of the successful originals that we have put to the market and the significantly increased library and new feature movies that we are getting from the deals with NBCU and MGM, meaning that we have more reason to stay. Once you are done binging the originals, you can go on to a U.S. series or movies.
That is doing very well for us, and that is a very conscious investment that we have done over the last year. The third is that we have two significant business-to-business deals kicking in this quarter. Without saying too much about the numbers of those deals, let me say that we would have been positive in terms of subs development also without those deals.
On a like-for-like basis, where we last year didn't have any B2B deals, we have turned a negative quarter into a positive, strong quarter for us. I am fairly confident, even though we do not have all the numbers yet, but we are fairly confident that we are gaining market share in the second quarter.
Okay, thanks. That is a good answer. On the full-year outlook for net new subscribers, you said around 200K before, and now you are looking at 250K. If this development continues, it sounds a bit cautious.
We are sort of ambitious but cautious people, Martin. I think it's fair to assume that 250 is something that we of course can beat, but we do have some delays in the sports leagues, and we have to consider Q3 to be a, if you look at the historic patterns, a slower quarter. Not negative, but slower quarter. We're working very hard to beat that, of course. If we come back and beat that significantly, you will hear us upgrading on the next call from 250 to another number. Currently, we think it's prudent to make this upgrade. The underlying performance is very strong and very positive for us.
Okay, great. On this advertising discussion, I think you said here that you don't expect your pricing power to change here in the second half. Based on what we know now, if you look into the negotiations for next year, can you tell us anything about where you see this pricing story which you've enjoyed for quite a lot of years now? Where do you expect that to head going forward?
Well, I think we continue to believe in the pricing power, and we're not naive, I need to give you some facts, obviously, to substantiate that claim. The betting companies, the race for market share is slowing down, you have some very strong forward-looking betting companies with Swedish licenses and with presence in the other markets that continue to invest.
They are absorbing some of the decline from the other ones that haven't gotten the market share or lost their licenses. Looking into next year, we again have the Ice Hockey World Championship. We are adding more sports rights. We announced today the skating, starting to build a very strong winter sports position. These larger betting companies that will take over more and more of the share of the smaller ones, they continuously invest and are very positive to the outlet that we are providing.
Even if the category as such is slowing down, our pricing power is built on the product that we are providing. You should not forget that indifferent of this, we are sold out across the portfolio, both our own channels and the sold inventory that we have from the likes of Viacom and Fox. We're sold out. That pricing power is not to be underestimated.
While I fully recognize the concerns that we have seen around advertising sales, it impacts maybe different between us and other media outlets, we are quite confident that we see a stable, which we also said at the capital markets day, stable to slightly positive, we still remain stable. Whether it's positive or not remains to be seen, we see a stable advertising business going forward, also into 2020.
Okay. Thank you very much.
Thanks.
Thank you. Your next question comes from the line of Julia. Please go ahead and announce your name and company. Your line is open.
Hi, good morning. This is Julia from Morgan Stanley. I have three questions. The first one is again regarding gambling advertising. Could you just, if, for example, if you were to wake up in the world where gambling advertising is completely banned, what is your total share of revenues and EBIT which is exposed? Just again, the worst-case scenario that could possibly happen. So that's the first question. The second one, could we have a bit of indication of Viaplay subscribers between the premium package and basic package? The third one, we already discussed it, but again, a bit of color on the dynamics of subscriber net adds across the quarters. Thank you.
Thanks, Julia, for those questions. If I start with the gambling and betting, I fully understand where you're coming from on that question, it's very hypothetical. A ban on gambling advertising in the markets where we are present, that interferes with the constitution and the freedom of speech and freedom of marketing.
While it could happen, it demands legislation changes that will take us well into 2021, probably into 2022. It's impossible for me to give you any substantial sort of relevant numbers that you can use for anything. We see what we can expect for the rest of this year. We also see positive traction into 2020. I do expect there will be some form of regulation. I don't think bans are likely to happen.
Remembering that the largest betting companies in the markets where we operate are still the government-owned ones, and they need to market themselves. I don't think a ban is realistic. Remember also the total numbers, 26% of our total advertising sales on group level, 26% of the total advertising sales, which is 21% gambling, down from 25% full year 2018, 24% in the first quarter, that sort of means that we are down below 5% of total group sales related to betting.
It is a small number for us. It impacts other media outlets differently. I hope that answers your question, but feel free to follow up. On the other question, the mix on the Viaplay subspace, the larger share of that base, and we don't give that at this point, but the larger share is the TV series and movies.
Sports is growing on a healthy level, even though you expect lower growth rates in sports because people have already decided whether they want sports or not. What we do see in sports is significantly lower churn levels, which is very positive for the development. I'm going to have to ask you to repeat the third question.
Yes. Thank you. I just wanted to hear how you think about Viaplay development throughout the quarters.
Yeah.
You already mentioned that Q3 is usually a slower quarter.
Yeah
You're working hard to make it happen.
Indeed.
How does it look, Q4? Thank you.
Q4, if you look at the development last year, which was a very strong fourth quarter, you should expect a strong fourth quarter also this year. Last year, Q3 was slightly negative. You should not expect that this year. You should go from flattish to slightly positive in our third quarter. Typically, Q1 and Q4 are the larger quarters, and Q2 and Q3 are slower.
Historically, because of the seasonality, Q2 and Q3 have been in sort of negative numbers. We are now saying that we do not expect that to happen going forward. We have taken significant steps to get sort of a more stable growth throughout the year. Our investments and continued investments into both original content, Hollywood, and sports will sort of underline and underpin the relevance in what we're doing. Strong Q1, strong Q4.
We see now, very strong Q2 as well, you should expect Q3 to be in positive territory, albeit maybe slightly lower than Q2.
Thank you very much.
Thanks, Julia.
Thank you. Your next question comes from the line of Tom. Please go ahead and announce your name and company name. Your line is open.
Morning. It's Tom Singlehurst here from Citi. Apologies for the slightly crunchy voice. I've got a cold. A couple questions on pricing for Viaplay. I appreciate what you were saying about not being a first mover in terms of pricing. In light of the news overnight on Netflix, a couple of questions. One is, to what extent do you reckon the price elasticity for Viaplay differs from price elasticity for Netflix?
If you do raise prices, can you give us some sort of sense of magnitude or sort of what the increase in churn might be? Then, of course, sort of linked to that, what's the thought process around, or is there a thought process around perhaps not following on price in order to double down on volume gains?
Okay.
If Netflix does choose to move up, is there an opportunity for you to not move it and see accelerated market share gains and net add growth? Thank you.
Thanks a lot, Tom. We start with the elasticity and the pricing, let's first start by separating the Viaplay base into sports and TV series and movies, where Netflix is the analog for TV series and movies, while we control the pricing power for sports, hence the price increase we're doing in Denmark now on our sports package. We are, for the time being, to answer basically both of your questions, following Netflix for two reasons.
We don't believe that not increasing prices will significantly increase our volumes because the market pull and push is there, and the demand for our product and the continued investments that we're making will not have a negative effect if we do a price increase on the lines of levels that we expect Netflix to be doing.
Over time, we are creating a category where we will have a higher degree of local high-quality content, a library that is comparative to the globals, and a first-feature window with the latest movies that is significantly stronger. That could argue that we have a price premium to the globals. It's too early to say. My experience from previous life and also our thoughts now is that we should be mindful about the pricing in the market and make sure we don't price ourselves by not over-increasing to stand out negatively until we have developed a category there that is strong enough. Is that answering your questions?
That's perfect. Very clear. Thank you very much.
Thanks, Tom.
Thank you. Your next question comes from the line of Rasmus. Please go ahead and state your name and company. Your line is open.
Yes, hi. Good morning. It's Rasmus with Handelsbanken. I have two questions remaining which have not been answered, I think. Can you explain how this sub-licensing work? Is that revenue recognized over the contract of the sub-licensing deals, or are they taken all in one quarter?
Hi, it's Gabriel here. Those sub-licensing deals are recognized over the period of the contract.
Okay. We're not looking at some sort of.
No, we're not looking at one-off.
Okay. Very good. Secondly, in the cash flow in this quarter, it's also for you, Gabriel, I assume. There is something called cash flow from other operating activities, which is slightly more than SEK 804 million negative in Q2. Can you explain what that is and how that would work going forward?
Now, there we have a one-off effect of the investment that we done. You're referring to the other investing activities, the SEK 104.
Yeah.
Yeah. That is partly that it's related to the investments that we've done in the U.S. studio, Picturestart.
Okay.
Which just gives the one effect. You shouldn't see that number to stay at that level unless we do other investments. It was not an M&A transaction, otherwise would have been on the acquisitions, since it was a start-up, you see it under that line.
Okay. Very clear. Thank you. That's all for me.
Thanks, Rasmus.
Thank you. Your last question comes from the line of Henrik. Please go ahead and answer your name and company. Your line is open.
Hi, good morning. Henrik Mori from Nordea. Thank you for taking my questions. Coming back to the subject of gambling companies and advertising dropping or demand dropping from them, I guess the event with Global Gaming is a driver of that. I've heard anecdotal evidence that advertising prices in the second-hand market has been in sharp decline in the early summer, actually being below the prices we saw earlier this year.
What have you recently seen on the spot pricing in the advertising market? On that subject as well, if I've understood things correctly, you normally have a share of spot-priced advertising slots, then you have a share of upfront contracted slots. I'm also hearing that you have recently basically been having no spot sales any longer. Can you elaborate a little bit around that dynamic as well, please?
Of course. Morning, Henrik. Well, on the gamba, we have seen fairly stable price development. Again, it's related probably to if you compare different pricing powers between what kind of outlets you are talking to. We are enjoying the benefit of having a lot of sports. That is especially the second quarter with Champions League, Premier League, related to that Champions League being on free-to-air channels.
That gives us pricing power and a premium that we are enjoying. Fairly stable. We don't recognize any sharp declines. We do recognize that there are fewer betting companies buying as much as they have in the past. That's clear. The bigger ones are picking up that slack. For us, it has been fairly stable.
The decline, again, from 24% in the first quarter, 25% in 2018, to 21% share in the second quarter, is 100% related to the Ice Hockey World Championship last year, an event that we will have again then in the second quarter next year. To your second question, we do sort of have both what we call the upfront, the full year agreements, and the ad hoc. We have, in the recent years, reduced the percentage on the upfront, on the full year, to benefit from the demand in the market by having more available spots. We continues to do that, but we're sold out.
If you call a media agency and say, "I want to buy something on NENT," and you're not part of our current customer base, it will be very difficult for us to provide something to you because we are over 100% sold out on linear, very high sold-out ratios on AVOD. We do have some inventory on radio because of the significant market share gain that we see in Swedish radio. I hope that sort of answers your questions. Happy to follow up if it's not clear.
Absolutely. Good answers. Can I have a few more questions, please?
Sure.
Licenses and royalties. How should we think about that line item going forward? It's been stepping up now over the past two quarters, which is the only quarters we have available as the historical data for that, but it's been increasing year-on-year. Is that something structural we should factor in?
We are doing more and more of these deals as part of the distribution agreements that we do and the way that we manage this whole portfolio. It is not going to be a significant part of the business, but it is how we optimize it. If you look at what we guided now for the next quarter, it will be roughly around SEK 40 million next quarter and then below, slightly higher in Q4. You shouldn't see this item becoming a significant part of the business and stay at that level going forward.
Just to add some flavor to that, Henrik, just to sort of understand why this is changing. It's a matter of us doing new kinds of deals. Let me take the agreement that we've made in Denmark with YouSee, the TDC outlet on TV, where we will be on pay TV sharing the Premier League rights and provide the full sort of services, a managed service where we provide the studios for their new TV channel.
They get half of the rights for Champions League for pay TV. That is something that you consider, what we would normally call a sub-licensing, but it's a content sale with a margin where we're providing a service, where we don't give away 100% of the rights, and we always retain everything on Viaplay.
That is a new way of working in a market where the demand for relevant content and standing out in new ways from the distributors is something that we want to capitalize on.
Thank you very much. One last question. I think this was touched upon during the call, but I missed it. Currency headwinds going forward. I think you mentioned SEK 20 million in this quarter, and you have previously been guiding for SEK 100 million for the full year, right?
Yes. That's right. We didn't have any effect on Q1, so you should see the remaining roughly SEK 80 million coming in in Q3 and Q4. We are absorbing that in our guidance to deliver on the profitable growth for the year.
We are absorbing that.
There's no change to that?
No, there's no change. If we didn't have that, then we would do a little bit better.
Okay. Great. Thank you.
Thanks.
Thank you. That concludes the question and answer session. I will now hand the call back to your host, Matthew Hooper.
Thank you, Anders and Gabriel. Thank you all for your time and questions today. We'll now be road showing in Stockholm and London today and tomorrow. We'll then visit the U.S. in September. We look forward to meeting as many of you as possible face to face. Please do not hesitate to contact Stefan or Emily in the IR team if you have any questions or would like a meeting. As you've heard, we have a unique story to tell, and we hope that you found it interesting. Goodbye for now. Best wishes for the summer. That concludes today's conference call. Thank you for your participation.