Modern Times Group is in an envious position in the Scandinavian and Baltic markets, with pay-TV and free-to-air channels as part of its portfolio. However, there seems to be some major events that are already affecting MTG’s position and prospects.
A major report from investment bankers Morgan Stanley suggests that other elements are also in play. First, says the bank, German commercial broadcaster Pro7 has confirmed it has had “unsolicited interest” in its SBS Scandinavian FTA broadcasting business. “Although MTG has given no indication that it is bidding for SBS,” says the bank, “it has expressed an interest in the assets in the past (2011), so we explore the hypothetical possibility of it doing so again. Our analysis suggests that combining SBS with MTG would make strategic sense. It would create a duopoly in all of the major Scandinavian markets (Sweden, Norway and Denmark) and would enable MTG to regain the market share it has lost to SBS over the last few years. We estimate synergies could amount to 5-10 per cent of the combined cost bases of SBS and MTG, perhaps more if MTG management embarked on an ambitious restructuring plan.”
Closer to MTG itself the bank is also concerned that FTA advertising remains “under pressure”. “Our channel checks suggest that MTG suffered from weak TV ad spend in Denmark in Q3 while it continued to lose market share in Sweden and Norway, where TV ad spend actually continues to grow nicely. We forecast Danish, Swedish and Norwegian TV ad spend down -10 per cent, up +3 per cent and up +6 per cent, respectively, in 3Q12. In market share terms, we think MTG performed in line with the market in Denmark, underperformed in Sweden and significantly underperformed in Norway. We now forecast MTG’s Scandinavian FTA net advertising revenue down 4 per cent organically in 3Q12 vs. 0.6 per cent in 1Q12 and down 3.3 per cent in 2Q12. The outlook for Nordic TV ad spend remains pretty robust going into Q4; however, the fact that MTG is underperforming in the better markets while being the market leader in Denmark, Scandinavia’s weakest market, means that we expect MTG will print negative NAR growth again in Q4.”
“Over the last few years,” the bank report adds, “[MTG’s] DTH platform has been losing share to IPTV, especially in Sweden and Denmark. MTG has experienced a sharp reduction in its DTH subscriber base, which was offset by an increase on the other platforms. However, this structural evolution has stalled the growth of MTG’s overall subscriber base. Meanwhile, the IPTV market is about to get more competitive with the entrance of HBO and Netflix in 4Q12. We believe the combination of lower DTH penetration and increased competition in pay-TV on the IPTV platform may restrain MTG’s ability to grow its subscriber base and ARPU.”