Modern Times Group (MTG) is one of Scandinavia’s two broadcasting giants. It has its own pay-TV business as well as a clutch of mainstream channels transmitting free-to-air. Its ViaSat bouquet competes against arch-rival Telenor’s Canal Digital bundle of channels. But MTG’s financial performance, while solid, hasn’t impressed investors and its share price remains in the doldrums (down -8 per cent YTD).
This could represent a buying opportunity, says investment bankers Morgan Stanley in a June 19 note to clients, although also cautions that medium-term earnings growth is “likely to remain subdued” and not helped by continued pressure on advertising revenues.
The bank’s analysis is blunt: “MTG’s schedules on TV3 and TV6 currently include many imported series. This strategy has not yielded success of late. Ratings in Sweden and Norway have been lackluster over the last two quarters, with commercial audience share dropping to 34.9 per cent in Sweden in Q1 12 (Q3 11 38.4 per cent) and 18.6 per cent in Norway (Q3 12 20.7 per cent). TV3, the main channel in Sweden, has been notably weak.”
“The most recent data in both Sweden and Norway has continued to exhibit weakness, with TV3 dropping from 7 per cent to 6 per cent share in Sweden in May, and from 5.7 per cent to 4.2 per cent share in Norway, according to weekly data from TNS.”
“We note that own production content is less than 5 per cent of the MTG free-to-air schedule in Scandinavia, but accounted for 39 per cent of free to air TV programming spend across the group in 2011. We suspect, therefore, that investments in this area are likely to come at a higher incremental cost. This may limit operational gearing and offers no guarantee of success,” the bank’s report warns.
“The job of re-building ratings is made more difficult in the context of increased investment in local content by incumbent commercial and state broadcasters in Sweden and Norway (together 80 per cent of MTG’s free to air revenue). We note comments by John Ranelagh, head of acquisitions at TV2, the incumbent commercial broadcaster in Norway: “The content [imported series] is still popular. The problem is it’s no longer popular on broadcast television. It’s popular everywhere. We have to go back to producing our own stuff so if people want to watch it, they have to wait until we show it because they won’t see it anywhere else.”