Didier Stoessel, Chief Executive Officer at CME: In this new world, content is still king, but distribution is queen
At the beginning, you mentioned you were able to increase other sources of revenue…
The television group has three sources of income. Advertising, carriage fees, and subscriptions to premium services. And although the last one is very small when compared with advertising at the moment, it’s what we want to focus on. Television has to free itself from the traditional B2B model where the foundation of business were commercial partners, and invest into B2C, which is a model that goes directly to our customer or viewer.
So paid services are behind the increase in revenue. What are your further plans with them?
I’m mostly talking about non-linear services, so-called on-demand where you choose what you want to watch at the moment. Anyone who has our Voyo or Netflix knows how it works.
To be thorough, it’s something that really works and will continue to grow in strength. Look at numbers from Europe. There are 141 million subscribers to non-linear services in Western Europe. In 2010, just ten years ago, that number was zero. In 2014 it was 20 million and 70 million in 2018. What we’re seeing is exponential growth.
So far, it was understood here as “OK, I’ll subscribe to Voyo because I want to watch the series on my mobile or on my computer,” but in the West it’s a trend where these services offer a wealth of high-quality content that isn’t available on television. As a result of the pandemic, demand for this type of service grew enormously. Netflix alone acquired 37 million subscribers last year.
At this point, however, the majority of these offers are global services and don’t offer local content. That is our chance. We want to revive Voyo and offer the best non-linear local content in the Czech Republic.
What is the goal in terms of the number of subscribers?
The foundation is quality content, and, in this respect, we have very ambitious plans …
Excuse me, but what do you mean by “quality content”?
If you look at Voyo in the Czech Republic today, then it’s chiefly a library of series and films, but we see it’s used as a preview service for what you will see on Nova. That will remain, but we will add a number of films, series, and reality shows made exclusively for Voyo. Therefore, Voyo will go to producers and say: We want you to make a high-quality series exclusively for Voyo.
We’ve already contacted three companies to begin production for us. That will yield three miniseries by the end of this year. It’s also very possible we will have a new reality show on Voyo by the end of the year.
The content can also be very differently targeted. At TV Nova you need quality production and very broad reach. Some 1.5 million people watch our series every day. However, non-linear services will allow us to offer more variety and content for smaller groups.
If I return to the previous question, how many subscribers do you target say in two years?
Two years is too soon. I don’t know how to answer that, but the goal is clear. It’s based on a comparison with Western Europe where about half of all households connected to the internet use at least one non-linear service.
Let’s look at the company I used to work for: Modern Times Group in Scandinavia. In four countries, Sweden, Norway, Denmark, and Finland, so altogether some 20-25 million people, there are 3 million subscribers. Using the same logic, there are 15 million people in the Czech Republic and Slovakia, so I see a realistic goal of 1 million subscribers in five years.
And what is the number you are starting from?
We doubled the number of Voyo subscribers in the last 12 months, actually even less time.
That wasn’t an answer to my question. The last relevant numbers are from about 2015, when it was around 30,000…
Excuse me, but we will not publish this number right now. However, I can say indicatively that we have hundreds of thousands of subscribers to our services for the entire CME Group.
How much do you plan to invest into the development of non-linear platforms?
That’s another question where I can’t give you an exact answer and give up details to our competitors. But we do know that we want to offer in the Czech Republic one exclusive program on Voyo every month by 2022 at the latest. Honestly, our limitation at this moment isn’t the budget, but more that it isn’t easy to find enough production capacity that would manage to make quality content. That has to be built out, which will take time.
Furthermore, you cannot dedicate all capacities to projects for non-linear services. We also want to maintain and develop the high standard of out linear broadcasting.
What is the future of linear broadcasting? Will something disappear from linear services?
No, on the contrary. We will certainly invest into linear broadcasting as well. You asked the condition Nova was in when I arrived. I said it was good. The B to that answer is that CME underwent a very long acquisition process, and during such a difficult time the company did not launch very many initiatives. It was managed to keep up performance, but not to move forward.
I want to change that now. I want a more entrepreneurial culture where people will not be afraid to fail. Failure is not a problem or embarrassment in the digital world that we are gradually moving towards. There you have to have three or four failures for every two successes. You just need good management that quickly halts unsuccessful projects and works with the successful ones.
That’s also true for linear television content. That is precisely how we will invest.
Will there be more local original content, or the acquisition of finished programs and films?
There will certainly be more local content. Acquisitions are a problem. First of all, large global players on the market are continually keeping content for their own non-linear services, and this content is not as attractive for local viewers because they can get it elsewhere. The trend is that the majority, up to 80% of users, subscribe to an average of 2.5 non-linear services: one global, one local, and possibly one that is specialized for say documentaries or children’s programs.
Therefore, 90% of our investments into Nova will go towards original local content, meaning new series, reality shows, blockbusters, and completely new formats, because I want Nova to be seen as an innovator; that you’ll see something for the first time ever on Nova.
And when I was talking about the move to the digital world, then it means a transformation to a data-driven company. Television was up to now managed according to viewership share on the basis of surveys. However, if we move to a model focused on customers, viewers, then it’s not just accounting numbers, but we will know exactly for whom we are making and broadcasting programs.
You mentioned blockbusters. Does it make sense for linear TV services to purchase movies when there are a number of global streaming services?
I’m not just talking about films. By blockbusters or hits, I mean exceptionally successful series, reality shows, or any other format. And if a new idea or new format appears somewhere, then we have to be the first to offer it in the Czech Republic.
And will films continue to be a pillar for linear broadcasting?
Of course. I even think that it’s not a question of linear/non-linear. It’s obvious that linear television has its place in the future. People have been predicting the end of linear television broadcasting for 25 years now and it’s still here and very strong. And it will still be here and very strong in another 10 years. That is why it will also offer excellent films. The way we broadcast on smaller channels like Nova 2 or Nova Cinema where you will always find the best we are able to acquire.
Non-linear services are just a way to adapt to a wider group of viewers we cannot reach in broadcasting.
As we’re discussing movies… Can I ask a personal question? What time do you usually go to bed?
Can you therefore explain a clear trend to me that is not just on Nova’s channels, but across the television sector? The best films start at 10 p.m. or later and last until 1 a.m. sometimes because of advertising breaks. Who is the target audience here?
I don’t think that’s the whole truth. If you turn on Nova Cinema, you’ve got great films at 6, 8, and 10.
But the really good ones are often broadcast only at 10.
Then for your tastes the best are the ones from 10. But when we look at viewer groups, then the best for the broadest range of viewers are really the ones at 8.
And that’s what we’ve been talking about: linear broadcasting versus switching to a non-linear service and watch something you want.
You mentioned smaller channels. Have you considered making them fee-based like subscription-based Nova Sport? That could make sense for specialized movie channels. You are already basically charging fees for your HD versions…
Let’s first look into the past a bit. Some 30 years ago, television stations were built in most countries with the expectation they will be free as long as there is advertising.
Things have changed dramatically in the last 20, 25 years, and the price of content continues to increase. If you look at the US or UK, the trend is that if you want to watch a specialized channel, then it can cost dozens of euro per month. If you access non-linear services, such as Hulu, you pay a basic fee even if you have the version with ads. All countries will go this way where television channels will increasingly be available for some sort of fee. The more local the content offered, the higher the costs. Creating something original is 5x-10x more expensive than an acquisition.
What condition did you find CME in when you joined?
In very good condition, no bad surprises...
Can you give us the numbers?
You mean in terms of financial results? In 2020 we will do approximately the same as we did in 2019.
Even despite the last numbers published for the first half where revenues were down 15% for CME when compared to 2019 and down 17% at Nova Group?
Yes. Naturally revenue fell significantly in the second quarter as a result of the pandemic, especially advertising revenues. But like in any business, we are able to make cost adjustments. We were able to adjust our cost base and generate revenue from other sources than advertising in order to reach the same level as the year before. And Q3 and Q4 were then above than 2019.
In terms of revenue or profit?
In terms of revenue. We also invested more, so costs were obviously also slightly increased, but we were at a better level than in 2019 and we’re happy with that result.
That means that Nova Group is better off than in 2019 where revenues were over CZK 5.5 billion and profit exceeded CZK 800 million?
As you know, we are now a private company, we are not publicly traded so we don’t publish individual company accounts. Our final accounting statements will only appear in the commercial registry at the appropriate time.
However, I can say that revenue at Nova in H2 was higher than in previous years. That is rather normal. In H1, there was a great deal of uncertainty on the part of advertisers about the effects of the pandemic. In Q3 and Q4, they realized they had not spent anything or very little and it’s necessary to use the planned resources and take advantage of an improving situation at the end of summer. People went on holidays, spent more, and thus advertising increased.
People and thus companies were more optimistic, and we benefited. Television and advertising are generally a very good reflection of the economic situation.
Do you still see that optimism and hope?
We certainly cannot underestimate the situation. You know, I come from a large medical family. My grandfather was doctor, so was my father, and my daughter works in emergency care in Paris. Thanks to that, I saw how exhausted healthcare workers were in the spring wave and how they had deep bruises on their faces from long shifts in protective gear. Therefore, everyone has to do everything to get the pandemic under control. Hopefully, the vaccine is a light at the end of the tunnel.
I meant more in terms of business where there still is optimism that then spills over into advertising expenditures…
Overall, there is hope in business, but it’s different from sector to sector. If stores are closed, you will advertise less than if you’re selling a product and your store is open.
It’s no secret that if you’re in ecommerce, you’ll spend much more in 2021 than in 2020 because your business is constantly growing. If you’re selling a product, cars for example, which as you know are closed right now, you will spend a bit less because when you know you can’t sell your product, there isn’t much sense in advertising it.
CME is active in several countries. Are there any synergies you can take advantage of in terms of investments or content? If you’re focused on local content, then I don’t see many commonalities with, say, Romanian viewers…
You’re correct to a certain extent, but scripts are adapted in all countries and you can remove cultural differences. You mentioned Romania. This fall, we will broadcast a series in the Czech Republic that was extremely successful in Romania. The original script that was adapted for that market was originally created in Slovakia, where it was also an immense hit. Now we will completely re-write, edit, and show it in the Czech Republic. I see you’re taking a breath, so I’ll answer your question: No, I won’t tell you which one I’m talking about. I’ll only say… it’s not from the medical environment.
Synergies don’t have to be just in programming, however. In Czech Republic and Slovakia, Voyo has undergone a massive transformation that we can now use in Slovenia, for example. We can share individual ideas, methods, and technologies across the individual markets.
What about entering a new market and expanding those synergies?
Let’s not get ahead of ourselves. I started here three and a half months ago, and I’ve got a lot on my plate. I have to ensure that everything is working as best it can and then we will see. Honestly, if you ask the head of Netflix if they want to enter new markets, they will of course say yes.
I think good content moves on its own, especially in today’s digital age. If you own the rights to good content that you make for the Czech Republic, you own it for the whole world. Take Viaplay for example, which is a non-linear offering from Modern Times Group that has about 3 million subscribers in Scandinavia. That service is now being launched in the Baltic states, Poland, and in the US. Good content does not have borders.
That’s also because non-linear offers don’t have limitations like television broadcasting where you first have to acquire a license.
The way is thus to go beyond borders or strengthening positions on markets where you are already present through non-linear channels and not by buying more channels or TV stations?
You know that as a general rule we don‘t comment on acquisitions, but at the moment I don’t have any such plans. And you’re correct about non-linear services. Expansion there is very simple and it’s a massive new source of income especially for us. When you say that Nova is the biggest player on the TV advertising market, then that’s excellent, but the whole advertising market is 2.5x or 3x bigger therefore we are a large but not such a big player in the market.
We skipped news when we spoke about investments…
Local content is also excellent news reporting as well as great series. It’s clear that news is a key part of our content officer, because entertainment and news are the two basic pillars that every market leader must have.
It’s also abundantly clear that we have to continue in the selected path in terms of independence, objectivity, plurality, high-quality journalism, and responsibility. We said that many times and we want to repeat it here as well.
Your reporters can freely report on PPF...
Undoubtably. Every day, 1,6 million people above the age of 15 turn on our news broadcast at 7:30 p.m., and an average of 4.6 million people watch at least some part of our news each week. That’s more than half the country. We will earn their attention only if the news is objective and professional. They will not favour any particular side. There is no other way to do it. Moreover, in the opposite case you would lose talented journalists that must be sure they can work freely. Our primarily goal is thus upholding the basic values that I mentioned.
Do you plan to expand news programming?
If you’re asking whether we will add another half an hour of news, then not at this time. We have news throughout morning programming and news at 12, 5, and at 7:30 p.m. That’s enough at this point.
We can look whether there is space for nightly news, but I’m not sure there is demand for that.
The Czech market is noteworthy that contrary to other countries, interest in watching TV drops earlier in the morning around 22:30 a.m. Elsewhere, people watch TV at 23 or 23:30. When you have this extra hour, you can consider another news bloc, but there is no interest in that right now.
Another matter is current affairs programs. We need more of those, or at least one where people will be able to express their opinions.
Where we really want to expand is not television, but to focus more on TN.cz both in terms of content and design.
Do you plan to change the make-up of news programming where it’s often infotainment symbolized by the traditional animal story, but goes beyond that?
Animals are in the past, this doesn’t apply anymore. In this case, content determines what happens. At this point, when the world is facing a pandemic, all news is focused on this topic and lifestyle topics, or as you say infotainment, is put on the back burner. Look at the morning broadcasts. There were many lighter topics there in the past, but now it’s filled with serious interviews and traditional news.
Once there aren’t so many serious news, we will certainly use lighter topics again because it’s the content viewers want from us.
The last topic I want to discuss is the connection to the telco business. PPF’s goal and strategy, and therefore CME’s as well, is to connect the television and telecommunication businesses. Can you explain how that will work and what the synergies are?
It’s called convergence and it’s something that started let’s say five-six years ago when Comcast acquired NBC Universal. It continued when AT&T bought Time Warner three years ago. In Europe, you can see a number of examples, in Portugal for example, where Altice purchased the largest Portuguese channel.
It’s another view of what we discussed before: the transformation of the television business from B2B, where you only deal with companies that buy ads, to B2C where you are trying to directly reach your viewer and acquire money from them.
In this new world, content is still king, but distribution is queen. And telecommunication firms handle that distribution absolutely perfectly. They have been customer-oriented the entire time. Invoicing small customers is something new in the television business, but telco has mastered it. By connecting these two sectors, you can leverage that knowledge and technology and accelerate everything.
Telco companies also have massive teams of developers that can help television companies with creating non-linear platforms. That is why it’s key to have telecommunication companies in the family, but it certainly doesn’t mean they will be our only distribution channel. We need all available partners for that and not just one.
Are you in talks about a connection to or using O2’s knowledge?
Yes, we’re in contact. We share best practices with everybody in our family of companies and we will certainly launch the mass distribution of our non-linear products with them.
In conclusion, take us into the future a bit. After having discussed development plans, distribution options, and synergies across markets, what will CME’s or Nova Group’s revenues be in five years compared with today when over 80% comes from advertising income?
I’d say the breakout of advertising to subscriptions will be about 50-50. When I say subscriptions, I mean not only non-linear broadcasting, but also paid TV channels and so forth. If we achieve that ratio, then I’ll be satisfied.
It also must be said television advertising is and will long continue to be exceptionally effective, especially when building a brand, which indirectly strengthens sales.
If you want effective advertising or certainty that a euro invested will return two euro in sales, then you go into digital where you can measure effects. However, that will not work without having an established brand and you can’t do that without TV, or you can but much more expensively. Who other than us can give you 1.6 million viewers at 8 p.m.?