Modern Times Group MTG AB Annual Report and Accounts 2006 Modern Times Modern Times Group MTG AB Annual Report and Accounts 2006 Get ready. to see. just how international. large. and entertaining. we’ve now become. 12–21. 22–27. Five key Chief Executive messages Officer’s review 28-29. 30–31. 32–33. Executive Five year Viasat Management Summary Broadcasting 34–35. 36–37. Scandinavia: Nordic: Pay-TV Free-to-air TV 38–39. 40. 41. Central and CTC Media MTG Radio Eastern Europe 42. 43. Modern Home Shopping Studios 44–45. 46–47. 48–53. Board of Corporate Corporate Directors Social Governance Responsibility 500 MTG Class B share Bloomberg European Media Index (Rebased) 400 54–63. 64. AFGX Index (Rebased) Directors’ MTG 300Share Report Closing price in SEK 200 100 2004 2005 2006 65–69. 10,136 70–72. 73–97. Consolidated 8,012 Parent Company Notes Financial Reports 6,805 Financial Reports 6,023 6,311 98.2002 2003 2004 2005 2006 99–100. Auditors’ Glossary and Report addresses . MTG maximising the power of entertainment The importance of scale the second largest broadcast was a key focus of last year’s footprint in Europe. Size annual report, and it has matters because it enables you only increased in importance to think and act differently. It since. MTG derives operating enables you to learn lessons advantage from the integrated in individual markets and apply nature and broad geographical the experience elsewhere, it spread of its operations. Group enables you to test and develop companies are present in, or new products and businesses sell to, 84 countries on four more quickly across multiple continents. Viasat’s channels markets at low incremental are watched by 100 million cost, it provides the operational people in 24 countries. These insight and perspective to inform markets have a combined investment and acquisition population of 372 million decisions, and it engenders people, which gives MTG corporate confidence. MTG Annual Report 2006 · 12 MTG Annual Report 2006 · 13 BALANCING SUBSCRIPTION AND ADVERTISING REVENUE STREAMS MTG is a unique media group in and 22% from their counterparts in generating an almost equal balance the rapidly developing Central and of advertising and subscription East European markets. The East revenues. 42% of Group sales are European markets even account derived from selling advertising on for 39% of Viasat operating profits free-to-air entertainment channels; when including the associated 37% from the sale of subscriptions company income from CTC Media to satellite DTH pay-TV platform in Russia. This balance provides and channel packages; and the the group with a well-diversified remaining 21% from other B2B business profile, encompassing or B2C sales. The Group’s pure the non-seasonal or cyclical broadcasting operations within own-platform and wholesale pay- Viasat Broadcasting are also TV business, seasonal and cyclical increasingly balanced geographically advertising sales, and exposure with 75% of revenues generated to the high-growth advertising from the free-to-air and pay-TV and emerging pay-TV markets businesses in the Nordic region in Eastern Europe. MTG Annual Report 2006 · 14 balance MTG Annual Report 2006 · 15 Technology is changing (r)evolution is not limited everything and, with change, to greater freedom in comes opportunity. MTG how consumers receive is committed to make its services, but also where content as broadly available and when. ‘Viasat+’ and as possible, which is why ‘Viasat Everywhere’ are Viasat channels are not transforming the way in only available via satellite, which television is watched, but are also wholesaled in and the innovation does not to the cable environment stop there. CDON.COM and included in emerging was the first to launch a digital terrestrial networks. music downloads service Viasat has pioneered the in Scandinavia; BET24 is development of broadband leading the way in online TV and has launched video gaming; and the acquisition streaming services via the of the Playahead online internet and 3G mobile and social networking site broadcasting to DVB-H, but opens up a new world the impact of technological of possibilities. MTG Annual Report 2006 · 16 MTG Annual Report 2006 · 17 DISTRIBUCONTENT IS KING BUT TION IS THE THRONE MTG operates along the Nordic premium pay-TV whole broadcasting value satellite platform package are chain – from content Viasat-branded. This strong production and acquisition, position yields an enhanced to channel creation and operating margin because packaging, to scheduling and the platform benefits from a promotion, to own platform largely fixed cost base, due to and third party network the centralisation of activities distribution. This provides the at the ‘Channel Factory’ in Group with direct contact London. Viasat channels are with the customer, which also sold to a wide range is essential to understand of third party broadcast what people will watch, use networks. MTG is constantly and buy, whilst the content pioneering new means of origination businesses distributing its content to provide an invaluable window consumers, which already into the world of TV and include satellite, cable, digital feature programming. 25 out terrestrial, broadband, mobile of the 60 channels in Viasat’s and internet. MTG Annual Report 2006 · 18 DISTRIBU TION IS THE THRONETHAT IT SITS ON MTG Annual Report 2006 · 19 SALES FOCUSED ORGANISATION MTG Annual Report 2006 · 20 MTG is not, and never has their local markets. The mantra been, a media company in of the Group is ‘meet and the conventional sense. know your customer’ and this MTG is a sales organisation discipline is cultivated through – we sell eyeballs, minutes, the Group’s Sales Academy, products and services – and President’s Club and Annual this is what drives the business Sales Awards. The Academy and the decisions that we provides a forum for the sharing SALES make. This is how the Group of ideas and experiences, whilst has been able to grow 75% Academy of Entrepreneurs over the last five years, and works to identify new business lies behind the expansion into concepts and opportunities, FOCUSED Eastern Europe. Whilst a wide and the Sales Awards celebrate range of the Group’s activities the success of individuals such are centralised in order to as 2006 winner Raivo Rosts from maximise efficiency levels, the Latvian pay-TV sales team. ORGANISATION the sales teams operate in MTG Annual Report 2006 · 21 MTGNEWS ur Space ce – My Tube · Yo Your Space – My Tube · Your Space – My Tube · Your Spa MTG Annual Report 2006 · 22 Last year, I wrote about how big MTG has become and how size matters in the modern broadcasting world. But scale is nothing if you 27%Increase in the sales growth for the Group do not know how to exploit it, which is why we have deepened and broadened our presence further during 2006. We have always believed in making our content and services as broadly 47%Increase in operating profit available as possible on as many platforms as possible or, in other words, to use as many ‘tubes’ as possible to reach your ‘space’ and to 17.5%Operating margin for the whole group use technology to enlarge the space that you as media consumers occupy. This principle lies behind the availability of Viasat channels via We have also continued to generate an equal balance of satellite, terrestrial, cable, broadband, mobile and the internet, advertising and subscription revenues. This balanced structure as well as our recent acquisition of the Playahead online social ran contrary to perceived wisdom in the 1990s and early 2000s, networking community. This development not only builds on our but has now become an accepted norm. already extensive portfolio of online properties, but also extends our reach into the rapidly expanding world of user-generated content. The other balancing act – that of high growth and increasing profitability – saw further positive developments in 2006, with The genesis of the Group is in Europe’s most competitive media Group revenues growing by 27% to achieve the SEK 10 billion market, where content distribution has successfully fragmented milestone for the first time in our history, at the same time as and evolved into a multi-channel digital environment. Some or all of we delivered record Group profitability levels. our 38 channels are present across multiple distribution platforms and earn us multiple revenue streams – advertising, subscription, This growth and earnings enhancement was predominantly pay-per-view, retail and on-demand. This base has expanded to due to organic growth and improved performance across the reach an audience of 100 million people in 24 countries, with a majority of our operations, but also reflects the contribution combined population of 372 million people, which is the second from newly-acquired TV Prima in the Czech Republic and largest broadcast footprint in Europe. increasing associated company income from our participation in CTC Media. 2006 also saw a number of our operations in We continue to generate genuine competitive advantage from the Eastern Europe reach annual profits for the first time. Our original integration of our free-to-air, pay and other service businesses investments in these operations also ran contrary to conventional and to benefit from our operating presence at each stage of the wisdom at the time and were financed by the issuing of broadcasting value chain – from content production to channel convertible bonds that were repaid in 2006. development, and from packaging to distribution and marketing. MTG Annual Report 2006 · 23 MTGNEWS The IPO of CTC in the middle of the year has now transformed MTG’s total invested capital of US$ 85 million into a 39.6% equity stake in a listed company with a US$ 3.6 billion valuation. Meanwhile, DTV in Russia, Viasat3 in Hungary and the Group’s Eastern European pay operations, all achieved annual profitability in 2006.