Michael Garin

June 2008

With stations in the Czech Republic, the Slovak Republic, Slovenia, Romania, Croatia and Ukraine, Central European Media Enterprises (CME) is the leading television broadcaster in Central and Eastern Europe. The company was set up in 1994 by Ronald Lauder, who had a bold vision for the region. He wanted to build a group of commercial stations in the post-Soviet world that allowed freedom of speech and the press, were supported by advertising and thereby could help boost local economies, and were rich in news and original productions. His vision has become a reality.

Today, CME’s stations reach almost 90 million people across the region and most of them are market leaders in their countries. They are experiencing double-digit increases in advertising and contributing to the strong financial performance of the company.

Michael Garin, CME’s CEO, is particularly proud of four success stories across his portfolio of stations. To begin with, in the first quarter of this year, CME’s revenues were up 51 percent and EBITDA increased by 86 percent. Secondly, the station in Croatia, Nova TV, has jumped from being a distant fourth-placed station three years ago with only a 10-percent market share, to being the prime-time market leader with a 30-percent share and the number one station. Thirdly, at a time when the financial markets are in disarray, CME was able to successfully issue a convertible bond offering at very favorable rates. And finally, CME is finding as much success in new media as it has in traditional broadcasting. The company’s goal is to be one of the top three Internet destinations in each of its six markets and it has already reached that objective in Croatia, Slovenia and Romania. Garin talks about these accomplishments and more in this exclusive interview.

WS: You posted strong first-quarter results, with revenues up 51 percent. What were the key factors in driving that growth?

GARIN: The drivers really were the superior performance of every one of our stations in every one of our markets. This was the result of our efforts to try to move more advertising into the weaker quarters, which worked both for us and for our advertisers. It allowed advertisers to buy GRPs [gross ratings points] at a slightly more efficient rate and it allowed us to deliver GRPs which are playing over an entire year on a more balanced basis. So in the second and fourth quarters, we have more inventory available. In this part of the world, which may not be well understood, we have the best ratings systems in the world. Every second of our broadcast is rated. So the guy whose commercial runs second pays a lower rate than the guy who is first, not because the CRP [cost per rating point] is lower but because the rating is a little lower. So we can shorten the breaks and then we deliver more GRPs to the advertiser. We can do that both in the first quarter and then in the second and fourth quarters. So part of the enormous increase that you see is the success of that strategy, to shift advertising in a more balanced way. We’re guiding to growth of 31 percent for the full year. It’s still going to make us the fastest-growing multinational broadcaster in the world.

WS: What are your plans for your new-media businesses?

GARIN: Our goal is to be one of the top three Internet destinations in each of our six markets. We’re already there in three of the six: Croatia, Slovenia and Romania. [In our other markets] we’re basically doing the same thing we’re doing in Croatia, Slovenia and Romania! The principle driver is news. CME really prides itself on being the leading news station in every country that we’re in. In the Czech Republic, when our TV news is on, 60 percent of the people watching television are tuned in, which is unbelievable. That’s probably the highest news share of any station in the world. The reason this is so important is that, from my perspective, news is really the foundation of broadcasting. If people begin the evening with you, they’re more likely to end it with you. Also, series come to an end; the news comes on every day. If you have a well-established news, you can keep [audiences] for decades, if you don’t screw it up! That really is the number one driver of our Internet traffic.

WS: Outside of news, what are some of the programming formats that have been working for the CME stations?

GARIN: In all of our countries, other than Ukraine, we’re producing up to 70 percent of our prime-time programming. As a result, we are really offering everything, from telenovelas to comedies to dramas to reality shows, and this is of strategic importance to us. Let’s say we have a 50-percent audience share, as we do in the Czech Republic, and [our competitor] Prima has a 15-percent audience share. If we pass on a movie package, say, at $100—I’m just using this as a simple example—then a movie studio might sell it to Prima for $20. But if it costs $100 to make a program, it costs us $100 and it costs Prima $100. If we have three times the audience that they do, the cost per viewer is three times more expensive for them. Maybe they can make one program. But if it fails, as programs do, what are they going to do? That’s what happened to them this past year. Whereas we can afford to make four or five programs and three or four of them will work, and if we’re lucky all of them will work. If they don’t, we can put them into different time periods or do other things with them. The move towards original programming very much works to our advantage to maintain our leadership position in our markets. TV Nova has got a 50-percent audience share. Nova TV in Croatia has a 30-percent prime-time audience share and our hit program, The Farm, which is on every weekday night, has a 40-percent audience share. Slovakia has 45 percent. All of our networks have [leading] prime-time shares, except for Ukraine, which is a bigger market with more stations. There we produce only 20 percent of our prime-time programming. We’re in the final stages—we’re just waiting to close—to buy out our minority partners, and after we close, our mission over the next year or two is to get that production percentage up to the same level as the rest of CME’s stations.

WS: Are you looking to expand the portfolio of stations?

GARIN: We’re looking to expand in two ways: within our existing countries, which is not easy, and to other countries in Central and Eastern Europe, which is also not easy. But wherever it is possible, we have and we will. We just announced our move into radio in Romania, which we were able to do because of our MTV franchise, which we acquired [from MTV Networks International]. It’s not MTV as we think about it in the West. We’re taking a brand that is well known and well respected, and we’re combining it with local programming. That’s why CME is so successful: most of our programming is local. Radio Pro is really a component of our youth strategy, which is driven by MTV. MTV Romania is doing great. We doubled the ratings in the first two months [after taking over the channel].

WS: On the advertising front, are you selling packages across your stations?

GARIN: We don’t do multi-station selling. If you’re a multi-station buyer, what’s the first thing you ask? What discount do I get? We sell our advertising at a premium, market by market.

WS: Do you see the growth in your new-media segment keeping pace with the growth in your broadcast business?

GARIN: New media is a nascent business. What we’re really focused on there is building traffic and loyalty and habit. It’s not that we’re not getting the revenues—they’re just not in the market yet. The problem is, if you wait till the revenues are there, all the kinds of sites you want to have, someone else has already occupied. You’ve got to invest in building your traffic and the content, because you know that the revenue is going to come and you have to be there when it does. That’s one of the biggest advantages we have because we’re one of the few really big companies in the region. So we can afford to take some of our profits and invest them back into the new-media businesses.

WS: Will you be making your content available online or via mobile?

GARIN: We have a strategy for that but it really varies greatly between countries. The only country where online content is meaningful at the moment is Slovenia. It’s kind of like the Switzerland of Eastern Europe. They’ve got over 40 percent broadband Internet penetration. It just works in a way that other countries don’t yet.

WS: Are there any markets you see maturing faster than the others?

GARIN: No. It’s at such an early stage. There are 10 to 15 years of continuous growth before it starts to look like Western Europe.

WS: What are your priorities for the company in the next 12 to 18 months?

GARIN: We’re the fastest growing broadcaster in the world organically—our biggest priority is not to screw it up! Our number one focus is on execution. Our number two focus, which is almost as important as not screwing it up, is Ukraine. Ukraine is a little more than half of the total population in our footprint. We cover nearly 90 million people, Ukraine is 46 million. It’s starting from the smallest position in terms of advertising per capita. And we know it’s going to be the biggest country, not only in population but in terms of the economic size of the market, so we’re very focused on making sure we have the same leadership position in the Ukraine as we have in the other countries where we’re already leaders.

WS: At DISCOP last year, you made a speech in which you said to the TV executives in the room, “In ten years you won’t have a job.” Do you still feel the same way about the demise of the broadcasting business?

GARIN: More than ever. What I was talking about was the disappearance of the television networks as we know them. It was really focused principally on the United States. The United States possesses all the conditions for the destruction of the networks. I explained at the time what I call the three “P”s that really made networks possible. The first is production, the ability to create programs. The second one is programming, the ability to schedule programs in a way that the audience of one program is compatible with the next one. The last one is promotions, because in television, unlike the movie business, you basically only tell people that programs are on, on air. As opposed to movies, where you see Harry Potter every place you look. The economics of television don’t allow you that. So in the United States, as new technologies evolve, you have the talent to create programs but you don’t have the resources because the revenues are getting lower and lower and lower. The audience gets fragmented, the advertisers are going to stop paying for this stuff at a certain point, and nobody is going to buy it on a subscription basis. One of the reasons you’re not going to be able to satisfy the advertisers is because you’re not going to be able to program—people will choose what they want to watch, when they want to watch it. There’s no ability to let one program lead out into another one. And no promotions—there’s not going to be a network, so you’re not going to be able to air all those promos saying, coming up at 10 o’clock, watch so-and-so. I just don’t see the networks being viable over time.

WS: What do you think distinguishes CME from other media companies?

GARIN: We have 3,400 employees and there are only 23, like me, who are not from the region. We have such strong local talent who understand their countries and their markets. I’m very proud we’ve been able to empower these people to reach their potential and to achieve their professional and personal ambitions. Beyond that, even though I’ll be here till January 2010, my successor is already in place, Adrian Sarbu, who is COO. So when I leave, not only will the company be in the operating hands of people from the region, but it’ll be in the executive hands of people from the region. And that’s really what I want my legacy to be.