Q&A: TVN Group’s Markus Tellenbach

June 7, 2011 World Screen
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PREMIUM: Markus Tellenbach, the president and CEO of Poland’s TVN Group, discusses what have been the drivers of the company’s success across TV broadcasting and production, digital satellite pay TV and online.

 

WS: What factors have contributed to Poland’s being a vibrant media market?
TELLENBACH: To put it in a bigger perspective, Central Europe has very dynamic media markets. The ten-year period before the financial crisis was fueled by privatization and economic growth. Poland, in particular, was experiencing the same pattern. However, it did not suffer from the financial crisis as badly as the other Central European markets, and, in fact, is the only country in the E.U. that has not had a recession. It’s quite remarkable. And although we saw the advertising market contract, the recovery was very steep and last year we got back on a growth path.
 
Looking at why Poland is in such a unique position—well, the economic strength helps, but it’s also a highly competitive market, a highly innovative market, and Poles are, in general, TV lovers. They also embrace technology and innovation and are ready to buy the latest equipment. So Poland is a fantastic environment for the media business in general, and on the pay-TV side, it is one of the most competitive markets, with three satellite platforms, fully mature cable operations, and DTT and IPTV taking off.
 
WS: On the free-TV side, how has TVN found a balance between original productions, successful formats and imports, particularly from the U.S.?
TELLENBACH: TVN is a slightly female-skewing [family] station with a strong news component. That is a bit unusual positioning in this part of Europe, but a very successful one. Three-quarters of the schedule consists of locally produced content and the remainder is acquired licensed product. Top feature films from the U.S. are of interest in Poland. Certain TV series, of course, are [also of interest], but generally, the thirst for American programs has decreased over the last few years with the building out of more professional production facilities and Polish viewers’ taste for local content. As we have such a high local production percentage on the main channel, we are very much in control of our schedules, which means we have typical TV seasons, spring and fall, in which we launch, as other markets do, our locally produced shows in prime time. We do run features later in the evening, usually after 10 p.m. It’s a local-production-driven market but still it will continue to license a significant amount of U.S. product.
 
WS: As the Polish market is one of the most mature markets in CEE, on the free-TV side, do you still see room to grow your audience share and your advertising share, or at this point are you just consolidating the position you have?
TELLENBACH: We have more than 150 Polish-language channels in this country—so it’s quite a competitive landscape. The TVN Group as early as 2001 started to launch alongside its main TVN channel a bouquet of thematic channels. Today we operate eight thematic channels that counterbalance the effect of fragmentation.
 
Currently, we have about 23 percent of the peak-time audience share in Poland and about 32 percent of the television advertising market, so we are a world-class company when it comes to power ratio [the measurement of a media company’s revenue performance in comparison with its audience share], which is about 1.5. So in the next couple of years we believe we are going to see growth in the advertising market, mainly as a function of growth in GDP. Forecasts call for a 4-percent growth in GDP in 2011 and as a rule of thumb, for a country like this, I would say the advertising market will do about double that. So it’s not yet double-digit, but a 6- to 8-percent ad-market growth for electronic media should give us continued momentum to improve and see audience growth on the thematic channels. Out of our 23-percent audience share, about 19 percent comes from the main channel and 4 percent comes from the thematic channels, which is where I see substantial audience growth possible.
 
WS: What factors have been driving your pay-TV business? The N platform is doing quite well, isn’t it?
TELLENBACH: The N platform is nothing short of a roaring success. We started only four years ago and today we have more than 800,000 post-pay subscribers [customers who, upon signing a contract for a given package, pay a monthly fee] and about 300,000 customers with prepaid cards [similar to mobile phone prepaid cards]. So together we already have 1.1 million customers. We are forecasting that the post-paid side will grow from 800,000 to 900,000 subs, while the ARPU is increasing. The reason is that the Polish consumer is very tech-savvy. We have embraced that particular characteristic and so far we are the second-largest high-definition platform in Europe, only behind Sky U.K. We offer not only the largest number of full HD channels today (27 full HD channels), but more importantly, all our 800,000 post-paid subscribers are fully equipped to receive full high definition already.
 
Four years ago, high definition was not yet a clear winning proposition. We then made a brave move with initially quite expensive boxes to deliver the best technology and more channel offerings, and Polish customers [embraced them]. Our first effort involved innovation and technology leadership. We have expanded that position with various measures. Recently we were the first to launch a 3D channel and PVRs. Our customers have PVRs with 500 gigabyte hard disks—it’s the latest convenience you can offer on satellite—and a full-blown VOD offering. So generally the three platforms compete, but they have a different attitude when it comes to technology, and we have clearly taken the lead.
 
WS: How have the prepaid cards helped drive subscriptions?
TELLENBACH: I’ll be honest, initially it was a test; we were not absolutely sure it would fly. But the first differentiation is the price: post-paid customers have the obligation of the contract, and packages start in Poland at around 50 zloty (€12.70). Our average ARPU is around 60 zloty (€15.20). So we started with a low price offer on prepaid, which is basically a card that you can top up over the phone or over the Internet, or at almost any retail shop or fuel station in the country. So it’s extremely convenient. People take the card to their holiday homes and use them as a second or third decoder, for example for the kids. It’s a convenient proposition, even with less features—it doesn’t have a PVR or VOD, but it’s a good offering. We have extended this prepaid offering to high definition, where in Poland you can buy a card that is 20 zloty (€5.10) and receive 12 HD channels. This is a popular proposition that is relatively inexpensive because those boxes don’t need hard disks. Prepaid has been well received. The consumer feels in control of his expenditure, he spends the money when he wants to use it. Altogether we have close to 300,000 active customers with little marketing, which is a convincing response from the consumer side.
 
WS: Do you plan to launch more channels for N?
TELLENBACH: On the expansion front, we have two focuses. One clearly is expanding and embracing the technology side and launching or converting more channels into high definition. On the pay-TV side, movies are hugely popular, and to that extent we are strengthening our movie offerings at a good pace in order to have the best of the best.
 
WS: Are online and new media also growing parts of your business?
TELLENBACH: Yes. We are not in search and social, but we are the number one portal in this market with 13.5 million users, and we’re the number two domain in this country with about 73-percent reach. The interesting bit on the online side is the dynamic growth from the advertising perspective. The last ten years there were few dollars in online, but we are already seeing display advertising increasing massively. We forecast that in 2011, display advertising in Poland will increase and will continue to do so for the next couple of years. So we believe the online advertising market is going to see strong and continuous growth, primarily as a shift from offline to online budgets. Onet—that’s the name of our portal—enjoys this leadership position to a certain extent because it’s part of a media group. Onet is leading when it comes to news, sports and business news, so all the verticals of the Onet domain have a very strong market position and with that also a very good position to compete for ad dollars.
 
WS: Are your viewers watching online as well as on linear channels?
TELLENBACH: Absolutely. Poles are techno lovers. Hybrid TV sets, also known as connected TV, are being em­braced by consumers. Sony, Samsung and Panasonic are putting out the latest hybrid sets. The telcos are moving quickly to establish broadband and new IPTV offerings. There will be web platforms—hopefully our own will succeed. This will become a competitive environment where Google and Apple and other companies will also make their [imprints].
 
Convergence is happening at a fast pace on the tech side and … the TVN group has entered into a unique and long-term partnership with Telekomunikacja Polska TP. We have just started to launch bundled services, such as broadband and pay TV or pay TV and mobile. There are many combinations that we will put on the market, with the goal of having the most competitive offer on the one hand but, on the other hand, to also develop devices that are particularly customer friendly. I think that is a key focus: to provide technology in customers’ living rooms that is manageable. We are embracing that by jointly launching decoders and solutions with user interfaces that make the whole in-home experience easy and enjoyable.
 
So online viewing will become more and more an issue as broadband penetration increases, but remember, only about 54 percent of Polish households have broadband connection. And broadband here doesn’t mean much more than two megabytes. In fact, high-definition streaming today is not possible, but it will be tomorrow. So we are fully aware that convergence is a challenge for a media company, and with this partnership agreement with TP we made the first step [towards] the beginning of convergence. Having said that, at the end of the day, content remains king. It’s been said a million times and is still true. Regardless of how fancy the devices are, Poles will look for Polish-relevant content. The DNA of our company is to be the leader in news and produce the best Polish entertainment content. So we are not scared; we look to convergence as an accelerator for our market position.
 
WS: As you look forward 12 to 24 months, what are the major opportunities and challenges you see for the TVN group?
TELLENBACH: Convergence and fragmentation—those are the issues that we have to master, and I believe we are well prepared to take momentum both on convergence and fragmentation with just one or two frequencies on digital terrestrial. So we are developing that. We are entering partnerships with hardware manufactures to stay ahead on the connected-TV side. More interesting medium term is for us to continue to expand our production capabilities. That is a key both on the free and pay sides, as well as for our online portal Onet, where we continue to have the best Polish programming available. Looking further out, I think the consolidation in the market will be a challenge. A further boost will come from the analogue shutdown in 2013, providing us with digital terrestrial television with national reach.
 
On the thematic-channel side, we are going to see mobile services coming off special interest channels such as news. We have the leading news service in this country and it is gearing up to produce apps for all mobile devices. The iPhone does not yet have much penetration in this market, but smartphones in general will grow very fast. On the mobile-content side we want to get a solid slice of that pie.
 

There are plenty of challenges ahead, as for any media company, but at the end of the day, we are a content house; that is where our DNA is. We look at the future with a platform-agnostic approach … to make sure our programs and brands tra­vel on all devices and all platforms and reach the Polish user.

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