Adrian Sarbu

June 15, 2009 World Screen
COO & President
CME
 
April 2009
 
Central European Media Enterprises (CME) was founded in 1994 by Ronald Lauder and has become the leading broadcast group in Central and Eastern Europe. Today, with stations in seven countries—Bulgaria, Croatia, Czech Republic, Romania, Slovak Republic, Slovenia and Ukraine—CME reaches some 97 million viewers.
The stations began operating after the Berlin Wall came down, which marked the end of Soviet domination in the region, as well as the opening of market economies and the end to the monopoly of state-controlled broadcasters. They introduced viewers to independent news coverage and new, entertaining programs and formats, while at the same time they brought to the region commercial television, with marketing and scheduling tactics that were previously unknown. As a result, many of these stations quickly became market leaders in their countries. More important, the fiscal discipline with which the stations were run allowed them to reach impressive operating margins.
Adrian Sarbu was appointed president of CME in January of this year, but he was no stranger to the company. A seasoned media executive, Sarbu started his career in Romania as a film director. As state secretary for mass media in the first post-Soviet government of Romania, in 1990, he promoted the first Romanian audiovisual law, which laid the foundation for independent privately owned television. He then set up the film and production company MediaPro and founded the station Pro TV. CME became a shareholder in Pro TV in 1995, and Sarbu went on to establish the first multichannel strategy for CME by launching a bouquet of services in Romania. From 2006 he served as regional director for Czech Republic, Slovak Republic and Romania and became the chief operating officer of CME in October 2007.
Like all broadcast groups, CME has felt the impact of the economic recession and consequent drop in advertising expenditures. Sarbu strongly believes, however, that the stations’ assets—high audience shares, strong viewer loyalty and fiscal responsibility—will see them through these difficult times. Sarbu is not alone in having confidence in CME; so does media giant Time Warner, which earlier this year acquired a 31-percent stake. Sarbu talks about the deal and his vision for CME.
 
WS: How did the Time Warner investment in CME come about?
SARBU: Since the end of 2007 we had been contemplating a partnership with Time Warner because we both thought it could be mutually beneficial. We would gain a partner in our business that is so strong in content and is not involved in managing broadcasting assets in Europe. And Time Warner would have a partner in CEE [Central and Eastern Europe] which is the leading broadcaster in the region and also has a strong content division—these assets could complement their needs, their stance in the region and also in Europe.
So, after a number of attempts in 2008, [we formed the partnership] and announced it in March, which was a difficult moment for both of us, because of the economic recession. But at the same time, it was a good decision because it gave a strong signal to the market—a signal of confidence. The Time Warner investment strengthens our liquidity position, supports our strategic view of channel development and also promises to bring resources to our content strategy. We see joining efforts [as a way] to develop high-quality local and regional television and cinema content for CEE, which can be sold around the world.
 
WS: What are the major strengths of the CME stations?
SARBU: We are quite confident in our strengths. We have the best people. We’ve trained our people over the last 15 years since we began operating our stations. Our management teams are local, promoted from the rank and file, and they are young. The average age of our management is 33 years old. And that doesn’t mean they have been working for us only two or three years. Some of them have been working with us for ten years and more.
We ended last year with the highest margin among any broadcaster in Europe, and among the highest in the world. And one of our stations, TV Nova in the Czech Republic, ended last year with an EBIDA margin of almost 56 percent, which is unusually high. Our core stations, those that have reached profitability, operate with an average 40- percent EBIDA margin, on top of having a very strong audience share.
We succeeded in achieving market-leading positions, and in four markets we are the undisputed leaders.
One of the pillars of our business model has been to develop and produce our own content—and that’s not only news but also local nonfiction and especially local fiction. Our local content sets us apart from the competition because it delivers such good ratings for us. Our newscasts are leaders in the market. Our big entertainment shows, the dancing shows, reality or even smaller shows, are very popular, and our fiction is the key driver of our ratings. In addition, over the last 15 years, we have succeeded in changing the whole perception of commercial television.
We also think of the future. We are always preparing something to launch, whether it’s a new channel, a new program or a new business line. We worked on our Internet strategy for a number of years, and we have now executed it and are successful in it. In most of the countries where we have TV stations, our sites are either number one or are among the top three leading websites. And the Internet will be a very important platform for our content in the future.
We have also succeeded in navigating through this very difficult storm and protecting our liquidity and even enhancing it, once Time Warner joins us. So we are quite aware and proud of our strengths, and we will rely on them to get through this downturn.
 
WS: How are you using these strengths to help you get through this period?
SARBU: If we succeed in protecting our assets undamaged—whether they are our people, audience share, market share, or our capability to generate content or financial assets—I’m sure that once the market takes off, we will move fast to restore the high margins we had in previous years. This year we have worked to increase market share in our core markets. We also know that we have to protect our audience. Our audience is not interested if we are in a crisis or not; it’s interested in having the best TV programs. And if we succeed in maintaining our audience share, which is still high, and our relationship with our advertisers, it’s obvious that once the crisis is over and the ad budgets start to grow, we’ll take the biggest market share.
 
WS: In what ways has the financial crisis affected the region?
SARBU: It is quite well known that CEE has been the highest-growth region of Europe for the last five years. The economies of the individual countries grew, which means that internal consumption grew, but some of the markets also grew, by exporting to Western Europe and to the world. The crisis affects internal consumption. In addition, because the source of the crisis was the collapse of financial institutions, these very fast-moving economies suffer from a lack of financial resources, so they have slowed down.
The crisis in the region is real. We feel it, in particular with advertising spending, but we foresee [it hitting a] bottom somewhere in the second half of the year.
 
WS:Have your stations had to cut back on their programming budgets?
SARBU: We’ve known since Novem­­ber that we had to deal with costs, and the biggest chunk of costs is programming. We succeeded in adjusting our programming costs, depending on the market, by 10 to 20 percent. We did it, but we protected our prime-time schedule.
In addition to our programming costs, there are overhead costs as well as salaries, which were voluntarily reduced. This was an effort that the whole company—all of our management and employees—understood and made, in order for us to get through this difficult period.
 
WS: There must be much loyalty to the company on the part of employees who would agree to reduce their salaries.
SARBU: There is something very strong across the CME stations, which is our company culture. Let’s not forget that these are new companies; we created them from scratch. We recruited people, trained them, motivated them, gave them a reason to work in commercial television, an industry which didn’t exist in CEE 15 years ago. So you can imagine that our company culture is very strong. The way we deal with people, the way we communicate with them, enabled us to ask them to make a sacrifice, because on the other hand, when it came to sharing the upside, everybody benefited. We only hire locals who are highly trained and feel part of a strong culture and have an attachment to the brand.
 
WS: In this economic climate, have you had to put aside plans for launching new services or acquiring new assets? Or do you have plans to do that if the right opportunity came up?
SARBU: We were known as very active in development, not so much in making acquisitions in new territories but in developing new channels, new content and Internet services in the countries in which we already operate. This will continue. And once the board approves the new operation model, which will be more diversified, relying not only on advertising revenues but also on subscription, content, Internet and management-services revenues, we’ll execute it according to the expectation of our investors.
A media company’s revenues should be balanced. We were driven by the wave of advertising spending, but we knew that we had to get more pillars to sustain our business. Of these pillars, advertising revenues will still be the most important. Secondly, we also want to generate revenues from our content. CME is one of the largest tele­vision-content providers in Europe. Last year we produced more than 1,000 hours of fiction and more than 500 hours of nonfiction. With so many cable and satellite channels in operation and under development in the region, we are looking to expand our subscription services. We are also actively looking to sell our management services.
 
WS: Romania has many TV channels and content companies, including Pro TV and MediaPro. What led to Romania developing such a healthy media market?
SARBU: Romania’s current media market started in the early ’90s, when as a government official in 1990, I promoted a media law. It was the most open media law and allowed commercial television to flourish. At the same time I founded MediaPro and Pro TV, which is now controlled by CME.
Romania is a very competitive market. There are more than 40 local channels, free and cable, and there are a number of competing media groups, which is not the case in other countries. In addition, we created in MediaPro a sophisticated entertainment group, similar to a Hollywood studio. And this was extremely helpful for CME because it’s part of the content engine of CME.
You cannot have strong TV channels in countries where you don’t have strong cinema and tele­vision production and a strong community of talents. The structure such as the one I created in Romania is now to be replicated in other markets in the region under the CME umbrella.
 
WS: What has CME been doing to develop new writers, producers and directors?
SARBU: The companies I manage were intended to be a home for young creative people. When he founded CME, Ronald Lauder was also driven by his vision of investing in people and creativity. We share this vision, so CME will always be a company for young and creative people, whether they are working in broadcasting, content, Internet or marketing.
 
WS: What do you enjoy most about your work?
 SARBU: The creative sessions. I used to be a film director and I still have this passion. The company benefits from my personal creativity. Working with young and creative professionals—in fact, all the management is younger than me—is what I enjoy most. And we all like success.           

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