The View from Stockholm

April 2008

The public broadcaster Sveriges Television (SVT) operates five national channels: SVT1, SVT2, SVT24, Barnkanalen (The Children’s Channel), Kunskapskanalen (co-produced with UR—The Swedish Educational Broadcasting Company), and SVT Europa, which commenced broadcasting via satellite in 1997 and provides Swedish-speaking viewers living in Europe, Africa, Asia and Australia with SVT productions in real time.

A separate SVT channel, SVT HD, offers HD productions simulcast with other SVT channels and is broadcast via the satellite operator Canal Digital, the cable operator Com Hem and parts of the terrestrial net in Stockholm and Uppsala.

SVT1 and SVT2 are broadcast via terrestrial, digital satellite, digital cable and broadband. The terrestrial analogue network was phased out in October 2007. SVT derived over 57 percent of its annual revenues from license fees and earned $570 million from this public source in 2007. Ninety percent of Sweden’s 3.4 million TV households paid the $3,000 levy last year. SVT does not air commercials, although sponsorship of certain sports events is allowed.

The impact of privately owned commercial channels such as TV4 and TV3 on SVT’s audience ratings continued in 2007 when the combined share held by SVT1, SVT2, and SVT24 fell from almost 39 percent in 2006 to 32.5 percent in 2007.

The commercial broadcasters are the TV4 Group, owned by the Bonnier Group; Viasat, owned by Modern Times Group (MTG); and ProSiebenSat.1 Media, which acquired the SBS stations.

In 2005, TV4 began a transition to become a digital-only service, and started to phase out its analogue satellite signal, a process it completed in the fourth quarter of 2007. TV4 standard fare delivers a mix of news, sports, drama series, soaps, entertainment, current-affairs programs, sitcoms, feature films, documentaries and phone-in shows.

MTG retained its position as the largest free-to-air-TV and pay-TV operator in Scandinavia and the Baltic states in 2007. MTG’s channels are distributed on the Viasat platform and on third-party platforms in 24 Nordic, Baltic and Eastern European countries, reaching a total audience of 100 million people.

Viasat’s free-to-air channels include TV3 (Sweden), TV6 (Sweden), ZTV (Sweden), TV8 (Sweden), TV3 (Norway), Viasat4 (Norway), TV3 (Denmark) and 3+ (Denmark). Viasat’s pay-TV channels reach 12.4 million subscribers in Scandinavia and Central and Eastern Europe, helped by the company’s dec

ision to launch a Viasat DTH satellite pay-TV platform in 2006.

ProSiebenSat.1 acquired the SBS stations, including Kanal 5, Kanal 9, the music channel The Voice TV, and the sports channel Canal+ Sport 1, which is a co-venture with Canal+.

A small number of channels do not broadcast from Sweden to circumvent the strict regulations imposed on broadcast advertising, in a country where commercials were illegal until 2002.

TV3, Kanal 5, ZTV, TV6 and The Voice TV, all channels targeting Sweden’s under-30 market, broadcast from studios in London, where they are subject to the control of Ofcom, Britain’s broadcasting regulator.

Being the only private channel allowed to broadcast terrestrially, TV4 is required to pay a special annual levy. This consists of a fixed fee and a variable charge, based on the amount of advertising that TV4 sells.

Sweden’s Radio and Television Act restricts the amount of advertising TV4 can show to 10 percent of the channel’s programming. This is lower than the 15 percent advertising time TV4’s London-based rivals TV3 and Kanal 5 are allowed to air.

Prime Minister Fredrik Reinfeldt’s center-right government has indicated that it intends to relax the advertising rules. The proposal that is under consideration would increase the advertising time allowed to TV4 from 10 percent to 15 percent by the end of 2008. TV4 has predicted that in such a regime, it could achieve a 10- to 15-percent increase in its ad-related revenues.

EMERGING TECHNOLOGIES

The growing popularity of mobile broadband has stirred a battle between Sweden’s telephone operators and television companies for the country’s frequencies.

Four hundred fifty-two thousand Swedes had personal 3G network mobile broadband access by the end of 2007, and this figure is expected to grow by 30 percent in 2008. Now phone operators hope to take over frequencies left vacant by the ‘switchoff’ of Sweden’s analogue tele?vision network.

Television companies are fighting to retain control of those frequencies with the aim of using them to broadcast digital terrestrial television (DTT). TV3, SVT1, SBT2 and Kanal 5 have all applied for frequency licenses to the Ministry of Infrastructure (MoI), which is expected to issue DTT licenses for mobile broadband in the second half of 2008. The critical issue being considered by the MoI is how to divvy up the available frequencies impartially, between TV companies and broadband operators.

Mobile-phone advertising is also growing at a rapid pace, according to the Swedish Institute for Advertising and Media Statistics. The mobile-telephone advertising market was worth just $6.6 million in 2007. However, this represented a growth of 242 percent from 2006.

The Swedish telecom Ericsson strengthened its multimedia operations in 2007 when it entered into a global deal with Endemol, the Dutch TV-production giant and Big Brother creator, to develop interactive TV services for mobiles. Ericsson’s ‘Me-On-TV’ solution will enable mobile users to upload, publish and share both live and recorded video material. The technology will enable consumers to transmit to websites and participate in TV broadcasts. Ericsson plans to offer the new service to broadcasters, websites and network operators. Endemol will act as a distributor and the company has already used the technology in the Dutch version of Big Brother.

SVT intensified its multimedia offerings in 2007 when it established a collaboration with YouTube, in which some of its material will be made available over the video-sharing website. The interactive-content initiative is designed to find new distribution channels for SVT programs in Sweden and worldwide.

ADVERTISING MARKET

More than $5 billion was spent on advertising in Sweden in 2007, a 5.6-percent increase over 2006. The TV-advertising spend totaled $748.8 million, or 3.3 percent higher than in 2006.

The Internet-based advertising spend amounted to $650 million in 2007, a 35.7 percent increase over corresponding figures for 2006. Given that TV advertising is not expected to increase above 4 percent in 2008, and the Internet spend is forecast to expand by between 40 and 50 percent, Internet advertising could surpass that of TV in 2008 or, if not, in 2009.

The Internet’s popularity as an advertising medium is driven by a surge in ads related to the search-engine sector. The Internet was the third-biggest segment after daily press and television in 2007.

Consolidation within the advertising-agency sector is expected to lead to a new wave of mergers and acquisitions targeting the country’s 500 so-called small-to-medium-sized ad firms. More than 70 percent of Sweden’s ad agencies have fewer than five employees, and many are struggling to meet the ever-increasing competition in the market. With the advertising market in a state of change, agencies are faced with the prospect of having to change their focus from offering pure advertising services to integrated communications solutions.

THE ISSUES

Bonnier, the parent company of TV4, strengthened its market position in Sweden and Finland in 2007 by acquiring the investment company Proventus’s 50-percent stake in Nordic Broadcasting, which owns all shares in MTV3, Finland’s biggest commercial television company. The takeover also saw Bonnier acquire Proventus’s 98.9-percent holding in TV4 Sweden, the country’s biggest commercial television channel. Bonnier moved to consolidate its ownership in TV4 when the Schibsted media group agreed to sell its 26.9-percent holding in TV4 to Nordic Broadcasting.

Modern Times Group (MTG), the parent company of TV3, was also in an acquisitive mood. MTG acquired 90 percent of the shares in the Sweden-based online social networking community playahead.com for a cash payment of $16 million. Playa?head.com’s 16-to-30 age profile is the same as the one targeted by MTG’s channels.

Playahead is Sweden’s second-largest Internet community, with more than 530,000 members in Sweden, Denmark, Norway and Britain. MTG plans to develop products and services linking the Playahead community to TV3 and MTG’s other commercial channels. The acquisition also gives MTG access to Playahead’s advertising streams, which have seen a double-digit annual growth since 2006.

On the advertising front, Sweden informed the European Union (E.U.) in December 2007 that it is prepared to engage in a legal battle with the European Commission in order to preserve the country’s ban on television advertisements directed specifically at children. Sweden is fighting an uphill struggle to maintain the ban, as the Commission wants the restriction removed as part of the harmonization of consumer law across the 27-member bloc.

The Swedish government plans to present its case for retention of the advertising ban in children’s programming to the E.U. in April.

The decrease in Swedish-language programming on Sweden’s public- and commercial-television networks is causing concern, as the rise in imported English-language programs, mainly from the U.S., replaces homegrown product.

The amount of Swedish programming on the public channels SVT1 and SVT2 has fallen significantly, according to a study conducted by Kent Asp Research (KAR) published in January. The number of factual programs in Swedish fell by 15 percent between 1998 and 2007; the number of feature movies, drama and comedy series dropped by 36 percent, and light-entertainment programs slumped by 28 percent during the same period.

Although the fall in the total number of programs broadcast in Swedish was stemmed somewhat in 2007 by a rise in the time allocated to news programs and breakfast TV, the decline in other areas marked a serious weakening of the total program offering in the Swedish language.

LOOKING AHEAD

The government has flagged its intention to establish a parliamentary working group (PWG) in 2008 to examine how public-service channels are funded, and to recommend new financing tools aimed at reinforcing the state channels’ ability to compete with commercial stations.

The planned PWG arises out of a growing debate in Sweden regarding the adequacy of the TV license as the principal financing vehicle for public-service channels.

The Center, one of the four groups in Prime Minister Fredrik Reinfeldt’s center-right rainbow coalition, is behind the move to reform the public-service channels’ finances. In a report filed with the Riksdag (the Swedish parliament) in January 2008, the Center described the present license-fee system as outdated, a view shared by its alliance partners in the coalition of the Moderate and Liberal parties.

“The funding of public-service channels must take into account the new challenges attached to new technologies such as digital terrestrial TV and upcoming mobile-broadband television opportunities. We are worried that citizens will lose the will to feel duty bound to pay the license fee in a digital era and in a changing media landscape,” the Center’s report said.

The report observed that in order to preserve the independence of the public-service channels SVT1 and SVT2, the government may be forced to consider tax funding to replace the existing annual TV-license fee, as the principal means of financing public broadcasting in the future.

Should this change take place, and the PWG is not expected to report to the Riksdag until the fourth quarter of 2008, it would mean that the SVT corporation would receive a yearly allowance from the government budget, to be distributed among the public-service company’s operations.