Kate Bulkley, Media Analyst.

CME buys Croatia Nova TV, adding to Central Euro hold

By Kate Bulkley

The Hollywood Reporter

June 09, 2004

Central European Media Enterprises Ltd. has snapped up Croatia's Nova TV commercial television station in a deal worth 24 million ($29.7 million), the company said Thursday.

The deal marks CME's first foray into Croatia and broadens its broadcasting footprint in Central European territories beyond current operations in Romania, the Ukraine, Slovakia and Slovenia. The deal also puts CME in head-to-head competition with Luxembourg-based RTL Group for the first time.

CME bid against RTL for the second national Croatian commercial broadcasting license last autumn and lost. "From our perspective, this turned out to be a much better approach because Nova is a very successful station and CME's whole strategy has been an acquisition strategy," CME CEO Michael Garin said in an interview. "Buy vs. build is a much more attractive solution for us."

Croatia's Nova TV no relation to Nova TV in the Czech Republic has been operating since 2000 and has six years left on a 10-year license.

The station reaches about 85% of Croatia's 4.5 million people and has an average audience share of 25%.

Garin declined comment on the newly purchased station's operating margin, but said the channel had revenue of 21 million last year and is profitable. Over the next two years, CME plans to bring "significant margin improvements" to Nova TV to bring it up to CME's average operating margin across Europe of 30%, Garin said.

Garin said there are no plans for cost-cutting measures at Nova TV and that the current management will stay in place, but savings will be made through leveraging excess production capacity in Slovakia and Slovenia. Garin said advertising rates will be "substantially increased" for Nova TV.

"What we have seen across Eastern Europe is these stations are very sophisticated in terms of competing for audience share, but the broadcasters are not nearly as sophisticated in terms of selling their airtime," Garin said. "We are going to raise the ad rates so the advertising comes more in line with the value of the airtime."

Croatia's Nova TV competes for audience with two state-owned channels and the new RTL-controlled commercial channel RTL Televisija, which launched in May.

In the wake of the Nova TV deal, CME has about $160 million in cash (and no debt) left for acquisitions, Garin said. More acquisitions are still on the agenda, he said, with plans to continue to expand in the Balkans, including Serbia and Bosnia-Herzegovina as well as to find acquisitions in Poland, Russia and the Czech Republic.

CME said it is looking mostly for commercial TV but is also interested in radio.

About 40% of the programming on CME-owned stations is acquired, led by Hollywood movies, and Garin said there are no plans to increase the amount of imported programming. "What CME has always done is focus on local programming," Garin said.

A new niche channel run by CME in Romania called Pro Cinema features "West Wing," "The Sopranos" and "Sex and the City" but only has a target share of 3.5%-4%, Garin said. "We can still make money on this channel because we have a group of three channels in Romania," he added.


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