ITI says it doesn't need CME for tvn
"ITI can afford to run and finance the station on its own," ITI's group President and Chief Executive Officer Jan Wejchert told the Business Journal in an interview late last week. "We can do it without CME or any other foreign partner.
"And we are considering such a solution right now," he added.
Wejchert's comments were in response to CME's recent statements that it is reviewing its commitment to the Polish television market in light of higher than expected start-up costs at tvn.
Wejchert cautioned, though, that ITI was not looking to force CME out of tvn. He added that relations remain good with the company's main shareholder, cosmetics heir Ronald Lauder, who also owns 17.8% of ITI.
"The problem today is that we (ITI) get to the same table, two of them and three of us, and we cannot reach a consensus," he said. "But we are business partners and we would be the last ones to make any moves except for those which would bring a positive solution."
Still, relations between management in CME, traded on the U.S.' Nasdaq exchange, and ITI, traded in Luxembourg, have seriously deteriorated because of differences over how the station should be run and how well it has performed in its first 11 months of operations.
Last month, CME, which owns 33% of tvn, said it was reviewing its commitment to the Polish television market and would not commit further funds to the fledgling operation because the station had not met their expectations. This prompted Wejchert and Mariusz Walter, ITI president and head of tvn, to say that CME's management did not understand the Polish market.
"CME does not necessarily have some concrete suggestions (for programming) but seems to think that there is something we could do and get a 100% increase in sales," Wejchert said. "We did change things according to CME's suggestions and it did not succeed."
CME expected tvn's performance to mirror that of its highly successful Czech station, Nova TV, Walter told the Business Journal. He added that unlike the Czech Republic, when CME entered the Polish market, tvn was competing in a crowded and highly competitive playing field.
tvn currently competes with Polsat, the most successful private television station, Nasza TV, which launched shortly after the ITI-CME station, and about 20 Polish-language television stations, including state-owned Telewizja Polska (TVP). The market will also soon have two digital television platforms, provided by Wizja TV and Canal+ Polska, which could add another 30 Polish-language channels.
Nearly a year after its launch, tvn has an average Poland-wide viewer share of about 6% and prime-time viewer share of 7.5-8%. The station, which has a reach of only 50% of the country's 12 million households, had about a 15% market share within its reach, according to research agency AGB Polska.
CME expected a larger market share, but these figures are within ITI's projections, Wejchert and Walter said.
"Our projections for the first year of operations were around 8% of the entire market, which should mean 8-10% market share as far as ad revenue goes," Walter said. "(CME's) projections stood at 20% and that was already after a reduction."
Making television "is like making a soup, while you're cooking you don't eat, you just stir," Walter added. "And (CME) wants to eat, not with a spoon, but with a ladle."
CME, however, has said it was surprised by higher than expected costs associated with the start-up of tvn. These additional costs, along with difficulties at the company's Hungarian station TV3, prompted CME to focus on its five profitable stations throughout the region, which includes Nova.
In a statement last month accompanying the company's first-half 1998 results, Michel Delloye, CME's chief executive, said that the group planned "to rationalize CME's assets and to focus (its) capital and management resources on those stations which demonstrate the most potential." (WBJ, August 24-30, 1998).
According to the group's unaudited second-quarter financial results, the five established stations brought in consolidated, but not adjusted for CME's economic interest, earnings before interest tax depreciation and amortization (Ebitda) of $31.9 million at the end of June. tvn and TV3 closed the first half with a negative Ebitda of $24.6 million.
Those results prompted CME to say it would review its commitment to its Polish operations.
ITI maintains, though, that a fast profit would not be possible in the highly competitive Polish market. The problem with this difference in expectations lays with CME, Wejchert charged.
"It's (an example of) American arrogance," he said.
But CME isn't the only one questioning tvn's performance. Ratings agency Moody's last week downgraded CME's debt rating for its senior notes due 2004 to B1 from B2 and rated the outlook negative. In doing so, the agency cited problems in Poland and Hungary as factors.
"CME's foray into the Polish market has been dogged by the inability of the company's broadcasting joint venture to increase the limited reach of its network and by increasing programming costs in this very competitive market," Moody's report said. "This has led to higher and more sustained start-up losses for the operation than anticipated."
Moody's downgrade followed a similar action by Standard & Poor's in August, which also was dismayed by tvn's high start-up costs.
The downgrades, along with the Russian crisis, have taken a toll on CME's stock. The company's shares were trading at $11.4375 on Friday, down 61% from its 52-week high.
ITI is expecting to get some better market news soon. According to a draft report expected to be released this week, brokerage house ICE Securities plans to issue a "strong buy" for the shares. The brokerage set a price target for ITI's shares at $331-$426 per share. ITI's shares traded Friday at $249.50 each.
In addition to tvn, ITI Holdings also runs television production companies, ITI Film Studio and Endemol-Neovision, the Multikino multiplex company, ITI Cinema video distribution firm, UIP-ITI movie distribution, Chio Lilly and Jan Piekarz food companies, as well as Property Management Services real estate business. The company also has stakes in two Warsaw-based ad agencies, McCann Erickson Polska and Market Link.
"And we are considering such a solution right now," he added.
Wejchert's comments were in response to CME's recent statements that it is reviewing its commitment to the Polish television market in light of higher than expected start-up costs at tvn.
Wejchert cautioned, though, that ITI was not looking to force CME out of tvn. He added that relations remain good with the company's main shareholder, cosmetics heir Ronald Lauder, who also owns 17.8% of ITI.
"The problem today is that we (ITI) get to the same table, two of them and three of us, and we cannot reach a consensus," he said. "But we are business partners and we would be the last ones to make any moves except for those which would bring a positive solution."
Still, relations between management in CME, traded on the U.S.' Nasdaq exchange, and ITI, traded in Luxembourg, have seriously deteriorated because of differences over how the station should be run and how well it has performed in its first 11 months of operations.
Last month, CME, which owns 33% of tvn, said it was reviewing its commitment to the Polish television market and would not commit further funds to the fledgling operation because the station had not met their expectations. This prompted Wejchert and Mariusz Walter, ITI president and head of tvn, to say that CME's management did not understand the Polish market.
"CME does not necessarily have some concrete suggestions (for programming) but seems to think that there is something we could do and get a 100% increase in sales," Wejchert said. "We did change things according to CME's suggestions and it did not succeed."
CME expected tvn's performance to mirror that of its highly successful Czech station, Nova TV, Walter told the Business Journal. He added that unlike the Czech Republic, when CME entered the Polish market, tvn was competing in a crowded and highly competitive playing field.
tvn currently competes with Polsat, the most successful private television station, Nasza TV, which launched shortly after the ITI-CME station, and about 20 Polish-language television stations, including state-owned Telewizja Polska (TVP). The market will also soon have two digital television platforms, provided by Wizja TV and Canal+ Polska, which could add another 30 Polish-language channels.
Nearly a year after its launch, tvn has an average Poland-wide viewer share of about 6% and prime-time viewer share of 7.5-8%. The station, which has a reach of only 50% of the country's 12 million households, had about a 15% market share within its reach, according to research agency AGB Polska.
CME expected a larger market share, but these figures are within ITI's projections, Wejchert and Walter said.
"Our projections for the first year of operations were around 8% of the entire market, which should mean 8-10% market share as far as ad revenue goes," Walter said. "(CME's) projections stood at 20% and that was already after a reduction."
Making television "is like making a soup, while you're cooking you don't eat, you just stir," Walter added. "And (CME) wants to eat, not with a spoon, but with a ladle."
CME, however, has said it was surprised by higher than expected costs associated with the start-up of tvn. These additional costs, along with difficulties at the company's Hungarian station TV3, prompted CME to focus on its five profitable stations throughout the region, which includes Nova.
In a statement last month accompanying the company's first-half 1998 results, Michel Delloye, CME's chief executive, said that the group planned "to rationalize CME's assets and to focus (its) capital and management resources on those stations which demonstrate the most potential." (WBJ, August 24-30, 1998).
According to the group's unaudited second-quarter financial results, the five established stations brought in consolidated, but not adjusted for CME's economic interest, earnings before interest tax depreciation and amortization (Ebitda) of $31.9 million at the end of June. tvn and TV3 closed the first half with a negative Ebitda of $24.6 million.
Those results prompted CME to say it would review its commitment to its Polish operations.
ITI maintains, though, that a fast profit would not be possible in the highly competitive Polish market. The problem with this difference in expectations lays with CME, Wejchert charged.
"It's (an example of) American arrogance," he said.
But CME isn't the only one questioning tvn's performance. Ratings agency Moody's last week downgraded CME's debt rating for its senior notes due 2004 to B1 from B2 and rated the outlook negative. In doing so, the agency cited problems in Poland and Hungary as factors.
"CME's foray into the Polish market has been dogged by the inability of the company's broadcasting joint venture to increase the limited reach of its network and by increasing programming costs in this very competitive market," Moody's report said. "This has led to higher and more sustained start-up losses for the operation than anticipated."
Moody's downgrade followed a similar action by Standard & Poor's in August, which also was dismayed by tvn's high start-up costs.
The downgrades, along with the Russian crisis, have taken a toll on CME's stock. The company's shares were trading at $11.4375 on Friday, down 61% from its 52-week high.
ITI is expecting to get some better market news soon. According to a draft report expected to be released this week, brokerage house ICE Securities plans to issue a "strong buy" for the shares. The brokerage set a price target for ITI's shares at $331-$426 per share. ITI's shares traded Friday at $249.50 each.
In addition to tvn, ITI Holdings also runs television production companies, ITI Film Studio and Endemol-Neovision, the Multikino multiplex company, ITI Cinema video distribution firm, UIP-ITI movie distribution, Chio Lilly and Jan Piekarz food companies, as well as Property Management Services real estate business. The company also has stakes in two Warsaw-based ad agencies, McCann Erickson Polska and Market Link.
