ProSiebenSat.1 Media SE

Ralf Gierig - EVP, Group Finance and Investor Relations Thomas Ebeling - Chief Executive Officer Gunnar Wiedenfels - Chief Financial Officer Christof Wahl - Chief Operating Officer & Member of the Executive Board, Digital Entertainment

Adrien De Saint Hilaire - Morgan Stanley Annick Maas - Liberum Christopher Johnen - HSBC Marcus Diebel - JPMorgan Julien Roch - Barclays Capital Conor O’Shea - Kepler Cheuvreux Charles Bedouelle - Exane

Ladies and gentlemen, also welcome from my side to our Q3 nine-month 2016 results conference call. As always, our call today will be hosted by Thomas Ebeling, our CEO.

Thomas, together with Dr. Gunnar Wiedenfels, our CFO will first lead you through the presentation, which was also made available on our IR webpage via the download link.

The presentation will be followed by a Q&A session, which will be joined by our executive board members Dr. Christian Wegner, Christof Wahl, Conrad Albert, Jan Frouman and Ralf Schremper.

With this, I’ll hand over to Thomas.

Thank you Ralf. Good morning, ladies and gentlemen.

I’ll start on Page 3, where you can see the key numbers of quarter three, very dynamic revenue, recurring EBITDA and underlying net income growth. On the next page, you see that every segment has contributed to our growth.

Broadcasting German-speaking with 2%, digital entertainment, ventures and commerce and content production grew very dynamically. Importantly, we have continued our successful activities.

You can see on page 5, what we have achieved in distribution that we have launched new linear online video platforms, that especially Etraveli and Verivox performed very well of the acquired company. We have a new minority investment in online price comparison with KäuferPortal.

We now are the proud owner of a leading subscription-based asset in dating, and we have acquired an anchor asset in health and wellbeing with the Windstar Medical Group. On Page 6 you can see that our achievement rate, relative to our Capital Market Day is more or less both for revenue and EBITDA in line with the pro-rated target.

For the full-year, we confirm our positive guidance. Group revenue growth will exceed 15%.

German TV ad market to grow 2% plus in 2016. Our ad revenue growth slightly below the market.

Digital entertainment and ventures and commerce with double-digit revenue growth and recurring EBITDA, and underlying net income above prior year. Dr.

Gunnar Wiedenfels will now take you through the financials.

Yes. Thank you, Thomas.

Good morning also from my side. It’s my pleasure to guide you through the details of the Q3 performance.

Overall, I think, a very strong set of numbers that indicates that this Group is able to deliver double-digit growth on all financial metrics, even in an environment with slightly softer TV ad revenues as in Q3. So let’s dive into Page 9 to look at the overview of revenues and recurring EBITDA.

As Thomas said, we look at 15% Q3 revenue Group – growth for the Group to €857 million now translating into 13% recurring EBITDA growth to €202 million. It’s a good mix of organic and inorganic growth contributions in the third quarter, about 40% share of the growth is organic.

Let’s take a look below the line, Page 10. Let me explain the financial result.

As you can see, we have a decline in the financial result from almost flat last year to a minus €35 million impact this year. This is very much driven by a swing in valuation effects.

Q3 in 2015 was positively influenced by step-ups in some of our minority participations. At the same time, 2016 was burdened with a financial impairment for – predominantly for our Jawbone participation.

All this is – both the last year effect and this year’s effect is non-cash valuation effects only. We have stuck to the policy of correcting these effects in the underlying net income.

That’s why the underlying net income growth of a 11% to €87 million is again much more in line with the operational development of our P&L. Let’s look at the nine-month period.

Similar pattern, slightly higher revenue growth. 17% to €2.545 billion and 10% recurring EBITDA growth.

Again, nine-month period, a look below the line, the same effects that are impacting Q3 also come through in the nine-month figures some decline in the financial result. But again, an underlying net income development of 8%, so much more in line with the operational development.

So let’s take a look at the individual segments. A familiar view on Page 13, the Broadcasting German-speaking segment.

As you can see, we have been able to generate 2% revenue growth, which is reflecting a rounded zero – a very small positive development in the TV advertising revenues and very dynamic growth of the distribution business. And we’ve been able to bring that revenue growth down to the recurring EBITDA line at a growth rate of 7%, driven by disciplined cost management, as well as some positive contributions from our digital activities utilizing broadcasting German-speaking TV media.

The margin, let me say, that is in line with the prior-year period for the nine months ending September and slightly above prior year for the Q3 numbers. Now, let me take a look at the digital segments.

For the first time in this call, we’re splitting out the two new segments that we have created; digital entertainment on Page 14, and then digital ventures and commerce on Page 15, and we have given you a breakdown of the revenues in both new segments. I’m looking at Page 14 now, the Digital Entertainment segment.

You will be getting this breakdown from now on, on a quarterly basis. And as you can see, overall we’ve enjoyed a healthy growth in the Digital Entertainment segment, predominantly driven by the AdVoD business.

You also see some of the mix effects. The games business has been deconsolidated and we continue to see some headwinds on the adjacent side.

Here, as we mentioned in earlier calls, we are suffering from the loss of one large customer, as well as a continued difficult music market. So taking all that together, we are looking at 23% growth for the segment, which is to a very large extent organic in the third quarter, 33% for the nine-month period for the whole segment.

Let’s flip the page to the digital commerce and ventures business, also here a bit more beef on the details. You can see healthy diversification within the segment, and a good business mix.

Again, we’ve been enjoying a strong revenue growth 44%, clearly also supported by inorganic contributions from our e-commerce investments of this year and last year. Strongest contributors were Verivox and Etraveli as before.

Let me make one remark on SevenVentures. As you can see, there is a €5 million, or 13% decline in the third quarter.

This was still a strong quarter for SevenVentures. But we will continue to see some fluctuations in the revenue numbers of individual quarters, given the nature of this business with the revenue dependent variable shares, and we were looking at a very strong quarter three in 2015 for SevenVentures.

Again, nine-month period, 65% revenue growth converting to 30% recurring EBITDA growth. Now, let’s take a look at content production, global sales.

Again, a segment that makes us very happy as in the first two quarters of the year already. We continue to see 34% growth in the third quarter pretty much in line with the 38% that we see for the first nine months, and also very healthy profit contributions were actually above our target margin level of 10% as in recurring EBITDA over external revenues.

So that’s a very good development, and we continued to have some strong deals in the pipeline. So we are also looking positively as we go into Q4.

Page 17, summarizes the P&L in full detail. As I said, top to bottom double-digit developments, let me make one comment on the IFRS metrics.

The reported net income is negative, as I said earlier, very much driven by the valuation effects that have affected the other interest result – the other financial result. You can see this year was a positive €28 million in Q3 2015, it’s a negative €9 million in Q3 2016.

So with that, I would like to turn the page to Page #18, depicting the development of our net debt to €2.4 billion. And as you can see on that bubble above, we are now at 2.5 times leverage, which is the upper end of our target range.

And as we said at the Capital Markets Day, we also expect this to be the outcome of the full-year from today’s perspective. I would like to finalize the presentation with the full-year outlook.

As we said at the Capital Market Day, we are looking at a revenue growth for the full-year of more than 15%. We’ve taken that up and it’s also a function of slightly higher inorganic contribution, so we are probably looking at two-thirds of the growth being inorganic after the 50-50 split that we guided going into the year.

All the other figures are unchanged. Recurring EBITDA and underlying net income above prior year.

If you look at the LTM results, you can see that we are on a very good track here. And with this, I want to sum it up and hand back to Thomas.

Thank you.

Thank you, Gunnar. I continue on Page 21 where you see the key achievements in quarter three of our TV business.

We maintained leading position in the German market, we launched certain new TV apps on mobile and smart TVs and the Red Arrow KPIs continuously improved. Page 22, you see the ratings, which clearly reflect the summer Olympics and the soccer coverage was aired on the public stations.

The next page shows that we continue to have a lead in the German TV market, both in terms of viewer share and as well in terms of share of advertising. Page 24 gives you idea of some of our successful formats, which partly reach even 20%.

So we are relatively pleased with our performance of some of our performers. The Voice of Germany had a very strong start, again, especially as we moved to Sunday to establish a show Sunday for that eins that move from Friday to Sunday worked very well without any problems, and actually we won now, last Sunday, we won basically the Sunday starting in access time and continuing in prime-time.

So we are very happy that The Voice of Germany continues to perform so, so well. Kabel eins Doku is a complement to our channel family.

Here, I would say the channel is very well adopted by viewers. The challenge is in the area of digital distribution, where you cannot rely anymore on strong analog distribution to carry a channel immediately to a broad distribution base.

You might need a few tune-in events to make this channel even bigger. But it’s fair to say those who watch it like it and there’s certainly a good foundation to now expand tune-in.

Page 27 is showing you here the apps. I think, we have already more than 2 million monthly active users, and that’s certainly up to a very, very good start.

Page 28 gives you an indication about how our HbbTV product looks like. I think so far we have already 5 million potentially addressable users, and again, this is a key task to increase the attractiveness of this site and really drive users to use the site in order to sell more advertising and more commerce.

Page 29, showing you the key KPIs of Red Arrow. We are very pleased, especially with the improvement in the returning show rate from 53% to 67%.

That’s certainly very good progress, and Red Arrow is now already representing 12%, up 4 percentage points of our local commissioned spendings in Germany. Page 31 is showing you three formats, which are successful and travelling well.

I think you are familiar with Bosch, but Look Me In The Eyes and Kiss Bang Love are certainly very emotional and unique and innovative formats, and have already achieved some sales success, and we are very curious to see how the viewer finally will appreciate these formats. The outlook is that we will continue to strengthen the core channels.

We will launch new thematic magazines, windows and channels. We will develop innovative multi-channel consumer offerings, specifically targeting Millennials, and we will continue to leverage the relationship between broadcasting and production for content creation.

Let’s move now to the advertising market on Page 34. You’ll see the highlight, I think there Is a slight growth on the German-speaking TV advertising revenues in Q3.

TV continues to grow its share. In the media mix pricing continues to be positive and addressable TV campaigns get picked up very well.

35 shows you the advertising share, which are more or less stable in those – in the three German-speaking markets. We continue to maintain our leading position in the German market with 44.7% in quarter three, you see here the share of our competitors.

37 is giving you the picture about pricing. All major channels in the German market are growing their gross CPT, so that’s certainly a positive.

Page 38 is showing you a few examples of HbbTV-enabled addressable TV advertising. So far, we had 60 campaigns, that’s 42 clients.

Of course, it should go up even more. I would say, the adoption rate will grow in line with penetration.

But those customers who use these type of campaigns certainly like it and continue. 39 is showing you the development of the different segments.

TV continues to gain at the expense of print. These – it’s clear that for online that’s excluding search-affiliate and others which are not reporting their bookings to Nielsen, which are YouTube and Facebook, and I’m sure you are familiar that those two platforms are growing very well.

So including them the picture would look slightly different. But what doesn’t change is that print is losing and what print is losing goes to online and to TV.

Six out of the 10 biggest industries increased their TV budget, as you can see on Page 40. I think, one challenging segment certainly is telecommunications.

Here, one customer who was a bit disappointing in the booking behavior is Drillisch. The other sector which is not so well-performing is finance.

The overall advertising market is expected to grow 2% plus for the full-year, which you can see on Page 41. Our estimate, as you can see on Page 42 seems to be a bit more conservative compared to industry analysts.

But given the fact that October was a slight disappointment and, however, November is positive, we continue to believe that 2% plus is very much achievable, but we said that 3% is, given the dynamics in October, a little bit too optimistic. However, I can understand why the analyst research groups are positive, because the macro indicator for the German market is still positive, and they improved – they continued to recover after the Brexit referendum decision was communicated.

So the sales outlook for 2016 is ad market growth of 2% plus. We will grow slightly below the market, continued increase of TV share, and further increase of CPTs.

In terms of distribution, HD continues to grow dynamically, which you can see on Page 46. We continue as well to sign very important and attractive distribution deals making – ensuring that TV is really almost available everywhere.

In terms of digital entertainment, as I mentioned already before, seven TV channel apps have been launched. We merged our new VOD platform, Quazer, with US-based Pluto.tv.

Studio 71 is further internationalizing its business. We launched the content marketplace glomex, and we strengthened maxdome’s top three position with new distribution deals.

Digital entertainment continues to grow. You can see here on Page 50 AdVoD and PayVoD very dynamic.

The adjacent business, which is basically our music label and live business, is declining. There are some temporary issues, like in live, where the exit of one of our key hosts had an impact on some live events.

The music business is a bit softer. I mean, more and more consumers are listening to Spotify and other platforms.

So that is a little bit structural. But we are working on new ideas how and there are new opportunities in that space to regain growth in the music business.

Our German AdVoD business grows strongly. You can see on page 51 that especially Studio 71 had a steep increase in video views in Germany.

52 is showing you the positioning of Quazer. We have shared this with you at the Capital Market Day.

53 is giving you an idea, how we have combined or merged Quazer into Pluto. A quick look on Studio 71.

Here, I would say what is important as a takeaway is that, we are really a top player in Germany. We are amongst the top five globally, and our strength is really in the premium content.

And the number of viewers per channel for us is certainly relatively high, and that lays a great foundation for branded entertainment campaigns. Our monetization on the YouTube channel is growing, which is illustrated on page 55.

A few examples of how we take the business to the next level on page 56, we signed the international superstar The Rock and yes, 130 million followers on all platforms, almost Kardashian like. We enter the Spanish-speaking market.

Here, we have hired a creator, or signed a creator who is amongst the top 10 channels in Spain. And our productions get bigger and have higher quality, and sometimes makes it even – are making it to the theatres and are performing amongst the top 10 in the country.

The glomex business model, as presented to you at the Capital Market Day, you can see on page 57. With maxdome, I think our strategy to position us as the local partner of choice and to leverage our ability to team up with partners and making advertising corporation has enabled us to sign very attractive distribution deals, and securing that our subscriber base continues to grow.

One example of the satisfaction of platforms with maxdome is that unitymedia and maxdome continued or extended their long-term cable distribution partnership. Quick look on Starwatch, I would say the business is performing well.

It’s more a structural issue of the segment. And here you can see a few examples that we really deliver a great product to the consumer.

Let’s move to ventures and commerce overview on Page 62. Nice growth.

Four new key investments, strong performance of those key assets. We are continuously building up our lifestyle commerce ecosystem, and SevenVentures was able to complete two high-profile deals.

The growth rates you can see on Page 63, very dynamic in revenue and in EBITDA. The portfolio extensions, we have communicated already at the Capital Market Day, I’m going to assume you are familiar, especially with Etraveli and Verivox, which are both performing well.

We added KäuferPortal. We added Parship Elite for dating.

We acquired the majority of Windstar Medical Group, and we raised our stake in Vitafy. So our portfolio gets more and more complete.

KäuferPortal is a little bit like Verivox. Here, we see very nice synergies.

Believing – we believe that we can complement Verivox’s high-value products and services. It’s an asset-light business.

We have – this business had already more than a million buyer enquiries per year. We believe with TV that we will raise brand awareness and market penetration, and the adoption of consumers to really find some of their investment needs covered by the platform KäuferPortal.

Dating, 80% share. Leadership, here the investment thesis is to create synergies and to really leverage TV to further grow the market penetration in Germany, which is, as you know, below the UK and specifically below the U.S.

penetration rate. On Page 67, here you see again, the investment rationale for Windstar.

Here, the thesis is that we can take some of their products, which have never been advertised so far, and really boost their performance in retail and potentially expand into new channels. And we have now a base, where we can launch more and more of these products.

It’s low-risk, and hopefully deliver high sales rates. Vitafy is another nice addition of our portfolio, focusing more on the food side of health and wellbeing.

Windstar is more the OTC, classical products side. The market growth is anticipated to be very dynamic, and we see here as well attractive cross-selling synergies with some of our ProSieben assets.

Online travel, dynamic growth very much driven by etraveli. And I think if you take into consideration how challenging this year was for tourism, I think, this growth rate is impressive.

Etraveli, important to note that internationalization costs are relatively low, and secondly that they are really focusing on selling ancillary services. They are very sophisticated in pricing and sophisticated in selling these services to targets, which are very likely to convert.

Online price comparison vertical more than doubled its revenue. It’s obviously clearly driven by Verivox.

Verivox has two new initiatives. They – Verivox will offer a new subscription-based contract optimization services, which will create luck, in effect, and therefore boost the lifetime value.

The brand name is Verivox prime, obviously benefitting a little bit from the trend to Amazon Prime. I would say we piggybacked here a little bit here on this branding, it’s a category name, Prime, in a way.

And the company is starting as well to explore the concept of flagship stores. It’s a good concept too and they’ve opened up the first store in Mannheim.

Flaconi, Amorelie and Stylight boost the lifestyle commerce revenues. Flaconi has improved conversion rates, has widened its assortment.

Amorelie, very dynamic growth and doubled its international revenues, and you have the positive impact of the first-time consolidation of Stylight. 74 is now a little bit of an overview about the different elements of our lifestyle commerce ecosystem, and we hope that we will complete the empty slots relatively quickly.

Stylight is benefitting from the internationalization to nine further countries. We started to realize first synergies within the ecosystem, for example, integration of Flaconi, and here we can as well leverage our TV advertising very strongly.

SevenVentures, the two deals which were obviously flagship deals in quarter three, it’s About You and Clark and Especially About You, it’s very fresh advertising bringing new dynamic to a segment, more competition. So we hope that About You will also inspire other advertisers to grow their advertising investment.

The outlook for ventures and commerce is positive. Double-digit revenue growth, we will continue bolt-on M&A, and even more drive organic growth and we will continue to internationalize our digital verticals without significant investment needed.

To sum it up on Page 79, our growth 15%, ad market 2%, our ad growth slightly below market. Digital entertainment and ventures very dynamic growth, and EBITDA and underlying net income above prior year.

So with this, I would like to open up for the Q&A.

Yes, hello. Good morning, I hope you can hear me well.

I’ve got a few questions, please. So first of all, Thomas, you were talking about advertising being positive in November.

I was wondering if you could put a figure behind that, and perhaps also give us what your feeling is for December and the add-on bookings. And the second question is, Gunnar, previously we had a guidance around D&A overall gross – organic growth rates and EBITDA margin.

Could you also update us on this, or perhaps give us a guidance for the different divisions? Many thanks indeed.

Yes, Adrien, good morning. Let me start with the guidance question.

So, as I indicated in the Q2 call, we see a pick-up in the growth rates for the D&A business. So we’ve come back to the – around about 15% growth on the organic side for the full segment.

And the margin, as you can see, if you take the average of the two segments is also within the target range that we had set of 15% to 20% for the combined segment. Thomas?

Yes, Adrien, I think November, I would say the best I can say is that our performance is supporting our full-year guidance, that’s the best I can say. So and for the full-year, we believe that 2% plus is a good guidance for quarter four, maybe 2% is a good guidance overall for the market.

But again, December is still a month where things can slightly change. There’s add-on booking that was the other part of your question.

So far, our add-on booking is ahead of last year. But again, some of our customers we have hoped to regain, we couldn’t regain, because they are almost not existing anymore, like Unistar.

And that was a little bit of a challenge. So from the customers we have, the add-on booking is good.

From some customers, which we have lost, we didn’t regain them all, and especially Unistar because of the insolvency, it’s a challenge, and it’s lost sales which we cannot cover. But again, our full-year guidance is 2% plus for the market, and us slightly below market stance.

Very clear. Thank you so much.

Good morning. My first question is on the adjacent business.

So given the major event come should began by next year, how shall we think about it next year? And then my second one is on maxdome.

Can you just tell us how much the subscribers have grown from last quarter to this quarter, just to see how much the revamp that you’ve done in spring has contributed to the subscriber growth? And then finally, it might be slightly early at this stage, but where you stand today?

How do you think about the shape of the TV ad market next year? Thank you.

Maybe I start with the last one, and then Christof will take over. So I think if I take a step back, most research analysts forecast the 3% plus type of range for the advertising.

I think all the macro indicators are positive. We have had so far more or less 40 first discussions with customers, and I would summarize there is nothing, which is tremendously worrying.

It’s obviously a small base, when you have more than 500 customers, we should not over interpret the first conversation with 40, but at least the good news is there’s no bad news so far. On the other end, I cannot tell you as where the growth will be 4% or 5%.

So I think it’s still premature. It’s still not yet clear specifically how UK-headquartered companies will react with their spending, given Brexit, it’s unclear how our customers would react in the case that Trump might win.

But on the other hand, what matters to our advertisers are the indicators in our country, they are all positive, consumer confidence is remarkably robust, and again, our first talks were sound and okay. But please keep in mind, only 40 out of a customer base of more than 500.

Christof, you take the other two questions.

Yes. Let me take question one on the adjacent business.

I think we have to acknowledge that we had this big customer loss in this year, and this is an event that we do not foresee to happen again in the near future. So I think we have seen a lot of the bad news in this business.

I still, as Thomas said, the music business is not an easy business to be in. So we don’t expect also suddenly a big growth, but I think we have seen from the decline in this business most of what we were to see.

On the second question, the maxdome subscribers, we had a healthy growth of 48% again year-on-year on our subscribers, and on total, we are approaching now 900,000 subscribers.

Thank you.

Yes, good morning, guys. Thanks for taking my question.

First, sorry for getting back to the D&A organic. Maybe you could discuss a bit what happened with organic growth in Q3, particularly in content, and maybe you could give us a bit of a feeling for D&A that would be helpful?

Then, the comment was around 15% for the full year, if I got that correctly. I’m not sure, I think last time it was more than 10%.

Just to be sure that you said around about 15% for the year. Then a question on SevenVentures.

Maybe you could give us a bit of an indication of what sort of growth we should see this year, and on Verivox maybe also a bit of a full year indication or OPC in general, if you could. Thanks a lot..

Yes, it’s Gunnar, Chris. Thank you.

So let me clarify what I just said. The 15% was a statement I made on the Q3 growth for the segment, the organic growth.

So I find it important to note that after a softer organic growth in the first-half of the year, Q3 is now back to the level that we have seen in previous years. And I would not change my statement that I made in previous calls regarding the full-year outlook for the D&A combined organic growth to be at or above 10%.

So that is unchanged. But as you can see, digital entertainment, what’s in Q3 was much more than half of it was organic.

Actually, it was 80% organic growth in that segment. Ventures and commerce have still many, many contributions from the acquisitions that we made, but also here we see good improvement of the organic growth rate.

So 15% is back on track, 10% is the full-year outlook, as guided before. And then on the content production side as well, given the acquisitions that we have made in the beginning of the year, we have seen quite some inorganic contributions as well.

The majority in the third quarter was inorganic, but we also see very strong, especially profit, contributions from the existing portfolio. So, as I said, if you take all that together, the mix for the Group has come back to a very good balance, close to 50-50 and we continue to see an improvement as we go into Q4.

On your third question, Chris, I think in ventures, as Gunnar pointed out, the quarters are fluctuating. Overall, we still see a healthy business.

On this year’s full-year performance you have two effects. One is that we developed Zalando, which has been then moved over as a traditional zum]customer, and secondly, we are a little bit more cautious in media for equity investments, given the current market environment.

That’s why overall you can expect the same ventures to be a little bit below last year, but still we stick to our mid-term guidance of 5% to 10% growth in ventures. On Verivox, I think, as I said in the presentation, very dynamic growth.

This year, and also here we are grown very, very positive with our mid-term outlook, where we’d see Verivox grow roughly more than 20% on a full-year basis.

Okay. Thanks a lot.

Yes, hi, everyone, it’s Marcus. Sorry, one more hopefully last question on organic and digital.

Could you tell us a bit more about the growth rates of your remaining divisions in the portfolio, i.e., if you take out Etraveli and Verivox, the rest of the portfolio – is it also seeing accelerating growth, or is it negative, or that would be quite interesting if you could comment on this? And then on CPTs, you said momentum remains strong, prices go up.

Is there maybe a little bit more to get here? What are you seeing in the industry, in the German market in terms of CPT also from peers, what they are currently doing?

Thank you very much.

So, maybe I start with the CPT. I think just take a look at the historic development of pricing since 2009, and that’s your best indication.

I think you can see that TV was able to raise prices independent of any online competition, independent of print companies maybe taking on their CTP, because let’s not forget the German CPT and TV is still lower than other European markets, and still lower relative to print and relative to some online CPTs. So from that perspective, I expect this to continue.

And the past experience in the years showed that even in the event of declining reach, broadcasters are able to increase their CPT because of the growth in relative reach to main competition. Maybe just a quick answer on your question regarding growth rates of remaining divisions, I think, Christian has explained it already several times at the Capital Market Day.

I think travel, obviously, was impacted this year by some troubling news in the market, but if you think about lifestyle, Flaconi, Amorelie is growing very well, Stylight is growing very well. So I think of this the exception of, I would say the some travel assets, all other assets experienced solid organic growth, and not only Etraveli and Verivox.

Okay. But that doesn’t include also the entertainment bit?

The entertainment is relatively clear there. But the business is growing dynamically, Studio 71 is growing dynamically, Maxdome is growing dynamically.

We have de-consolidated games, so there don’t expect growth there, and we have the problems or the issues we have to discuss with the adjacent business. So I would say the only platform in our entertainment business, which didn’t grow the way was MyVideo, but the other video platform performed very well.

Okay, great. Thank you.

Yes, good morning, everybody. I start with the programming gap, which in the first nine months was €105 million, which was €10 million more than last year after nine months.

Last year, the programming gap was about €50 million for the full-year. Is €60 million a good estimate?

That’s my first question. My second question is on the adjacent business.

You say it was weak because of the loss of one customer, which I assume is Stefan Raab and also music. Could we have a quantification of that one loss of customer, so we can see what the kind of underlying ex one-off gross, is my second question?

And then on venture, you say, it was seasonal. You were still expecting 5% to 10% growth going forward.

But I guess with all the M&A you’ve done, you’ve moved from a lot of your inventory going to external customers through media for revenue to now being internalized to all the stuff you bought. So out of the kind of €1.5 billion that is going into digital on a gross basis, how much is now external?

How much is now internal? Those are my three questions.

Thank you.

Yes, Julien, this is Gunnar speaking. I’ll start with the last question and take the programming gap question, and Christof’s going to answer the adjacent question.

Let me start with the third one. It’s clearly not an inventory issue here, not at all.

As I said, the nature of the contracts is that they contained variable shares, so you will see some fluctuations. And then Q3 last year was dominated by individual contracts with very high payouts for media for revenue type of business, so that’s the underlying driver.

There’s no shortage in media. We make those M&A transactions, because we have idle inventory.

And as you can see from the presentation we gave at the Capital Market Day, we are getting good returns using this idle inventory. But there is no shortage for the existing businesses in the portfolio.

On the programming gap, that’s the usual Q3 question. Yes, there has been a gap again, very much driven by the nature of the business with a lot of consumption happening in the fourth quarter and a more linear inflow of programming.

That being said, there is also some quarterly seasonality as well. You saw a Q1 that was very low on program investments, timing driven, and Q2 and Q3 have been loaded a bit more with program investment cash outflows.

And for the full-year, again, I think a similar development as last year is likely to happen. So we will see some build-up of programming assets as we diversify the business into production as well, where we build IP into OTT video, where we need to build up rights libraries as well.

So you will see some increase, but not structural deviations. Christof?

Julien. On the adjacent side, I mean, please just bear in mind our adjacent business on the music side is on two big pillars.

The one is our live business, which is I think it’s still a very nice and important business, and also is a substantial market. And the other one is with our Starwatch label with all the cooperation’s that we have with all the major labels from Universal to Disney.

So yes, it is – it has suffered this decline from this one big customer. Please understand that we don’t comment on single customers and amounts.

We are basically single customers. So I just think, you can assume that adjacent business is not the overall biggest business of the Digital Entertainment segment.

And then – but yes, it – we will be able to stabilize it and not see further declines in the way that we have seen now in the last quarters.

Thank you.

Yes, thank you. Good morning, everybody.

A couple of questions from me. Firstly, just a follow-up on the question on the Starwatch music label.

If you could just flesh out some of your comments on the challenges. I mean, our overall impression is that with the growth in streaming revenues that the music – recorded music industry was recovering.

Is there any reason why your label would not participate in that recovery? That’s the first question.

Second question on German broadcasting free-to-air margins, which moved up nicely in the third quarter. Can you just explain maybe some of the – were there some timing issues that were favorable in terms of programming spend, and how should we look at that in the fourth quarter going into 2017?

Then the final question, just in terms of the organic growth of your digital businesses. I think, from your comments, Gunnar, if I’m right the entertainment business grew about 18% organic, suggesting it’s growing faster overall than the ventures and commerce business, if the overall is going about 15%, is that how you see things?

I would have thought that ventures and commerce be growing a little bit faster. How would you see the relative growth rates in the medium-term?

Yes, Conor, Gunnar here. So on your organic growth question, maybe start with the last one, that’s right, roughly 18% is correct.

And as Thomas said, I mean, he went through the full portfolio and AdVoD is growing at a tremendously fast pace. Within ventures and commerce as well, I mean, there’s – this is a – it’s a portfolio of assets.

We have assets that are growing at a 100% and more, but then you have the SevenVentures effect in the third quarter, which is also material, so slowing down the average. I recommend stick to the disclosure that we’re giving on the individual parts of the segment and we’ll see how that evolves as we move forward.

On German free-to-air margins, you are right. There has been a margin expansion.

Part of that is diligent cost management. We’ve been making sure that we keep dry powder, basically, from the beginning of the year.

So we’ve been successful in that. Part of it is also that we are seeing some benefits coming in from the digital assets, utilizing German TV airtime, and there is an increase in the internal charge associated with that, which is also helping German profitability and allows us to make investments, and do the core business again.

Okay, thanks.

And your question on Starwatch again. I mean, look, we are, I think, a very strong partner in making labels’ events big in Germany, and we have done so in the past and continue to do so.

As now in the market, we see more digital distribution happening with streaming. There’s no reason to believe that we’d not also be successful in that environment giving also our digital DNA that we have.

So I’m not overly worried in this market overall.

Okay, thank you.

Good morning all, I’ll be very brief. Just a quick question on maxdome.

I mean, you have a much faster revenue – subscriber growth than revenue growth in Q3. I just wanted to understand, is it the timing of subscribers kind of picking up, and the revenue has not yet caught up, which means that the revenue should accelerate, or is there anything else?

Also, can you maybe just talk a little bit about how the cost is evolving. You’ve talked a little bit about building assets in Q4 for OTT, so just a quick comment on that.

Thanks.

Yes, Charles, this is Gunnar. So you need to keep in mind that maxdome is a combined business that not only offers AdVoD service, but also transaction VoD and DTO.

So there is a bit of a mix effect. The transaction VoD is growing slightly slower than the subscription VoD and that’s the key explanation.

In terms of content, especially for maxdome, obviously we need to make sure that we have a very competitive and attractive offering, and we have made some good content investments there, and we manage the business on the basis of contribution margins. As we announced at the Capital Market Day, we are looking at reaching profitability back end of 2017, and that’s the way we look at the business.

We don’t necessarily comment on individual P&L line items.

All right, thanks.

Well, ladies and gentlemen, that was our last question for today apparently. With this, we close our session.

Follow-up questions can be directed at our IR team. Thank you, and have a good day.

Bye bye.