Prima, the second largest commercial TV in the Czech Republic, prepares its paid on-line video library through which it will seek to address more viewers and offer more ad space to its advertisers.

It is partly inspired by Netflix’s success. The number of its subscribers, including the Czech Republic, was growing during the pandemic. It indicated that local viewers were willing to pay for entertainment and that similar projects in the market are promising. Prima’s major competitor, the Nova group, has already launched a similar service named Voyo and considers it one of the pillars of its current strategy.

According to CEO Marek Singer, Prima is working intensively on its paid video library and will launch it within months. It also considers joining forces with a telecommunication operator. The service is likely to have two price schemes. One will be ad-free, the other one will be ad-supported with cheaper subscription.

“Competitors selected the approach of investing a massive amount of money and learning what does work and what does not. We may have a less sexy strategy. We will wait what is going to work for our local and global competitors and will build our services accordingly,” says Singer.

Singer’s team is building a media conglomerate for its owner, the GES Media group held by Ivan Zach. Apart from ten TV stations, the conglomerate includes the largest seller of TV and radio advertising Media Club, websites such as iPrima and a number of magazines, including the Czech version of Playboy. It is the connection with TV and internet projects where Prima’s management can see a chance for expanding its ad space and achieving a larger viewer reach.

Several years ago, Prima defined a strategy to associate its TV channels, radio and press titles into a single large group so that you can offer ad space to advertisers across various media types. How has your strategy changed with the pandemic?

The strategy still applies, we have just reviewed our priorities. We strengthen priority media: TV, on-line and radios. We are the most active in the market in connecting video advertising between TV and on-online. This will translate into the overall business policy.

And what about print media?

It is more of a marketing issue for us. As any other firm, we had to decide on what our priorities were. We cannot have fifty priorities. In terms of importance, print is not our key priority, however, it generates interesting profits in addition to the standard advertising.

And what about the radio business including, for example, Radio Kiss or Beat?

Their performance is good. We were working hard to combine our offering appropriately. We have already prepared packages for various target groups for the next year, e.g. for family audience or younger generations. As on TV, we are able to mix our offer so that it makes sense to our advertisers. A combined offer of ad space in the radio and on TV makes sense to many clients. But there are other clients with a primary focus on video advertising. We do not press packages containing radio on them.

How is Media Club as a sales agency succeeding in keeping the highest number of represented radios?

For the time being, we succeed in strengthening our radio offering, we have not lost any recently. The largest achievement is that radios from the Active Radio network operating for example Evropa 2 or Frekvence 1 moved to us. Media Club is the largest radio media house in the Czech Republic.

In the TV business in general, the importance of making own local content has been growing. Why?

Sometime in 2018, all large US studios took Netflix as an option to increase their sales a bit and sold them their own content. Recently, a major change has occurred. Over the last three years, large studios understood that Neflix was their competitor and responded with their own video libraries. Even in our market, Netflix is followed by Disney+, HBO Max, Discovery Plus. As a result, large studios start restricting their offering of own production for TVs such as we are. Some programmes - especially US series and films - can no longer be bought from them.

How do you respond to this?

We are opening new purchase options. If you have a look at our programme, we have much more European works than two or three years ago. Another must is boosting our own content.

But own production is always more expensive than buying a programme...

That is right. It is why TV companies establish VOD services. They distribute content to multiple platforms and have more sources of income. This is the financial justification of own production.

Nova, your largest competitor, has defined the development of its paid video library Voyo as the key strategy. Your on-line video library iPrima includes no subscription although customers may pay for an ad-free service. Is Prima preparing a video library with subscription? Will it not be too late?

It is something that we are working on hard. Our competitor selected the approach of investing a massive amount of money and learning what does work and what does not. Our strategy may be less sexy: we will wait what works well for our local and global competitors and will structure our service accordingly.

I will add another thing: I think that the largest wave of paid video library services has been over. A year or two years ago, most large US studios were watching Netflix and wanted to copy it. Today US households have five or six prepaid services. There is no space for additional services and the number is likely to be reduced. And this happens on the market where households are used to paying and the price sensitivity is much lower than in Europe.

Apart from Netflix, mostly all apply two price schemes - one is ad-supported and in the other one viewers have some ads in exchange for lower subscription. It is rather a model of hybrid VOD and operators have the same profit from both models. It is good for advertisers as they have more ad space, it is good for broadcasters and it is good for viewers as they can make a choice. I think that this is the future. Except for Netflix, all global services will adopt this model sooner or later.

 And what about Prima?

I think that we will also get there. There will always be some demand for video advertising. But the current model of linear TV where ads account for up to twelve minutes per hour by law is something that not all viewers will want. There will be more layers so that anyone could make their choice.

When will we see such a service provided by Prima?

Primarily, it is a matter of technology. How fast we can develop it, with whom and so that it works well. We are talking about months but I do not know how many.

Can eventually up to half of Czech households have a prepaid video library as Nova anticipates?

I think that reaching 50 percent of households with a single service is nearly impossible. People are likely to select a mix of services. As abroad, it will be much affected by common packages with telecommunication operators, same as today’s internet packages. Our competitor has an advantage of operator ownership. But on the other hand, such close relationships always make natural alliances against them. For us, there will be natural potential for partnership with other operators.

For example with Vodafone?

There are definitely more of them, I cannot comment on it any further.

Prima has ten stations in the Czech Republic. Are you satisfied with that or would you like to segment your programme structure even more?

This month, we have launched our tenth station, Prima Show, focused on reality shows. This indicates that we have found potential for such an investment. We may find some space for a minor change in tactics but I cannot see any potential for a large group on the market that is not serviced. There is hardly anyone to hit the jackpot and make a station with ratings going up to three or four percent.

Back to local programmes: production costs are much higher – wages are growing, so are material costs. Will it not thwart your plans in some projects?

The growth in prices in our industry is not driven by material prices because more and more production occurs in the real environment and less in studios. The growth in the labour cost is worse. All start producing more own works and Netflix is filming The Gray Man (Editor’s Note:  it is the most expensive film of Netflix a part of which was shot in Prague this year). HBO is also filming in the Czech Republic. All this makes the labour costs go up. It is not that we do not film something because of inflation, we rather have limits in production capacities of the Czech market.

The pandemic has brought an income loss for TV in the second quarter last year and then there was unexpected recovery of ad demand in the following quarters. And viewership has grown...

I can confirm this. People maintained the habit of watching TV even after the worst pandemic had subsided. During the Covid period, there was a substantial increase in watching paid video services, especially Netflix.

What is Prima’s situation in advertising income?

The following quarters offset the slump in the second quarter to a considerable extent. Businesses reasonably expected that when lockdown was over people would go out and start shopping. With higher viewership we also had massive ad space and recouped our losses in the second half of the year.

And what about this year?

It seems that the positive results will continue but viewership is no longer at the level of the lockdown peak. So our problem is that advertisers want plenty of ads but we have no space for them. Advertisers’ interest remains.

If you say that you are sold out does that mean that you show advertisements twelve minutes per hour, which is the maximum permitted by law?

Yes, it does. In future - and this will be a large portion of the task for our hybrid VOD service - we will have to offer an option to watch our content with fewer ads. There will be people for whom ads are acceptable and those who will be happy to pay a fee to avoid ads.

How will the sold out capacity affect your financial results? In 2019, Prima generated a profit of CZK 342 million and sales of CZK 3.3 billion, in 2017 it reported a record profit of CZK 591 million.

In 2020 we broke the record in net profit. But we will disclose the specific figure at a later date. The success was driven by a combination of increased demand and larger ad space thanks to viewership. There is also another factor that during the worst Covid outbreak filming was not allowed. As a result we saw a slump in sales but also had savings in making programmes.

Could 2021 be even better?

I guess that it will be comparable.

Your strategy for ad sales is different from that of Nova. You sell ads up to the maximum limit while Nova seeks to have shorter ad breaks so that ads are memorable and could be more expensive. Is your strategy correct?

From the times when we were owned by MTG I have learnt two things: to build a media house, which means making contracts with third parties that we will represent. And the second lesson learnt is to behave as a commercial TV and sell maximum ads. We have always wanted to offer the broadest and fastest reach and we have always sought to make our advertisers feel that they get the best value for their money. With us, advertising is cheaper than in Nova and we offer a broader and faster reach.

What reach can you offer to advertisers? How fast can you reach, for example, most of the Czech population through TV?

An average TV campaign takes a month and over that time we reach about 90 percent of the TV population in the strategic business target group 15-69 years.

Who has the highest ad spends in your company?

This year, retail clients, banks and insurers, and the automotive segment. And brick and mortar sellers also moved to the e-commerce sphere. During the Covid period, the firms remade most ads to let their customers know that they can shop online and have their products delivered. 

The launch of a new format of digital terrestrial broadcasting, DVB-T2, was completed last year. Technically, it would allow for introducing a fee for the receipt via aerial. But now the debates seem to cease...

The debate has calmed down a bit because this would require multiple parties. Nobody would do it on their own. That would be a self-destructing step. The entire market would have to do it. As I can understand our competitors’ strategy, the debate is not on paid terrestrial broadcasting but on paid video on demand services. Which means that it is passé for us at the moment.

Covid has also brought higher viewership for TV news in general. CNN Prima News took some time to reach the existing one percent rating. You did not anticipate that, did you?

Covid helped the project and so did the turbulent political environment in the Czech Republic.

Whether we want it or not, the news will be consumed from multiple sources in future. People will watch the news on their mobile phones or websites during the day, and in the evening, they will watch TV news. CNN Prima News is rather a platform for us - it reflects the way people consume the news. This project has significantly exceeded expectations in online, on TV we expected a faster progress. But in principle, we follow the growth curve of ČT24. And at that time there was no internet. It simply takes time. Moreover, I do not expect a TV news channel to achieve ratings of four or five percent in future. For us it is positive that up to a third of the online content is from TV.

How does CNN watch the content quality of CNN Prima News so that their brand reputation is not injured?

CNN has a representative in the Czech Republic who consults our work with the editor in chief. But he only has a consultative function while editorial policy is up to us. One of the principles of the licence is that we will make independent news. If we, theoretically, go mad and start doing news for one of the political parties they have the right to complain.

At the end of the year, contracts with large advertisers are signed for the next year. What will be your business policy? What new features will it include?

One of the features is definitely the connection between TV and online in a single package. And the introduction of eGRP. (Editor’s Note: GRP analogue - the gross rating points measuring reach and communication power of campaigns. eGRP that Prima starts using calculates reach through spots viewed online.). Another big news is that we have made a huge model of our viewership and made groups of channels targeted individually to any single customer. So that a customer can achieve the best reach of its target group. This is the largest bonus for clients.

We also respond to sold-out capacities and to what happens on the market and increase prices by eleven to sixteen percent. We have inflation in our inputs and, logically, have to reflect it in our prices. There are clients who reached prices that make no sense. This is due to historic reasons, for example due to tenders between agencies. We will push the prices up. This is the market reality.

Is the price-list cost increase for the next year exceptional in any way?

It is the sharpest price increase over the existence of Media Club. Unfortunately, we are entering a period of high inflation in general and TV is no exception.

When advertisers buy ads they require reaching the 15-54 age group. This is what Nova is offering. Prima is working with the group aged 15-69. What is the advantage when most advertisers have to recalculate it to their values, which may be complicated?

This is the change we have prepared for our clients for the next year. They often reproached us for disregarding their targeting. Thanks to the new viewership model we will talk to them using their language.

But we will keep targeting the 15-69 strategic group. If we did not do that we would miss the group of older people that account for up to a third of consumption in this country according to our calculations. As demography changes, the value of our product will grow. We are trying to explain this to our clients. Previously, people aged 55 were thinking about becoming pensioners while today they have adult children and want to live life to the fullest.

And what about the introduction of eGRPs that will be newly offered in all ad packages?

For us it is a move forward as we can see globally that eGRPs are used by most TV companies. We have a major competitor in the local market who has not sold out its ad space and does not need to use eGRP. But sooner or later, the entire market will get there.

How is the competitive environment changing for Prima when Nova is supported by a strong partner - the PPF group?

We cannot expect that there will be no changes with a new owner. This is the only thing that is certain. We can see it now. They are very aggressive in developing their plans with Voyo and want to invest in this platform. That will wake up all market, including us, and all of us will face the challenge of these platforms, including the global ones. Yes, this requires higher production of local content and higher quality of own production. In any segment that PPF enters competitors start standing on tiptoes...  

But as for paid video libraries, it is not just a matter PPF. The increased interest in Netflix we saw during the Covid period triggered interest in all markets. There was a mass demand for video services of this type and it is reasonable to invest in them. There are companies that have such an application and had a stable number of subscribers for years but were not able to increase it. But the new wave of interest in the paid Netflix-type services has changed everything.

Author: Marek Miler