Voyo is growing faster than we expected. It’s already running at a profit, says TV Nova boss Daniel Grunt

In recent years Voyo has been at the centre of a process of transformation aimed at reshaping the TV group for the new digital age. The streaming video platform has been assessing viewers’ willingness to pay for Nova programmes, series and films since as far back as 2013, but the big push only came three years ago when the TV group was acquired by PPF. The new owners announced an ambitious goal for Voyo: to reach one million subscribers in the Czech Republic and Slovakia by the end of 2025. In our interview, Grunt told us that the popularity of Voyo is growing so fast it could reach the million mark even sooner. It already has more than 800,000 paying viewers across the two markets combined, and it’s starting to run at a profit.

“The managerial challenge in front of me is how to keep our media business growing on a market where the time spent watching traditional linear broadcasting is falling every year. In other words, how to reconfigure the company, its products, content distribution and strategy to deliver long-term earnings growth,” Grunt explains.

The owners presumably picked you to take over Nova’s helm last year because in your previous role, as Chief Digital Officer, you were responsible for developing the Voyo streaming service on various markets.That was at the level of the CME group, to which Nova belongs. Will there be any differences in your approach compared to Nova’s previous management?

Overall, I’d say it hasn’t been my aim to bring about a revolution at Nova. It’s a very well‑functioning media group, and a profitable one. As I see it, what the shareholder has given me is a relatively free hand to pursue a process of digital and strategic transformation at Nova. The way we consume video is changing. A technological transition is underway that brings with it a whole range of threats, and also a host of opportunities.

Which changes do you consider to be the most significant?

Over recent years we’ve seen the very rapid proliferation of smart TVs, with more than half of Czech households now equipped with a smart TV connected to the internet. That offers users a wealth of options – they can have apps on them, and video on demand. Another thing is the relatively strong growth in the delivery of TV content via the internet, so-called IPTV, which allows catch-up TV viewing. The result is that fewer and fewer people are watching traditional linear television. People are watching programmes at the time they choose, when it suits them.

And then there’s the growth in all the other smart devices, the rising penetration rate of high‑speed internet and data bundling. People are simply consuming video content wherever and whenever they want, which is something that was accelerated by the pandemic. We ourselves started to invest heavily in Voyo during 2021 – in its content, teams, the platform and other things.

So what is Nova’s overall strategy?

It has four pillars. The first is to ensure that its existing advertising revenues from linear television are, at the very least, sustained. The second is to maximise its content reach – i.e. to combine traditional broadcasting with delayed viewing or consumption via Voyo, so that the two distribution channels compete with each other as little as possible. The third pillar is to work on the brands themselves. Nova has always been an extremely strong brand, but in recent years it hasn’t devoted the time and energy to making sure its brand is well-profiled and focused on specific segments. That includes making an effort to develop clearly differentiated profiles for its primary Nova and Voyo channels. In addition, handling all that work will require a strong team, and that’s our fourth pillar.

Your rival Prima is also going the route of more clearly defined and profiled channels. When will viewers start noticing the changes at Nova?

Viewers will start seeing most of the tangible results this year, because last year was largely spent working on the internal aspects. We wanted to make sure everything was clearly defined in a way that made sense. Currently, we’re redesigning the main channel and Nova Cinema, and these will give a very clear indication of where we’re heading. Then will come the other channels, some of which we’ve redesigned already. We’ll be focusing on making the profile of each of our channels as transparent and comprehensible as possible for viewers, to give them a clear idea what they’ll find on them and who they’re aimed at.

How fast is the traditional TV audience shrinking?

If we look at the Total TV Ratings metric, which essentially measures the amount of time people spend watching traditional TV, then in our key target demographic – 15 to 54 year-olds – the really significant decline started last year. Year-on-year the drop was around six or seven percent. At the same time, though, there’s been a rise in the share of time spent watching catch-up TV, which isn’t always counted towards traditional linear viewership figures.

So what are you doing about it? How are you combatting that trend?

The first thing to work on is getting a bigger share of the smaller viewership pie. We successfully accomplished that last year, increasing our lead over our main competitor by one percentage point. That’s a pretty good result as far as TV viewing figures go. In terms of all-day viewership, our share went up by about three tenths of a percentage point to 33.64 percent last year. That’s important to us because we sell space at a premium price. That price is justified by the fact that we have a better, more attractive target audience, and a bigger lead over our competitors.

Secondly, we have a product that’s in demand, so logically we’re raising the price of TV advertising. This year our percentage increase was in double digits. That will allow us to continue our long-term expansion even in the traditional part of our TV business. We’ve made projections for several years ahead, and we forecast that in 2030 at least half of our earnings will still come from advertising revenue in the traditional linear business. Today, it accounts for about 75 percent.

How do your investments in Voyo fit into all this?

Our present aim is to sustain, and, if possible, increase our traditional revenues, and use those to finance our transformation. But Voyo is growing extremely fast. Actually, far faster each year than we’d foreseen in our already quite ambitious plans. And that means Voyo itself is turning into a pretty interesting revenue stream for our TV business. If we look at its operating profit, it already earned its own keep last year.

Aren’t you thinking about putting online advertising on Voyo?

That’s the direction we’ll probably have to go at some point, but it won’t be this year, and probably not the next one either. I say that based on what I mentioned earlier – how incredibly well Voyo is growing. In general, the SVOD market (subscription video on demand services such as HBO, Prima, Netflix, Disney, SkyShowtime and others, including Voyo – Editor’s note) is still expanding at a double-digit rate in the Czech Republic, with last year’s figure around 26 percent. In the same year Voyo grew by about 51 percent. And looking at the 20 percent growth forecast for the market, we’re looking to outperform it again this year.

So it looks as though the pace of growth is going to remain pretty interesting for a few more years yet. And one of the main incentives for subscribers to pay for such a service is the fact that there are no ads. As soon you throw ads in there, growth will decelerate. Besides, in the Czech Republic digital video advertising is fairly cheap compared to the U.S. and Western Europe, for example, so it wouldn’t make up for the slowdown in growth. What we’re on the lookout for is when the market starts to lose momentum. Then it would make sense to add a cheaper product to Voyo which would be bundled with advertising.

TV industry people always keep a watchful eye on the developments in more mature Western markets like Scandinavia, and on that basis they anticipate the trends that will be arriving here in a few years’ time. The Swedish streaming service Viaplay, whose investors include PPF, is currently struggling with losses, and last year it announced drastic cutbacks in staff and costs. Their subscriber numbers have also dropped off. Isn’t that a warning sign that the same thing could be in store for us too?

It’s definitely a red flag. In my opinion, though, that didn’t happen because of changes in the market, but more likely as the result of a misguided strategy. Viaplay made it their prime objective to get as many subscribers as possible at any cost. And they took the easy route of getting them through their partners, such as telecoms operators and so on. For this, they paid their partners rather hefty commissions, thus reducing their profitability. The second issue was that in an effort to grow quickly and build their brand, they invested huge amounts of money in content such as sports, and particularly platform-exclusive content. If they were making something like 70 Viaplay originals a year, the investment must have been astronomical. This brought them some very high subscriber numbers, but they lacked real profitability.

Are there any other developments you find interesting on TV markets in the West?

Naturally we follow what’s going on in Scandinavia, in the U.S.... but it’s not like that will all repeat here in three or five years’ time. So far, Western players like Warner Bros., Disney etc. are still in the process of switching strategies all the time, they’re still figuring it out. Three or four years ago, they embarked on a strategy of investing in their own video on demand platforms at the expense of their established business model. They stopped licensing their original content to other TV stations, for example. These players even came close to shutting down the traditional cinema distribution window that had made them a huge amount of money. But after two years they found out the same thing as Viaplay – they were growing fast, but accumulating heavy losses. So last year they sounded the retreat and are now going back to their original approach – prolonging the theatrical window for films and then offering them on Blu-ray disc or through paid services, and refocusing on licensing their content to other TV stations or subscription-based services.

What’s the moral of that story in your opinion?

That it’s important not to go jumping from one extreme to the other, but to focus on maximum long-term profitability from the very beginning. The thing is to balance your existing business and the new one, so that in the process of trying to grow the new one quickly – even though it might turn out well – you don’t accidentally kill off the old one. Because then it won’t help you to finance all the new stuff anyway. That’s what I meant earlier when I talked about our four pillar strategy, which is above all aimed at sustaining or marginally expanding our traditional business model.

Has Voyo overtaken Netflix’s subscriber numbers in the Czech Republic yet?

No.

You mentioned that as of March Voyo had 800,000 paying users in the Czech Republic and Slovakia. Can you give me just the Czech figure alone?

I’m afraid we don’t release that. We develop a joint strategy for Voyo that covers both those markets, so we publish a collective figure for them. Netflix is still bigger, but we don’t actually even aspire to be number one. Our strategy is that we want to be the strongest local player, to be number two in the market and complement the multinational number one. That’s working well for us.

The original goal announced for Voyo was to have one million subscribers by the end of 2025. You’ll probably reach that mark even sooner, right?

It looks like we’re a year ahead of schedule, so we’re getting there far faster than expected. I’m getting steadily more confident that we’ll hit a million next year.

Recent years have been marked by very weak consumer demand in the Czech Republic, with the public spooked by inflation and energy prices, and households cutting back on non‑essential spending. How come that hasn’t affected Voyo’s growth?

My explanation is that Voyo only costs CZK 159 a month, and for that small investment you get quality entertainment for the whole family – over two thousand titles, our own productions, series, romance, two sports channels, reality shows like Survivor and Big Brother, the list goes on. We’ve got a kids’ menu there too, plus a constant stream of new made-for-Voyo originals. And on top of that you get TV content a week earlier, all without commercials. So where are households more likely to economise? Presumably they won’t go as often to the cinema, concerts or sports events, all those other kinds of entertainment that are far more expensive.

This is consistent with the fact that year by year the average time spent per week on our platform has been steadily increasing, which is a very important metric. The more time viewers spend on Voyo, the lower the chance of them leaving. When households are cutting back on spending, it’s logical that Voyo and Netflix are the things they’ll tend to cut back on the least. And for other platforms, the situation will vary depending on when a new series begins or an interesting film comes out.

How are Voyo’s viewing figures developing?

Average viewing time is currently just under fifteen hours a week. And growing.

Are you happy with your pricing? Have you considered offering different pricing schemes?

As I said earlier, Voyo currently has a low price to allow it to grow faster. Given the rise in our input costs to run and develop the platform and produce content, that price should obviously be higher. But we don’t want to increase it just yet.

A few years ago, when the Czech Republic was transitioning to digital terrestrial broadcasting, the bosses of commercial TV stations got their hopes up that they could charge for some free‑to-air broadcasting formats. Higher resolution broadcasts using satellites, for instance. That’s not something that’s under discussion anymore?

We came to the conclusion it wouldn’t be worth it, because we’d lose a portion of our advertising revenue. And as I said, that still accounts for 75 percent of our business, so it would be an extremely risky move. Our redevelopment of Voyo has shown that we can actually go down both routes at the same time. We can monetise free-to-air channels through advertising revenue, and alongside that generate income directly from users.

In the past, the bosses of PPF and Nova have said they want Voyo to be one of the three paid video platforms that will be a regular, long-term feature in Czech households. But since then a multitude of platforms have emerged. Do you still think the market will consolidate around three main players?

I’m certain that to some extent we’ll already see that consolidation process beginning this year, including on a global level. In February we started to hear reports of a merger between Peacock and Paramount Plus. Two years ago we saw the merger of Discovery and Warner, although they still operate separate services – HBO Max, Discovery Plus and Eurosport. In May, Max will be coming to Europe to tie all that together. All the big players are looking for ways to save costs and team up, either by bundling their offerings or by actually merging together. There are dozens of these types of services in the U.S., and a single household over there typically uses around four or five paid services. One by one, the smallest are simply going to shut up shop over time. Here in the Czech Republic, only three, or at the very most four, can be profitable.

The issue of increasing the licence fees for Česká televize (Czech Television, CT) resurfaced again not long ago. One option proposed is that CT would have more ad space. I don’t suppose you’d like that very much...

Personally, I’d say that whole process is now finally moving in the right direction. Two working groups have been set up that include all the stakeholders in the market, and these are discussing the issue to try and find the optimum solution. Alongside that, the question has also been raised of what CT’s role actually is, and based on that how much money such an institution really needs. I can’t say whether CT needs 300 million, 500 million or two billion Czech crowns. But it’s just not right for the Ministry of Culture to announce, with no previous discussion, how CT will be funded, without first defining what the public broadcasting service is, or telling us what will be done with the money. Simply widening the defined group of licence fee payers and raising the fee would be like getting a blank cheque for an extra two billion crowns a year. That’s a lot of money – more than enough to set up a brand new premium channel. Unless it’s spelled out what CT is supposed do with that money, that presents a huge risk for the entire market.

For one thing, private TV stations aren’t happy for a competitor to be handed that kind of money. But increased competition in the advertising field isn’t something you want to see either.

The way things are now is fundamentally wrong – it amounts to a sort of dual financing system for CT. You’ve got an entity on the market that’s already being paid for by viewers through their licence fees, but at the same time it’s boosting its budget on the advertising market, which is the only source of income for commercial entities. The talks about CT’s funding should probably include some kind of increase in the licence fee, or an extension of its VAT tax break. But CT withdrawing from the advertising market should also be part of the discussion.

CME’s owner, PPF Group, is also active in finance and telecommunications. Are there any opportunities to develop synergies with Nova there? For example, I’m wondering if some services could be offered as a package – like Voyo with a special Air Bank account, and so on.

Early last year we launched our first partnership project with O2, which now enables its customers to pay for Voyo on the same bill and get a better deal overall. That’s the first thing we’re doing. Naturally, there’s also some pooling of experience. As a strong telecoms player, O2 is a long way ahead in CRM, for example (customer relationship management – Editor’s note), so we’ve had things we can learn there. That was helpful for us in the beginning, but now I’d say we’re getting to the point where we’re all learning from each other. As an example, PPF has just launched its Unity platform, as a way to promote joint offerings of services from its companies.

Can it go any further?

There’s always new territory to explore – dozens of possible scenarios and opportunities are out there. We have to look at them and say which ones make sense to us and which ones don’t.

A major issue last year was inflation, i.e. rising prices. Production costs for TV programmes and series have also gone up, along with energy costs. Have you had to change any production plans because of this?

We’re in an enviable position there because our business has done well on the revenue side. TV ads, and Voyo especially, brought in more money than we’d expected – we hadn’t even planned for Voyo to be in profit last year. But I agree that the effect of rising prices is being felt everywhere, whether that means energy supplies, locations, or studios.

The Czech production market was really buzzing last year. Players like HBO may have left the scene, but others have come in to replace them. Is that still going on?

Yes, we’re jostling with a lot of other groups here, and the demand is both local – i.e. for Voyo, plus our competitor Prima, which has also started investing heavily – and is coming from abroad too. The number of projects being created here has rocketed. HBO may have given up its local ambitions, but Amazon, for example, is very busy here, filming series like The Wheel of Time in the Barrandov studios. Netflix recently shot The Gray Man here, and then there are German TV stations that also produce series here. That all creates a huge overload of demand for various professions – ranging from creative ones, like scriptwriters and editors, to caterers, video editors, sound engineers, lighting technicians and all the other supporting professions.

Was the rate of price rises last year as high as the double digits, for example?

In our negotiations we’re trying to keep the increases below the double digits. That’s working, but the jump in prices is striking. When you consider the size of our production costs, even a single-digit price rise is a huge figure.

How much does Nova actually invest in programme production each year?

I can’t give you an exact number, but I can tell you that last year we put the most money into production ever. That goes hand in hand with the long-term strategy we decided on last year. We’re now making more series and more individual programmes than has ever been done in Nova’s 30-year history. And that’s going to continue this year.

So it’ll be another record year for spending on original productions?

It will. That ties in with what I said at the beginning – we want to strengthen our market presence, so we need to invest significantly more in quality local productions, whether they’re destined for TV or for Voyo. We massively increased our investments last year, and this year they’ll be even bigger.

What else have you been investing in?

Last year we also started to focus more on news and commentary. Earlier I mentioned the profiling and segmentation of our brand, and this is a good example: we’ve started to work on how we want to be perceived through our TV News as well.

What does that mean in practice?

It means we’re going back to our roots, focusing on the problems of ordinary people, and trying to explain to them in a simple, contextual way what’s going on around them, and how it affects them. And standing up for their rights at the same time. That’s why this year, for example, we’ve launched a new programme called Na vaší straně (On Your Side), where we fight to stop people from being cheated or manipulated. After many years, we’ve returned to broadcasting a Sunday political debate, under the title Za pět minut dvanáct (Five Minutes to Midday), which is something I’m convinced we’ve been lacking. We’ve also beefed up our investigative reporting programme Střepiny (Shards), and brought back Víkend (Weekend) in a new time slot, which has worked well for it.

Could the Nova newsroom ever take an editorial stance in its reporting on a particular topic? For example, if the Czech Republic were to decide on a major issue, such as leaving the EU

The example you gave is an extreme one, of course. I could imagine this being something we’d address in an extreme case like a referendum on leaving the EU or NATO. But until then we’ll always maintain the greatest possible level of balance and neutrality, and we pride ourselves on that. This was visible during the presidential elections and in our commitment to speaking out on all geopolitical and social issues. I’m very happy with our news coverage and the quality of my colleagues’ work.

And now turning to your investments in sports coverage, which you consider to be another pillar of your strategy. O2 TV is developing its own sports content in parallel with you, and has exclusive rights to the local ice hockey and football leagues. Wouldn’t it make sense to use that for Nova’s benefit as well, since you’re both part of the same group?

O2 is already taking that approach. It offers its customers access to Nova’s sports channels and the sports channels available on Voyo. That means that through its partnership with Nova, O2 can offer its customers the widest range of sports content on the market.

And what about purchasing the rights to sports coverage? Couldn’t there be some kind of synergy there, given that rights are getting more expensive all the time?

The issue of the high price of rights is becoming steadily more acute. Rights to things like the Champions League, Premier League or Formula 1 are incredibly expensive, and even domestic rights cost a huge amount of money today. Rights are generally acquired for a fixed period of time – two, three or four years. And I have the impression that with each new period, rights cost almost double what they did the time before. There’s huge pressure on the demand side, driven by multinational groups and platforms.

But that doesn’t mean you’ll be changing your focus on sports coverage, or does it?

We see sport as premium content, our most expensive type, so we offer it only through our paid services. This year we bought the rights to Formula 1, and we already have MotoGP. In terms of football, we basically have everything available on our paid channels Nova Sport 1 to Nova Sport 6. Formula 1 won’t be coming to Voyo, it will only be available via the telecoms operators. That’s the only way we can do it, because sports content is so expensive that you simply can’t offer it on a traditional free-to-air terrestrial TV channel.

Source: Hospodářské noviny
Author: Marek Miler