CTC Media, Inc (NASDAQ:CTCM)
Q3 2013 Earnings Call
November 07, 2013 8:00 am ET
Ekaterina Ostrova - Director of Financial Communications and Investor Relations
Nikolay Surikov - Chief Financial Officer and Company Secretary
Yuliana Slascheva - Chief Executive Officer
Yulia Mitrovich - Chief Strategy & Digital Media Officer
Bile Daar - Danske Bank Markets, Research Division
David Ferguson - Renaissance Capital, Research Division
Alexander Vengranovich - OTKRITIE Securities Ltd., Research Division
Anastasia Obukhova - VTB Capital, Research Division
Daria Fomina - Goldman Sachs Group Inc., Research Division
Anna Lepetukhina - Sberbank Investment Research
Igor Semenov - Deutsche Bank AG, Research Division
Good afternoon, ladies and gentlemen, and thank you for waiting, and welcome to CTC Media's Third Quarter 2013 Results Conference Call. [Operator Instructions] This call is being webcast, and an audio version of the call will be available on the company's website. The call is also being recorded for replay purposes as well.
I'd now like to hand the call over to Katya Ostrova, CTC Media's Director of Corporate Communications and Investor Relations. Please begin your meeting, and I'll be standing by.
Thank you, operator. I would like to welcome everyone to CTC Media's Third Quarter Results Call. We trust that you have received our press release that was issued earlier today. If you haven't got a copy, please note it is available from our website at ctcmedia.ru.
Please refer to the earnings press release for the reconciliation of non-GAAP measures to the most comparable GAAP measures. I would also like to note that this -- there's a live webcast of today's call, which is available from the Investor Relations section of our corporate website.
Before we begin, I would like to remind everybody that today's call may contain certain forward-looking statements based on the environment as we currently see it and as such, it does include certain risks and uncertainties. So please refer to our SEC filings for more information on the specific risk factors.
Joining me today to talk about our results are Yuliana Slashcheva, the CEO of CTC Media; Nikolay Surikov, our CFO. Unfortunately, Yuliana has a serious problem with her vocal cords and has almost completely lost her voice. So therefore, Nikolay and myself will run through the key operating and financial highlights for the third quarter today. And then Yuliana will save her voice for a discussion of our key strategic priorities and development goals. And afterwards, we will move onto the Q&A session as usual, and Yuliana has confirmed that she will be available to answer the questions. And also, we'll have Yulia Mitrovich, the Chief Strategy and Digital Media Officer, who will join us for the Q&A session.
So now, I would like to give you an overview of our Q3 results. As you know, the third quarter is the seasonally smallest advertising sales period, but we managed to take audience share and grow advertising sales above the market for 2 out of 3 Russian channel. And overall, our top line was up 9% year-on-year in ruble terms [ph]. So this correlates to the Russian television advertising marketing growth of approximately 8% in ruble.
As expected, the market dynamics slowed down compared to the first half of the year, where we saw approximately 12% year-on-year increase. And there is a couple of reasons for that. So first of all, the market faced tough comps [ph] as the Q3 was the fastest-growing quarter last year. And in addition, there was a softening in demand from the advertisers starting from September, in light of the deteriorating macro forecast.
So this trend continued into the fourth quarter, which is actually expected to deliver the most modest growth among all quarters in 2013. So therefore, overall for the year, we currently expect high-single-digit television ad market growth in ruble terms.
Our channels are currently 97% contracted as of today, and that's before we anticipate that we will be formed in line with the market in terms of our Russian TV advertising revenue growth.
At the same time, we carefully managed our costs in the third quarter, which allowed us to significantly extend our profitability. Our adjusted OIBDA was up 25% year-on-year in ruble term, which is way above the top line growth. And we delivered a strong OIBDA margin of 30.6%, which is actually the highest Q3 margin since 2009. We also remain on track to deliver on our profitability guidance for 2013, and we continue to expect our full year OIBDA margin of around 32%.
Now moving to viewer gain share performance. In the third quarter, our 3 Russian channels combined viewing share was up year-on-year, and the commercial attracted 10- to 45-year-old age segment from 15% to 16%. This enabled us to further strengthen our position as the second-largest Russian TV media house in terms of viewership.
Our CTC channel completed its shift to the older adult segment of the 10 to 45 audience. It's updated its program strategy and very importantly, it also increased its core of loyal viewers. Even in the absence of the first run content [ph] during the summer, our effective daytime programming, which is based on the reruns of successful sitcoms and stagecom [ph], helped significantly grow the target audience share year-on-year.
Our full schedules also have established very positive traction and most recently launched premiers such as dramedy series, Molodezhka; sitcom, Two Fathers, Two Sons; comedy series, The Last of the Magikyans; and just very recent, the Russian version of the world-acclaimed cooking show, MasterChef. They were very positively received by the audience.
And today, CTC channel is justifiably the top family entertainment channel in the country and actually, the only television channel from the top 6 that continues to demonstrate consistent year-to-date share growth in 2013, even despite the continued audience fragmentation in Russia.
The viewing share for Domashny was up year-on-year in the third quarter as well, and this was fueled by continued success of the Turkish series, as well as well-performing premieres of locally produced TV movies and series.
Summer overall, traditionally, is a very favorable time for smaller channels because there is less competition from big broadcasters, and Domashny performed very well over this period and has managed to take both audience and market share.
Our smallest Russian channel, Peretz, it was down year-on-year but from record levels of 2012, so let's not forget about that. The channel continues to develop its focus on more edgy, more thrilling and action-driven positioning, along with the expected launch of the new premieres in 2014.
Our Channel 31 in Kazakhstan continued its strong performance in Q3. It increased its revenues by 28% in dollar terms. This is significantly higher than the growth of the TV market in Kazakhstan. And actually, Channel 31 has the highest sellout rate across the TV broadcasters from the country, which testifies to the popularity -- its because very high popularity amongst the advertisers.
And just to finish, our new media segment, we continue to broaden our presence in digital platforms and we doubled our reach year-on-year among the Russian Internet audiences from 9% to 11% in the third quarter. And overall, we are building more and more attractive proposal for our advertisers who are interested in extending their coverage beyond traditional media. And this is also reflected in our revenue. In Q3, our digital media sales were up 85% year-on-year in ruble.
So that's it from the operational and sales update. And now, I will hand the call over to Nikolay, who will walk you through our financial performance and position in more detail.
Thank you, Katya. Good morning and good afternoon, everyone. Thank you for joining us today. First of all, I would like to note that currency fluctuations again impacted our reported U.S. GAAP results for this quarter as the Russian ruble depreciated by 2% year-on-year against the dollar.
Now since Katya has already covered the top line performance, let's move on to the cost development in the quarter. Since most of our expense are ruble-based, I will discuss changes in the cost items in our local currency terms. Our top operating expenses when adjusted for last year's panel of broadcasting licenses impairment loss were up 5% in rubles. The growth was mainly driven by the increasing programming costs and depreciation and amortization expenses, partially offset by lower SG&A and stock-based compensation expenses.
Direct operation costs were up 7% in rubles, largely reflecting high transmission costs in relation to increased technical penetration of our television channels and increased digital transmission costs for CTC and Domashny this year to the rollout planned for the second multiplex.
SG&A expenses were down 4% in ruble terms, which mainly reflected the decrease in advertising and promotional expenses as a result of the timing of advertising campaigns at our channels.
Programming costs were up 8% in ruble terms and reflected the relatively more expensive content mix for our channels. We aired high volumes of locally produced hit content and also more foreign content to support audience share of CTC channel. Content costs drove also reflected investments in the Domashny and Peretz programming grids to support the target audience share in response to increased competition from other channels.
Depreciation and amortization expenses were up 71% year-on-year in ruble terms in the quarter and in line with the impact of the amortization of our analog licenses since October last year due to the planned transition from analog to digital broadcasting.
Our effective tax rate was negative 4% in the third quarter of 2013, down from 35% last year, net of the impairment loss of our analog broadcasting licenses in the third quarter of last year. In the third quarter of this year, CTC Media's effective tax rate was impacted by the effect of recognition of tax benefits, which were determined to offset against U.S. taxes based on a comprehensive examination of certain positions taken in the company's historical U.S. income tax filings, which was substantially completed during the third quarter of this year. Net of this effect, the effective tax rate for the third quarter of this year would have been 30%. As a result, our third quarter net income was up 70% year-on-year in ruble terms.
Moving to our cash and balance sheet items. Our net cash flow from operating activities was up year-on-year to $65 million in the first 9 months of this year and primarily reflected the net effect of increased advertising sales and high case spent on acquisition of programming.
Net cash provided by investing activities amounted to $22 million in the first 9 months of 2013 and represented primarily net receipts from cash deposits of $26 million. Capital expense amounted to approximately $4 million, which represented less than 1% of our range. We also repurchased 2.5 million shares in the market for approximately $30 million from May to August, for use in our stock incentive plan. We therefore generated $61 million of free cash flow in the quarter and ended the period with net cash of $119 million. The board has now approved the next quarterly dividend of $0.16 per share or approximately $25 million in total to be paid out at the end of December. Thus, the total dividend payment in 2013 will be $0.63 per share or approximately $100 million in the aggregate, as previously anticipated.
This is all from my side. And now, I will hand the call over to Yuliana who will discuss our key strategic priorities.
Thank you, Nikolay. I'm sorry, again, for the terrible voice I'm having today. This is the second day I'm suffering this inflammation of the vocal cord. So that's the maximum voice I can give, and the doctors tell me to take several more days up to a week and it could even get worse. So I'm lucky I can speak today at all.
Why we thought it's important to discuss some strategic midterm strategic approaches at this call? Because it seems I have started, it was already 100 days. Actually today, it's 100 days since I started on this key role. We are getting a lot of questions regarding our midterm plans, and most of you are interested whether we will do any big acquisitions or how we will grow in general. And that is why I would like to highlight some of our strategic approaches completely based on the strategy of work done by the management team within the last 6 months. Since I have joined the company, we have systemized and prioritized the initiatives discussed for the last several months and added them with some more creative growth initiatives, which I will talk about today.
But first of all, I would like to remind everybody that CTC Media is already a leading, independent Russian TV broadcasting company, which provides its investors with the exposure to the country's still-growing TV advertising market. Our Russian channels target distant audiences and deliver in approximately 16% commercial audience share in our 10 to 45 demographic audience. We are ranking #2 among the Russian free-to-air broadcasters, and we also have a small but expanding international business and a number of quite small but very fast-growing digital media projects.
CTC Media has a track record of steady dividend payout, as well as the potential for a buffed market growth. Currently, the strategy is targeted at making the company even more competitive in the changing market environment, making it the trendsetter in the Russian media industry in terms of own content creation and its monetization that grows multiple platforms. And that's the key crucial point in our development.
CTC Media also is set to use the Internet to further promote and monetize all its offerings, Internet and mobile. The company has international ownership base and world-class corporate governance practices. It has recently undergone changes in the executive team and plans to continue building out its top-quality management and creative team to implement its strategy.
I need to cover some of the market trends to put the strategy into the context of everything I will discuss till then. The macro forecasts on the Russian market are deteriorating. Near-term GDP growth forecasts have been revised downwards, which, of course, will somehow influence the overall business and the company as well.
IMF September forecast was 1.5% in 2013 and 3% in 2014. The Russian TV advertising market, however, continues to grow since it structurally remains underdeveloped. Ad spend as a percentage of the GDP is still low in Russia than in Europe, and advertising rates are sustainably lower. However, TV ad market is slowing down into 2013 and 2014, high-single-digit growth expected for 2013 and broader line growth for 2014, as was guided before.
Coming to our strategic goals, I was already talking about it before, but I want to highlight it once again that the strategic goal of the company for the next 5 years is to become a leader in creation, management and distribution of content on all potentially monetizable platforms. We still focus -- our focus remains on our core free-to-air business, and we are supporting the approach of our growing [ph] development. It will still be a priority of ours.
As I already mentioned in the very beginning, our general motto would be evolution, but not revolution, meaning, that the strategy we will be discussing builds on the work done by the management team for the last 6 months and updated in the last 3 months.
To achieve our strategic goal of becoming the leader in creation, management and distribution of content on all the platforms, we need to focus on a number of key elements, and I will name them one by one. We need to prioritize our content for each platform and increase the synergy between the channels -- free-to-air channels and other digital and mobile platforms, which we are developing at the moment. We will switch from the strategy of channels to the strategy of brands, meaning, a broader brand development and content distribution strategy throughout all the platforms.
We will be enhancing the company's strong plans, including delivering high-quality content by developing more owned programming and channel brands through enforcement of our production company and the partnership and joint ventures with existing Russian and international production companies. We are in process of discussing and negotiations in a number of such projects at the moment.
We will also centralize our key functions, such as content acquisition, programming, marketing, communications and production within one center on the level of CTC Media as the holding, but not on the level of channels as it was -- as it used to be.
We grow our -- another target, important target is to grow the combined audience share through, first of all, growth of our smaller channels. CTC channel is aimed to become a #1 channel in the audience 10 to 45 by 2018, and that's one of our key goals for the channel. Domashny channel will become more dynamic, active and modern and should grow audience share throughout the next 5 years by doing that.
Peretz channel will become, as we say, the king of thrill and extreme, and also should grow its audience share. We have a clear view on the possibilities of renovation and growth for both Peretz and Domashny channels at the moment and are already working on the new programming and schedules for those channels already in 2014.
We will be also expanding our digital offerings. As what I said before, we stick to organic growth of our digital assets, first and foremost, using strengths of already developed products and capacities in the core business. We will further expand our online service offerings, capitalizing on our strong channel and content brands. We will explore new opportunities synergetic with TV content, content such as e-commerce and online services, and we are already doing a lot of that.
We will also diversify our revenue streams, and that is one of the most important goals of the company for the next 5 years. We will be adapting to market trends, notably the expected slowdown when this term -- the expected slowdown and budget grows and continued audience fragmentation. And that is why we do understand that we need to diversify our revenue sources and bring up other businesses which can bring us revenues.
We will be responding by that to the industry developments, primary digitalization and multi-platform broadcasting. We will increase contribution from organic non-core businesses in group revenues and OIBDA for the next 3 to 5 years.
We understand it very well that key potential for diversification mostly comes from digital projects online, so this is an e-commerce. Speaking about digital strategy in general, we are getting a lot of questions concerning M&A in digital, and I should say that M&As are not ruled out completely, but any deals very unlikely to be limited to small -- very likely, sorry, to be limited to small dollar amounts, if done at all, next year.
Now I would like to stop on over other important strategic issues such as organization, team and corporate governance. And we will be shaping -- coming to organizational structure, we will be shaping organizational structure to enhance synergies between the channels and with digital offerings of CTC Media. As I already said, we will be centralizing and already started to centralize certain functions such as content acquisitions, which is the biggest part of our expenditures. Before, channels used to do acquisitions by itself, each channel. And now, I started to -- I have almost centralized all the acquisitions. And the last deal which the company made with Disney was already made not just for the CTC channel, but with the sublicensing of the rights for the smaller channels as well.
We will also specialize in marketing communications, programming, and that's the process which are taking place at the moment and will be finalized within next 2 to 3 months. And that all should streamline our organizational structure and drive operational efficiency. We are also strengthening the existing team, supporting it with a number of targeted hires, which happened already in the last 2 months and will also happen within next 2 to 3 months.
As you know, we have Alexey Pivovarov and his team who joined CTC Media after almost 20 years working for one of the main channels, MTV. He joined CTC Media as the Creative Producer. We also have appointed Roman Sarkisov, who used to be the CEO of 2x2 channel for several years. He also joined CTC Media as the Creative Producer. We have Petyana Shavrova [ph], who used to work for 6 years as the Head Producer for TNT channel. We also have her on board in the last 2 months. We have Alexey Shchedrin, who joined as the Chief Strategic Communications Officer, having experience working in the public companies before, whose task is to centralize all our PR and promotion, including brand communications, channel communications and corporate communications and put it all on the level of CTC Media and increase the efficiency of these activities.
I will step a little bit more on the digital strategy. I'm saying that we understand, again, that we understand that the highest potential for revenue diversification comes from this sector. We will be focusing on organic growth, as I already said, but we will also be looking on some possible acquisitions in digital, only if they are very complementary and fit very well to our digital strategy and most important, to our core business and our core brands.
We will be transforming channel websites into monetized properties. Right now, with only Domashny channel -- Domashny portal makes money and we want all the portals to make money. And we have a clear strategy on how we'll transform and renovate CTC portal and Peretz portal. We will be increasing the market share and redo advertising by building additional [ph] platforms. We are moving from Videomore as one destination content aggregator to developing a CTC Media content distribution platform, integrating our video players into websites.
Since the last 3 months, we have stopped sublicensing our content to any other platforms and now aggregating all our video content only on our own platforms, which is very important for us to grow in this area. This will allow users to watch all content of CTC Media on our destinations and other digital programs and increase the overall reach of our own platforms.
Exclusivity of the content rights, as I said, is very important because that is the only way for us to build out our own strong aggregator. We will also be building on the mobile presence through different channels, apps and content apps in mobile, which will be introduced within the next couple of months already.
We also plan to branch out into e-commerce using CTC Media's lifestyle brands for the valuable [ph] sectors, such as home product, jewelry and accessories, entertainment and CTC Media's portals to promote third-party offerings and have revenue share in these offerings.
That's what concerns digital. Now, as I was saying before in the very beginning, the free-to-air still stays as a priority, and our key focus here will be developments across the channels, the synergy between channels and the growth of the smaller channels. And speaking about the content strategy, we will increase -- we would like to increase their own content share through enforcing our in-house creative center, Story First, as well as joint ventures with the existing Russian and international production companies.
For third-party content, we will be working on the diversification of our providers network and save more favorable licensing terms. Our key strategy is in retaining full right for the content regardless of which entity is producing it. For doing that, we are changing -- now we are currently changing the agreement with the production company who supply CTC Media with the content and invent the new plan about the exclusiveness for the content right and whether it's a situation when it's impossible sharing the rights at least 50-50 with the production company.
We will -- we are maximizing content monetization across channels and platforms and also, a step in the merchandising and promo licensing initiatives as also the new source for profit diversification. We will be also in the frames of our synergetic initiative in between the channels. We will be sublicensing more and more content between the channels when appropriate, and it will lead us to the more efficient use of procurement and library.
At the moment, we are finalizing the process of our electronic content database library being built. The form testing and the launch automated content rights library for storing and managing all types of the content right will be fulfilled to the end of the year. And that's an absolutely new thing for CTC Media because it never had an electronic library and a systemized electronic content right. So it will very seriously increase our efficiency and give us additional chance of sublicensing content in between channels.
All the new contracts for purchasing content usage rights are being already entered into this new electronic system. All existing contracts, 2012 and earlier, are also imported there already. So now, we will be soon understanding the complete amount of the rights we obtained.
Used to speak, that's about the content right and managing them. I also should say here that as of the end of October, more than 700 contracts out of 2,600 general contracts are relegated already. And 2 additional models, one that calculates amortization of content right and another one that allows strategic planning of programming schedules will be launched by the end of 2013, which will seriously increase the efficiency of our expenditure on the rights and our operational activities with those rights.
Very briefly, I will go through the channel positioning for the next several years. The CTC channel has the motto of bringing the family together. We are reinforcing the channels established reputation as a family-oriented channel, with special appeal to women. Our target, as I've said already, is to become #1 channel in the audience of 10, 45 by 2018 despite audience fragmentation. We are aiming to maintain existing positioning with additional growth, which will come from focusing on prime time, developing of long-term brands within programming, increasing weekend shows formats and inventing transmedia projects and becoming a trendsetter in transmedia and reality at the CTC channel.
Regarding Domashny, we are moving from soft, harmonious and relaxing to bright, emotional, entertaining and much more modern. And we are growing -- we plan to grow by becoming a more dynamic and more modern channel oriented for younger females, as well as the existing audience; positioning the channel brand as lifestyle to use for cross-media projects and merchandising; enhancing the management team for new positioning on all platforms. As an example here, we already hired Jana Lipkova [ph] as the Editor-in-Chief for Domashny portal. Jana used to be the Editor-in-Chief for the whole number of the glossy magazines, very well known women portals and printed media. We are evaluating the possibility of moving Domashny channel to third multiplex if it will be introduced to improve its profitability.
Peretz. Peretz should become, as I said, the king of thrill and extreme. It would be modern, dynamic, thrilling, creative and unique male-oriented channel, which already -- it is positioned like that, but we will enforce that positioning by bringing programming offering in line with the well-regarded Peretz brand, launching several new high-quality shows to become anchor [ph] products for the channel next year; reducing reruns and canceling some of the inferior shows; positioning the channel brand as thrilling and extreme to use it for cross-media projects and merchandising; launch a number of new shows within this concept of thrilling and extreme.
We are also, generally, about Peretz, is to speak about core business and key business in general. We are also discussing the possibility of launching new platforms, both in core business and in digital and mobile. And we will be ready to speak about this initiatives shortly.
The last thing I wanted to cover is the international broadcasting very briefly. We're continuing to develop international business in order to leverage successful CTC content. It gives us marginal revenue contribution and costs are still very low. It gives us diversification of CTC Media revenues, decreasing dependence on Russian TV and market growth. To speak about our international assets, Channel 31, which was already mentioned today by Katya in her part. We are building on the channel's good content library and synergies with other CTC Media channels to maintain top 3 position of the channel in Kazakhstan. In order to manage the increasing competition in Kazakhstan, we are currently exploiting the possibility to increase the local -- the amount of local production content by introducing local production center on the territory of Kazakhstan.
If you count the CTC international as the network channel, we are maximizing geography of broadcasting in a cost-efficient manner through Russian language cable and satellite TV packages in the foreign markets. And for next several years, the priority will be the U.S., Canada and a number of countries in Europe.
I think that's it with my speech. Sorry, again, for my terrible voice quality. And I think we are ready to take questions.
[Operator Instructions] Our first question comes from the line of Bile Daar.
Bile Daar - Danske Bank Markets, Research Division
My name is Bila Daar coming from Danske Bank Markets. I have a couple of questions on the new strategic update, in particular the -- your reference to bringing CTC channels to the top spot in your target audience share, investments within digital. Are you comfortable with these investments while still maintaining your EBITDA margins at around 30%, and also, in combination with the transition to the second multiplex?
Of course, that's -- that was the crucial issue in all our strategic discussions within last 3 months. And we have planned for the digital investment, organic investments, which we have planned for the next 3 years. We're still comfortable with the guided level of OIBDA margin which we were talking about before. And the second multiplex, as we were discussing already, is it doesn't give any negative impact on CTC channel. It does put a pressure on Domashny EBITDA, and that is why we are evaluating the possibility of moving Domashny to third multiplex to improve its profitability and OIBDA margin if that third multiplex will be introduced. If not, we will be seriously working on the cost reduction structure in order to keep the OIBDA margin.
And then also on -- I was curious to understand the dynamics in CTC Network in this quarter. Since you made a substantial bump or increase in audience share, I was a bit surprised that the growth just came in at 11%. Could you just elaborate a bit on the dynamics in CTC Network relative to market and also how the power issue have developed in the past year?
Nikolay, can you -- can I ask you to cover this question?
Yes. Thank you for question. Speaking about the audience share dynamics of CTC, we're really happy to have this growth that the channel expressed here in this quarter, and we're more than happy that this growth was achieved, not only because of the new premieres, but also the continuation of our successful series and those of the additional runs of the premieres made during the first half of the year. This means that we actually increased our gross margin on these projects, because some premieres were even pushed to the fourth quarter of the year and even to year 2014. This means that from a profitability level, the third quarter was really good for CTC channel.
Yes, I can give you -- just to add to that, I can give you 1 example of the premiere we had -- the premiere called Last of the Magikyans on CTC Channel, and we showed [indiscernible] series which were repeated, which got 3 runs in prime time with the share of 13 -- with the average share of 13.5, which is much higher than the average share of the channel. 3 runs within 6 weeks and all in prime time. So it means that the product is of very high-quality and we do have maybe for the first time in the long history of CTC, we do have a storage of content, which we now have already done and we will be launching in the next season.
Okay. And then 1 final question. I think you touched upon the outlook for 2014 and did I understand it correctly that it was around mid-single digits or could you just give us another comment or update on that?
Speaking about the market growth, we expect that the next year will be around -- I mean, the figures for the next year will be around the figures for this year.
The next question comes from the line of David Ferguson.
David Ferguson - Renaissance Capital, Research Division
It's David Ferguson from Renaissance Capital. I guess, just 1 question. You talked a lot about all the different sort of strategic initiatives and things that you want to do. Maybe what is it ultimately designed to achieve? Will it mean you'll grow faster than the ad market? Will you have more diverse revenue streams? Will you be -- I know you said you can maintain a 30% margin, but will it be a more profitable business? What is the sort of financial criteria that you'll measure whether these initiatives are successful or not by?
Nikolay, do you want to start answering this question and I will catch up?
Actually right now, we are in the process of like finalizing our strategy for the next 5 years, as Yuliana already talked. And actually we are not disclosing any plans for separate projects that we can have during this 5-year period because it's quite a long period and of course the market dynamics are hard to predict in these times that we have right now, so...
I'm sorry, you got -- I think this is the question was about financials. Didn't I get it right?
Yes, I'm speaking -- I'm actually speaking about financials. This means that we are not like disclosing now what are the expected OIBDA margins for this 5-year period, it's too early to say. More information will be available during -- until the Capital Markets day that will be organized somewhere in the future.
Yes, we'll plan for that Capital Markets day to be organized in the end of the first quarter, beginning on the second quarter of 2014. And we will be able to come up with more precise financials and figures for 2014 and further.
The next question comes from the line of Alexander Vengranovich.
Alexander Vengranovich - OTKRITIE Securities Ltd., Research Division
This is Alex Vengranovich from OTKRITIE Capital. Two questions probably from my side, just be very quick. First, you're talking about the plans probably to slightly shift the target audience, like for your channels. I'm just wondering whether -- are you actually planning to make any changes to the target audience at which you are selling the advertising to advertisers for Domashny and Peretz. And the second question is probably also more about the portals. So I see that you're also planning to offer some additional services like food delivery, like cooking classes and chefs on the portals. I'm just wondering whether it's -- you're planning to do it on your own or it will be like third-party providers to the services and you will just serve as a platform for this? And also just very quickly on Videomore, are you planning to have only your own content on Videomore portal or you'll be also implementing external content on your portal?
Okay. If you don't mind, I will start with the last question because there were a lot of questions, so not to forget the last one. So the Videomore, we are already using not only our content, but also we have the content of Channel 5 and REN-TV as an aggregate, which as an aggregate, we aggregate now the content of 5 channels, 3 CTC Media channels plus those 2. And we do seeing that in future, we might be interested in merging with the other aggregator or another broadcasters getting the quantity [ph] of the content together because we do seeing that more revenues will come to the aggregator which will have the more digital-oriented or Internet-relevant content. That's the first question. Then starting with the first 1, about change, slight change of the audiences. Yes, we do seeing that slight change of the audiences both for Peretz and Domashny mostly. Even for Domashny, for Peretz, we just want to enforce and strengthen the existing audience because we know our audience and we think it's a very good audience. We just want to be more present there and stronger there. With Domashny, we do want to do a slight shift in the younger female audience, but not losing the existing audience, that is why we will be doing it very accurately. And yes, the plan is after we manage to do that, as we already, for example, during the last 2 years, we managed to make the change of audience with CTC Media, making it more relevant for advertisers and getting more revenues because of that. So with Domashny, the idea is the same. It will take us some time. You know that when CTC Media was changing the audience, it lost the current audience and there was a big drop in the audience share in the last 1.5 years. Before this year, it started to grow again. So we will be very accurate not to repeat the same with Domashny and to keep the existing audience and add some new programming for the younger audience. And that will -- should bring us to more revenues and advertising. Your second question was about the online -- different online services? We plan to use, mostly use, the third parties in providing services. We will not go in the businesses which we don't understand and are not competent in. We plan to do a number of partnerships and some of the partnerships are in the very final stage of negotiations at the moment. We will announce them as soon as we sign up. But I would ask Yulia Mitrovich, she's on the call. She's the Directing Chair of our digital projects. Yulia, if you have something to add, please do.
Yes, Yuliana, I just wanted to comment we are going to use third-party. It's very important for us to use the expertise of existing players in the market and to promote their services using our own customers and our own channels to do that.
The next question comes from the line Anastasia Obukhova.
Anastasia Obukhova - VTB Capital, Research Division
It's Anastasia Obukhova from VTB Capital. I have 3 questions. First of all, do you consider initiatives, for example, additional initiatives for VK of concluding agreements with labels providers, et cetera, or like maybe other companies, like other Internet giants to participate in the revenue sharing of [indiscernible] with content providers as key competitors to you? Or you think that you may offer content providers something more interesting? Because this company is quite slow from technological point of view, from the audience, et cetera. The second question is, how did the age of your audience change over the past years? For example, what was the average age in CTC channel? What was the average age in 2010, '12 and '13? So I want to understand how fast is the audience aging in CTC. And also maybe -- you came up obviously with quite a bigger details of that [ph] strategy, but can please maybe say in one line now, what will be your key steps in Internet -- in capturing Internet audience or your targeting audience maybe to transfer to Internet?
I would actually would like Yulia to answer the first question about the partnership with the bigger players because we were giving a lot of thinking to it just because of the metro of the voice [ph]. Yulia will cover it better and more clear. Yulia, please do.
Unfortunately, we cannot comment on specific agreements with the players that we mentioned. We are in discussions with all of them, but something more -- we're able to comment in the next 3 to 6 months. We are always open for partnerships and that's why we're happy to discuss with everyone on the market.
Yes that's true. And we do see obvious advantages for both us and these big companies in partnerships. The main important issue for us is the maximization of our profit and revenues from this source. And that's why we are not very fast in doing these partnerships because we are very accurate in analyzing what we will get from each of that partnerships. That is why we actually stopped sublicensing our content to other platforms because we were suggested some tactical money and tactical revenues by these big aggregators. But finally, calculating all the possible results from having it, all the possible revenues from having it, are now [indiscernible] are understood that we will earn much more by doing this. However, we understand that the companies that have traffic on the Internet market will be very relevant and good partners for us. So as soon as we are ready for any signing of the partnership, we will announce them immediately. Regarding the last question, just to talk about Internet altogether. So our core several -- to speak about several lines about digital strategy is again -- is transforming channel that side into monetized properties, and that means that -- Domashny is a good example of how we can earn money on Internet on AVOD and on services. We want to multiply this success to CTC and Peretz, each focusing in its audience. For CTC, it would be the family audience and family issues, and for Peretz it would be male audience. We understand now that the main -- real main winning -- the main winning point in Internet in our portals is the answering the question of how to and we want to take this how-to approach and invent it on all our portals. That's why Domashny is so successful because it answers a lot of how-to questions, how to cook a cake, how to find a school for a child, how to find a French teacher or the belly dancer -- belly dancing teacher. So that's the portals which help to find relevant information. We will not only do it in the dexteral [ph] forms, but we will do a lot of how-to in video. And that's the same principle we want to multiply to on CTC and Peretz. We also want to increase market share in video advertising by building our own strong AVOD platform. And as I've said, we will get together -- we will consolidate all our Internet platforms into 1 under the CTC Media brand and our CTC Media destination. So it will give the possibility for all users to watch all our content and for us to monetize all our content in one destination of CTC Media. And the last point is that we will be building up our mobile presence because we do think that maybe not in 1 or 2 years, but within next 3 to 5 years, mobile will be the most growing segment for video watching and we want to be there and we will be there. And the last 1 is the developing of other projects like eCommerce, using CTC Media's inventory and CTC Media's lifestyle brands for cross promotion and for promoting the new private labels created by the companies especially for partnership with CTC Media.
Speaking about the average age for CTC Channel, it's growing steadily year-on-year, but we don't have an exact number for this age. We'll be able to provide it to you later.
But what is interesting that, you probably know, Anastasia, that we were growing the audience on purpose. That was our like mainstream task for the last 2 years, to grow the audience of CTC Media coming away -- going away from the kids' audience, more to the family format of the audience. And this positioning of 10-45, now is -- it is very important and it was crucial for the last 2 years. As the core audience for CTC Media now is 25-45, male and female almost average. A little bit more female than male, I would say 60-40, female.
Anastasia Obukhova - VTB Capital, Research Division
Okay, and maybe 1 more follow-up question, regarding your mention in the acquisitions. Where we see you're planning to get or to look for other acquisition for, which area?
Okay. As I said, the acquisitions are not just ruled out, but they are not the nearest perspective. You know that there are several free-on-air channels on sale at the moment. And of course, we are looking on the opportunities to maybe extend our core business with the additional platforms, and free-on-air channels is one of the possible platforms. We'll also look on some of the assets on the Internet which could be very relevant and very complementary and synergetic to what we have at the moment. But as I said, that's not a first line priority now which just it's important for us to analyze the market from the point of view of possible developments in nonorganic.
The next question comes from Daria Fomina.
Daria Fomina - Goldman Sachs Group Inc., Research Division
It's Daria Fomina from Goldman Sachs.
Sorry, I got disconnected for some time. Sorry if I would be repeating the question. On -- you said that you would be now limiting the content ownership to yourself, not distributing it through the other platforms. Do you think there is a risk that, that might inflate your cost base and hence, dilute the margins if you would pursue that strategy. I mean, now you would be fully owning the distribution rights for the programming -- for the content that you are acquiring or producing. And the second question is on your Internet strategy. Could you please give a couple of examples of the project that you are launching apart from the Videomore? You said that you have launched already a couple of projects in there, e-Commerce -- I would be very interested to know what exactly those are and if there is anything else that you, I think, might -- worth highlighting in that space?
Thank you for the question. Actually, you didn't repeat anything. They were not asked yet. I will start and then I will ask to Yulia to go in details. Regarding the eCommerce, what we are launching. We haven't launched much yet. Most of the projects we plan to launch are planned for them -- I mean the new ones. I'm not speaking about the extending of existing ones, but the new ones. We plan to launch within next 2 to 3 months, and we will start with the food vertical which will be especially done. Actually, we want to launch a number of verticals from a section on Domashny.ru to separate them, those verticals, on everything you want to know about specific topics, and we will start with food already very shortly. We also will launch a couple of eCommerce projects, but they were not launched yet. We will announce them as soon as they are signed. You know that's a partnership issue, that is why we can't announce before all the new -- all the documents are finalized. But it will be very shortly, I think again within 2 to 3 months, we will announce a couple of eCommerce projects in ladies wear. I can just give you this feeler to understand. And both of the -- most of the new services which were highlighted will be also launched in the very nearest future. Yulia, can you help me with -- to continue that and also answer the first question?
Yes, I'll answer the first question first. In terms of sublicensing our content, we actually believe that in the short run, it won't -- we won't lose any revenues because we're not limiting the content to just Videomore. We are using its e-mail content distribution platform on all of our websites and in our platform around the web. And in the long term, it will actually help us build our own platform to a much more sustainable business.
And the second -- before I continue, on the second one, do you have anything to add on the second one, about launching?
On the second I would prefer to announce everything later when we actually sign partnerships. In terms of the way we're going, it's all in terms of the lifestyle brands and female oriented that's where we see a huge potential in eCommerce in Russia and it's very synergetic to the brands that we have in CTC Media.
Daria Fomina - Goldman Sachs Group Inc., Research Division
Thank you. It's very clear on the revenue side. Thank you for clarifying that. But in terms of the cost side, as you would be now owning full rights for distribution of the content you are showing online, do you think that would impact your cost base as well?
No, I don't think so. In terms of profitability, I don't think something will change dramatically in the short-run. And in the long-run, it will definitely be more profitable to own the exclusivity on our content.
Yes, I should say. I should add to that, but it's a very good question because actually it will not be very easy to do. It's not just the matter of cost and money. It's very often the matter of independency and profitability of the production company, which doesn't want to share the revenues, from Internet rights, for example, and wants to keep it to themselves to monetize them within the production company itself. However, that's the real challenge we will be facing. These negotiations with the main production companies who wanted to continue working with CTC Media's partners is that if we can't get 100% exclusive rights for example for Internet and mobile we will take at least 50-50 or we will take those rights for several years, which we think we need them and then like share those rights with production companies. That will be a pretty challenging task for us.
The next question comes from the line of Anna Lepetukhina.
Anna Lepetukhina - Sberbank Investment Research
I will start with 2013. I just want to understand, how confident you are in your EBITDA margin guidance for this year. Because you mentioned yourself that advertising market is softening. Then at the same time, judging by October number, audience share is not increasing year-on-year and maybe you can also comment on how Molodezhka is performing. And then you kind of made a lot of hiring this quarter. I just want to understand, I mean in order to reach the 32% that you are guiding, margin should be flat year-on-year, but a lot is going on in fourth quarter. So are you confident with this guidance or is there any downside risk? And also in terms of the strategy, I just wanted to clarify some things. You mentioned that you want to focus more on owned programming. Are we talking about kind of retaining full rights or you also intend to increase in-house production? And then maybe you can share some targets with us, what kind of percentage of content you want to be in-house produced? And the same in terms of diversifying revenue stream. I mean, do you have any targets in mind on how much kind of percentage of revenues within the next 3 or 5 years you want to come from other sources of revenues? And my last question is about Peretz. What makes you think that this time, because this will be already probably the third attempt to reverse the trend, because Peretz I mean it's just performing for some time after the concept has changed, but then we'll start seeing kind of slowdown and then I mean this quarter we saw decline in revenues for Peretz and audience share keeps going down. So what makes you think and what will be different this time so you can reverse this trend?
Okay. [indiscernible] lot of questions from different areas. There are some questions which I will answer, there are some questions which I'll ask my colleague to answer. The first one on the OIBDA margin, I will refer to Nikolay. The second about the production, I can answer myself. And on the diversification of revenues, I will also like ask -- I will start and ask my colleagues to end. But I will start with Peretz if you don't mind because I do spend a lot of time my personal time on smaller channels on Domashny and Peretz within last several months since I started because I do think that the biggest growth potential for CTC Media lies in the audience share growth and the revenue growth of these 2 channels because CTC Media or CTC as the channel is in a very good shape. It's maintaining throughout the year growth -- it grew and will be maintaining the high audience in the age group of 10-45. And that is why I do think that the biggest growth should come from smaller channels. So about the Peretz. You know Peretz started very well. The first year of Peretz was very successful with revenues and with audience share. Yes, it's only exist for -- it's now it's only the second year of existing of Peretz and the second year was not that successful. I do think there were some -- the team was working really hard and the team was strong. However, there were some programming mistakes done and this new type of TV which wasn't used which I call a clip type of video when you have a lot of different programs changing each other. Actually it was very good for the first year, but didn't prove to be that effective for the second year. So what will be changed? We are enforcing the team of Peretz and the new producers who are joining our in-house creative production will be for several -- first several months of the year at least focused on Peretz. For example, Alexey Pivovarov and his team will add to the benefits of Peretz with some ideas of the projects he's bringing on with him. And there will be some other team hires and strengthening of the team within next month or 2. We are in negotiations with a couple of people, TV people, who fit very well to the Peretz concept. So that will be the main, I think the main idea of growth and what gives them feeling that we will get through this hard periods for Peretz and can grow the channel in terms of audience share and revenues. And [indiscernible] are very enthusiastic about this renovated concept and I do believe in him and in the team that they will be able to implement it. So that's regarding Peretz.
Regarding the revenues. It's hard now to say the real impact of our diversification within next 5 years but of course the idea is to increase them. You know that currently we have about 3% of our revenues coming from other sources than at sales. So we do think that within 5 years, it should come up to 10% approximately. That's all I can actually tell on this issue at the moment. And the production, when I'm speaking about production, I mean those, I mean getting full rights for the content which is produced for us by outside companies, as well as strengthening our own creative production center as Story First. And that's why we are doing these hires, new hires of creative producers. Alexey Pivovarov and his team, Tatiana Shavrova [ph] and her team, Roman Sarkisov, all those people will be enforcing our in house production and our aim is to double in-house production within next 3 to 5 years. Your first question, I will pass it to Nikolay on OIBDA and the pressure or weight.
I wanted to add as for diversification we are forecasting organic developments right now and this organic development gives us about 10% of the revenues that will come mainly from digital because the CIS and STS [ph] International are pretty stable businesses. What I wanted to say is that in a couple of years, if we are successful in organic development and digital we will consider nonorganic and therefore we'll increase the share of non-core businesses in our revenues.
Speaking about marginality question. We predict good results from our grid for the remainder of the year. And we'll not bring new products, therefore our projections -- we think we believe that we can project well, the results from GRP side. Speaking about the sales perspective, at this point already 97% of our annual inventory is contracted. We control well our expenses and it's important also to remind you that we will have the high base of the amortization expense in the fourth quarter of last year. So taken into account all these 3 factors that I mentioned, we believe that we're confident with the margin guidance that we gave and we confirm it at around 32% this year.
We have also done, I should add, that we have also done some efficient cost reduction within next -- last several months and that also helps a lot for us to hire these new people who joined on board and to cover the expenses for them.
Anna Lepetukhina - Sberbank Investment Research
And can I just ask a follow-up. I mean, when I'm talking about diversifying revenues and other sources of revenues, when you're talking digital, I mean, do you refer to Internet advertising or it can be something else?
I actually refer to any sources of revenues that come from digital, both advertising, services and eCommerce.
Your final question comes from the line of Igor Semenov.
Igor Semenov - Deutsche Bank AG, Research Division
This is Igor Semenov from Deutsche Bank. I just wanted to follow up on 1 of the comments you made, Yuliana, that multiplex cost will not impact CTC Channel EBITDA margin. I just wanted to clarify how is that going to work out. I understand that for the interim period there will be 2 transmission cost lines for the analog and until it's switched off, and for the digital as it's rolled out. I just wanted to understand how you intend to maintain the EBITDA margin.
Okay, thank you for the question. Currently we're in very strong process of negotiations of all these multiplex processes with the government bodies. One of my deputies is the key participant of the National Association of Broadcasters, which takes a lot of lobbying and government relation initiatives regarding that, and of course we are very strongly now lobbying on the initiative that we will not have an overlap of payments for our analog and digital. When the analog will be switched off in certain regions and the digital payment starts we will not be paying analog anymore for those regions. So we're decreasing the possible overlap by a lot of our by areas of serious negotiations we take. There is also a number of other initiative we are working on to decrease this pressure from the margin. For CTC Media and through other channels, and that's mostly realized in the field of must-carry. We do think that it's very realistic that the must-carry principle will be adopted, and then we will also have less payments when the digital starts. We'll also have a number of other things, very technical issues, which we are working on, which will help to somehow reduce this pressure. But according to our preliminary calculations internally, the impact, the negative impact of digitalization on CTC channel itself will not be essential. Nikolay, do you want add to that?
Yes. I can add that we are always in the constant search for cost optimization and growth of efficiency of our internal processes. So I think that this will also help to compensate at least partly these additional expenses from multiplex.
We have no further questions At this time. I'll hand the conference back to you.
Yuliana, so do you want to take the final remarks for the call? Because we don't have any more questions.
Yes, sure. I want to thank everybody for joining the call. And to summarize, I would like to highlight several points that we're discussing. We're very pleased with the performance of our full season schedule. We unveiled new hits and continuous successful formats on our main channel, CTC, and we are in the process of improving our smaller channels. The mock indicators still remain not very clear at this point, unfortunately. However, the Russian TV advertising market is still forecasted to grow by high-single digits in ruble terms this year, and we expect our Russian television advertising revenues to grow in line with the market. Our programming expenses growth was weighted to the first half of 2013, with content costs, as a proportion of revenues, expected to be stable for the full year.
We also carefully manage other costs and therefore continue to expect our group OIBDA margin to be stable year-on-year around 32%. We also reconfirm our intention to pay higher year-on-year dividends to our shareholders this year with the next payment due at the end of December. That's mostly it. And I would like to thank you all for joining us for today's call, and we look forward to meeting you all in person over the coming weeks and months. Thank you and goodbye.
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