ANDRE LANGEHead of Markets & Financing information

Department

ANALYSING FINANCIAL PERFORMANCES OF EUROPEAN AUDIOVISUAL

COMPANIESConference “The Challenge of Transparency in the Audiovisual

Sector” (Strasbourg, 17 January 2003)

EUROPEAN AUDIOVISUAL MARKET SIZE (1996-2000)EUR Million

2000 : 72,4 Billion EUR

0

10 000

20 000

30 000

40 000

50 000

60 000

70 000

80 000

90 000

1996 1997 1998 1999 2000

Interactive software

DVD software (rental +retail) VHS software (rental +retail)Film theaters box-office Other incomebroadcastersNet TV subscriptionrevenues (*)Home Shopping (net)

Advertising/Sponsorship(TV+Radio) (net)Net public revenues ofpublic radio-television

GROWTH OF THE VARIOUS BRANCHES OF THE FILM & TV INDUSTRY IN THE EUROPEAN UNION

(1997-2000) Operating revenue in EUR million

Soure : OBS

0

2 000

4 000

6 000

8 000

10 000

12 000

1997 1998 1999 2000

TV Production (59,5 %)

Film Production (51 %)

Exhibition (47 %)

Video (43 %)

Theatrical Distribution(33 %)Broadacsting (30 %)

PROFIT MARGIN OF VARIOUS BRANCHES OF THE FILM & TV INDUSTRY IN EUROPEAN UNION (1997-2000) – in %

Profit before Taxation / Operating RevenuesSource : OBS

-6,00%

-4,00%

-2,00%

0,00%

2,00%

4,00%

6,00%

8,00%

10,00%

1997 1998 1999 2000

Film Production

TV production

Video

Exhibition

TheatricalDistribution

TV broadcasting

PROFIT MARGIN OF THE TRANSMISSION COMPANIES IN EUROPE (1997-2001) in %

-400

-350

-300

-250

-200

-150

-100

-50

0

50

100

1997 1998 1999 2000 2001Satellite

Terrestrialtransmission

NTL

UPC

POPULATION OF TV COMPANIES IN THE EUROPEAN UNION

Number of companies for which data is available (1997-2000)

21

106

13

19

60

53

27

146

19

21

60

55

0 50 100 150 200

Home Shopping

Thematic

Packagers

PayTV Premium

Advertising TV

Public Service

2000

1997

GROWTH OF PUBLIC BROADCASTERS (Radio & TV) 1996-2000 EUR Thousand

Average Annual Growth : 4,9 %

0

5 000 000

10 000 000

15 000 000

20 000 000

25 000 000

30 000 000

1996 1997 1998 1999 2000

Other income

- Other commercialincome - Pay-TV

- Merchandising

- Programmes sales

- Sponsorship

- Advertising

- Other public income

- Taxes on services

- Licence Fee

- Aids / Grants

AVERAGE ANNUAL RATE OF GROWTH OF PUBLIC BROADCASTERS INCOME

(1997-2000)

3,3%

8,2%

2,8%

8,5%

7,6%

14,3%

8,4%

5,4%

70,5%

10,4%

4,9%

0,0% 10,0% 20,0% 30,0% 40,0% 50,0% 60,0% 70,0% 80,0%

Total public income

- Aids / Grants

- Licence Fee

Total Commercial income

- Advertising

- Sponsorship

- Programmes sales

- Merchandising

- Pay-TV

- Other commercial income

TOTAL INCOME

GROWTH OF REVENUES OF PRIVATE BROADCASTERS (1996-2000)

EUR Thousand

0

5 000 000

10 000 000

15 000 000

20 000 000

25 000 000

30 000 000

35 000 000

40 000 000

1996 1997 1998 1999 2000

- Other commercialincome

- Pay-TV

- Home Shopping

- Advertising Radio(est.)

- Advertising TV (*)

AVERAGE ANNUAL RATE OF GROWTH OF PRIVATE BROADCASTER INCOME

(1997/2000)

12,50%

14,30%

33,70%

22,50%

32,60%

0,00% 10,00% 20,00% 30,00% 40,00%

- Other commercialincome

- Pay-TV

- Home Shopping

- Advertising Radio(est.)

- Advertising TV (*)

RESULTS OF THE TELEVISION BRANCH IN EUROPEAN UNION (1997-2000)

EUR MillionSource : OBS / AMADEUS

-2 000

-1 500

-1 000

-500

0

500

1 000

1 500

1997 1998 1999 2000

Operating profit(Loss)

Profit (loss) beforetax

Profit (loss) forperiod

FINANCIAL PERFORMANCE RATIOS OF THE TELEVISION BRANCH IN THE

EUROPEAN UNION (1997-2000) (in %))

-8

-6

-4

-2

0

2

4

6

8

10

1997 1998 1999 2000

Operational margin

Return onshareholders'

Profit margin

Return on totalassets

PROFIT MARGIN OF TELEVISION COMPANIES IN EUROPEAN UNION

(1997-2000) (in %)Source : European Audiovisual Observatory

-50

-40

-30

-20

-10

0

10

20

1997 1998 1999 2000

Advertising TVPublic serviceThematic channelsPay-TV (films)PackagersHome Shopping

PROFIT MARGIN OF NATIONAL TV SYSTEM (1996-2000) (in %)Source : OBS / AMADEUS

-20

-15

-10

-5

0

5

10

15

1996 1997 1998 1999 2000

France (*)Germany (**)United KingdomItalySpain

IS BROADCASTING STILL A LICENCE TO PRINT MONNEY ?

• European consolidation still uncertain (withdraw of Canal+, national solution to the KirchGruppe failure)

• Few companies remains with offensive European strategies (RTLGroup, News Int., CME, SBS)

• Public sector still fighting but financial situation is deteriorating• Crisis of TV advertising market in 2001 (-6,3 %) may continue (0,5 % in 2002 ; 3 %

in 2003 ?)• Transition to digital has dramaticaly increase competition and costs, at the

detriment of the financial stability of the branch• Premium pay-TV (Canal+) have lost their high level profitability and are looking

for new programming formula• Mergers of digital satellite plateforms progressively accepted by EC and national

authorities but with very restrictive requisites• Digital terrestrial television at high risks – Has accelerated concentration

process in UK – Slow development in Sweden and Finland• Home Shopping will probably be more and more challenged by Internet e-

commerce• Interactive television still a marginal business (except BSkyB)

TOWARDS A CRASH OF THE AUDIOVISUAL EUROPEAN INDUSTRY ?

• US INDUSTRY STILL DOMINATING THE EUROPEAN MARKET• THE COST OF THE TRANSITION TO DIGITAL IS VERY HIGH• DIGITAL WILL MAKE CAPTATION OF THE VALUE MORE DIFFICULT

(PIRACY, PRIVATE COPY)• MATERIAL RETAIL (DVD) MORE PROFITABLE THAN SERVICES

DISTRIBUTION (BROADCASTING, EXHIBITION)• THE PERIOD OF FINANCIAL PROFITS SEEMS OVER (TV PRODUCTION,

EXHIBITION,…)• WILLINGNESS TO INVEST DECLINING (POOR RESULTS, SPECTACULAR

GROUPS CRASH, BANKS CAREFULNESS…)• BACK TO A CREATIVE / INDUSTRIAL APPROACH ?• PRODUCTION ACTIVITIES GROWING FASTER THAN OTHER BRANCHES

BUT FINANCIAL SITUATION REMAINS WEAK• NECESSITY TO REVIEW THE REALLOCATION POLICIES BETWEEN THE

BRANCHES (INVESTMENT QUOTAS IN TV, IMPLEMENTATION OF DIGITAL CINEMA, TAXING VIDEO PUBLISHERS/DISTRIBUTORS,…)

• TRANSMISSION SECTOR TO BE INVOLVED IN THE FINANCING ?

ANALYSING THE THE TV PROGRAMMES MARKET:METHODOLOGICAL DIFFICULTIES

• Limited number of national studies• Great heterogeneity of TV landscapes, business

models, industrial structures and accounting practices• Vertical integration / Horizontal integration• Lack of transparency• Fragmention, high level of micro-entreprises or one-

production enterprise• No breakdown of revenues by genres• No accessible database on TV programmes• Opacity of the rights market

TRADE BALANCE IN AUDIOVISUAL PROGRAMMES BETWEEN EUROPEAN UNION

AND NORTH AMERICA (film, TV, video)(1998-2000)

Millions USD

-10000-8000-6000-4000

-20000

200040006000

800010000

1988 1990 1992 1994 1996 1998 2000

North Americanrevenues in the EU

European revenues inNorth America

Net

ORIGIN OF IMPORTED FICTION (feature films + TV Fiction) BROADCAST BY 101 LEADING

TV CHANNELS IN EUROPEin hours

Source : ETS / OBS

0

50 000

100 000

150 000

200 000

250 000

300 000

350 000

1994 1995 1996 1997 1998 1999 2000 2001

OtherJPAU+NZCAUSInternat. Co-prod. Mixed co-prod.European co-prod.not - identifiedOther EURITGBFRDE

ORIGIN OF IMPORTED EUROPEAN FICTION (feature films + TV Fiction) BROADCAST

BY 101 LEADING TV CHANNELS IN EUROPE(1994-2001) in hours

Source : ETS / OBS

0

10 000

20 000

30 000

40 000

50 000

60 000

70 000

80 000

1994

1995

1996

1997

1998

1999

2000

2001

Mixed co-prod.

European co-prod.

not - identified

Other EUR

IT

GB

FR

DE

VOLUME OF TV FICTION PRODUCTION (1996-2001)(in hours)

Source : Eurofiction

0

500

1000

1500

2000

2500

1996 1690 1059 459 221 691

1997 1815 1225 759 397 576

1998 1945 1321 851 357 621

1999 1828 1324 1465 504 665

2000 1801 1322 1199 627 615

2001 1800 1463 1306 761 553

DE GB ES IT FR

THE 10 LEADING TV PRODUCTION GROUPS IN THE EUROPEAN UNION (2000-2001)

Operating revenues in EUR millionSource : OBS

2000 2001

ENDEMOL ENTERTAINTMENT (NL) 519 914 RTL Group (Content) (DE) 883 897 - Thames Television (GB) 114 n.a.

- Grundy France 81 n.a.- Grundy UFA 75 n.a.

MEDIATRADE (IT) 654 746BAVARIA FILM (cons.) DE 284 n.a.EXPAND (FR) (est.) 304

270 TELE-MÜNCHEN (est.) 200 200ITN (GB) 153

n.a.THE TELEVISION CORPORATION 70 127GRUPO ARBOL PRODUCCIONES 64 120LAGARDERE ACTIVE (est.) 100 n.a.

GROWTH OF THE TV PRODUCTION COMPANIES IN EUROPE (1997-2000)

EUR million

0

2 000

4 000

6 000

8 000

10 000

12 000

1997 1998 1999 2000

Total assets

Operating revenue

PROFIT AND LOSS OF TV PRODUCTION COMPANIES IN EUROPEAN UNION (1997-2000)

EUR millionSource : OBS

-200

-100

0

100

200

300

400

500

1997 1998 1999 2000

Operating profit

Profit before tax

Profit (loss) forperiod

PROFIT MARGIN OF EUROPEAN TV PRODUCTION COMPANIES (1997-2000)

in %Source : OBS

-6

-4

-2

0

2

4

6

8

10

12

1997 1998 1999 2000

All TV productioncompanies (2897)

TV fiction (348)

Animationproduction (244)

TV news agencies(47)

TOWARDS A CRASH OF THE AUDIOVISUAL EUROPEAN INDUSTRY ?

• US INDUSTRY STILL DOMINATING THE EUROPEAN MARKET• THE COST OF THE TRANSITION TO DIGITAL IS VERY HIGH• DIGITAL WILL MAKE CAPTATION OF THE VALUE MORE DIFFICULT

(PIRACY, PRIVATE COPY)• MATERIAL RETAIL (DVD) MORE PROFITABLE THAN SERVICES

DISTRIBUTION (BROADCASTING, EXHIBITION)• THE PERIOD OF FINANCIAL PROFITS SEEMS OVER (TV PRODUCTION,

EXHIBITION,…)• WILLINGNESS TO INVEST DECLINING (POOR RESULTS, SPECTACULAR

GROUPS CRASH, BANKS CAREFULNESS…)• BACK TO A CREATIVE / INDUSTRIAL APPROACH ?• PRODUCTION ACTIVITIES GROWING FASTER THAN OTHER BRANCHES

BUT FINANCIAL SITUATION REMAINS WEAK• NECESSITY TO REVIEW THE REALLOCATION POLICIES BETWEEN THE

BRANCHES (INVESTMENT QUOTAS IN TV, IMPLEMENTATION OF DIGITAL CINEMA, TAXING VIDEO PUBLISHERS/DISTRIBUTORS,…)

• TRANSMISSION SECTOR TO BE INVOLVED IN THE FINANCING ?