Viaplay Group AB (publ) (VPLAYB) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen, and thank you for holding. [Operator Instructions] I will now hand the call over to your host, Matthew Hooper, Nent Group's Chief Corporate Affairs Officer. Please go ahead.

Thank you very much, operator, and welcome, everybody, to our Q1 2021 results conference call. I'm joined here on the call today by our President and CEO, Anders Jensen; our CFO, Gabriel Catrina; and Joel Gedin from our Investor Relations team. Presentation materials are available as usual on our website, and a Q&A session will follow our comments. I will now hand the call over to Anders.

Thank you very much, Matthew, and a very good morning, everyone. We have started the year with a very busy and productive first 3 months. The volume of press releases that we have published tell their own story. And I think they demonstrate the considerable momentum that we have carried forward from last year. The business is performing very well, and we are where we wanted to be comfortably on track towards our 5-year goals. It is early days. This being the first of 20 quarterly reports over the strategy period. But the foundations are well set. We have delivered 16% organic sales growth and 33% like-for-like profit growth, which compare with 6% organic growth and 22% underlying increase in profits in the fourth quarter. Our Viaplay subscriber base grew by 25% year-on-year in Q1, and we are on track to exceed our target of adding 400,000 Nordic subscribers this year. Despite the strong momentum, we're not providing a new annual target at this stage. This is simply because of the uncertainty around the pandemic, the potential return to new normal later this year and what this will mean for sales short term. There is no doubt that consumer behavior is changing rapidly in favor of streaming. So if a gradual and to all of the restrictions caused by the pandemic leads to a slowdown, it will be temporary. Also, please remember again that our growth is not linear, and we expect much higher subscriber growth in 2022 as we add key new transformational sports rights in our markets, such as the Premier League Football in Norway, Formula One in Finland as well as the Pan-Nordic scheme rights from the fall this year. The successful share we issued just after our Q4 results in February was oversubscribed and raised SEK 4.35 billion. The money was raised from existing and new owners. So thank you all for your support. We're already putting the funds to work with the launch of Viaplay in the Baltics last month, and the upcoming launches in Poland in August and then U.S. towards the end of the year. It is still early days, but the Baltic launch has attracted a lot of interest, already generated high-aided brand awareness levels up to 45% in less than a month and healthy sign-up levels. The addition of key new sports rights and local original programming will definitely boost this impact and availability of the service in 4 language versions, including Russian that the user can switch between, is a key differentiator in these 3 markets. It is too early to publish separate subscriber and sales numbers for the international Viaplay operations as many subscribers are still in trial periods, but we will disclose these KPIs on the back of our Q2 results. We have signed 2 new distribution agreements that we announced during the quarter, with leading telco and local telco partners in Latvia and Estonia. Local partner in Latvia, Tet, is already pushing Viaplay and at least will begin its major push after summer. All in all then, we will deliver at least the 250,000 international Viaplay subscribers by the end of the year, and we will provide further updates in due course. Before we get to the operating results, just a few words regarding the ongoing impact of the coronavirus pandemic. It's now been over a year since the majority of our people started working from home. And it's not clear yet when we will be able to fully reopen our offices. We have asked the entire workforce, and it is clear that flexible is the term that will define our working lives moving forward. We have learned some valuable lessons, not just about where we work, but also how we work, and we are putting our longer term plans in place. There is no doubt that this will change the way that we work forever. And that is a good thing, both for our health, our society at large and the environment. I'm very proud of the progress that we have made during this challenging quarter to become an even more equal, diverse and inclusive values-based organization. This approach and culture enable us to make better decisions, be more creative, engage more widely and provide our people with an even greater motivation, sense of belonging and purpose. All of this is, of course, totally essential if we are to achieve our goal of becoming the European streaming champion. Now let me turn to what we are seeing across our operations, and let me start with Viaplay, where we have added 127,000 new paying subscribers in the first quarter, that means 637,000 over the past year, to end the quarter with 3,147,000 subscribers, up 25% year-on-year. Over 98% of the new subscribers in the quarter came from the Nordics, where the growth was primarily driven by the B2B sales channels and the TM package as expected. Our joint venture, Allente, was again a key contributor to this growth. We have now raised prices for the series and movies packages in Sweden, Norway and Denmark by between 8% and 18% and for the sports package in Denmark by 30%. The impact on churn is as expected, and overall churn remains at industry competitive levels. Please remember again that we will reintroduce price increases for the sports packages in Sweden, Norway and Finland next year as more new sports rights come on to stream, especially in Norway and Finland. All of this is already included in our 5-year plan. We are working with our distribution partners to adjust pricing to reflect the investments that we have made to further enhance both our streamed and linear content offerings, so the impact of our price increases does come through gradually rather than immediately. Viaplay sales grew 17% on an organic basis, whereas reported sales were up 14% due to currency translational effects. Viaplay store sales were lower than usual due to the lower number of new movie releases, especially from Hollywood. Sales growth will accelerate substantially in Q2 due to the softer comparisons from last year, when there were no live sports events due to the pandemic. Our content and platform are performing very well in the Nordics, and we do expect our Viaplay sales to grow faster than our subscriber base in 2021, given the comps and the price increases. Total streamed minutes on Viaplay were up 16% in Q1 with the viewing of our award-winning originals up over 80%. We also maintained a very high level of service accessibility with an uptime of 99.98% and 15.2 billion minutes streamed on Viaplay in the first quarter. We premiered 5 new original, scripted originals and 3 True Crime originals in the quarter and now have 82 originals on the platform. Four of the top 10 and 7 of the top 20 scripted shows in Q1 were Viaplay Originals, including the #1 and #2 ranked shows, which were season 2 of Lyckoviken in Sweden and Danish, Those Who Kill. Locally relevant originals are a major key differentiator for us, and we have seen clearly now how the success of the second season of shows like Love Me can create renewed interest in the first season. We premiered a total of 30 originals in 2020 and expect at least 40 more this year, including the production of our first Estonian original and the return of the Fort Boyard unscripted celebrity format in Poland. It has also been fantastic to see how Delete Me and the announcement of the upcoming production of Fadime has sparked public debate and stimulated government engagement in key issues raised in these highly relevant stories. Delete Me has already been nominated in 3 categories for the Norwegian TV awards. On the sports side, we have added and extended several attractive new rights for both our existing and our new markets, including the acquisition of the exclusive NHL rights for the Baltics for the next 5 years. That is 1,400 games per season in total, and now we have the same rights in Baltics and the Nordics. We have added the FA Cup, English Championship and South American National Team football for the Baltics. We also followed up the securing of the exclusive Champions League rights in Iceland with the first of its kind agreement with UEFA to secure the exclusive rights on the streaming platform to men's national football team tournament qualifiers. Our focus on acquiring rights to cover women's sports continued, and we will show coverage of the major European women's football leagues in 9 countries for the next 3 years. And finally, we added the 25 Swiss World Cup skiing events to the Alpine and Nordic rights we already hold from this fall in the Nordics. Turning now to our other subscription business. Organic sales were up 21% in the quarter, when excluding the contribution from the Viasat Consumer business prior to its deconsolidation in May last year. Allente was the main contributor to the growth again. We expect continued healthy double-digit growth for the rest of the year, which will be driven by relevant and required price increases with a particular uplift in Q2 when the compensations from last year when operators reduced prices while there were no live sports events being played. As I mentioned on the Q4 call, all of our channels will be basic or premium pay channels in the future, meaning no channel being free to air and relying solely on advertising revenues. This is particularly clear when you consider that TV6 in Sweden and TV3 in Norway will be our linear homes, TV homes, for sports, including a lot of our Alpine and Nordic skiing coverage from later this year. And as I mentioned earlier, this does mean that we are working proactively with our distribution partners to adjust pricing levels to reflect the investments that we have made to enhance the content we deliver to customers on our linear channels and streaming services. Moving on to our advertising business. We have seen a continued and gradual recovery in demand levels with organic sales up 6% compared to the 1% decline in Q4. Reported sales were up 3% due to the strengthening of the Swedish krona against the Norwegian and Danish currencies, in particular. We estimate that we took TV ad market shares in each market and especially in Sweden and Denmark. The Danish -- Swedish, Danish and Norwegian TV ad markets are estimated to have been stable to slightly up with the Norwegian radio market up and the Swedish radio advertising market slightly down. Travel, betting and gambling ad spending with us has continued to decline in Q1, while the financial consumer goods and retail sectors all raised their spending. Sold-out ratios were high. We have seen the predicted mid-single-digit price rises in the upfront agreements with the agencies. At the same time, commercial puts on linear viewing levels are continuing to fall. So overall, and as it stands, a slightly more positive outlook for 2021, and especially in terms of the comps for the second quarter. The continuing -- Studios business continued to be affected by the pandemic, but sales were up 66% on an organic basis as postponed productions recommenced. And overall volumes were up as linear TV channel operators invested in the recovery. The process to divest the discontinued operations and the continuing U.K. distribution operations is proceeding according to plan and is expected to be completed by the end of June. We have already recently announced the sale of Splay One branded entertainment business to digital media company, Caybon. Once the divestment process is completed, it will become a question whether we should report Studios as a separate revenue line. We are refocusing the remaining scripted content studios on the production of high-quality originals for Viaplay, and therefore, expect these studios to generate limited external sales moving forward, especially as we will increasingly keep the international rights to our formats for our own expansion. The studio operations are now an integrated part of our in-house content operations and include both our Nordic scripted production houses as well as the Paprika facilities and teams in Budapest and Warsaw. We continue to work closely with FilmNation U.K., an LA-based picture starts in which we hold minorities equity stakes. The final piece to discuss is our 50% participation in the Allente joint venture with Telenor, where we reported SEK 50 million of associated income and more importantly, received a 250 million dividend payment in Q1 on top of the SEK 1.2 billion that we received in Q4. The business continues to perform well, and Allente is on track to deliver the full annual cost synergies of approximately SEK 650 million next year as well as substantial sales synergies from the upselling of Viaplay and/or V channels to the Canal digital subscriber base. Given the SEK 700 million of ongoing restructuring costs, we do not expect Allente to contribute much associated income in 2021 and the higher than run rate Q1 earnings reflected only the fact that SEK 107 million of the SEK 700 million of costs were taken in Q1 due to the impact of the pandemic on the ability to visit homes and adjust equipments. We do continue to expect to receive at least SEK 400 million of cash dividends in 2021. Overall, I would just like to reiterate that we are on track, and it is clearer by the day that now is the right time for us to expand further and faster. The pandemic has accelerated the consumer behavior trends that we have seen. Our highly competitive customer offering, unique content mix and high-quality user experience are well set to travel. We have now more and more inbound interest from current and potential suppliers and partners. At home in the Nordics, the business is evolving as expected, and we will continue to invest in the growth opportunity that we see. We continue to expect our 2021 Nordic organic revenue growth to be within the projected 13% to 15% CAGR range with some Nordic margin upside when compared to the 7.7% like-for-like level last year. On the international front, we continue to expect losses of approximately SEK 400 million in 2021 with Q2 at roughly the same level as Q1. We expect rapid market penetration in 3- to 4-year periods to breakeven for our international operations, with strong operating leverage and higher long-term margins than in the Nordics. The models will vary market to market, depending on the opportunities that we see, and we will continue to be very disciplined when it comes to managing our costs and exposure levels. The next 5 markets that we will enter before the end of 2023 will be announced and presented during this year. That's it for my initial comments. So now I will hand over to Gabriel for his comments on our financial performance and position. Over to you, Gabriel.

Thank you, Anders, and good morning, everyone. We reported 16% organic growth in Q1 as our sales continue to accelerate. This growth was driven by Viaplay and our subscription business in particular, which account for 68% of our total sales, but we saw growth across all of our revenue lines. The reported growth was again impacted by currency translation effects due to the strengthening of the Swedish krona against the Danish and Norwegian currency, in particular, with a total impact of SEK 85 million in the quarter. The Viasat Consumer business, which contributed SEK 723 million of sales in Q1 last year, was deconsolidated in May 2020, so will only affect the year-on-year comps for 1 more quarter. Our operating profit before associated company income and items affecting comparability, were up 33% to SEK 163 million from the SEK 123 million in Q1 last year when excluding the SEK 96 million contribution for the now deconsolidated Viasat Consumer business. We have reinvested the majority of last year's cost savings from Q1 into the accelerated growth that we are seeing, and we expect to do the same for the rest of the year. OpEx was up 12% in Q1, when we exclude the costs related to the Viasat Consumer business in Q1 last year, and up approximately 10% when we exclude the costs associated with the Viaplay expansion. We do expect further increases in the Nordic cost base for the rest of the year and higher losses for the Viaplay international operations in Q2 compared to Q1, with the majority of the investments to come in the second half of the year. We had no items affecting comparability in Q1 last year or this year and limited pandemic-related subsidies in Q1, all of which were connected to our discontinued Studios operation. We also had a small FX transaction headwind in Q1 from the U.S. dollar, but we do not expect any significant transactional currency effects for the full year. Our transactional currency exposure is hedged on an average 16-month forward basis. And the strengthening of the Swedish krona against the U.S. dollar will over time benefit us, as we have approximately $350 million of content purchased annually in U.S. dollars. Our effective tax rate for the quarter was 17.1%, and we expect it to be approximately 21% for the full year. The process to sell the discontinued Studios operations and our continuing U.K. distribution business is proceeding according to plan, and we have just announced the sale of Splay One branded entertainment business to digital media company, Caybon. There has been a healthy level of interest in the process from multiple bidders, and we expect to close the divestment of the businesses by the end of the first half of this year. Our Allente joint venture has continued to perform well, with revenues of SEK 1.69 billion, only slightly behind the SEK 1.72 billion reported in Q4. The subscriber base declined by 24,000 in the quarter compared to 20,000 in Q4 and ended the period at 1,109,000. Allente's EBITDA before IAC amounted to SEK 338 million with a stable margin of 20%. The JV's operating income of SEK 121 million included SEK 107 million of integration costs that were reported as items affecting comparability as well as SEK 109 million of depreciation and amortization charges, including the SEK 83 million amortization of the purchase price allocation, which is running at approximately SEK 330 million per year until 2027. The majority of these charges are adjusted for deferred tax in the report to have less impact on Allente's net income, which amounted to SEK 100 million in Q1 and contributed SEK 50 million to our associated company income. Allente is on track to deliver the SEK 650 million of full run rate cost synergies in 2022. We expect approximately SEK 400 million of cost synergies this year in addition to the SEK 150 million last year. The migration of satellite customers is being scaled up after being initially delayed by the coronavirus pandemic and the ability to visit homes. And the integration is now in the second phase with new packaging structure offering Viaplay as a key component and the rebranded that was announced last week. This offset in the Viaplay to the Canal Viaplay Digital subscriber is the key sale synergy from the merger. The integration and restructuring costs are still expected to total approximately SEK 700 million for this year, and we will be reported as an IAC. This cost and the PPA amortization will amount to SEK 1 billion for the year. So we do not expect a substantial amount of associated income in 2021. The cash flow and the ability to pay dividends is a key factor. And we received our 50% share over SEK 500 million cash dividend in Q1, which came on top of our 50% of the SEK 2.4 billion extraordinary dividend that Allente paid out in Q4. Allente plans to pay out quarterly dividends moving forward from Q3, and we expect to receive at least SEK 400 million this year. The company had a net debt of SEK 1.5 billion at the end of Q1 compared to SEK 1.3 billion at the end of last year, with a total long-term bank funding of SEK 2.3 billion. Following the Allente dividend, our cash flow from operations amounted to SEK 436 million in Q1. The net change in working capital was negative SEK 895 million and reflected the scheduling of sports rights prepayments, our investment in new Viaplay originals and the usual seasonal patterns. This is in line with our comments on the Q4 results, and we still expect a negative working capital change of SEK 850 million for the full year. Our net operating cash flows was minus SEK 459 million in the quarter. We did receive the SEK 4.3 billion of net proceeds from the share issue in February and reduced our short-term borrowings by SEK 1.2 billion in the quarter. We ended the period in a SEK 777 million net cash position, including discontinued operations. Our financial net debt of minus SEK 1.28 billion, included SEK 4.63 billion of cash and cash equivalents and the total financial borrowings of SEK 3.35 billion. Our net debt trailing 12 months adjusted EBITDA ratio was therefore minus 0.6x at the end of the quarter. As Anders mentioned, we are already putting the money that we have raised to work in financing the expansion of Viaplay, and we started with the Baltics, next up is Poland and then U.S. with the 5 markets to come by the end of 2023. At the same time, we will be operating with lower financial leverage, and we now have a balanced and flexible range of borrowing facilities in place, including long-term corporate bonds, short-term commercial papers and undrawn revolving credit and overdraft facility. So in summary, we have seen further positive momentum in the market environment and our performance. We have a clear strategy, plan and set of deliverables that will create substantial value. In Q1, we have delivered against this plan. We have continued to streamline and focus the business, and we have a disciplined capital allocation process when it comes to how we invest. The effects of the pandemic are far from over, but we have demonstrated how flexible and resilient NENT is, that our streaming strategy is the right one and that we will continue to transform into the European streaming champion. If you have not already, please do take the chance to read our recently published annual and sustainability report, which provides a lot of insights into our plans, what we're doing and the clear alignment between our business and sustainability strategy. That's it for my comments, and now back to you, Anders.

Thank you very much, Gabriel. Q1 was another busy quarter for us, and we have made considerable further progress with our strategic strategy development. We are on track and the year has started well. The pandemic remains, of course, to be a challenge for all of us, but we have found new ways of working that are working well for us, and we have learned many important lessons that I have no doubt will benefit us moving forward. We are accelerating overall and the early signs from the launch in the Baltics are encouraging. And next up is Poland, a market the same size as all the more the Nordic markets together in terms of households, and where we will have a very attractive customer proposition with top sports, local originals and a deep library of popular content, both international and local at a very competitive price point. Our 16% organic sales growth and 33% like-for-like profit growth, again, shows just how relevant, resilient and flexible our business is as well as the importance of our strategic focus on the fast-growing Viaplay business becoming the European streaming champion. We are developing a new 5-year sustainability strategy this year to sit alongside our 5-year business strategy. And we will be consulting with many of you about this and how -- as we seek to become one of the most diverse and inclusive entertainment companies in the world. And we commit to the science-based targets initiative to become carbon-neutral. We will maintain our clear focus on protecting the health and well-being of our people, while also using our services to inform and entertain our customers and building a company that is better prepared for the future and more sustainable than ever. We will continue to invest in the core drivers of our growth, our people, our platforms and our content and to strike innovative new partnerships, so that we can capture the streaming opportunity that we see in front of us across the world. The credit for all of this and all that we achieve goes to our teams as always, who have worked so effectively in these challenging circumstances, to our values-based culture and clear purpose and to all of you for your continued belief in and support of our strategy and story. Thank you very much for that. That concludes our commentary on the results, and we will be now more than happy to take your questions. So over to you, operator.

[Operator Instructions] So our first question is from the line of Johanna Ahlqvist from SEB.

Yes. Hello, can you hear me?

We hear you fine, Johanna.

Yes. A few questions for me. The first one relates to the guidance on Viaplay intake and particularly in the Nordics, it seems like you're now seeing at least SEK 400 million intake. And I'm just wondering what makes you more confident now that you can reach this target than previously? Is this something that has changed? That's the first one. And then if you can say anything, I guess you touched upon it, the impacts on the price increases, but sort of can you give us any indication how much churn has increased? If you can see anything of that? Or do you expect the big quarter to evaluate this will be Q2? That's the second question. And then the last question relates to what's going on in the media news and in the soccer world right now? And the creation of the Super League or potential creation, I guess. What's your view on this and the potential impact for NENT? Are you concerned at all? Or what's your view here?

Thank you very much, Johanna. Three very good questions as always. So if we start with the Viaplay subs and the addition of at least to our guidance, let me put it like this. We have strong momentum. We have good line of sight to everything we know in our distribution agreements. We know that there are additions on the content side, both in the Nordics and international, that will drive further interest in our product, and the markets are looking strong. That's on the one hand. The other side is, of course, the unknowns with the pandemic and whether there will be sort of a temporary slowdown as a consequence of all of us being let out from our homes and then doing a few other things for a while than spending time in front of screens. If you put those 2 things together, I'm not ready to upgrade. I could be tempted to do it based on everything we know and the strong momentum, but there is a big unknown in the pandemic. So the prudent approach is to feel confident in what we know and to say at least rather than to upgrade them and promise something that may be at jeopardy because of unknowns in the pandemic. That's the balance. Strong momentum, and we feel very comfortable about what we see ahead of us in those areas that we feel we can control. Your second question on the price increases and the churn impact. I think when we look at churn from price increases, what we've learned from the past and also what I know from experience from previous life, that there are a couple of phases in the price increase. The first one is the bump that you get when you announced the price increase. And in our price increases, TM in Sweden, Denmark and Norway and Sports in Denmark, they have all been more or less bang in line with our expectations. And then the churn thereafter, which is the sort of the second bump is when you get an invoice when money is withdrawn from your account, then you sometimes see a second round of churn. We haven't seen that. So churn has actually normalized to normal levels, in line with competitive market benchmarks. So I think we are in a good position, but let's see. There are many of the streaming services out there. And I think all consumers are getting increasingly mindful about what they spend money on. What I take comfort in, which is probably the most important thing here, is our usage levels. They continue to increase. The engagement with our content continue to increase. People that have signed up, both in the trial period and when they become paying, are increasingly engaging with our platform. And there's no lack of choices out there. For us, that means that we are increasing in importance for subscribers and customers. And that gives us, in churn prediction, a good hint to churn that we see now is reasonable levels, and there is no reason to expect any increase going forward. It's a long answer to the question, but an important one. Then your question on the European football Super League, where it became sort of game over before the game even started, you could say. And we can talk about this for the rest of this call, which we probably have to save for another day. I'm not concerned about where this will land. This initiative, which I think is the wrong one seems to be collapsing before it has taken off. I think it's the wrong one because it violates a number of the fundamentals to drive real interest in a league. If you take the biggest teams, the richest teams, and put them in a league where they cannot lose, meaning that they cannot be relegated, there is no lose, and they play matches every week. And yes, somebody can win a trophy, but you're in the league and you will take care of the substantial money anyway. For me, that's an exhibition. It's not sports. And I don't think that is something that will, over time, drive interest. On the contrary, I could be concerned that this will actually weaken the interest in the high-octane super matches between the big teams that we get in the Premier League and Champions League. So I think it was the wrong solution to what is arguably a challenge and that is how to revitalize and to attract younger viewers to football and other sports, that we, UEFA, FIFA and others have to work with. But the Super League was certainly not a solution to that in my opinion.

And how do you expect this to play out? Because it seems at least what I've seen that there is no sort of date or time line for when they plan to -- if they succeed with those plans? So I guess things are normal until someone states otherwise? Or what do you see here?

Well, everything we know, and likely we read things in media. And then, of course, we are close to a number of the participants and what we see from Premier League, the UEFA and others. There are 4 teams or 3 teams left committed to do the Super League. The English teams have clearly committed, decommitted and stepped out as well as 2 of the Italian clubs. I cannot see how this can happen. If anything, there should be, in my opinion, which is also something that I have conveyed to management, especially at UEFA, you need to have a constructive dialogue to sort out whatever issues you have because at the end of the day, this is not just business, it is sports. And sports is followed by passionate people who cares about their team, whether it's a big team or a small team. If you don't sort this out, you will violate sort of the value of the sports overall, and that may be negative even if the Super League collapses, which I think it has done already. So there are discussions that need to be had. But I think the threat, if you will, of a new league, that one will not happen this time around. That's how I see it right now.

Okay. We will now go to our next question. It's from the line of Omar Sheikh from Morgan Stanley.

I've got 3 questions, if I could. Anders, first of all, I just wonder if you could tell us what the current penetration of Viaplay in the Allente subbase is, please? And where you think you might be able to get that long term? That's the first question. And then secondly, on the guidance for Viaplay subscribers, could you just confirm that it's all D2C and that your, I guess, change of tone slightly more positive tone on subscribers for Nordics and international is all D2C? And if you get any, for example, wholesale distribution agreements in international that, that will be on top of the 650,000? Second question. And then just wanted to talk about Poland, if I could? There -- obviously, there's one big set of sports rights that's potentially up for renewal quite soon, which is the EPL. I wonder whether you could maybe comment on potential interest in that or other sports content? And then on originals going into Poland, could you just update us on where you are in terms of number of kind of shows in the pipeline? Or what sort of the overall original content offering you plan to launch into that market with?

Thank you very much, Omar. If we start with the at least guidance and how we see things going forward? It is, as we have said, predominantly in international, it is direct-to-consumer. There is the addition of the 2 agreements, Tet and Elisa in the Baltics. And they will move the needle to us being fairly confident that we will be able to beat the 250. But it's still a bit early days, and we haven't engaged yet in any hard bundle agreements, so as growth need to come from the market. But of course, that's -- it's very positive. The big needle mover in international, of course, will be in Poland, which we will come back to later on. The penetration on Allente, it is -- I mean, we came in with the Viasat Consumer base into the joint venture, where the penetration was almost 100%. And that was the smaller part of the bigger base, which means that combined, we're a bit over 50% now in penetration between the Canal Digital and Viasat Consumer, and we expect it to grow well over 80% in the coming 2 years. Timing is a little bit fluent, of course, dependent on when they can roll out all the new pricing packages and turn the dishes and all of that. I personally believe there is no reason why we couldn't go over 80% as well because the benefit of using Viaplay drives down churn. We know that from having worked with it for many years. So Allente remains to be a good offset. But moving from the current roughly 50% to north of 80% in the coming 12 to 18 months, that's probably how you should think about it. When it comes to Poland and sports rights, I am very mindful not to say too much about what we have interest in because as you can appreciate, that travels quite a lot. What I can say is that after the acquisitions of Bundesliga and the UEFA, Europa and Conference League and a few other sports that we have announced, especially investing in women's football, which will grow over time, we do have plans for more. But I'm a bit mindful, Omar, to comment on exactly what for, for obvious reasons. We're not done yet, let me put it like that.

Okay. Makes sense. Just if I may, just quickly following up on the guide. Just again to confirm the 650 -- or at least 650 is all D2C and doesn't include any wholesale.

Well, for the 400,000 in Nordics, it's the mix that we have. So that is the mix between direct-to-consumer and distributors and has always been since that is how we are working. But in the international, we guided for initially for 250 direct-to-consumer only because we haven't signed any agreements at the time of the guidance. Now we have signed 2 agreements, albeit in 2 fairly small markets, but that will move the needle to allow us to beat the 250. But the number should be sort of maybe reconsidered if and when we can say more about especially Poland. But also the U.S., which, of course, will have a bigger impact in '22 by the distribution or partnership agreements in the U.S. Of course, it moves the needle quite a lot. So blended wholesale and D2C, Nordics, and mostly D2C international, that's how we see it right now.

So our next question is from the line of Martin Arnell from DNB Markets.

I just want to start off with the Super League. I think it's so interesting. And I mean, you've been holding the Champions League rights in Sweden since the start, that's basically the only broadcaster has been with Champion League for that long. And now you're giving it up to Telia later this year, but you seem very negative in your comments on this project, which is in line with what most consumers and plans are thinking, I guess. But -- so can you just confirm that you had no -- absolutely no involvement in this project?

I can very, very firmly confirm that we have no involvement in this project. And I think if I sort of read a little bit between the lines saying that, well, now that we've given up Champions League in Sweden because it became too expensive, wouldn't it be good if we can sort of steal some of the thunder by signing up to this new league since we've let go on Champions League in Sweden and Norway. But we should remember, we have Champions League in Denmark. We've added it in the Baltics, and there may be more markets -- and in Iceland, and there will be more markets in the future. Fundamentally, one could be tempted to sort of think in those kind of ways. I fundamentally don't believe in the product. And I think even if it will create significant harm to the Champions League, if it happened, I think the combination of the 2 is harmful for the sport overall, and that reduces interest over time, and that's just negative for everybody. So I don't think it's the right way to go. The decision to not put the money necessary on the table to retain Champions League in Sweden and Norway is simply a decision on the trade between that competition and what we have invested in the Premier League, which we think, if we have to choose, is the more important of the 2. But I think the Super League, and as I said to Johanna's question, I think it's the risk of the big teams creating a sort of exhibition, where you exclude a lot of the upcoming and the underdogs, the challengers, over time, that gets -- may be a bit sort of interesting in the beginning, but over time, it waters out. And then the next generation will move on to other things that find their interest. Many of them are already sort of opting out from traditional sports for esports and other things. So -- and how do we monetize in the future in the best possible way with sports, that one we need to crack together with all interested partners. The Super League is not the solution to that for football, in my view.

And I mean I clearly agree with you. I'm a big football fan myself, and I see all of that. But I'm just curious, although given your history and your knowledge about European football and how much consumers are willing to pay for it, what kind of solutions would you see for the problems that the top clubs have here? I mean you're an indirect financier of European football.

Yes. When it comes to Champions League, and I think that's where the problem has been, and that's what has spurred the Super League, at least my speculation. It is sort of the risk of not qualifying for the big teams. We have especially seen Manchester United failing a couple of times, that's big money losses for them. So they want to be guaranteed. That's one very, very clear inspiration for them. The other one is, of course, that there is a number of matches in Champions League that are of lower interest, where you have more obscure or less well-known teams playing. And we see that the real interest in Champions League starts with the playoffs. And that's a tough one to continue to drive value in the future. And that is something they have to work with: how to create the most interesting entertainment product, not just on the pitch, but also on the screen. And that is probably one of the things that they thought that Super League would address. I think it's the wrong way to do it. But that one needs to be solved. In Premier League, and this is where it becomes different because Premier League, yes, you have 5, 6 clubs that always sort of contend for -- compete for the win, but especially in the Nordics, the tradition with English footballs means that there are still a lot of fans for Aston Villa for leagues and for other teams that have been sort of in and out of the premiership. The viewing of what is considered the smaller matches on Premier League is completely different from the Champions League because of the interest, because of tradition, because of the fan bases also for the smaller teams. And I think that one is something that the big wigs and the money behind the Super League initiative completely missed, completely. And so that I think there is work to be done with the Champions League. I am very, very comfortable that we will be able to continue to benefit from and develop the Premier League.

Okay. I understand for those insights, and it's just interesting to hear how you're thinking about this. And now on to the specifics. Viaplay, just trying to understand the revenue mix. The B2C compared with the direct-to-consumer mix in the subintake for Q1, could you say what that was?

Yes. It was tilting heavily towards B2B and especially Allente. So the majority was driven by B2B. And then in the mix, we had a more significant TV series and movies growth, then we have sports growth. Both were growing according to plans, but TM grew a bit faster, which means that we get a mix effect, both on the distribution mix and the package mix.

Okay. Great. And in the 400,000 target for the Nordics, it's more than 50% B2B in that one, right?

It is roughly 50-50 if you look at the full year, especially -- and tilting towards B2B in the beginning of the year as Allente is ramping up, and then gradually moving more and more to D2C and then D2C plays a more important and prominent part in the coming years in the 5-year plan. It makes us a little bit between the years and especially next year, we will renegotiate in Norway and Finland quite a lot around the new sports rights. So then you have another distribution impact, again, that goes across Viaplay and other subscriptions. So -- but we will try to explain as thoroughly as we can as we go along.

Okay. Perfect. And just to clarify, did you say higher international losses in Q2 or stable quarter-over-quarter in Q2?

They're stable. What I should say, Martin, is that with everything we know now, stable to slightly increasing in Q2, but we are opportunistic in the sense that we see investment opportunities every day, which means that if there is a chance to invest early on and not having to change our full year investment and guidance, we will take those investments because we know there are opportunities out there. So -- but roughly stable to grow and slightly growing.

Okay. Perfect. And I only have 2 questions left. With the advertising outlook, it seems like there is some pent-up demand, I mean, it's kind of impressive to see you growing in Q1 year-over-year. Could you give some flavor on that? And finally, the 7.7% margin last year, you mentioned that there's upside to that, but could you just give some more detail on sort of where we should view the margin for this year above that 7.7%?

Yes. Thanks, Martin. We start with the advertising markets. Yes, I think it's very positive to see that there are money that want to be spent out there. Everybody is, of course, betting now on the beginning of the end of the pandemic and a willingness to get back to some sort of new normal. And you know this very well that the markets are quite hot. There's a lot of stimuli out there that will drive consumption, hopefully, and people need to advertise to get their products out there. So that is a positive. Unless there are any significant backlashes, we are a little bit more positive. Q2 will, of course, given the easy comps compared to last year -- from last year will be a solid beat. But I'm slightly more positive also with everything that we know now for the full year. But again, as I said, with regards to the guidance for the Viaplay subs, I think it's unwise to try to be overly clever about how things can play out. We learned that last year for sure. When it comes to the margin, you are right, and we also said at the Capital Markets Day that there will be a slight upside on the margin year-on-year, especially in the Nordics. Overall, as you know, we are reinvesting a lot of it in the international. And we are reinvesting in the Nordics as well. So don't expect any sort of massive uplifts on the margin. We could achieve it if that was the best way to generate shareholder value. But the best way to do that right now is to invest in the opportunities that we're seeing.

Our next question is from the line of Tom Singlehurst from Citi.

I missed the very beginning of the call. So you might have talked about this at length already, so I apologize. But I'm just interested on any early read on sort of the launch in the Baltics? I appreciate we're or whatever it is sort of 4 or 5 weeks in. But can you give us some sort of detail, albeit qualitative on how that's gone? That's my question.

Yes. I'm more than happy to give a little bit of flavor. It is -- like you said, it is early days. We launched on March 9, and we have a free trial period. So the 2 indicators that we have are brand awareness and sign-ups. And brand awareness based on the campaigns after the first weeks and when we did the first measurement, aided awareness was close to 50%, which is very, very strong for a new brand. Admittedly, Viaplay has been under MTG sort of ownership in the market some years ago, but consumers tend to forget. And we come with a new very different proposition. So I'm impressed with the efficiency of our campaigns so far. The sign-ups, if we just take where we stand today, meaning a little bit above and beyond the first quarter, we have a healthy 5-figure level of sign-ups and conversion, which is early days into paying, is looking good. So the first real indication you should look for is, of course, when we announced a firm number of paying subs on the back of Q2. And that will then also give us a more firm indication of what we can say about the full year in the Baltics. But I am -- one should always be cautious and not change things. I'm impressed with what we have achieved so far. Happy with the sign-ups. Of course, knowing what I can say and what I can't say about our future proposition in the Baltics, we will become a strong player in the 3 Baltic countries.

Got it. Perfect. Second question was on ARPU. I mean one of the say it's pushback is probably putting it too strongly, the pushback is on ARPU mix, which has been coming down. Is that just simply a function of your answer to the previous question, which is TV and series making a bigger -- being a bigger part of the sort of net addition profile?

It's a mix effect exactly. It's some of the ARPU when we do B2B -- as you know, we sacrifice some of the ARPU to get a better margin because we invest [indiscernible]. So net-net, that's a good thing. But we do sacrifice a bit of an ARPU on B2B. So that impacts the mix. And then in the first quarter, we have seen a mix tilting a little bit more to TV series and movies where the majority of the growth has been, and both in B2C and B2B. So that means that we have 2 mix effected into the ARPU. If I look at sort of the earnings per customer and where we stand in terms of getting money out of the base, it's looking good.

Okay. Perfect. Perfect. That makes sense. And then one -- it wasn't a throwaway line, I'm sure it was very considered, but one of the lines that jumped out from your presentation was around the plan to sort of try and shift the emphasis for the linear TV channels away, maybe not away from advertising, but certainly upgrade the revenue from other subscription and sort of carriage fees and affiliate fees. I'm just wondering whether you think that will have a negative impact on the advertising revenue -- at the same time or can you continue to defend that ad revenue, whilst also rating the sort of subscription revenues associated with those channels?

No, thanks. It's a very good question. And since we are upgrading the value of the channels by investing especially quite heavily in sports, where there are linear obligations and an opportunity to use linear side-by-side with streaming to drive value for us and our partners. If we manage to get everybody to see the value of those channels, which I think we will, then penetration of the channels will be retained. And there is no negative impact on advertising sales, actually, the contrary because it secures it for longer. But of course, if viewer wants to pay for the channels, some will benefit from having very strong channels compared to their distribution partners. But our penetration on advertising sales will suffer. We've taken that in account when we negotiate the prices on distribution. So it could mean that we get the best out of both worlds, if you will, or our revenues will tilt even further towards other subscriptions and distribution carriage fees rather than advertising sales. With everything I know today, I think we can expect a fairly retained penetration, which is a good thing for advertising sales, and we will get the money that we need on distribution.

Okay. So our next question is from the line of Jamie Bass from Berenberg.

Can I quickly say as a fan of one of the smaller clubs that you mentioned, I'm very happy to hear you guys weren't supportive of the deal. I've got 3 quick questions, if that's okay. One is sort of a follow-up on that ARPU point. Could you sort of give an indication of -- you were saying that the transactional side was down in terms of renting and buying movies was not much being released, could you give an indication of how much of an impact that had on the ARPU? And second question on the Baltics, and I think you said it was just the Tet distribution agreement that started in terms of the free trial. Do you have -- I mean, I imagine you won't share, but do you have a sort of conversion target in mind specifically for those, the free trials from the distribution agreements once they've come to an end? Third question is on Poland. Do you have any sort of KPIs there similar to what you've got in the Baltics in terms of brand awareness at this point? Or is it too early for that?

Jamie, I'm also a fan of one of the smaller teams. It is very painful to be fan of a team that never win anything, but you don't get less passionate, do you? And I think that there's a lot of people like you and me out there. So yes, to the questions. On the impact of less TVOD on the ARPU, it is very small. It is not even 1 percentage. So it is very small. We like your TVOD. It's a good nice addition. It's good margin, and it's a competitive advantage to be able to offer that, unlike any of our SVOD competitors. But it's small money in Q1. So you shouldn't subscribe too much value into that one. When it comes to the Tet agreement, what we have done is that we -- I must say and the distribution team says that, that looking at what Tet is doing in terms of their passion for Viaplay and how they are pushing it and everything that they are doing for the customer base, we are absolutely thrilled, and we think it will yield good volumes over time. What we've decided not to do is to do too much hard bundling or pushing too many -- too much minimum guaranteed targets. It's still early days, so we can do that at a later stage. We want them to be -- we want to get a good indication of the reel interest of the product and it's looking good so far. Elisa kicks in, in September, and it will be September roughly when Champions League starts, so that's a very deliberate choice to launch around that time frame. And on the back of Q2, when we have this discussion in July, we should be able to give you a much more flavor on how we Baltics playing out. On the brand awareness in Poland, it's -- we haven't launched yet. So brand awareness is very, very low, of course. We've been in the market through a lot of earned media, and we've made a lot of interviews, and there's a lot of buzz around Viaplay, but we haven't started to measure any brand awareness yet. So hopefully, on the back of Q3, we'll be able to give you an indication on that.

Okay. So for our last question is from the line of Peter Testa from One Investments.

I guess 2 questions left. One is if you could just give a sense on earning through the price increases via the partner channels as to how -- what were the key processes still to do to make that happen except what's already basically decided? And the second was just on your comment about D2C being a bigger part? If you think about the timing of sports rights coming on in your marketing plan, is that essentially what drives that comment from D2C being a bigger part of ads later in the year?

Yes. Yes, if we start with the last question first, D2C and sports. Yes, is the short answer. When you move a large sort of new sports rights, let's take Premier League in Norway, you get a lot of attention from the direct-to-consumer market upfront, and that has a spillover on the TV series and movies package. Basically, the product gets more better known and more talked about. And that's a positive, and that drives the mix going forward and sets a new level, a new mix level. So the new sports rights do play a significant part in that. Secondly, I think if we just look at the market development going forward, whilst we are very pro distribution partners and working with distribution partners, we think that the behavioral changes in streaming, taking a streaming service direct from the provider and buying less, putting in it on a set-up box, the whole movement of behavior in the market just speaks for a more direct-to-consumer driven approach in the future. Then there will be good providers of consolidated offerings and one-place-to-shop kind of offerings, but that will take some time before one of the distributors crack that code to make that really, really attractive. We see -- that's one of the big trends in the U.S. right now. And we had one meeting yesterday with a big distributor in the U.S. talking about the need to be a place where you can get your content in a smart curated way because there is so much content to control out there. That is a big undertaking, and it will take some time before we get there. Then coming back to your first question, and I can't actually read my own notes here, so can you just repeat the first question for me?

Just on the price, the price increase earning its way for the partner channels of the extent to which the key decisions that need to be taken still by partners and so on?

Yes. So direct-to-consumer immediate impact, roughly 50% of the distribution agreements that we have, you will get an effect during this year. And the other half of those agreements are part of what is being renegotiated now. So we will get another batch of full effect next year, especially on those carrying significant sports rights. So it'll take us, as we've said before, and that hasn't changed, roughly 18 months before we get the full effect of the price increase.

Yes. Okay. And so just 1 follow-up on the mix. As the sports rights come on, would you also expect -- you say you expect D2C to be a bigger part of the sub out later on, would you expect sports to also to be a bigger part of the mix later in the year as you get more close to league starts and event?

This year, it will follow roughly what we have seen because we haven't made that significant changes yet. We do add sort of the whole skiing package, but that is also a very linear proposition. So the impact on Viaplay will be positive, but not massive. Next year is where we can see that sports is picking up in the second half in a bigger way than normal because of the new sports rights in Norway and Finland.

So that concludes the question-and-answer session. I will now hand back the call back to your host, Matthew Hooper.

Thank you very much, operator, and to all of you for your time and very relevant questions today. We will be hosting digital roadshow meeting today and tomorrow, and we look forward to speaking to as many of you as possible during those. As ever though, please do not hesitate to reach out to Joel or me with any questions or requests you may have. So that's it for today's call, goodbye for now, and we look forward to seeing you soon and hopefully in person and face-to-face. Thank you.

So that does conclude our conference for today. Thank you for participating. You may all disconnect.