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

Good morning and welcome, everyone, to our Q2 results conference call. My name is Matthew Hooper, and I'm NENT Group's Chief Corporate Affairs Officer. 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. We have adjusted the format this time to focus on the live video stream. [Operator Instructions] Presentation materials are available on our website as usual, and I will now hand the call over to Anders. Go ahead.

Thank you very much, Matthew, and good morning, everyone. Our strong momentum has clearly continued into what is the second quarter of our 5-year strategy period. 21% Viaplay subscriber growth, 31% group organic revenue growth and 98% underlying profit growth tells the story and demonstrates that we are well on track to achieve our 5-year goals. When excluding the investments made this quarter in the international expansion, our profits were up 139%. Perhaps most important of all, though, is the fact that this was the first quarter when Viaplay generated more revenues than any of our other businesses, growing by 36% to represent 35% of group sales. This is a major milestone in our transformation, and Viaplay will, of course, continue to be our primary revenue and growth driver. Q2 saw a further acceleration of the pace that we set in Q1, and the business is performing very well. Yes, we, like many other, have softer comps this quarter given the greatest impact of the pandemic on our results was in Q2 last year, but we have delivered on expectations, and we are now raising our outlook in some key areas for the full year. Our total Viaplay subscriber base grew by 21% year-on-year to end June at 3.287 million paying subscribers with 113,000 subscribers added in the Nordics in Q2 and 240,000 in H1 in total. We're comfortably on track to meet our target of adding at least 400,000 Nordic subscribers this year. We do expect to grow in Q3 but at lower levels given the usual seasonal patterns. We're not raising our annual targets for the Nordics at this stage given the fact that the end of the pandemic is not here yet and is expected to be gradual. Hence, we remain a bit cautious to any effects the return to a new normal might have. We continue to believe, however, that any potential slowdown in sales or consumption due to less time spent at home will be only temporary as consumer behavior has definitely changed for good and demand for streaming services is here to stay for all generations. Moving beyond 2021, we have been clear that our growth is not linear and that we expect much higher subscriber growth in 2022 as we add key new transformational sports rights, such as the English Premier League football in Norway, Formula 1 in Finland and the pan-Nordic skiing rights from the fall of this year. If I then turn to the international markets, the Baltic launch has continued to go well across all 3 markets and in Latvia in particular. We had 27,000 subscribers by the end -- paying subscribers by the end of the quarter and a healthy pipeline of customers on free trials. The B2B deal with Tet in Latvia has boosted the intake as Viaplay is now both hard bundled for the subscribers and offered as a soft bundle with 3 months for 1 campaign. We're also offering 3 months for 2 subscriptions on a direct-to-consumer basis in all 3 countries. In a lease-up, we launched similar offerings to Tet in Estonia in September. The addition of the UEFA Champions League, Europa and Conference Leagues next month are also expected to accelerate the growth, and the revenue number is expected low given the early stage of the development. Next up is the launch in Poland on 3rd of August where we have a very strong content lineup and will immediately benefit from having the Bundesliga on our platform exclusively from August 13 when the new season starts. We have now signed a distribution deal with Vectra, the largest cable TV operator that has 1.7 million subscribers. And based on ongoing discussions, we expect to announce more agreements in the coming weeks and months. Based on this outlook, we have upgraded our year-end international subscriber target to 500,000, which now include these B2B subscribers. The opening price of EUR 7.4 is very competitive, especially when you consider that the American market leader charges the same price at its entry point and has no sports. From a revenue perspective, we have not given a 2021 target for the international operations, but we always expected that we would sign B2B deals. There is a potential revenue upside to our own expectations, but nothing that I will comment on at this stage given that the subscriber acquisition is likely to be back-end loaded. The stronger-than-expected content lineup for Poland, in particular, is the reason that we have increased the estimated negative EBIT impact of the international expansion of Viaplay from approximately SEK 400 million this year to SEK 500 million. The losses so far has been SEK 86 million, and the remainder is expected to fall more or less equally between Q3 and Q4. If I then turn back to Q2, the Nordic subscriber growth was primarily driven by the B2B sales channel and the TM package, as predicted. Allente was again a key contributor to this growth. And as expected, the 8% to 18% price rises for the series and movies packages in Sweden, Norway and Denmark and the 30% price increase for the sports package in Denmark did result in higher short-term churn levels, but these have now returned to normal. And the price increases impacted all of the direct-to-consumer subs within a month and will gradually impact the B2B base over the coming months as we reset our deals with the distributors. We will introduce price increases for the sports packages in Finland and Norway next year as key new sports rights that I mentioned earlier come on stream. All of this is already included in our 5-year plan. We are now working with our distribution partners in the Nordics to agree new long-term partnerships for our channels and services, and it's quite clear that Viaplay and the substantial content investments that we made play an even more important role in those discussions. Viaplay's 36% organic sales growth was then driven by both volume and pricing as well as the comp factor that we have dropped our premium prices in Q2 last year when there were no live sports at the height of the pandemic. From a viewing perspective, overall minute -- viewed minutes on Viaplay were up compared to Q2 last year, with sports, obviously, growing the most. As in Q1, it was fantastic to see that the viewing of our originals was up 82% this time and that 6 out of the top 10 scripted drama shows on Viaplay were again Viaplay Originals, including all of the top 5, leading by Danish crime drama, Those Who Kill; Norwegian drama, The Attorney (sic) [ The Lawyer ], which has already broken several Viaplay record and has been recommissioned for 2 more seasons. All of this comes at a time when there is -- where there is so much discussion about the U.S. studios launching their own streaming services or content owners and distributors merging and demerging. This movement in the tectonic plates of the entertainment industry is nothing new or surprising. It will have the effect of some content being withheld from us, but it will also align us even more closely with other studios and streamers seeking international scale and not necessarily wanting to go at it alone. We can see some impact of this change in the lower Viaplay store sales, but this is also due to the lower number of new movie releases due to the pandemic. Our locally relevant originals are undoubtedly a key differentiator, which is why we have further increased our ambitions in this area. We will now premiere at least 50 originals this year compared to the original intention of 40 and the 30 that we premiered last year. We're also investing more and more in highly relevant and interesting documentaries. And we have announced the first of a series of English language feature films about famous Nordic figures and events, the first one with Lasse Hallström writing and directing a film about the artist, Hilma af Klint. We premiered 40 new originals in Q2, and we now have a total of 129 originals on the platform when counting each season as a separate title. On the sports side, we have now built further on the rights that we bought in the first few months of the year and continue to focus on signing long-term and multi-country deals. First up, at the end of April was signing of an historic 2-cycle 9-market deal with the Bundesliga, which means that we will have the exclusive rights until 2029. We then signed an exclusive agreement in early May to secure the Formula 1 rights in Poland from 2023, which will extend our Formula 1 coverage to 9 countries, followed by a 5-year partnership deal with Matchroom Sport that spans darts, snooker pool, basketball, net ball, table tennis and bowling right across 9 markets. Then came the major announcement that we are launching Viaplay in The Netherlands in Q1 next year with the exclusive Formula 1, Bundesliga and Darts rights. The success of superstar Dutch motor racing driver, Max Verstappen, the inclusion of a Dutch race revenue in the F1 season for the first time this century and the succession of Dutch professional darts champions should also ensure that Viaplay gets off to a flying start in The Netherlands. At the end of May, we did 2 more 9-market deals, this time for the exclusive motorsport and South American football rights. Our commitment to women's sports has also continued. And last month, we won the exclusive rights to show the 2023 FIFA Women's World Cup on Viaplay in Poland. And we will also be showing the W Series, the world's first all-female motor racing championship. And we saved perhaps the best for last when the -- with the recent announcement that we had won the tender for the English Premier League rights in The Netherlands, Poland, Estonia, Latvia and Lithuania from 2022 to 2028. This means that we will now have the exclusive Premier League rights for a total of 9 markets from next year, and we already have them in 3 countries now, as you know. Furthermore, we will be able to show all 380 matches live each season compared to 232 matches last season. We have now bought the major sports right that we targeted for many years to come, which gives us both the certainty on cost and horizon and the opportunity to build a sizable subscriber base. It is also a portfolio that we can manage and optimize, providing options and leverage as we may not necessarily need to keep all rights exclusively to Viaplay. This amount of live sports content, more than 50,000 hours this year, is unparalleled in our industry. And of course, it relies on delivery by a very robust and secure platform. That is what we have. The uptime or level of service accessibility of Viaplay was 99.97% in Q2 with a total of 13.4 billion streamed minutes on Viaplay in the quarter. Important to say that there is, of course, room for further improvement. And I can assure you that we do not take our fine performance for granted. Turning now to our other subscription business. Organic sales were up 30% in the quarter when excluding the contribution from the Viasat Consumer business last year. Allente was the main contributor to growth, and we did have somewhat softer comps last year due to operators reducing prices when sports were offline due to the pandemic. As I mentioned before, all of our channels will be basic or premium pay channels in the future. No channel will be free to air or relying solely on advertising revenues. This is clear when you look at TV6 in Sweden, TV3 in Norway, which will be our linear TV homes for sports, including our upcoming Alpine and Nordic skiing rights. We're, therefore, working proactively with our distribution partners to adjust pricing levels in order to reflect the content investments that we've made. Then moving on to our advertising business. We have continued to see a gradual recovery in demand and spending levels, but we're not fully back to 2019 levels yet. Organic sales were up 28%, and we estimate that we took overall advertising market share in Q2, especially in the Danish ad TV market. Each of the TV and radio markets are estimated to have grown from last year's lows. Our TV audience share was up in Denmark, stable in Norway, slightly down in Sweden, while our radio audience share was up in Norway and stable in Sweden. The consumer goods and travel sectors raised their spending with us, while betting and gambling ad spending continued to decline as a proportion of our revenues. Sold-out ratios were high, which, combined with annual contract and spot prices, increases to offset the ongoing decline in commercial [ path ] or linear viewing levels. Looking forward, Q3 is a seasonally fairly weak sales period, but we do expect to grow compared to last year. And then we have some tougher comparisons of Q4 where organic sales were only down 1% last year. Advertising demand is clearly returning, and our channels are well positioned to benefit from this. Sales for the continuing studios business were up 19% on an organic basis and reflected a level of recovery in production volumes and sales. We sold the NENT Studios U.K. content distribution business in June, and it was deconsolidated from the 1st of June. The remaining businesses are primarily focused on the production of scripted drama content for Viaplay and are increasingly retaining the international rights to our formats for our own expansion. The largest business is our Budapest-based operation, Paprika, which has also opened an office in Warsaw to support our Polish launch. External sales for these businesses are expected to be between SEK 50 million and SEK 100 million per quarter, and we will probably stop reporting them separately in the not-too-distant future. They are now an integrated part of our in-house content operations. And we announced the sales of the 12 discontinued studios operations to a single buyer earlier this month and expect to complete this deal in Q3 or Q4. This followed the sale of the Splay One branded entertainment business in April. We continue to work closely with FilmNation U.K., an LA-based picture start in which we have minority shareholdings. On then to our 50% participation in the Allente joint venture, which contributed SEK 9 million of associated company income in Q2 after taking more of its SEK 700 million of integration costs, which will yield approximately SEK 650 million of full run rate annual synergies next year. And as we've said all along, you should not expect much earnings contribution this year, but we will receive quarterly cash dividends from Q3 and expect at least a further SEK 150 million in H2 on top of the SEK 250 million received in H1. The business continues to perform well and managed to offset its falling subscriber numbers to generate SEK 339 million of EBITDA in Q2 with before integration costs of SEK 178 million. And very importantly for us, Allente is focused on upselling Viaplay and our V-channels to the former Canal Digital subscriber base. More than 2/3 of Allente subscribers now have Viaplay as part of their package, and approximately 1/3 subscribed to the V-channels. Overall then, we've made considerable progress, and this has been achieved both because of and despite the ongoing impact of the coronavirus pandemic. The shift in consumer behavior to prefer multi-device streaming has accelerated and is definitely here to stay for all generations. The vaccination programs are providing hopes that we can return to the office this fall, but working life has also changed probably for good, and that is good because we will provide a more flexible working environment that enables our people to work from home some of the time and to find a better balance between our professional and personal lives. They have proven that our virtual collaboration and learning tools work and the remote working need not be remote. We have surveyed the workforce and understand that our workspaces need to become even more collaborative and social venues. So we have plans in place that we are already ready to roll out after the summer and as and when permitted by the local government guidelines allows for them. This change in how, where and even when we work, it's a good thing for our health, the society and definitely the environment and a part of our much broader sustainability agenda. We're now currently working with our wide range of stakeholders to define our sustainability priorities for the next 5 years and to set a strategy and plan to deliver against them. We have delivered great progress in our previous 3-year sustainability strategy cycle to promote Nordic storytelling and to become an even more equal, diverse, inclusive and values-based organization. Now we're looking to step up even further and with a particular emphasis on the environment where we are setting science-based targets by the end of this year and on our supply chain where we do not just want to ensure that all of our content is produced in a responsible way but is also representative of the society, challenging and promoting our values. Finally, I would just like to reiterate that we are on track towards our goals. We still expect our 2021 Nordic organic revenues to grow between the projected 13% to 15% CAGR range and for there to be some but limited Nordic margin upside when compared to the 7.7% like-for-like level last year. On the international front, we have raised our investment levels and expect approximately SEK 500 million of losses for the full year, with the remaining losses to be spread roughly evenly between Q3 and Q4. The investments that we have made do raise the bar for the long term in terms of subscribers, sales, costs, profits and margins, and we will provide further updates on the 5-year plan at our CMD in September. At or before the CMD, we will also announce the other markets that we will be expanding into. Next up now is Poland where it's -- which is a very, very exciting opportunity and a single market that is bigger than the Nordic markets put together in terms of number of households but with much lower penetration of streaming services. Then comes the U.S. at the end of the year before we head to the Netherlands in Q1, which is very similar in profile to the Nordics and where we have already ensured that we will have a very, very competitive subscriber proposition. And as I've said before, we expect rapid market penetration in a 3- to 4-year period to breakeven for our international operations with strong operating leverage and higher long-term margins than in the Nordics. The model 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 our exposure levels. In short, there is a plan for each krona spent. That is my -- that is it for my initial comments. I will now hand over to Gabriel for his comments on our financial performance and position.

Thank you, Anders, and good morning, everyone. A very busy quarter indeed and one in which we delivered operationally, further streamlined the group and announced a number of investments into our future. We delivered 31% organic revenue growth and 98% underlying profit growth in the quarter. Our reported growth was again impacted by currency translation effects due to the strengthening of the Swedish krone against the Danish krona and the euro, which was partly offset by the strengthening of the Norwegian krone with a total impact of minus SEK 43 million in the quarter. This affected the Viaplay revenues more than the advertising revenues due to the mix effect. We also had minimal FX transaction headwinds in Q2, and 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. The Viasat Consumer business was deconsolidated from the beginning of May 2020, so it will not affect the year-on-year comparable moving forward. It did contribute SEK 238 million of sales in April last year, and SEK 33 million of profits as well last year. Our operating profits before associated company income and items affecting comparability were up 56% to SEK 244 million from SEK 156 million in Q2 last year. This year's result included a minus SEK 50 million net impact on the investments in the international expansion, while last year's result included the SEK 33 million contribution from the Viasat Consumer business. When you exclude these 2 items, our operating income was up 139% from SEK 123 million last year to SEK 294 million this year. We have reinvested the majority of last year's cost savings into the accelerated growth that we're seeing, and we expect to do the same for the rest of this year. Our OpEx was up 25% on an underlying basis when excluding the cost of device and consumer business last year, but including the cost for the international expansion of Viaplay this year. 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 H2 compared to H1. The H2 losses for the international operations, including the extra SEK 100 million of losses we have guided for today will impact Q3 and Q4 equally, as we have already been ramping up to the launch in Poland on the 3rd of August and the new content is coming on stream almost immediately following the launch. We had a large SEK 2.4 billion positive IAC in Q2 last year, which was related to the capital gain arising from the merger of our Viasat Consumer business with Telenor's Canal Digital to form Allente. The Q2 results this year, including the previously flagged negative SEK 74 million impact from the sale of the U.K. content distribution business to All3Media, the business has been heavily affected by the impact the pandemic has had on the content production and licensing markets. The rest of the content production businesses that we have sold are within discontinued operations and comprise Splay One branded entertainment business that we sold to Caybon in April and the 12 remaining nonscripted and factual content studios that we have announced that we're selling to Fremantle. When we close this latest transaction, we will have sold all of the businesses for close to the SEK 500 million that we indicated previously. While the timing of the disposals may not have been ideal, considering the impact of the pandemic on the content production industry, we had a clear strategic imperative to execute on these transactions and to focus our resources on the expansion of our streaming business and to find long-term owners for these great businesses. This, we have done. So we can now move forward with our in-house production facilities entirely focused on producing great content for Viaplay. On the Allente joint venture, it has continued to perform well with revenues of SEK 1.74 billion in Q2, up from SEK 1.69 billion in Q1 and the SEK 1.72 billion reported in Q4. The subscriber base declined by 20,000 quarter-on-quarter, which was in line with the trend that we have seen in previous quarters, and ended the period at 1.089 million subscribers. Allente's EBITDA before IAC of SEK 339 million was stable quarter-over-quarter and with the margin as well of just under 20%. The JV's operating income of SEK 52 million included SEK 178 million of integration costs that were reported as items affecting comparability as well as SEK 110 million of depreciations and amortizations, including SEK 84 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 reporting, so have less impact on Allente's net income, which amounted to SEK 19 million in Q2 and contributed SEK 9 million to our associated company income. Allente is benefiting this year from SEK 400 million of cost synergies of the expected SEK 650 million of full annual run rate cost synergies in 2022 compared to the SEK 150 million that they benefited from last year. The migration of satellite customers is now being scaled up, which is why the integration costs are reported as an IAC and were 2/3 higher compared to Q1 and why our associated company income was so much lower this quarter. The new rebranded packaging structure offering Viaplay's a key component was launched in April and is proceeding as planned, with the upside in the Viaplay to the former Canal Digital subscriber base being the key sales synergy from the merger. The integration costs are still expected to total approximately SEK 700 million for this year, and only SEK 285 million was taken in the first half of the year. So the earnings contribution from Allente is expected to be under SEK 100 million this year. Again, the cash flow and the ability to pay dividends is the key factor this year, and we still expect to receive at least SEK 400 million this year, of which we received SEK 250 million in H1. Allente had net debt of SEK 1.56 billion at the end of Q2 and a total long-term bank funding of SEK 2.3 billion. Moving on to our net interest and other financial items, which totaled minus SEK 44 million in Q2, we had some extraordinary financing arrangement fees this quarter together with some impact of exchange rate effects on the revaluation of financial assets, but you should expect the total for this year to be in line with last year at approximately SEK 100 million. Our tax rate in Q2 when excluding our share in the net income from associates and the nondeductible IAC amounted to 24%, and we still expect it to be approximately 21% for the full year on the same basis. Moving on to our cash flow. Our cash flow from operations, including discontinued operations, amounted to SEK 274 million in Q2. The net change in working capital was a positive SEK 674 million and again reflected the seasonal scheduling of sports rights prepayments as well as our ongoing investments in new Viaplay Originals. We are maintaining our guidance for a negative working capital change of approximately SEK 850 million for the full year. We are, though, continuing to invest in the growth and expansion of Viaplay as you have seen with the recent announcements of sports rights investments, and we will provide updates to our guidance at our Capital Markets Day in September. Our net operating cash flow was SEK 947 million in the quarter. We have now reduced our short-term borrowings by a further SEK 50 million in the quarter and ended the period in a SEK 1.7 billion net cash position, including discontinued operations. We ended the quarter with no short-term commercial paper borrowings, but an SEK 800 million bond matures in May 2022 and is there for now short term, and our long-term debt amounted to SEK 2.5 billion. Our financial net debt of minus SEK 2.16 billion, including SEK 5.42 billion of cash and cash equivalents and SEK 3.3 billion of total financial borrowings, excluding lease liabilities and sublease receivables of SEK 463 million. Our net debt to trailing 12-month adjusted EBITDA ratio was therefore minus 1.2x at the end of the period. So given the funding of our international expansion through the SEK 4.35 billion equity raise earlier this year, we will be operating with a lower financial leverage. And we now have a balanced and flexible range of borrowing facilities in place, including the long-term corporate bonds, currently unutilized short-term commercial paper program and undrawn revolving and credit and overdraft facilities. We are putting the money that we have raised to work in financing the expansion of Viaplay. So in summary, we have made great progress on many fronts in Q2 and the whole of the first half of the year. We have seen a significant recovery and growth in the business compared to Q2 last year when we experienced the major impact of the pandemic. We have a clear strategy, plan and set of deliverables that will create substantial and sustainable value, and we are well on track to deliver on both of this. More updates will follow the CMD when it comes to our plans and financial outlook for the coming years, but we have streamlined and focused the business on streaming. We have continued to have a disciplined capital allocation process when it comes to how and where we invest. It's fair to say that the effects of the pandemic are far from over, but we have demonstrated how flexible and resilient NENT is and that our strategy has been the right one as we continue to accelerate the transformation of our business and our industry. That's it for my comments. So now back to you, Anders. Anders?

We have to unmute, I'm told. So then I will try again. Thank you very much, Gabriel. It is clear that Q2 was another busy quarter for us and one in which we have all made considerable progress towards our strategic goals. Gabriel has said the pandemic remains a challenge for all of us, but it has also proven to be a period of change that can create lasting positives. We have a lot of new content coming on stream in the Nordics, and we have Poland just around the corner, followed by the U.S., The Netherlands and then a group of additional markets taking Viaplay to at least 15 markets footprint by the end of 2023. Viaplay is not only our most relevant and important product but is now also our biggest revenue generator. We have invested in content, technology and experiences that will bring sustainable value for our customers and partners. The credit for all that we achieved as ever goes to our teams who have worked so efficiently in these challenging circumstances, to our values-based culture and very clear purpose and to you for your continued support of our strategy and story. Thank you very much. That concludes our commentary on the results. So we're ready for questions. So back to you, Matthew.

Thank you. Thank you very much, Anders. We're now ready for you all to register your questions. [Operator Instructions] So the first question today comes from Omar Sheikh at Morgan Stanley.

I've got three questions, if I could. First of all, I wanted to ask about the guidance on margins in the Nordics. And as you mentioned, I think the word you used was there's some upside to margins in Nordics. I wonder whether you could maybe quantify that either you or Gabriel. And essentially, what I'm trying to get to is, is the profit growth in Nordics going to offset the extra SEK 100 million of costs that you're going to invest in international? That's the first question. And then secondly, on the Poland launch. I wonder whether you could share any early feedback you have pre the launch on potential customer demand, how your marketing effort is going. And then what impact are you expecting from the EPL contract from next year in Poland? Second question. And then finally, I wanted to maybe take a step back and think about the originals plans that you have. You've got the number of originals you want to launch this year, but I'm thinking about the impact that you might have from competitors in the Nordics, in particular, for those originals. So there's a new story earlier this year about Netflix opening an office in Nordics. I wonder whether you maybe just had some comments about the level of sort of competition you're seeing for good ideas and what barriers, if any, that might place in your plans for getting the best originals out there.

Omar, thank you very much for your questions. I will do it like this, I will save the question on the margins and the offset of the extra cost to last and ask Gabriel to take that. And I will just start with your question on Poland. Well, the upgrade of the international subscriber expectations from 250,000 to 500,000 is driven by Poland by the fact that we see a lot of positives in the market. There is a lot of buzz, if you will, around Viaplay. We have very constructive dialogues with the distribution partners. We have announced one agreement, and we have a further a number of agreements in the pipeline. So I'm really looking forward to what I think will be a very good start for Viaplay in Poland. So that is the main driver. And then, of course, the addition of the Premier League from next year adds additional sort of momentum and force to that expectation. And we'll share much more on the Capital Markets Day of the impact of this sort of groundbreaking agreement with the Premier League and how we see the markets in general when we also talk about the additional markets that we're going to launch in. But a good starting point for Poland, definitely, and the campaign is looking really, really good. When it comes to the originals, we are used to competition around the best ideas in the Nordics. And I wouldn't say that the fact that a few of the international streaming platforms open offices are not changes anything. I mean the competition for great ideas have always been there between us and the other local Nordic broadcasters. And there is -- if anything, it inspires to even more great ideas. I don't think that any of the international streaming platform will be able to compete on volume or quality with us or any of the other Nordic broadcasters. And we will continue to increase our ambitions. And you can reverse that into saying that we will also venture into English language content. And we have no ambitions to be at the same level as our English language-driven competitors, but we can also find a hit here and there in English, and that will sort of do its work. So our leadership in Nordic storytelling will not change. I think that is the way I see it. But I welcome the further fuel to the creativity in the Nordics, which we will all benefit from. Gabriel, do you want to comment on the margins and the impact of the cost, please?

Yes. As Anders mentioned, we are -- we guided for a slight improvement on the margin based on the 7.7%. We don't go with a specific figure. But just to your point about will this compensate for the SEK 100 million additional losses, like-for-like, yes, of course, it will compensate at a certain extent, but not fully for the SEK 100 million additional losses.

Next up, we have Mikael from Carnegie.

My first question is on Viaplay. If you can comment on the revenue drivers in Q2, churn, price effects and mix effects, and also how you performed in the countries in the Nordics.

Yes. It's a mix of drivers. We do have the price effect from the price increases, of course, but that will gradually build over time. So it's more a matter of the mix effect, seeing the return of sports, of course, compared to last year where we had to reduce prices on the sports package. And then the fact that we did anticipate churn as a consequence of the price increases, which also happened, but then it came back to normal levels and actually lower levels than before on sports, which has also contributed positively. So underlying the drive is -- of course, driven by some extraordinary events given that we have soft comps from last year. But then I would say the main drivers is a positive mix effect and the fact that we've done the price increases.

Okay. So everything else equal, will -- going into Q3 and Q4, will you have slightly less favorable product mix but still continuing to have positive price effects from your price hikes? Is that a fair assumption?

Yes, that's correct. The price effect continues to build as it sort of rolls out over the distribution agreement. So it has already been rolled out to the direct-to-consumer base, and then it gradually impacts the full base. So yes, that's one positive. And then we go into Q3 and Q4 with a slightly more favorable mix in terms of sports having performed a bit better. And then I am anticipating continued strengthening in sports given that we are adding some new rights already this year, and I'm thinking then especially around the winter sports for Norway, Sweden and Finland, that is a driver, and especially Sweden and Norway, of course. So the mix is looking good. And then the price increases continue to be rolled out. The churn continues to be -- just to summarize, Mikael. If the churn then continues to be at a slightly lower level than we have seen before, and I don't think Q2 is the best analogue for churn because of the summer months, then there could be a slight sort of mix upside going forward. But it's a little bit early to say. Let's come back to that on the back of Q3.

Okay. And my final one is on the -- what you talked about when you launched TV3 and TV6, the linear TV channels. And just curious what you mean there really. How you -- can you explain what you tend to do and how?

Yes. If I take TV6 as the most prominent example, TV6 has been a so-called free-to-air channel, meaning that there has been no cost per user for the distributors. It has been a completely advertising-funded channel. And that has been now been removed. That kind of channel doesn't really have a role in the current broadcasting landscape in our view. And we have decided to use TV6 as the home for sports in our linear world. So there will be the skiing that we've already presented, the World Cup in ice hockey, the World Cup and the Euro Cups in handball, the Swedish national team in football from next year, et cetera, et cetera. So that will be sort of the -- maybe the strongest sports channel in Sweden, and that cannot be free to air. There need to be a cost per user for the distributors, and that is something that we're now discussing with them. We have already started in Norway where we signed the first agreement with Telia, whether it's a new cost per user for TV3 as it is in Norway. That means that we will have no free-to-air channels in our footprint going forward.

Okay. So it's more of a carriage fee-based revenue in addition to advertising?

That is correct. And the mix will change. Because if we take the skiing as an example, we do have ambition to do advertising. But similar to back when we did the Olympics, we need to be much more careful how we do ad breaks and how we make sure that we don't negatively impact the experience of the events. So carriage fees is much more important as a component of how we finance those rights rather than advertising to make sure that we strike the right balance and can deliver a great product for the viewers.

Okay. And is it only Telia in Norway that has been upgraded?

It's the first of the agreements, yes. And then there is -- the negotiations going on across Norway. And of course, this is the Swedish-Norwegian affair, if you will, and negotiations are now ongoing and discussions are ongoing with the distributors in both countries.

We've got our first question on the message board here from Tom of Citi. And the question is, is the upgrade to the international sub guidance for this year an aggregate upgrade to international subscriber opportunity? Or is it a pull forward of the international growth from future periods?

It's a good question. It's probably both, I would say, because we are pulling forward to some extent this year given that we are adding the distribution agreements. But when you come to the CMD in September, we will share the full impact of the rights that we had an ambition to sign when we had our Capital Markets Day last year but hadn't signed. Now we have actually managed to do the Grand Slam, and we've got everything that we wanted for as long as we wanted it. And that means that there is both this year a little bit of pull-forward driven by distribution agreements, but then there would be probably a further opportunity given the strengthening of our portfolio at the CMD. So it's -- I hope it makes sense, but it's actually both.

Okay. Great. And then actually, there was a follow-up from Tom in the message board as well, so I'll just read that out. How should we think about the relationship between the SEK 100 million of incremental losses for this year and the 250,000-plus additional subs? Should we think about this as a direct link, i.e., SEK 400 of incremental sack per additional sub? Or should we think about these numbers being disconnected, i.e., the additional SEK 100 million is going to the fixed cost base to support an even bigger long-term base?

Yes. There is no direct correlation with the upgrade. There is a correlation -- of course, everything we invest has to do with how we want to make sure that we get as many subscribers as possible. So in that sense, you could argue that everything we do on cost is related to the subs. But we're not getting 250,000 extra this year because we are investing more. It's more a matter of how and when we take the cost, and you need to look at it over the long period to get the right view. And that is why the CMD, and I know I'm repeating myself as a broken record, but the CMD is important because last year, we could talk about our ambitions. Now we can actually present in more detail what that actually leads to. And we will be at a stronger position when we come to September than we were in November last year because then we started the journey. Now we have ensured that we have all the tools necessary for the journey. But there is no direct correlation with this year's cost increase and the 250,000. It's more a matter of the full picture of the strategy.

Great. Thank you, Anders. Then our next question is going back to the audio line, and that comes from Jamie Bass of Berenberg.

Three questions from me, if that's okay. The first one on the international outlook, the distribution agreement on the one you already signed and the ones that you're expecting to announce in the coming weeks and months. Could you give a bit of color on whether the minimum guarantees for this year that sort of derisks that increased outlook? Second question is within the increased outlook, and I know you don't give numbers by market for your outlook, but can we just confirm that your expectations within the Baltics are unchanged for this year, so all of that increase is coming from actual subscribers in Poland? And then finally, we've been hearing a little bit about some sort of negative rumors in The Netherlands about the potential for -- well, I've had some [indiscernible] on how maybe Viaplay charging EUR 40-something a month just to stream the Formula 1. So how are you sort of addressing these rumors? And is that going well?

Let me -- let's start with your first question on the distributors in Poland. First and foremost, the upgrade is Polish-driven. So you're correct to assume that we haven't changed our ambitions for the Baltics. And in the distribution agreement, there is a mix between soft bundle and hard bundle with some guarantees. So that gives us a degree of certainty. And then in addition to that, coming back to Omar's earlier question, we do feel that there is an underlying positive sort of expectation on Viaplay. And I really look forward to go to Warsaw in a couple of weeks' time to do sort of the kickoff event for the launch. I had a good feeling around that. But of course, you are right to assume that we have taken some insurance in the agreements to be able to do the upgrade, so we can deliver and hopefully over-deliver on that expectations. When it comes to The Netherlands, I would be surprised if sort of competition wouldn't try to plant rumors about crazy pricing or inferior quality or low quality in studios or whatever because it's, of course, very painful when somebody comes in with the ambitions that we have and then basically sweep the market of some of the most important rights. We are addressing that by talking to media and explaining where we're coming from. And then, of course, there could be a positive in that because we know that we will have a very, very competitive offer when it comes to affordability, accessibility and the way people can connect to Viaplay in a great way. So it's better that there is a little bit of buzz and some concern than it would be sort of dead silent. And then we can come and set the record straight when we launch. So that's all fine.

And our next question comes from Martin Arnell at DNB.

My first question is from this revised subscriber guidance. How should we look upon that in the context of your sales growth outlook?

Yes. There is a potential for an increase on the revenues as a consequence of this upgrade, but it's more a 2022 opportunity than '21 because we do -- we are launching now in early August. As you can expect, there will be a lot of campaigns, both direct-to-consumer and with the distributors. So it's getting a little bit back-loaded in that sense. We haven't given specific guidance. We have seen in various consensus or various reports 100 million number, something like that. And I can say that is not necessarily wrong with some potential upside as a consequence of more subscribers. We will be able to share some color already at the CMD when we've had a month of trading in Poland and then, of course, on the back of Q3. If we stay -- put it like this, if we stay with the 250,000 that we expected sort of net Baltics in Poland and then add distribution, there is not much revenue upside. If we do better on direct-to-consumer and we really get a good push, then there is definitely upside to revenues. So it's very -- it's a little bit of a moving target, if you will. But over time, everything that we say about more subs and more market share, more footprint in the various market means, over time, more revenues, and that's the whole model. But limited impact this year because of timing.

Okay. And just a follow-up on the B2B and the mix in Viaplay B2B versus D2C. I think you said before that you've seen increasing share from B2B. Is there any change just in how you look at the mix compared to -- in the last quarter?

No. Q2 has been fairly B2B-driven, especially from Allente. And if we look at the past -- sort of past 6 months and even further back, it is fairly driven by B2B. It's very much related to the majority of the Nordic markets. Because once you have the early days of streaming, you have the early adopters, and they go direct to the source, if you will, and then you get further penetration into more sort of -- more traditional households with more sort of -- more preference for buying through their TV distributor. And that's only normal. And being a good partner for those distributors is absolutely fundamental if we really want to take the benefit of getting a more than 80% growth in -- sorry, 80% penetration in any given market. It is fair to assume that the ultimate upside for us is better on direct-to-consumer, but the mix is anticipated in our numbers. So that is from a margin contribution. It's lower ARPU on B2B. Margin is roughly the same. But direct-to-consumer has a slightly better CLV than B2B. So it's a mix, but all of that is embedded into how we have guided the outlook for the base.

Okay. Perfect. And also the international investments this year, the raise there. Is it the new content mainly that explains the raise?

That is correct. There is additional content, both content that will come on air this year and some payments that we're making and taking for the coming years. We have rights like the Champions League in the Baltics that we didn't have in the original plan but decided to invest in. The plans that we've had for Poland included Bundesliga, but we've added the Europa and Conference League as an example compared to where we were at CMD. So it's a mix. Over time -- and coming back also to earlier questions, over time, it will yield more subs, and that will drive more revenues, and we would be able to build a further sustainable base. Gabriel, do you want to add anything on the cost?

Yes. And also to clarify what Omar was asking, I think it's important to understand that this SEK 100 million of additional losses are impacting any projections that you had before. So we are investing more. And as you said, Anders, this is building up for the long term, especially around our content offering going forward. As we have said -- as I said in my speech, we are investing more on the back of the new rights that we have announced and also when it comes to the Viaplay Originals with all the upgrades that we have made. We're launching 50 instead of 40. So there's a lot of investments coming in. And that -- so you should look at this SEK 100 million or something that will affect any outlook that we had until now when it comes to our profit for the year.

Okay. Perfect. Just a final question on the advertising business in this quarter. It looked really strong on the easy comps. Is there any changes in the incremental margins in the advertising business? And finally, is there any sort of recent changes in the competitive landscape in the new markets that you plan to enter near term?

The advertising market -- now margins are fairly stable on advertising. They are completely driven by our ability to take our fair share of the market, which we are increasing sales market share across our footprint, which is a positive, of course, going forward. It remains an important source of funding for our business, of course. When it comes to the new markets, there are nothing significant to report in terms of changes in the competitive landscape, but there has been a merger announced in The Netherlands where RTL have proposed to merge their business with Talpa, which is predominantly a linear TV matter. And that one is interesting, not so much because it changes our perspective on the opportunities in The Netherlands. They remain the same and continuously positive, but it's an interesting one in terms of if the regulator says yes to that one, that will spill over probably on other EU markets that will then potentially cater for more in-market consolidation on structurally challenged linear TV channels. That could be interesting in the coming years, but it has nothing to do with The Netherlands specifically for us. It's more of the big picture and maybe a reference to our linear operations in the Nordics going forward. At some point, linear TV will need to be allowed to consolidate and create additional strength to survive. So that's a positive.

We have another question on the message board. This is from Klas at Nordea. Anders, we understand that you want to take your time on the subject of CMD, but could you help us understand if we should expect higher international losses also for '22 to '24? Nice try, at last. On the skiing rights during the fall, could you comment on what type of impact this will have on Viaplay sub intake, please?

Absolutely. No, the CMD is something to look forward to. I think we've established that. But we are investing more. And the only thing I can say is that whenever we say we are investing more, you should expect that we have a plan for how to increase our penetration, our subs and our revenues as a consequence of all those investments. And then I'll leave that as a cliffhanger for the CMD. When it comes to the skiing, we are establishing ourselves now in Norway and Sweden, especially, with skiing. For the first time, it's a commercial product. It has always been with the public broadcasters. So we are taking a -- sort of a prudent approach, and we've put quite a lot of -- especially the cross-country skiing in Norway and Sweden on linear TV to basically, if you will, take our audience by the hand and then lead them over to Viaplay and demonstrate the benefits of streaming. So there will be an impact, a positive one, when it comes to subs intake. And it's also very much a tool to get to the long tail of the market and to demonstrate the benefits of Viaplay. It will be completely Viaplay branded. Whenever there is an advertising break on linear channels, the broadcast will continue in a relevant way, not just sort of chit chat, but in a relevant way on Viaplay. So it's a way of operating our assets in a long-term perspective. Net-net, it's positive for Viaplay, no doubt.

Great. Thank you, Anders. Again, on the message board, we have a question this time from Peter from One Investments. A few detailed questions, please, which there are 3. First of all, what proportion of the Scandi net Viaplay subscribers came from Allente? Two, how much of the SEK 100 million extra cost for international rights are rights related versus launch marketing costs? And three, are you able to update us on the future rights cost expectations driven by the recent flurry of rights deals? Then you mentioned the opportunity to partner with other streaming players who may not be able to go it alone. Are you in active talks on this subject for Scandinavia with anyone?

That was a lot of questions. I may have to come back and ask you to repeat. But if I start with Allente share of the intake in Q2, Allente was the largest contributor. We don't give exact numbers for obvious competitive reason, but B2B was the main driver. And in B2B, Allente was the main driver. So that's sort of the best I can give on that. When it comes to the latest rights and whatever that means for the long term, that will -- and again, I have to repeat myself, we will give you a much more insight into what that means for the long term at CMD. The costs that we are increasing, they are completely related to rights and the products. It is not driven by additional overhead. It's investment in the customer proposition. When it comes to the last question, opportunities with partners, are we in such discussions? Yes. We have multiple such discussions, both for multimarket potential partners and in-market potential partners in the new markets where we are launching. And that's an interesting part of, I think, the way we want to set our shop when we go forward. We are very open to work with local partners, partners that may have great content but not a streaming platform or local content partners that like to do streaming but are subscale, and there could be some opportunities to do things together. It will take time. And for some, it needs to be marinated, obviously, because we're coming in as a -- we like to see ourselves as an innovator. Others may see us as a disruptor. But over time, the change in consumer behavior will lead to new opportunities and partnerships going forward. And yes, we entertain a number of such discussions.

Great. Thank you, Anders. Well remembered on all those questions. Then we have last 2 questions. First from [ Zahir ] at Redburn. How strong do you perceive the ongoing demand for linear and streaming-based services and viewing? Is the shift to streaming services by customer accelerating? And how would you describe the current structure of the Nordic TV market?

Well, what we have seen, and I think it is, of course, very much driven by the fact that we've been through a pandemic and we still find ourselves in a pandemic, now we have the summertime, that also has an impact, linear has improved. Linear is stronger than it was, but it's not because streaming is taking less share. Streaming is also growing. So consumption as a whole is growing as it stands right now. But if you look at the proportion of growth, it's very clear that streaming is favored by most households. We have seen -- take an example. We have broadcasted the Euro 2020 in Denmark. And we share the rights with the Danish public broadcaster, DR, but we have a number of exclusive events that we broadcasted on both Viaplay and our linear sports channel, TV3+, in Denmark. And we had great viewing numbers on Viaplay, and we managed to get great sales on Viaplay despite the high penetration of TV3+ in Denmark. And that tells us a number of things. One is that the ease of use of streaming is definitely something that is appreciated by the households. The fact that there is no advertising breaks, you get sort of a constant flow. And we make sure that when there is an advertising break on linear, whatever we broadcast on streaming, like I said before,system not just [ to chat ] -- to sort of take you through the ad break. It's relevant content that if you are really interested, you don't want to miss it. So we actually have a very high proportion of viewing of the matches on streaming even when it's available on linear TV, and that tells us something about where streaming is going forward. Linear has done reasonably well, probably much driven by the fact that there has been a higher demand for entertainment because of the pandemic. The streaming growth is here to stay.

Great. Thank you, Anders. And then we're going to have our last question, and we will finish where we started with Omar at Morgan Stanley. And the question is, Anders, can you talk about your long-term plans for Allente? Do you see this as a core part of the group? And do you see the current run rate of subscriber decline as sustainable? Or should we expect it to pick up over time?

I think Allente has proven to be a very -- already now proven to be the right thing to do for us, to be able to do the joint venture with Telenor to shape Allente, to form Allente from the Viasat Consumer business and the Canal Digital business. It was absolutely the right thing to do, and it will yield us sort of a cash injection that will be very helpful for us in the coming couple of years of expansion. So in that sense, it's the right thing to do, and it's core from that perspective. But if you look at the core of the business and what Allente represents and where we're going with NENT, focusing on streaming and growth, then you could argue that it's not necessarily core for us in the future, and it may be so that there will be other opportunities. And there will be further consolidation opportunities coming as a consequence of the change in consumer behavior, not just in linear TV, but also in greater sort of footprint perspectives from TV distribution. There are fairly limited synergies across borders when it comes to these kind of assets, but scale makes a difference. And that, I think, will play itself to our advantage in the future. So it's a good asset to have, and it would provide us with optionality in the future and optionality to make sure that we over-deliver on expectations. That is core to us.

Great. Okay. Thank you very much, Anders. And that concludes the question-and-answer session for today. Thank you to you all for your time and very relevant questions, both in the message board and on the audio line. We will host digital roadshow meetings today and tomorrow, and we look forward to speaking to as many of you as possible. We will host our virtual CMD on the afternoon of 22 September and hope as many of you as possible will watch and interact in the virtual stream. As ever, please do not hesitate to reach out to Joel or me with any questions or requests that you may have. That's it for today's call. We hope you enjoy the summer holidays and that we will be able to meet face-to-face in the not-too-distant future. So goodbye for now. Thank you.

Thank you all.

Thank you.