Global Economics

Czech Media Are in Deep Trouble


The Czech Republic is one of the most vibrant media markets in Central Europe, but clumsy moves by owners have worsened a sudden collapse this year

Several years ago, foreseeing the tremendous changes in the media industry triggered by the Internet, the publisher of the French daily Le Figaro embarked on a strategy to revamp its operations. Le Figaro moved much of its work online, cut some divisions, and bought myriad small Internet portals, including websites that sold tickets to cultural events and advertised jobs.

In time, the outlet's costs shrank, the web acquisitions started to produce revenues to support its journalistic work, and the newspaper's reputation remained strong. The group's flagship print publication increasingly became a marketing tool backing a much larger, more diverse media operation. Such examples abound in Western media markets. But the Czech media had to wait for the sweeping financial crisis to reform their operations. And now it might be too little, too late.

SPENDING PLUNGE

Once one of the most vibrant media markets in Central Europe, with the print sector long boasting healthy circulations and the television industry pulling in tidy advertising revenues, the Czech Republic is experiencing one of its blackest years. Plummeting advertising revenues and falling circulations and viewership have devastated the accounts of the country's media companies.

But in their desperate search for money, the established media houses have so far made clumsy moves. Instead of redesigning their advertising offers and restructuring their operations with a view to maintaining their journalistic strength on new platforms, most Czech media rushed to slash editorial costs, mostly by firing journalists, and throwing staggering discounts at advertisers.

The first signs of the crisis were felt in late 2008, but the first major blow came in 2009. In the first quarter of this year, some 20 print titles disappeared from the Czech market. At the same time, the country's large TV stations started to slash their expenses while the smaller ones restructured their operations, adopting mostly low-cost programming formats.

Newspaper and magazine publishers' income dropped in the first three months of 2009 by up to 25 percent. As a result, Economia, which owns the business daily Hospodarske noviny and the weekly Ekonom, dramatically cut expenses on editorial, external content, and travel. Swiss publisher Ringier, which runs the tabloidBlesk, the best-selling daily paper, halted the redesign process of its Sunday edition.

Other casualties include the tabloid daily Sip, which in February became a weekly, six titles from publisher Sanoma (SAA1V.HE), and Ringier's free daily, 24 hodin.

On the television front, the U.S. company Central European Media Enterprises (CME) (CETV), owner of the largest commercial station in the country, TV Nova, saw total losses of $44.4 million in the first quarter, compared with a net profit of $14.5 million during the same period in 2008. The largest loss incurred by CME, which operates stations in seven Eastern European countries, came from TV Nova, once the group's cash cow, which saw its revenues sink from almost $58 million in the first three months of 2008 to $35.6 million in the same period this year. The company's profit in the Czech market plunged from $10.1 million to some $6.1 million over the same period.

BUNGLED STRATEGIES

But the response of many Czech media to the financial storm has hardly been innovative. In desperate pursuit of ad euros, many outlets renegotiated their rates, offering cross-media packages for the same price. Some even sold "limited time" packages where advertisers could land a discount of up to 70 percent if they acted quickly, sometimes within 30 minutes from receiving the offer.

The price war continued unabated in 2009, when discounts sometimes went as high as 90 percent.

The result? Mafra, which publishes the most-read broadsheet, Mlada fronta Dnes, saw its ad sales collapse this year and German-owned Vltava-Labe-Press, publisher of the Denik network of regional dailies, had a year-on-year drop in ad income of 40 percent in the first quarter.

In March, TV Nova started to sack people from its production and online divisions. This year, Mafra cut its staff by almost 70 percent, according to sources at the paper.

ONLINE WINNER

The best-case scenario from media buying agency OMD (OMC) has advertising spending in the Czech Republic increasing by some 10 percent in 2009. The agency's worst-case scenario envisions a decline of some 2 percent to some 28.03 billion crowns from 28.71 billion crowns in 2008.

While television spending is expected to see a sluggish growth of 1.7 percent at the most, other sectors are primed to go down.

But a winner is clearly positioned to emerge: Internet portals are expecting double-digit growth in 2009. The Czech online newspaper Aktualne.cz, in operation since 2005, already has four times the readers of mainstream daily newspapers Hospodarske noviny and Lidove noviny.

Some Czech media have announced steps to boost their online presence. Hospodarske noviny plans to relaunch the paper in early summer, with emphasis on its online operations, and Mafra announced plans to bolster its online products, first by revamping Lidove noviny's website.

But with ad spending slated for further cuts and readers jumping ship to zillions of other platforms, such efforts might be futile. It took Le Figaro, for example, more than five years to make a profit from its new media operations and to build a steady readership.

The Czechs don't have that much time to turn their businesses around.


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