U.S. TV studios looking overseas for growth

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When Disney-ABC International Television held its first one-day program market for Central and Eastern European buyers four years ago, it didn't require a meeting place too spacious. Just 40 clients turned up for the glitzy preview of studio fare, which covered everything from TV series to ABC News footage.

But when the now-annual event was held last month, more than 100 buyers attended, an indication of the burgeoning growth rates across the territory that make it an investment priority.

"These are very buoyant markets, with growing advertising and investment in content and mobile," says Tom Toumazis, head of the Disney division's newly integrated international sales and distribution business. "These markets are growing faster than any of the developing markets, and that is drawing in investment."

With sluggish growth anticipated for the economies of the U.S. and Western Europe during the next three to five years, studios are looking to the faster-growing markets of Central and Eastern Europe, Russia and India as new frontiers for expansion.

Whether it is rolling out branded channels, creating locally produced scripted and nonscripted formats or simply getting the best U.S. shows into primetime slots on local stations, Hollywood studios are aggressively working to expand into territories that a few years ago were no-go areas.

"There's a lot of activity in Russia and Eastern Europe, where the markets are relatively immature and there is huge potential for growth," says Paul Robinson, managing director of KidsCo, the NBC Universal-backed children's channel that launched last year in territories that include Poland, Hungary, Romania, Turkey and Russia.

The Hollywood Reporter estimates that the major studios' international TV business in 2007 nudged $6 billion, the lion's share of which still comes from program sales.

Leading the march for growth in Europe is Russia, where a burgeoning advertising market has attracted investment from a slew of entertainment superpowers including Disney, Fox, NBC Uni and RTL.

Recent research from UBS Investment Research predicts that Russia will be Europe's dominant advertising market within the next three years and the fourth-largest advertising market in the world by 2012.

According to figures published by the Russian Association of Communication Agencies, the nation's advertising market was up a phenomenal 33% to $1.8 billion in the first quarter of last year, with the bulk of the growth attributed to television. Unlike the markets in Western Europe and the U.S., where TV is losing advertising revenueto online, less than $35 million came out of that sector in Russia during the same period.

In December, Disney-ABC Television signed a major output deal with Russian broadcaster Channel One for such TV fare as "Lost"

and "Dirty Sexy Money" as well as a slew of first-run movies, including "Pirates of the Caribbean: At World's End," "Wild Hogs" and such classics as "The Jungle Book" and "101 Dalmatians."

Sony Pictures Television International opened a dedicated Moscow sales office in November, headed by Katerina Kolarova. But SPTI has been involved in production for the Russian TV market since 2003, when it made the period costume drama "Poor Anastasya" -- the first long-running original Russian telenovela -- for TV network CTC.

In 2004, SPTI brought the first U.S. sitcom remake, "The Nanny" (Nyanya), to Russia; the show was another ratings hit for CTC. SPTI is now co-producing remakes of "Married ... With Children" with local production affiliate Lean-M for TNT network.

SPTI also plans to launch a Russian channel soon, international networks president Andy Kaplan says.

It will follow the launch of Sony's AXN Sci-Fi channel in Ukraine and Belarus.

"The idea is to keep the pedal down," Kaplan says, adding that the channels in turn will allow Sony to expand into mobile and broadband extensions.

Fox also has launched a number of channels in the region, including Fox Crime, which airs such shows as "Dexter," "Monk" and "Kojak" to audiences in Russia, Estonia, Latvia and Lithuania. The territory is expected to be a priority for James Murdoch, the newly installed chief of News Corp.'s international business.

Studios are not the only ones piling into the region. Three months ago, Pan-European free TV group RTL Group entered a joint-venture partnership to roll out thematic channels across Russia, Ukraine, Belarus, Kazakhstan, Moldova and Georgia.

The one-time former Eastern bloc nations that used to be considered out of bounds in investment terms also are making up for lost time despite what some might consider checkered pasts.

Ten years ago, investors in Central European Media Enterprises got burned when it lost control of its most important station, Czech broadcaster Nova TV. Plans to merge CME with SBS Broadcasting were derailed, and the company was forced to de-list from the Nasdaq.

But the burnishing effect of ascension to the European Union, growing advertising expenditure and highly educated populations noted for their strong work ethic are making former Eastern bloc nations strong economic bets, says Paul Fitzsimons, a partner at London-based private-equity firm Apax Partners, which last year acquired a 16% stake in CME.

"As people start having money to spend, new advertisers come into the market," he says. "Ten years ago, a car manufacturer like BMW wouldn't have advertised in Romania, but now it's worth their while."

The corridor of territories that include the Czech Republic, Slovakia, Hungary, Poland, Austria and Hungary to the west and Belarus, Ukraine, Romania, Bulgaria and Turkey bordering the Black Sea look set to account for growth rates that far outstrip their Western neighbors.

PricewaterhouseCoopers suggests that between 2006-10, compound annual growth rates in the entertainment and media markets of Central and Eastern Europe will top 12%.

It's not just the U.S. that has noticed. Attendees to the region's own program sales market, DISCOP East -- which takes place in June -- are up 22% year-over-year, DISCOP GM Patrick Jucaud says.

"We are seeing an increasing number of Central and Eastern European distributors who are using the opportunity to sell to their counterparts in other Central and Eastern European countries," he says.

Another territory proving to be an investment magnet is India. The populous subcontinent, with 110 million homes and an estimated growth rate of 16% in the next two years, is attracting such studios as NBC Uni, Time Warner's Turner, Viacom and Disney. The complexity and scale of the Indian market mean that those who have gone into the territory have done so via joint-venture partnerships in the region.

In December, Turner International announced a 50-50 joint-
venture partnership with New Delhi-based entertainment channel group the Alva Brothers, while a month earlier Viacom completed a deal with Mumbai-based Network 18 to create Viacom 18 Media, a local-language music and entertainment channel group.

NBC paid an estimated $150 million for a 26% stake in NDTV, which operates a slew of Hindi-language lifestyle, entertainment and news operations, and it has an option to increase the stake to 50% in two years time. That deal is due to close in April.

"One of the key attractions of our agreement to partner with NDTV was the strength of their excellent management team," NBC Uni International president Pete Smith says, explaining why the partnership model was NBC Uni's preferred choice of entry into the market.

SPTI also remains active in India, where it first launched Sony Entertainment Television (SET India) in 1995. Says Kaplan, "Since then, we've grown to four branded channels -- MAX, SAB and PIX in addition to SET -- and we intend to continue to invest in that region."

Of course, a huge gap remains between the developed markets of the U.S. and the emerging markets of Eastern Europe and India. The average net advertising spend per U.S household in 2008 is $380, according to recent figures published by Informa Media Research. In India, the same per-household measure is $11 per household over the next 12 months.

But to the expansion-focused investor, the glass is always half full, and those figures mean just one thing: growth potential.
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