Modern Times Group MTG AB

STO:MTG B

Earnings Call Transcript 2018-Q2

[Operator]

Good morning, ladies and gentlemen, and thank you for holding. Welcome to MTG's Q2 Earnings Call. [Operator Instructions] Presentation slides to accompany the call are available via the link on the homepage of mtg.com.I will now hand the call over to your host, MTG President and CEO, Jørgen Lindemann, who is joined on today's call by MTG CFO, Maria Redin; and Anders Jensen, CEO of Nordic Entertainment.

[Jørgen Madsen Lindemann, President & CEO]

Thank you, operator, and good morning, everyone. So just before we get into the numbers, let's take a few minutes to update you on our preparations to split MTG into 2 separate listed companies. We have made significant progress during Q2, MTG and Nordic Entertainment Group has been operating as 2 separate organizations from the beginning of July with separate boss, management teams and corporate banks. A lot of work has been done on the operator carve out to ensure that the 2 companies can operate separately.We remain committed to the statement but the process has been delayed following Kinnevik’s decision to distribute its MTG shares to its shareholders in Q3, we simply want to await this process and make sure that the new owners get a chance to properly get to know us before bouncing on this pitch. It is therefore clear that the split will not be completed in 2018. We will, of course, keep you regularly updated on our progress and hope to speak to as many of you as possible throughout this process. The cost structure associated with this process, including restructuring related redundancy charts which are included in the items affecting comparability, while legal and other fees related to the split are included in our corporate overhead cost.If you turn to Slide #3, you can see that sales were up 9% on organic basis, which marks the eighth consecutive quarter of organic growth of at least 5%. Our strategic decision to disrupt ourselves, transform our cost base and reinvent the procedure into [indiscernible] our product have clearly paid off. And our products and services are more relevant, available and popular than ever before.Our digital sales were up 76% in Q2 and accounted for 36% of total sales. Operating profits before items affecting comparability were up 12% and would have been up 19% if adjusted for the SEK 32 million of costs associated with the proposed bid of MTG and the terminated merger agreement with TDC.The fact that we have continued to deliver sales and profit growth while at the same time making significant steps toward splitting MTG into 2 separate listed companies demonstrate our clear vision, effective and differentiating strategy and, most importantly, an exceptional team of people who know what they are doing and are highly motivated.Move to Slide #4. We can see the group performance sales were up 18%, driven by the 9% organic sales growth, 4% currency and the consolidation of InnoGames and Kongregate. A very positive trend in the performance of our Nordic and International Entertainment business continued into Q2 as those segments reported higher sales and profits. MTG Studios reported low organic sales and profits, though this time it relates to timing differences in the production schedules and the forward pipeline looks promising.MTG sales -- MTGx sales were up 25% on organic basis and the EBITDA loss of SEK 19 million last year was turned into a SEK 34 million profit this year after the consolidation of InnoGames.I'll now hand the call over to you, Anders, for your comment on the Nordic Entertainment and MTG Studios business.

[Anders Hede Jensen]

Thank you very much, Jørgen, and a very good morning to you all. I think it's fair to say that this has indeed been yet another eventful quarter. We have successfully launched our new NENT brand. We have set the number of both linear and streaming records and we have acquired several key sports rights for the coming years.If you can please turn to Slide #5. Nordic Entertainment, the sales were up 7% on an organic basis. I think this is again a fairly impressive performance in the quarter where we last year delivered 8% growth. So comparison with last year makes the 7% very strong. The FIFA World Cup kicked off on rival channels and we have also seen this exceptional heatwave combined with the ongoing cost reduction.The outperformance was possible due to the continued growth in our streaming services, Viaplay and Viafree, as well as our very successful coverage of the Ice Hockey World Championships.In Free-TV and Radio, sales were up 8% as a result of higher prices continued double-digit growth in Viafree and our Swedish radio business. The rating boost that we received from the Ice Hockey World Championships delivered a lot of value to us as well.The final was viewed by 3.2 million people in Sweden with TV3 reaching a daily audience share of more than 60%, its highest ever share since 1994 when the [indiscernible] started.Also in Denmark, our TV3+ channel had its best quarter ever in terms of audience share. Viafree continued its double-digit growth and the recently launched classic sports and food verticals has been a great success for us. More unique viewers than ever and then more equal gender mix adding to the reach of the Viafree product. The sports verticals that we launched in April enables users to watch selected live events, documentaries, magazine shows and highlights from our unique range of sports rights, free of charge. And we're now starting to actively push users to log into Viafree, which will enable better targeting and also, and very importantly, a better upsell potential to Viaplay.Our Swedish radio business has continued to deliver double digits organic growth in a favorable market conditions with continued market share gains, and the timing of this moment is obviously very important, given the upcoming launch of the new radio licenses that starts August 1. It will significantly increase our reach at a lower license cost than before and also significantly lower to that of our competitors. [indiscernible] FM was awarded 1 of the 3 national licenses and we have now also announced the launch of STAR FM, which is based on 18 regional licenses and we've become the fourth national network.These are 8-year licenses and the total cost is close to SEK 400 million and this is not from investments that we'll be taking during Q3.For pay-TV, our Nordic pay-TV sales were up 11%, continuously driven by Viaplay as the main driver of growth. Sports is leading the way. The Champions League coverage broke its unique viewer record 4x during the quarter, driven by the fact that several English teams did well in the knockout stages. On the original side of things, our Viaplay Originals continue to perform well with the latest 345 being up to a flying start. We have 2 new originals in production, The Inner Circle, based on the novel by Per Schlingmann, and Cold Courage, our first Finnish original series. During the quarter, we secured several key long-term exclusive sports rights, including an extension of The English Premier League. We acquired the German Bundesliga, The French Ligue 1, and the South American, Copa America football. We also secured the World and the European Handball Championships and the European Champions League Cup. We also extended the Formula One motor racing rights. It is safe to say that we continue to be the undisputed home of the premium sports in the Nordic region. It is vital, of course, as sports and local content are and will remain our key U.S. piece.The profits in Nordic Entertainment were up 7% to new all-time high for the second quarter and it is now also the seventh consecutive quarter of profitable growth, which underlines the health and the potential of this business moving forward.If you please move to Slide #6. MTG Studios sales were down 13% on an organic basis. And as in Q1, we saw a decline in our scripted sales due to timing differences in the production schedules. However, the scripted pipeline and the order books looks very promising and it's supported by 40% increase in the number of signed development deals. So I expect this trend to gradually reverse over the coming quarters. Non-scripted sales were also down as healthy growth in the Nordic region was offset by lower international sales with fewer productions of the Survivor format.Last quarter, I talked a lot about the opportunities I saw in accelerating our digital first productions, and this is one of the reasons why we have acquired the remaining shares in this the Splay Networks and merged Splay with Nice One to create SplayOne. This is a new type of digital storytelling provider with smart distribution and well-established influencer networks. Our vision is to build the Nordic brand as an entertainment powerhouse. More and more brands are looking to create a competitive edge and cut through the noise in an effective and relevant way, and this is exactly what we want to help them to do with SplayOne. Profits were down slightly compared to last year, which is then primarily reflected as the consolidation of Splay.Overall for the business that will make up the NENT Group, we are in great shape and in very competitive markets. We have demonstrated, time and again, that we can deliver profitable growth while continue to invest in the best content and deliver the best products. More and more of our sales are digital and we have the market-leading streaming content solutions with both Viaplay and Viafree. The NENT brand is launched, the company is set up, it's able to operate separately and we're looking at new ways to drive growth from both existing and adjacent products and services. That's it for my comments. Back to you, Jørgen.

[Jørgen Madsen Lindemann, President & CEO]

Thank you, Anders. And if I can ask you to go to Slide #7, you can see that the sales from Nordic Entertainment segment were up 7% on an organic basis and profits were up 44% compared to last year. We are closed to divestment of Trace leaving our Bulgarian business as the only remaining asset in the International Entertainment segment. We have signed an agreement to divest Nova Bulgaria, but the closure of the sale is taking longer than expected because we have a phase 2 regulatory review. We still feel comfortable that the deal -- and expect to receive an approval before the end of the year. If you turn to Slide #8. You can see that MTGx sales were up 25% on an organic basis and 63% on a reported basis and we have turned the EBITDA loss of SEK 19 million a year ago into a profit of SEK 34 million this year. Our esports business delivered 44% sales growth in the quarter. The ESL revenue from owned and operated events were up over 60%, and we welcome [indiscernible] sponsorship partners such as DHL and AT&T. As you know, we're focusing on our owned and operated tournaments and leagues this is where the long-term value lies in terms of revenue ownership profitability potential. Owned and operated accounts for 67% of revenues in Q2 compared to 55% a year ago.The first white label event revenues were therefore down. DreamHack sales were up over 60% after successful events in Marseille and Austin. This was the first quarter where our new [indiscernible] there, and we have also signed an agreement with the new partner, such as Cinemax and InVicta. Our esports losses were reduced slightly compared to Q1, but up compared to last year. There are 3 key reasons why the sales and profits they are a bit short of our expectations. Firstly the mix impact where we lost a couple of large white label events in the first half of the year, the biggest being Madden. As I said before, we are much more focused on our own brands rather than work for hire and this has also led to some negative fixed cost absorption FX. Secondly, we launched 2 completely new owned and operated event this quarter, 1 in U.K., and 1 in Brazil. These investments are important to reach our long-term [indiscernible] to keep ESL as a global esport mega brand. We have 4 owned and operated events in the quarter compared to 2 last year. And for the remainder of the year, we have the same number as last year.Thirdly, we have strategically invested money into the booming Battle Royale segment of the gaming market. We are well positioned given the event that ESL and DreamHack have both been running with players [indiscernible] and it is our vision to become a strong -- as strong here as we are in the First-person Shooter segment. As always, there is still room for improvement, of course, which is why we launched the restructuring that we talked about previously on the Q1 call. This program is meant to bring down our fixed cost and make sure that we focus our resources on ESL cost to [indiscernible] owned and operated selected large games opportunities and strategic product innovation. So we will outsource more of the functions that we feel are non-core, and we will also increasingly say no to business, which we don't feel add long-term value so that we can invest our time and money where it matters. Looking forward for the remainder of the year, we expect limited esports sales growth in second half, that's continued growth in the owned and operated segment is offset by the decline in white label and industry services. Given, of course, the tough comps last year where we enjoyed [ 50% ] growth in Q3 and 80% growth in Q4. As a consequence of the measures we are taking, we then also expect losses to come down in second half, but we do not expect the business to be profitable. Moving on to online gaming. The combined sales for InnoGames and Kongregate were up approximately 10% on a pro forma basis, Forge of Empires recorded its highest daily revenue ever. But we had relative new game updates and events in the quarter combined with lower ROI on our advertisement. We're now carefully starting to ramp up our marketing for our new game, Warlords, ahead of the full commercial launch in Q3.Kongregate sales were same in the quarter. Kongregate has a healthy pipeline and we expect to launch between 6 and 7 games in the second half. Zoomin revenues were down 12% due to the slowdown in the German and Brazilian content and advertising businesses. We have now acquired the remaining shares in the company and we are working hard to transform Zoomin from a traditional YouTube model into a broader content provider and branded entertainment creator. Zoomin is first and foremost the [indiscernible] Entertainment company, but also fantastic global marketing vehicle for our esports and our gaming practices. So to sum up MTGx, Q2 was the third consecutive quarter of EBITDA profits. Our esports business again boost sales around is owned and operated tournament and we refocused away from less profitable and value creating third-party white label events. Growth would be limited in the second half of the year given the tough comps and while we make this transition in product mix. Losses are gradually coming down and we will be further reducing -- and will be further reducing during the second half of the year as we continue to restructure the cost base to reduce fixed costs.Importantly, we are investing to make sure we are testing the leading position in the Battle Royale segment just as we have done successfully in the past with the First-person Shooter segment. Our online gaming business has continued to deliver higher margins than expected and we expect the growth rate to pick up in the second half as both InnoGames and Kongregate launch new games.We now have full control of Zoomin, and we are working to transform the business, but this will take time.So that concludes my comments. So I will now hand the call over to you, Maria, for your comments.

[Maria Redin, Chief Financial Officer]

Thank you, Jørgen, and good morning, everyone. If you then please turn to Slide 9. Reported sales were up 18% in the quarter. This included 9% organic growth and a 6% contribution from acquired businesses, primarily driven by the combination of InnoGames and Kongregate. The current impact was a positive 4% in the quarter. Operating income before items affecting comparability was up 12% compared to last year. Our entertainment businesses and InnoGames continues to be the key profit drivers. Q2 was burdened by SEK 32 million of transaction costs.Items affecting comparability totaled a negative SEK 13 million and included net gain from the Trace and indiscernible] transaction, which were then more than offset by the restructuring cost in ESL, which Jørgen just talked about, and [indiscernible] relating to redundancy cost in relation to the formation of the new leadership team.If you then please turn to Slide 10. Net cash flow from the operations were up 20% in the quarter, but were really stable compared to last year for the first half of the year, reflecting the working capital build-up in Q1 this year. Our net debt increased to SEK 2.3 billion, which corresponds to 1.3x trailing 12 months EBITDA before items affecting comparability. Remember that we have paid out our highest dividend ever during the quarter and that we are yet to receive the payment for our shares in Nova, which amounts to approximately SEK 1.7 billion.That's it for my comments, and back to you, Jørgen.

[Jørgen Madsen Lindemann, President & CEO]

Thank you, Maria. And if I can ask you to turn to Slide #11. Just to sum up, where you can see we delivered 9% organic growth and 12% profit growth, meaning that the strong momentum we have seen for quite some time now continued into Q2. Our Nordic Entertainment business performed very well against very difficult comparisons, which again -- which was again driven by our market-leading streaming positions. MTGx reported healthy organic sales growth and the EBITDA profitable for the third consecutive quarter. We have made material progress in our preparation for the split of MTG into 2 separate listed companies. The process has been slightly delayed following Kinnevik decision to distribute its MTG shares to its shareholders, but we remain committed to the split and convinced that it will drive further growth and shareholder value for both businesses.So that concludes our commentary on the results. Over to you now, the operator, to start the Q&A session, please.

[Operator]

[Operator Instructions] The first question comes from Victoria -- Victor Höglund from SEB.

[Victor Höglund, Analyst]

One question here on Nordic Entertainment Group. You mentioned that costs from Q3 related to content, I think, it was. My line was a bit bad, so can you just repeat what you said and explain that a bit, that would be great. And then for Jørgen, I suppose on esports here and InnoGames. On the esports part, when you say, what is really your say for the second half year? How should we think about that? And then when white label mix and everything is back to levels you want in 2019, what kind of growth levels do you expect to see then for esports? Is it back to 30%, 40% growth or has something happened that makes you want to take down expectations on that? And for InnoGames, do you expect growth to improve from Q3 and ahead? Or is that too early?

[Jørgen Madsen Lindemann, President & CEO]

I think we need to just add [indiscernible] at the end of the line [indiscernible] I'm sorry so could you repeat the questions you asked?

[Victor Höglund, Analyst]

Yes. I said, a comment you made in the beginning remind us that on their cost from Q3 and onwards related to 2 options you want, I suppose. Could you just explain -- repeat what you said and explain a bit what -- how we should think about that?

[Jørgen Madsen Lindemann, President & CEO]

Yes. We were talking about the radio licenses. So we were paying -- we acquired the national license and a number of original licenses in Sweden and the total cost for that was the SEK 400 million cost that we will take in Q3. It covers the coming 8 years on national license as well.

[Maria Redin, Chief Financial Officer]

And just to clarify that, that's a [indiscernible] between the CapEx [indiscernible] over 8 years.

[Anders Hede Jensen]

One important addition to that and to keep in mind is that we acquired these licenses at a significantly lower cost than our competition. And our cost per year, the coming 8 years, despite this significantly improved position, is lower than what we've had historically. So it's a true cash effect and it's a strong platform for us the coming 8 years.

[Jørgen Madsen Lindemann, President & CEO]

On the InnoGames front, the gaming part, I think we would like to see increased growth in the second half. As we said, we are launching Warloards in the third quarter and we are also having 6 or 7 new games coming out of Kongregate. So there, we would like to see increased revenue growth, of course. On the esports side, what we have said all the time is, of course, that we will make sure that we focus on the long-term valuable partnerships and that is what we see in this owned and operated, which is quite different from being just a production company. So what we see, and please bear in mind, we're still trying and there is some time before the second half ends. And so what we can see right now is that we'll see double growth, probably the growth we think in our owned and operated. So that is the events, we'll have same amount of events. But obviously, on the back of this partnership immediately and so forth we have done, we do see a double digit growth on that. Then we will see decline in the white labels as well and we have launched events. Let me give you an example that there's 2 events, which we have launched, with this we acquired significant loss as well. Again, decision [indiscernible] is where we are saying that we don't want to facilitate these loss making events going forward and we see strong competition as well in the white label where we have uniqueness, of course, in the owned and operated. So that is where our focus lies. And then not to forget, obviously that we had very strong growth last year, over 80% in Q4. So still happy about the owned and operated performance and that is where we also put our investments as well. I also mentioned that Battle Royale channel and that is interesting for us as well to continue to invest in, as you know, [indiscernible] and Fortnite and others in that channel has done extremely well within very short time and, of course, we want to take part of that and as I also said, we already have strong relationship with the [indiscernible] guys, both in DreamHack and then also in [indiscernible], so that is how we look at the second half right now.

[Victor Höglund, Analyst]

Okay. But -- and just moving a bit over to '19 and I understand you don't want to give a guidance and anything like that, but if you think about the things you say now is likely to be coming down, events are gone and -- but that would like for like in '19. What kind of underlying growth rates are you seeing? Is it in line with the market growth? 30-something? Or is it less than that? How do you view your position into '19 versus the market and what kind of growth [indiscernible]?

[Jørgen Madsen Lindemann, President & CEO]

I think that the ambition is, of course, to continue these owned and operated. And that is, as I said earlier, where we see a lot of interest from sponsors and media and so forth. That is where we see the great potential. Also if you look at the value drivers [indiscernible] guys for the next 3 years, it is in that segment. There is a sponsorship in media rights where we should see the biggest growth rates. And at this stage, we don't guide for '19. I think the market has been, I think, the next -- the 3-year horizon CAGR from '19 to '21 is something about plus 20%, something like that. And so that is what we'll be looking at in terms of market growth. But again, we are growing our owned and operated and that is why we can monetize and need the rights and sponsorship and so forth and stronger partnership that is key -- important for us, which we have said all the time. And then we have now managed to get some of the loss-making products out and [indiscernible] also lost some of the white label, which is quite important. We are not happy about that, of course, but we did decide not to move on at low prices.

[Operator]

We will now take our next question from Mikael Laséen from Carnegie.

[Mikael Laséen]

I also had a question regarding ESL. Can you just say something about the cost that you had this quarter, restructuring charges the SEK 101 million for NENT and ESL. What you have done?

[Maria Redin, Chief Financial Officer]

Yes. We have 2 restructuring costs, one for ESL. We had a slide about it in Q1 as well. And it's about resetting the organization based on our strategic focus. So in terms of we could [indiscernible] charges, it relates to roughly taking down that position from 19 different positions in the company and it's about resetting the organization in that sense. So you should expect, of course that will help drive the fixed cost base down in the second half of the year. And when it comes to NENT, and when we've been doing there is that, I think we're setting a new management team in place, where they're also restructuring the local organization and by doing that, we have a one-off cost in the quarter. So those are the 2 costs adding up to SEK 101 million.

[Mikael Laséen]

Okay. So it's only ESL that you have done these changes for, nothing for NENT?

[Maria Redin, Chief Financial Officer]

No, it's additional, it's to make up for the SEK 101 million and we also SEK [ 63 ]million of charges for NENT. So it is a combined SEK 101 million.

[Mikael Laséen]

Okay, good. And just to clarify what you mean with the limited growth, if it's 5%, 10% for the second half for esports?

[Jørgen Madsen Lindemann, President & CEO]

As I said, it is still early [indiscernible] If we talk about double digit growth, which we do expect in our owned and operated, the important part was, we will have limited growth in the white label. That is what we're seeing right now. Also in some of the content deals that we had last year, we will not have this year. Of course, they were not giving us anything. So we will be single digit as we see right now. But again, please, it is early. And of course, you do have -- hopefully hold us out and hoping you will get more. But as we see right now, we see -- what we can see is, of course, the media deals we have, the partnership deals we have and so forth, which we initially owned and operated and we then also can see that we have low ingoing on white label. Therefore, I think it will be some brown -- single digit and then bear in mind that we had a super strong Q4 last year with 80% growth.

[Mikael Laséen]

Okay. How much of ESL's revenues is coming from white label approximately?

[Jørgen Madsen Lindemann, President & CEO]

Yes. That we haven't given -- but I can tell you that we see the owned and operated in the quarter. The owned and operated in the quarter, it is up 60%. And also, that 67% of the revenue in the quarter is -- comes from owned and operated. And that obviously leads the bucket of the rest, which will then be 1/3, or something like that, where you have the white label solutions, you have also what we call industry services where you have a lot of [indiscernible] different events and so forth. But around 1/3 of the revenue were owned and operated, that's from now 67%. Remember, when we acquired the company, I think the owned and operated was 30% and we were basically a production company. But obviously, what we saw was that a range of the revenue streams were not developed and that is what we have developed now. So we've changed that trend completely now, which we are happy about, that we see owned and operated growing, and we see the white label production, things goes [indiscernible] Still, we want to do white label, but when it makes sense strategically, meaning that we also then can convert them into being an owned and operated partner going forward. That is, of course, the vision that we are having. So that is how we see the revenue mix.

[Mikael Laséen]

Okay. And my final question is regarding a competitor here [indiscernible] potential acquisition of TV 4 Group [indiscernible] broadcasting anymore. What is your view on that and the implications for Nordic Entertainment? Can you say something about that please?

[Jørgen Madsen Lindemann, President & CEO]

Yes. Andres, I recon you have a view on this.

[Anders Hede Jensen]

Yes. I think it is hypothetical because there is no sort of presentation of the deal yet. Of course, I received this question many times and my answer sort of remains the same. We conduct our business in different -- of who owns what. We consider both these 2 companies that is now starting the limelight of this discussion. [indiscernible] broadcasting and [indiscernible] are our partners. And we hope to continue to develop that partnership with both of them. If and when something happens with the transaction and they present a new strategy, then we have something concrete that we can actually comment on. Currently, it would be pure speculation and we'd prefer not to add to the speculations.

[Operator]

We will now take our next question from Martin Arnell from DNB.

[Martin Arnell, Analyst]

Yes. My question is firstly on this lowered communication for MTGx. You've touched a lot on it already. But I'm just trying to understand what's changed incrementally here from the start of the year in Q1. You said -- you're talking about this white labeling. I understand that, but that was also an issue before and a number of events in the second half of the year, if that's something that you didn't know before or could you just help me to understand what's the incremental change from when you reported the Q1 numbers?

[Jørgen Madsen Lindemann, President & CEO]

Yes. I think we had said all the time that we have transformation of the focus. So we want to make sure that we capture the growth, the future growth, and that lies in the partner deals, the media partner deals and also in the sponsorship and that is what we have been focusing on. What we have seen is that we have lost content deals as well. So in the second half, there's a content deal which we had the first half last year, which was not materializing in the second half. So that is going to change. If we didn't get [indiscernible], we have lost a fairly big white label solution or white labor contract as well, it was quite big and our loss, but decided not to go to those levels. And that is, that has an impact, obviously on -- that has obviously impact on the second half. What we have seen as well as a consequence of this Battle Royale genre products being much stronger. And it is -- also has an impact, of course, on our subscription business, it's here where we are having the Counter Strike product. So we are seeing lower revenue in our subscription business in Australia due to the fact that we see more people are playing, obviously, PUBG and then Fortnight and we see an impact on that and our Counter Striker product. So it's a mix of things, which you have seen throughout the year. I think in quarter 4, and to see if you compare Q2 '17 to Q2 '18, you see a range of new sponsors. That's important. And you see a range of new media team, that's important. And then it is a very competitive white label market because that is probably where most people can -- they can produce an event eventually, but they can't deliver what we are delivering on the owned and operated. And that is where we going forward see more value instead of just being a production company. So a combination of less white label, a combination of lost original programming content, which was a bigger deal. That is why we see lower revenue growth and then again we had 80% growth in Q4 and that is something to mention, to be fair. Good news is that when we look at the time line right now for our owned and operated second half, we see double-digit growth on the back of the long-term partnerships that we have with media companies and the sponsors and so forth, which is our focus area.

[Martin Arnell, Analyst]

Okay. Great. And also this white labeling, if I understand you exited them, but this content deal that you lost, can you add any flavor why you lost them?

[Jørgen Madsen Lindemann, President & CEO]

Yes, because it was not good enough, so the partner didn't want to belong and all of that is really was not that profitable either to be clear, that content part as well and if it was our part of the deal in [indiscernible] so whatever this is part of the new machine meaning that we would like to make sure that the revenue we're having, we can see, long term it can deliver value, it can deliver profit. And again, we are not going away from white label. We are just making sure that the white label productions we are making, those white label production needs to be able to see that they can one day be owned and operated. So we need to -- we would love to share what we are doing. We have some sort of 30 publishers, IP owners who we are working with. And hopefully, we can demonstrate for them that, that game can come -- not just be a white label production one-off but can actually grow into be a big global tournament with us, and we can facilitate that with the media piece to having the sponsorship deals we are having here so far. So where we can see an opportunity for white label to be transformed, we will take that but we will not make losses on the white label deal just to get a deal, but that is and that this you have seen us doing since we acquired the company. As I said earlier, 30% of the revenue came from owned and operated when we acquired the company, 70% was production and now that has reversed completely. So now it is 70% coming from owned and operated and in this quarter 67%.

[Martin Arnell, Analyst]

Do you think that you will be able to be at growth from white labeling for the next year?

[Jørgen Madsen Lindemann, President & CEO]

That is the focus. The focus is to be -- to grow owned and operated. The focus is where we see news, when we see the forecast for the revenue streams, then we do see that sponsorship and media rights are the ones which should be growing. So this partnership should be the one be growing. But yes, we will -- hopefully, we are credible, strong white label partner and we will continue to have that strategic view that white label, which makes sense long term. We will continue to do. We will not say no to that, obviously. And we also are ready to use white label in favorite, if we can see long term that it would give us something on owned and operated. We need to show the partner that we have something unique. We are ready to take that bet. And right now, we are taking a lot of bets also with [indiscernible] where we're going out and we are posing a lot of PUBG, we have a lot of free bag events, we had in PUBG and the [ Kinnevik ] events. We have PUBG coming of now we were producing as well the PUBG global invitational, which then had a final in connection to [indiscernible]. So there is a lot of investment being made there, which is quite important. And then over time hopefully, should bring strong revenue and profit to us.

[Martin Arnell, Analyst]

Yes. And then just a final question on the esports. When do you think about expansion for the next years, I mean, just so we get a feel for how many events we should be expecting next year, owned and operated. Are you targeting any new big markets right now? Or have you paused that sort of expansion journey?

[Jørgen Madsen Lindemann, President & CEO]

No, we have not paused expansion. I think what -- first of all, in the second half of the year, we expect the same amount of events that we had last year. So that is what we are looking at right now. The next year, I will say as well, on the owned and operated side, without having the full calendar out, which make the same amount of owned and operated as it looks like now. Good news is, obviously, that we have revenue attached to these owned and operated, as I said as well. These long-term partnerships we're having with sponsors and media rights and so forth. So I think it's quite important that we are just trying, not just -- we are optimizing, we are making sure that the business we are creating is long-term stable. So what we don't want and what we don't want to create is to continue to have some historical productions, which we cannot see materialize going forward in owned and operated. It's also why we changed a lot of people now as well, also with the recent programming. That we want to make sure that we are getting paid well for the original program, just like we have gotten historically with our production companies and if that's not the case, we don't produce it. It may had given us revenue, but it definitely also gave us cost and losses, that's what's changed in all of that and the good news is earlier that the owned and operated was growth opportunities as we see right now, in the second half.

[Operator]

We will now take our next question from Henrik Nilsson from Nordea.

[Henrik Nilsson, Senior Analyst of Capital Goods]

Staying in the esports business. The partnership with Facebook seems to not really have been applauded by the gaming community that much. What have you done in order to improve the experience and what are the trends you've seen during the quarter? And if possible, also now in July?

[Jørgen Madsen Lindemann, President & CEO]

Yes. So you're right. I think we had a very tough start. If you look at the communities and also the UI experience and so forth. There's something, obviously, we are working [indiscernible]. Facebook is a fantastic partner for us and it's a fantastic partner for esports. Obviously, with that global reach, with their marketing opportunities, it's a very important partner. And what we will continue to do is, of course, to explore even further opportunities with Facebook. So the relationship or the partnership of the communities, I think, is more happy about this right now. As you know, those partners moved away from Twitch and then it was [indiscernible], which also was very successful, and then Facebook, obviously, had a very good plan on how to increase the reach and the relevance of those probably further and that is what they are delivering to us as well. So we are happy with the partnership. But you're absolutely right, in start we had was not what we had expected. So that we have enhanced.

[Henrik Nilsson, Senior Analyst of Capital Goods]

Okay. So the lowered guidance of the second half here, should we not interpret us having anything to do with this partnership being -- having the...

[Jørgen Madsen Lindemann, President & CEO]

I think it is -- it's quite -- again, we're done -- when we talk about the second half. So the second half is consequence of us saying yes and saying no to more opportunities which are not profitable. What we also said for the second half that you need to bear in mind is that we will have lower losses than the second half last year. And that, of course, must be a consequence that the revenue we get in, we treated not growing that much as we are saying will be good revenue. And that is, of course, the journey we are, as I've said. So again, it is -- to your focus [indiscernible] whatever I probably will produce for the world, esports on a white label solution and pay the bills for that we don't want to do. We want to invest with the people and the games which we long term can see, can be transformed into our owned and operated.

[Henrik Nilsson, Senior Analyst of Capital Goods]

I understand. And just to understand the mix effects here going forward. I don't know if it is possible, but I wanted to split out the profitability of the owned and operated versus the white label or at least give a comment on where it stands relative to the current average of the profitability.

[Anders Hede Jensen]

We cannot do that but, of course, the white label, as you have heard me say some times, we -- white label is, to a large extent, a fixed margin. And obviously, those should be profitable, those white labels, if we would engage with them or their lossmaking because that they make strategic sense for us that we can transform into an owned and operated. So therefore, it is a mixed bank. But you will see that the white label that we do, to a large extent, should give us a positive contribution, then we have the exceptions, the better edge around all the places where we want to invest in order to make sure that we can come as important in the federation as we are in the first-shooter genre. So that -- I think that's quite important. So it is a mixed bag, so it's a bit difficult to give you some granularity on this.

[Henrik Nilsson, Senior Analyst of Capital Goods]

I fully understand. There were some talks about these restructuring cost as well, part of that is related to ESL. How do you view now the setup and the organization in ESL and, I guess, specifically to owned and operated, if that is where the future is? In terms of structural cost, do you have the organization in place that you need to drive this going forward in the near term? Or do you have a lot of more investment need in -- to be able to support the growth?

[Jørgen Madsen Lindemann, President & CEO]

Gosh, it's a tough question. But obviously, we have a lot of strong new people onboard. I think what we are missing right now is some Chief Executive positions. We just got a new CFO onboard. We have operating officer in [indiscernible] and so forth. So the 92 position is a consequence of us, as I also said earlier in my speech, is a consequence as well of us having lower fixed cost base and outsourcing more. So 3 years ago, it might be -- was a U.S. B2B and can produce something. I think we see, particularly now that more and more production companies and others can actually produce so we don't need to have other people internally who can produce software , we can [indiscernible] upside. We need people internally who can create super strong, recommend stories, tournaments, sponsorship, offers and so forth. So these are the people we are focusing on. And you will see more optimization here and there and shift in confidence and so forth, like you have seen in all our other businesses as well. That is an ongoing journey. I think this one was a bigger one, where we definitely wanted to make sure that we didn't have a fixed cost base and something around [indiscernible] other places where we didn't, which we didn't find that strategic important as such and [indiscernible] options and wins, if we are in whatever do something in South Africa instead of flying 100 feet to South Africa. Like we have done, when we are producing home and sports event around the world, it's not that Anders takes a Boeing and fly all the people around the world to produce something, then you also use local equipment and so forth. So that is just optimizing the [indiscernible].

[Henrik Nilsson, Senior Analyst of Capital Goods]

Okay. And one or two last questions from me. You mentioned that Splay were weighing on the results in Studios and if I heard you correctly, it is the entire explanation of the decline in Studios. I mean, Splay is obviously now lossmaking. What are you doing to improve on that? And what do you think the outlook to managed to improve it is?

[Unknown Executive]

On Studios, the decline that you see is a combination of the consolation of Splay into Studios and also the fact that we have some calendar effects with more productions kicking in and where we get paid later on. And as I mentioned, we have a very strong order book, it's 40% up also and in development. So it looks very promising. And there is a shift in the market from nonscripted to scripted that we are capitalizing on and building a lot of capacity up on. So that is what you are seeing. On Splay, if the merger was between Splay and Nice One creating SplayOne, allows us to benefit from 2, sort of, distinct competencies in 1 organization and that will yield both some sales opportunities going forward, but also, obviously, some efficiency metrics and the fact that we merged 2 organizations. So the impact from Splay, I would argue, is a one-off. There is a delay in terms of the productions and I'm quite optimistic about the outlook for Studios.

[Operator]

[Operator Instructions] We will now take our next question from Julia Matoshchuk from Morgan Stanley.

[Julia Matoshchuk, Equity Analyst]

I do apologize, I missed in the beginning of the call due to technical issues. So could I could just kind of confirm is, your timing of split and what is the reason behind the delay? Now that is my first question. And then the second question on advertising outlook in Nordic Entertainment. And I also wanted to confirm when is the next price negotiation takes place on CPM? And then I will [indiscernible] with a question on esports.

[Jørgen Madsen Lindemann, President & CEO]

Yes. When you talk about the split, I think, as you know, [indiscernible] had EGM where they have distributed their shares to their shareholders and that has made at the same time, that we have our IPO on also a short period, meaning that we wanted to make sure that we were to engage with our new shareholders to make sure that they understood the strategic rationale behind this fit which we support and they can -- they will support as well so that start to make sure that everybody is on the same page. And that is what we have said, that we are postponing it. I think the next window would be March, I think, where we can deliver full [indiscernible] within Q4 [indiscernible] and full year result. So that is the next window. So nothing has changed. We definitely believe that there is a very strong rationale for creating those 2 equity stores that can enhance those 2 equity stores and that is also, which we had said [indiscernible] before something we have worked hard on. So actually the net management, the net company is working -- completely on a standalone basis, now like the [indiscernible] companies are doing. So the company has been [indiscernible], we just want to be mindful that we get all shareholders onboard. I think that is there to be true and make sure we have -- typically all our stores are there and then we have the next window coming up in March. So I think that was on the script. And then it was -- yes, yes, and then your question on the advertisers market. So overall, advertisers markets for the Nordics are looking quite strong. We delivered double-digit growth in our advertising video on demand platform and that combined with price increases, is compensating for the decline that you see in traditional linear viewing. So combined, that is a very strong development. And in addition to that, we see strong developments in radio, particularly in Sweden. So advertisers is looking fairly strong. Good demand. It's a matter of having the right mix where the reach is delivered by TV and the growth is delivered by [indiscernible] and now, also radio. We will negotiate the next round of yearly contracts early next year. The discussions typically start towards the end of this year. And we are in a strong position, very much driven also by the recently acquired strong sports assets. Where Handball is a very strong future asset that we will capitalize significantly on in both Sweden and in Norway. So overall, the advertisers business as a portfolio is looking quite strong.

[Julia Matoshchuk, Equity Analyst]

Okay. And in terms of esports, you mentioned a Battle Royale trend and is that a reason behind InnoGames sport determines, that's the first question and the second one, I was just wondering, you are doing a lot of things for PUBG. Are you going to do anything for Fortnight as well? It's a closed segment, people are quite keen to see it in ESL portfolio?

[Jørgen Madsen Lindemann, President & CEO]

Yes. I don't think that the focus in InnoGames has anything to do with our fans with the Battle Royale. I think InnoGames, as we have said, the performance there is [indiscernible], but we have had issues when it comes when we're trying to invest in some of the campaigns and we have not launched that many new games updates either. So now, we will then at Warlords coming into Q3, and that we have full marketing launch now. So hopefully, that will enhance also InnoGames' performance. Then when you talk about the Battle Royale genre and Fortnight, of course, we think that is very interesting. And of course, you have dialogue with them and others in that genre and now PUBG, it causes proof of the pudding but all the events that we have done with them, so that will continue to explore. And then, of course, we will have conversations with everybody in the Battle Royale genre as well. As I've stated, we would like to be as strong in that genre as we are in the first shooter segment.

[Julia Matoshchuk, Equity Analyst]

And the last question for me, please. Any guidance on esports profitability? So esports is not going to be profitable in the second half of 2018. Do you expect to see it turn in profitable in 2019?

[Jørgen Madsen Lindemann, President & CEO]

Let's just say what we see right now and the mix we're having right now for 2018 second half, obviously, it will be low [indiscernible], as we have said. That is also a consequence of the chase that we have been doing for quite some time, but we're not guiding on any financials for 2019.

[Operator]

We will now take our next question from Martin Arnell from DNB.

[Martin Arnell, Analyst]

Yes. Just a question too on this. If you could say something about the price inflation in the new Premiership contract that you recently announced. And sort of are you still thinking that viewingship of the Premier League football will increase in the Nordics this year and in the coming years?

[Jørgen Madsen Lindemann, President & CEO]

And there is a work inflation. As you know, we don't give the exact numbers. The inflation was within sort of the business case range that we carefully calculated, and we still deem it very strong at the price that is still relevant. If there's still growth, yes. Let me put it over like this if you take sort of Viaplay as a complete proposition, of which Premier League is one very key asset and the penetration on an aggregate basis it cost Nordics for export services per household is maneuvering around 50%. You can then argue that the coming years, that number will increase significantly. And a good part of that would be the combination of TV miniseries and sports. So yes, there is still growth to be driven in esports and having a very strong proposition including the Premier League puts us in a well position to taking more than fair share of that market share to be sort of handed out the coming years. So yes, making sure that you have sort of balanced and very strong sports portfolio, making sure that you set your propositions right on all the Hollywood content and then adds originals to that. That, we believe and continuously believe very strongly it's the right thing to do to drive streaming service growth for us going forward, and it's looking very, very promising.

[Operator]

That will conclude today's question-and-answer session. I will now hand the call back to Jørgen Lindemann for his closing remarks.

[Jørgen Madsen Lindemann, President & CEO]

Thank you all for your time today. We will announce our Q3 results on October 23 and hope to see many -- as many of you before then. We also look forward to keeping you up-to-date with our further progress on the split of entities. So thank you for your continued interest in MTG, and I wish you all a great summer. Thank you.

[Operator]

That concludes today's conference call. Thank you for your participation. You may now disconnect.