Modern Times Group MTG AB

STO:MTG B

Earnings Call Transcript 2018-Q3

[Operator]

Good morning, ladies and gentlemen, and thank you for holding. Welcome to MTG's Q3 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 NENT Group. Please go ahead.

[Jørgen Madsen Lindemann, President & CEO]

Thank you, operator, and good morning, everyone. Before we get into the numbers, let's take a few minutes to update you on our preparation to split MTG into 2 separate listed companies. Kinnevik has completed the distribution of its MTG shares, and so we have now continued our work towards the split of MTG, including the appointment of 3 new and highly qualified NENT Group board members. We now expect to list NENT Group in March next year subject to shareholder approval at an AGM to be held in Q1 2019. MTG and Nordic Entertainment Group have been operating as 2 separate organizations since the beginning of July, with separate boards, management teams and corporate brands. We are now entering a very intense phase, and you should, therefore, expect costs associated with this process to accelerate in Q4 and Q1. We will keep you regularly updated on our progress.If you turn to Slide #3, you can see that our sales were up 3% on an organic basis and operating profits before IAC were up 28% despite SEK 7 million of costs associated with the proposed split. The growth level was lower than in previous quarters, but this reflects the lower linear TV consumption levels of Football World Cup year with the coverage of -- on private channels, the timing of revenue flows in our production business and the decision to scale down nonstrategic esports businesses at ESL. The underlying businesses remain healthy.If we move to Slide #4, you can see that the group reported sales were up 9% and positively impacted by 5% currency and 1% from the net effect of the consolidation of Kongregate and the divestment of Trace. Our Nordic and International Entertainment businesses have continued to deliver higher sales and profits. While sales and profits for our Studios business was down, MTGx reported higher sales and was profitable on both EBITDA and EBIT basis. I will now hand the call over to Anders for his comments on the Nordic Entertainment and Studios businesses.

[Anders Jensen]

Thank you very much, Jørgen, and a very good morning to you all. Please turn to Slide #5. Nordic Entertainment sales were up 2% on an organic basis and profits were up 7% to a new all-time high for Q3. This was in fact the eighth consecutive quarter of profitable growth, and it underlines the potential of the business moving forward. Free-TV and Radio sales were up 3% on a reported basis, but down slightly at constant FX rates. Continued double-digit organic growth in Viafree and our Swedish Radio business was offset slightly by lower Free-TV revenues, which reflects lower linear viewing levels and the coverage of football -- of the Football World Cup on rival channels. Our Swedish Radio business has been an important revenue driver this past few years, and the performance has now accelerated further following the launch of our new radio licenses in the beginning of August. These have increased our reach at a lower license cost. We paid SEK 365 million during the quarter as an upfront investment for these licenses, which run over the coming 8 years. Nordic Pay-TV sales were up 8%, and Viaplay continues to be the main driver of this growth. The premium sports package has performed particularly well in the quarter as the premier league season has kicked off again, and we saw a great pickup around the European team win in the Ryder Cup [ golf ]. On -- our Viaplay Originals continued to perform well with Conspiracy of Silence, [ Foreign Language ] in Swedish, being one of the most successful launches so far. We also premiered our first Danish Viaplay original, Couple Trouble, [ Foreign Language ] in Danish. We secured a number of very important long-term sports rights in Q2, such as the English Premier League, the World and European Handball Championships and Formula One motor racing. This momentum continued into Q3 as we also acquired the exclusive Danish rights to the 2020 UEFA European Football Championships. This allows us to continue to be the undisputed home of premium sports, and the [ local content ] champion continued to be vital [ U.S. piece ] for Viaplay. If you please move to Slide #6. MTG Studios sales were down 23% on an organic basis when excluding the move of Splay from MTGx to Studios and profits were, therefore, down compared to the last year. Scripted sales were down significantly as 2 major productions, Thicker Than Water and The Ambassador, was postponed from Q3 to Q4. As stated before, the scripted pipeline looks very promising so I feel confident that Studios' growth will head into positive territory from Q4.Nonscripted sales were also down in Q3, while the SplayOne sales were up.Reported sales and EBIT for what will become the operating segments of NENT Group were, therefore, up 3%. This shows that we can deliver higher profits even when we have temporary shifts between quarters. I've several times stressed -- before stressed that NENT Group is robust and agile enough to deal with challenges as and when they arise, and this is yet another perfect example of this. That's it for my comments. Back to you, Jørgen

[Jørgen Madsen Lindemann, President & CEO]

Thank you, Anders. And if I ask you now to move to Slide #7, you will see the sales for Nova Bulgaria, which our only -- which is our only remaining operating access in the International Entertainment segment, were up 10% on an organic basis and profits were up 67% compared to last year. This marked yet another great performance by the Nova team, who have established market-leading positions in both online and offline entertainment segments. The Bulgarian regulator announced its decision in July to disallow the proposed sale of Nova to PPF Group. We appealed the decision to the Bulgarian Supreme Administrative Court on 30th of July 2018, and we are now waiting for the hearing, which is due in March at the latest. We have applied for earlier hearing, and PPF is also appealing the decision. Nova will remain within MTG if the sale is not completed by the time of our split. If we then move to Slide #8, you will see that MTG sales were up 12% on an organic basis and 28% on reported basis. EBITDA came in at SEK 78 million, which is the fifth consecutive quarterly EBITDA profit. The segment also reported a second quarterly operating profit. Our esports sales were up 6% on a reported basis and stable at constant exchange rates. The operating loss of -- was significantly reduced compared to last year and to Q2, following strategic decision when it comes to scaling down loss-making nonstrategic businesses and reducing our fixed cost base. Sales were also up 50% in Q3 last year, which provide a tough comp. ESL revenue from owned & operated events grew up 16% on a reported basis, but this was offset by lower work for hire volumes and lower DreamHack revenues due to the move of DreamHack Atlanta from Q3 to Q4. We now expect esports sales to be down in Q4 at constant exchange rates. This is primarily a function of a lower-than-expected work for hire events and tough comparisons with 80% growth reported in Q4 last year. We expect esports to deliver good growth levels next year. And the temporary current slowdown in second half is primarily due to 3 things. Firstly, strategic decision to scale down noncore business such as content production services for the likes of Hulu and Disney and industry services, which are essentially work for hire production for the [ nonpublishers ] such as [ rock league, elite league ] that reduce to produce [ for aces ] in Asia. Secondly, lower sales for our Counter-Strike subscription service, ESEA, which has clearly been impacted by the booming Battle Royale segment in general and by the success of Fortnite in particular. Thirdly, very tough comp as our esports business enjoyed over 50% growth in Q3 last year and 80% in Q4, as I just mentioned. The growth in our owned and operated business is very healthy, which is why we do expect sales growth for 2019 to accelerate. Owned and operated represents 65% of ESL's total 9 months revenue compared to 50% for the whole of 2017. So the strategic shift in our revenue base is largely accomplished, and we have also addressed the cost mix, which is driving sequential improvements in profitability, which we expect to continue in Q4. Moving to online gaming. The combined sales for InnoGames and Kongregate were up approximately 29% on a pro forma basis. InnoGames sales were up 30% in euros and 40% when translated into Swedish krona. The key driver was an exceptional performance by Forge of Empires, which released a number of key content update during the quarter. The commercial launch of Warlords looks very promising, following great user reviews, good retention metrics and encouraging monetization levers. Looking forward, we expect InnoGames year-on-year sales growth to moderate significantly in Q4 compared to Q3 as the quarter would have less content updates. We also expect EBITDA to be down compared to last year as a result of a significant step-up in margin spend, driven by investment in the clear potential of Warlords. As we have said before, it is typically taking [ 2 ] years for new games to become profitable. Kongregate sales were down in the quarter, and we expect sales to be down in Q4 due to the postponement of several important game launches to next year. Zoomin.TV's revenue were down 16%. The company is going through a major transformation, and we took a noncash cost of SEK 164 million as an IAC in the following -- in the quarter following the writing down of the balance sheet items. So to sum up. For MTGx, Q3 was the fifth consecutive quarter of EBITDA profits. Our esports business enjoyed continued healthy owned and operated sales growth, but limited overall growth as we strategically scaled down a number of noncore areas. We expect esports sales to be down in Q4 by way of substantial improvement in profitability and for the growth to accelerate in 2019 compared to 2018 and profitability to improve. Our online gaming business had an exceptional performance in Q3 and the growth rates will moderate in Q4, while EBITDA will come down as we ramp up margin. We continue to work on the transformation of Zoomin, but this will, as stated before, take some time. That concludes my comment. So I will now hand the call over to Maria for her comments.

[Maria Redin, Chief Financial Officer]

Thank you, Jørgen, and good morning, everyone. If you please turn to Slide 9. Reported sales were up 9% and the operating income before items affecting comparability was up 28% compared to last year, as Jørgen just explained. We have in the quarter increased our ownership in ESL by 8.4% to 82.5% for a cash consideration of SEK 149 million. As part of the transaction, the previous 2019 put and call option have now been replaced with the put options for the minority owners to sell the remaining shares to MTG from July 2022. The sellers also have the right to receive an additional purchase price in the event that we divest the majority of our shares in ESL at a higher valuation than the basis of this transaction. The remaining liability related to the ESL option thereafter is then a contingent consideration. It's valued at SEK 324 million based on the conditions in the agreement, which resulted in noncash revaluation gain of SEK 182 million that we reported as an item affecting comparability in the quarter. We also took SEK 164 million noncash cost in the quarter and related to Zoomin as an item affecting comparability. The cost arises from the writing down of assets following a thorough review of the balance sheet that we made after we acquired the remaining shares in the company in May. We do not expect any additional write-downs, but it will take time to turn around this business. If we then please turn to Slide 10. Net cash flow from operations improved significantly in the quarter as expected, this following a reduction in our working capital related to sports rights prepayments made last year for prolonged football rights. Our net debt increased to SEK 3.1 billion, which corresponds to 1.6x trailing 12-month EBITDA before items affecting comparability. That's it for my comments. And now back to you, Jørgen.

[Jørgen Madsen Lindemann, President & CEO]

Thank you, Maria. And if I can ask you to turn to Slide #11. The momentum that we have seen for quite some time now continued into Q3. Yes, the organic sales growth was lower, but that was due to a number of specific factors. Nordic Entertainment business has performed well against challenging market conditions, delivering its eighth consecutive quarter of profitable growth. Our Studios business has a steady pipeline that we expect to start contributing from next quarter. MTGx reported double-digit organic sales growth and was EBITDA profitable for the fifth consecutive quarter. We have made material progress in our preparation for the split of MTG into 2 separate listed companies, which we expect to complete before the end of Q1 next year. 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 Victor Höglund from SEB Company.

[Victor Höglund, Analyst]

I just have a few questions here, sorry for that, but if we start on MTGx. You say that esports should be negative in Q4 year-over-year, I suppose that's reported numbers, including FX and so on. But what do you mean negative? Is that a small negative or a big negative? Just any kind of comments around that would be great. And looking into 2019 on esports, you say that you have 16% growth in owned and operated at 65% of sales. White label should be more like-for-like from Q1, we know that from comments in Q2. I mean, does the owned and operated trend represent some kind of trajectory we can think about in 2019? Or what do you think about that? And in InnoGames, you say that the trends should moderate on sales, but it looks like they were above twice the revenue trend that we've seen historically in Q3. So very strong revenue trends in Q3. So what do you mean moderate here? Is that back to normal levels or lower or higher? And if possible, could you maybe comment if MTGx was roughly cash flow neutral or negative or positive in the quarters, so we understand? And I have a few more questions, but maybe I should let somebody else. And I can try and ask them later on.

[Jørgen Madsen Lindemann, President & CEO]

Yes. First, on your question on esports. As we have said, all the targets and the focus right now is, of course, to make sure that the owned and operated or the constant -- the products, which are strategic for us, that we continue to invest into those. And as you can see from the result as well in the quarter, they are growing. And also despite that we have flat revenue in the quarter, we are improving the profitability of the business and of course, shows that the revenue will start contributing. We don't believe this is contributing long term is going out. So therefore, when we talk about Q4, the fact that we raise it means that it is going to be negative and it's also then going to be negative than [ ARPU ] more than 10% at least. But I cannot give you a more a set figure obviously because we have a range, and the range coming into Q4 now as well, and we have also one more event from DreamHack coming in. But the fact that we raise it, just -- it's important that we understand that the underlying businesses, as you see, the owned and operated, is performing very well, and it's also in this quarter a big significant chunk of the revenue generated in the esports business. Look at owned and operated, growth of 19%. What we see is that owned and operated continued to increase. We saw 16% in this quarter, and that is also what we believe, of course, is going to happen in 2019. We have prolonged now a range of sponsors and got a range of new sponsors on board on better terms, obviously, and that is Intel, that is Mercedes, that is DHL, that is Dell and so forth. So many new sponsors are coming in and -- now that they can see and also prolong, now that they can see the return on investment of that marketing investment is actually paying off. So that, of course, gives us confidence that 2019 will be a fine year, the focus year as well for our esports business. When we talk about Inno and third quarter, it was an exceptionally good quarter in Q3 on the back of more content releases, and that is, of course, the way it works. When the customer, they start to consume and start to come, not to an end of all the content, but start to end on the content that we have produced. Obviously, you produce more, and that is what they are consuming now. And therefore, we had an exceptionally good quarter. Q4, we have a lot of focus on Warlords, and the marketing of -- in Q4 is mainly towards Warlords. That is what we're looking at. And as we also said, it takes normally 2 years to get such a game profitable. But it looks promising right now, and that is why we have decided to put some extra money behind Warlords in Q4. And then on the cash flow, Maria.

[Maria Redin, Chief Financial Officer]

Yes. On the cash flow for MTGx,, they were not cash flow positive for the quarter. And you also should remember, we did have, I mean, EBIT profitability for the quarter for x, as Jørgen said. I mean Inno did have a strong quarter. And we should remember, we own 51% of InnoGames, roughly consolidated, of course, [ and ] 100% of the cash flow. So over time, you may see dividend going out as well to the minorities in that company.

[Victor Höglund, Analyst]

Okay. Can I add a question? Or do you want me to wait?

[Jørgen Madsen Lindemann, President & CEO]

Please come. Please ask the question.

[Victor Höglund, Analyst]

Okay. So on NENT, if I may, the Free-TV was weak in Q3 you say for several reasons, which we already -- most of them we already knew. Just -- I mean, the underlying market here and the trends into Q4 and 2019, what's your feeling here and your position, the market demand out there and moving all the seasonality aside and the special effects on Q3? Do you still expect Free-TV, including Viafree and Radio and so on, to continue and grow? Or how's the demand?

[Anders Jensen]

Yes. Victor, thanks for the question. The Q3 has -- or Free-TV was under -- like you said, under pressure from the World Cup in football and also a little bit of the weather, even though we don't like to blame the weather. But the underlying markets are strong. Norway was a bit weaker in the third quarter, but Denmark and Sweden strong. You can see that visibly in the Radio sales. And then the prices on -- across our ad sales is very healthy and moving upwards, so -- and we see the market is coming back now in the fourth quarter. So I'm quite confident that we will see sort of a good pickup on the back of Q3 with the components that we had against us in Q3. Viafree and Viaplay is doing very well as the consumer demand is high and the markets are strong. So -- and I think it's a sign of robustness to be able to take sort of some headwind in the markets in the quarter and still deliver a good organic growth and good profitability increases.

[Operator]

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

[Martin Arnell, Analyst]

So my first question is to you, Anders, and it's regarding the advertising marketing in Scandinavia. You mentioned that Free-TV sales were down in Q3 in local currencies. And just if you look into next year, and I guess you're in the negotiations now, have you noticed any effect of the Swedish gaming regulation, for example? And sort of do you expect continued price hikes for next year?

[Anders Jensen]

Yes. Martin, on the price side of things, I'm quite positive. We have seen competition go out with very firm statement on price increases in line with or actually exceeding sort of our expectations at their end. And all media houses have now signaled price increases as a consequence of continued strong demand in the market and the key [ reach ] products being a more and more scarce resource. The negotiations have started, it's looking positive. I don't see any negative impacts from the coming new regulation regarding sort of gambling and betting. Actually, the contrary. Given the scarce resources you see in the market, there will be sort of a higher demand than available inventory, and this will allow us to capitalize both in terms of prices, but also in terms of a more consistent and high sale-out ratios. So the outlook for advertising businesses in AVOD, Free-TV and Radio is looking fairly solid.

[Martin Arnell, Analyst]

Okay, great. And then I want to ask on Bulgaria. What -- could you just repeat sort of what you said there? You have applied for an earlier hearing than the scheduled hearing in March. Was that correct?

[Jørgen Madsen Lindemann, President & CEO]

Yes, that is correct. As I've said earlier, we have appealed it to the Bulgarian Supreme Administrative Court. We did that the 1st of July, and they came back with the dates in March, and we ask to have that date moved forward. So that is the status right now.

[Martin Arnell, Analyst]

And do you think your case is -- I mean, how strong is your case there to really sort of have them change their mind?

[Jørgen Madsen Lindemann, President & CEO]

I think that our case is very strong. Obviously, from a legal point of view, I think we are very surprised that the outcome was like it was in all fairness, but -- so that's why we have appealed it and also the buyer has appealed it. So I think we are in agreement there. So we will now try to get a ruling earlier, and that is what we're working on. But we have a date in March right now.

[Martin Arnell, Analyst]

And could you just go through briefly the Plan B?

[Jørgen Madsen Lindemann, President & CEO]

The Plan B is to continue to grow the business and make sure that over time finds a home, which -- who can -- the home, which can help grow the business even further. It is a fantastic business for us. But obviously, I think we have laid out very clearly that the [ acreage ] [ stories ] or the [ stories ] we are having is [ a Nordic, ] very strong story for NENT and then at global online game. So therefore, Bulgaria, we should find a partner over time. But, in all fairness, they have been doing very well as it is right now. There is no rush for it. It is quite important [ to understand as well ] with 10% growth in revenue and 67% profit growth, that's fine. And [ that's to put it mild ], and he's also delivering very well on the online businesses as well down there. So still a performance for them. Obviously, there was an idea in making sure that we had a clear strategy on the Nordic business and on global online businesses. And therefore, we would like to find a new home for the Bulgarian businesses, and that is what we still would like to do.

[Martin Arnell, Analyst]

Okay. And just a final question for me. On the MTGx, what did you say your owned and operated events was in percent of total esports sales? And secondly, your -- sorry, just secondly, also on Warlords, I mean, the margin outlook for next year clearly depends on how much you sort of invest in the marketing for that. And how sort of aggressive could you go there in marketing? Would it be sort of a sharp EBITDA decline in the outlook for next year due to that?

[Jørgen Madsen Lindemann, President & CEO]

Yes. When we look at the owned and operated, what we are seeing as well [ and writing it ] that it is 65%. If you look at the first 9 months, it is 65% of the revenue in esports is owned and operated. Look at 2017, it was 50%. And when we acquired the companies in 2015, it was 30%. So it has been a quite aggressive shift in the various streams, at the same time, growing revenue as well quite significantly. And what we are doing right now is that we make sure that we can articulate the value creation we have around our events, and that is, of course, what our sponsors they're seeing, thus the prolongation of a range of media partners and also sponsors and also new publishers coming onboard, new games coming on board as well this quarter. To just give you an example, we are hosting a big global FIFA event. The FIFA tournament is something we are doing now, and we have the final now in Paris, the 26th to 28th of October. So that strategy is on track. When it comes to Warlords and when it comes to investment and decline in EBITDA next year, I think we do it in a controlled way, you can say. It's just that quite -- right now, it is an opportunity for us because we see some good traction and we see some good key KPIs, and therefore, we want to give it a shot here in Q4. So I don't think we are -- we have guided or cannot guide yet for 2019. But obviously, we have always said that the gaming vertical or the gaming segment should be profitable and also the fact that we will have good margins in that segment as well.

[Operator]

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

[Henrik Mawby, Senior Analyst]

Can you hear me?

[Jørgen Madsen Lindemann, President & CEO]

Yes, we can.

[Henrik Mawby, Senior Analyst]

Okay. A couple of more questions on esports. Firstly, I'm just trying to get a picture of what the like-for-like growth in owned and operated actually is. So either you can tell me exactly what it was or you can give me a view of how the number of events in, specifically, owned and operated has changed in this quarter and also what we should expect for Q4 in terms of number of tournaments or events.

[Jørgen Madsen Lindemann, President & CEO]

Yes. When you look at the owned and operated like-for-like quarters, Q3, it's up 16%. And that, of course, shows that we have more sponsors, more revenues and ticketing and more media and so forth. So that, as I say, that is -- that is good for us. And the same is also what we can see into Q4, that the owned and operated will continue to be a big part or the biggest part of the revenue generated, despite the fact that we have been going down. So that's on track. And then the owned and operated is, of course, as we have said earlier, that is the strategic partnership that we're having with the publishers, where we then can do much more around sponsorship and the content and so forth. And that is a quite important strategic thing for us. What we had to go off is content creation where we, for instance, Hulu, as I've said last quarter as well, decided to produce something upfront and before that we actually had committed. But to show people and eventually see if there was an opportunity for original content also for esports -- that is not normally what we do. I think Anders and his business, normally you get a deal signed with a partner and then you start to produce, and that is, of course, what we want to do now as well. So once we have a contract with a partner, then of course we would like to produce the content, so that is the small things, which we are changing, which of course make sure that we focus on the right revenues going forward and also that helps the profitability of the business as well as. So that is what we should expect in Q4. That is also what we should expect next year.

[Henrik Mawby, Senior Analyst]

Okay. But just a clarification here. So the 16% growth in this quarter was based on the same number of events as last year?

[Jørgen Madsen Lindemann, President & CEO]

Yes. It was actually even one event less actually, we had -- since DreamHack was moved to Atlanta. So DreamHack Atlanta is moved to Q4. So there was one event less actually.

[Henrik Mawby, Senior Analyst]

But Q4 than year-on-year will have the same number of events, if I understand correctly, right?

[Jørgen Madsen Lindemann, President & CEO]

Q4 will then have one more event this year, I think. So therefore, it's -- Stefan, he says no. It's the same amount of event, sorry.

[Henrik Mawby, Senior Analyst]

Yes, you've terminated another event. Okay, but that's good. So one event less in Q3 and the same amount in Q4. So that seems like growth could accelerate in Q4 on back of my -- in owned and operated, I would argue. Okay, one question on Nordic Entertainment. It has been covered slightly in the call here. But can you give us some more flavor on the split between Radio and Free-TV growth in the quarter? Because I know you had strong growth in Radio and pressure in TV from other events and other channels, but also the strong weather, I guess, impacted somewhat. Can you give us some more flavor on that, please? Are you still there?

[Jørgen Madsen Lindemann, President & CEO]

Yes. Can you hear me?

[Henrik Mawby, Senior Analyst]

Yes.

[Jørgen Madsen Lindemann, President & CEO]

Okay. Well, let me start over just to make sure nothing was lost. Free-TV was down slightly at constant FX rates for the reasons that we discussed. Radio in Sweden up double digit, very strong Radio in Norway despite the market being a bit weaker. So Radio is clearly something that is a good sort of destination for advertising when TV is slowing down, and that gives us some resilience when we have quarters that are facing some headwinds. But I wouldn't be overdramatic about the decline in Free-TV in Q3. The obvious effects are there, the World Cup in football, slight weather impact, of course, and that was in our plans. So overall, ad sales as a whole is doing a decent quarter.

[Henrik Mawby, Senior Analyst]

Okay. And one last question to Maria perhaps. What do you expect on central costs going forward?

[Maria Redin, Chief Financial Officer]

I mean, we remain what we previously communicated. We have -- at NENT, you should expect around SEK 250 million annual run rate and that the remaining MTG around SEK 200 million.

[Operator]

We will now take our next question from Rasmus Engberg from SHB.

[Rasmus Engberg, Research Analyst]

Yes. I wanted to ask first some question to Anders. Can you explain a little bit what the PUT decline has been this year across -- if you want to aggregate the market, that's fine with me. And then secondly, in terms of price increases, it is still that Sweden is leading followed by Denmark and then Norway. Or how does it -- how does the outlook look in your mind?

[Anders Jensen]

Well, if you take the PUT first. The PUT has been quite sluggish this year, and I think it's fair to say that it's partly weather-driven. On an aggregate level, we are looking at a double-digit, slightly above 10% in decline across the Nordics. Varies a little bit. We have seen highs up to 20%, 25% during the summer and then bouncing back quite good again. Currently, the PUT is doing slightly better in terms of lower decline than we anticipated. So it's a bit sluggish. But it's fair to say that the price increases that we are targeting and expecting will be of a higher number than the PUT decline. And yes, it has been Sweden-leading on the back of a very strong market and then Denmark and Norway. We do expect to see Denmark coming back a bit stronger now as well, and we have indications also from competition that, that is from the ambition. So overall, I would say that the situation prevails. The market is slightly down as a consequence of changed consumer behavior. The demand from advertisers remains high. TV continues to be the preferred media of choice when it comes to reach, and the prices will continue to go up. And in the meantime, we continue to develop our AVOD business, which is growing very healthy, both on price and on absolute sales.

[Rasmus Engberg, Research Analyst]

And then can you explain a little bit in the Studios business, was Splay at breakeven? And how did you manage to deliver such a high result when you had a huge sales drop organically? Or rather, can you say something about the future of this business? Maybe it's more important.

[Anders Jensen]

Absolutely. Splay is moving forward very strong, and the merger between Nice One and Splay into SplayOne gives us a very strong starting point. So the underlying Splay business continues to grow, and then we have a new component. So that is positive for the outlook for the Studios business. We have seen some delays, and the decline in sales is both of the previously quarter discussed delays of commissions. And then we had 2 productions [ meandering ], not decommissioned, but only delayed, and that gave us a direct impact bouncing back directly in Q4. What I can say, which is sort of a little bit about the outlook, is that the demand for scripted is beating previous expectations and the number of productions going from development into being commissioned productions is looking very, very healthy. So I think we are in a very good position to capitalize on the increased demand for content, and our Studios business will continuously play very important and maybe even increasing role for our future Viaplay success. So both show a good demand in the market and a good increased pipeline of development for Viaplay gives a good outlook for studios, I think.

[Rasmus Engberg, Research Analyst]

All right. And then I have some questions on the esports in particular. Are you prepared to say anything about the profitability of esports for next year? Do you think it will be at EBITDA positive? And specifically, you have said that Q4 will be weak. Is it not always so that Q1 is the seasonally weak out of all the quarters in esports business? Or is there a change in that in '19?

[Jørgen Madsen Lindemann, President & CEO]

I think the ambition is for '19 to make esports EBITDA profitable as we -- that is something we have communicated earlier, that is something we stand for. And Q1, as you say, is typically a bit weaker quarter. I think if we look at Q4 as well, what we have said is that despite the decline in revenue, we do expect lower losses in esports. And it is a function of the fact that we are trying to make sure that revenue, which is not helping us, that we don't do those -- these anymore, and to make sure that we're focusing on what we think is strategically important and that is the owned and operated. So that's the transformation we're doing. We will have the same event at least next year. And obviously we do expect that the owned and operated will then do better next year, and that is also on the back of what we are seeing right now with responses that we're getting in. As I said, they're prolonging the contracts with us, so they can articulate now return of investment on the investments that they're doing to esport, which is quite useful. So many new are coming in and also the prolongation of sponsors.

[Rasmus Engberg, Research Analyst]

And how long does your Facebook contract for Counter-Strike? How long is that? Is it 1 more year or...

[Jørgen Madsen Lindemann, President & CEO]

Yes, it's 1 more year, probably yes.

[Operator]

[Operator Instructions] We'll take our next question from Mikael Laséen from Carnegie.

[Mikael Laséen]

Yes, I have a few questions. First of all, regarding InnoGames, can you tell us the EBITDA margin for Q3? And how much you capitalized on R&D?

[Maria Redin, Chief Financial Officer]

No, we don't explicitly provide the EBITDA margin. You have it when we acquired the assets. And as you see, it was a stellar performance in the quarter so you could expect that the EBITDA margin was higher in the quarter than what we said that the average run rate was when we acquired the assets. And when it comes to the capitalization, I mean there's -- in line with the previous levels in InnoGames. So there's no change there.

[Mikael Laséen]

So how much are you approximately investing in R&D?

[Maria Redin, Chief Financial Officer]

I don't have any exact number for Inno capitalization in front of me, but I can get back to you separately on that one.

[Mikael Laséen]

Okay, that would be great. Okay. So when it comes to esports, you said earlier that you expect limited growth in the second half and now you had 6% and you expect negative in Q4. So what is the reason for this? It sounds like it will be a bit lower than limited.

[Jørgen Madsen Lindemann, President & CEO]

Yes. No, it will be lower than limited. And I think we also gave the reasons, and some of the reasons were obviously that the esports services we are doing less unique content, so some of the content fees have not been prolonged. And then some assumptions on [ cooperation ] of winning some of the -- some of new public contract, which has not taken place yet, has not materialized into Q4 either. So it is a range of things, which has changed. Again, I think, important is that we demonstrate that these owned and operated businesses, that they continue to grow, and that is the focus that we're having. And also, as said earlier, that demonstrate the sponsors can make money on the eyeballs going into esports is something that we can prove now. And that, of course, would help the businesses and the tournaments that we have going forward.

[Mikael Laséen]

Okay. Excellent. [ It was helpful clarity. ] And also can you talk about your distribution strategy for esports? Is it working the current setup? Is this the reason for the relative weakness in the second half? And how are you looking at this going forward?

[Jørgen Madsen Lindemann, President & CEO]

Yes. No, the distribution is actually doing very good, meaning that we have more and more takers of esports. It's quite significant actually, and it is a broad range of takers. As I said earlier, you have Vodafone distributing, also now they make a new tournament in Italy, you have Telefonica, you have AT&T, you have a range of OTT platforms like Rogers in Canada and you have Viaplay as well in the Nordic, Anders?

[Anders Jensen]

Indeed.

[Jørgen Madsen Lindemann, President & CEO]

Thank you very much. And you have, of course, a range of linear broadcast as well, particularly at cable companies, particularly in areas where broadband or mobile broadband is not that penetrated. So it is a wide range of takers. I think interesting of course is that, particularly where we measure also on the linear TV channels right now, that some of the public service broadcasts had shown a lot of events and that has generated very good traction and very high ratings amongst the -- your [ entire ] groups, of course, which isn't a problem with the current [ PUT levels ] that, particularly the young ones are [ leaving ] So there is a broad range, more comes, more partner come onboard because now they can see the effect of the products as well that it also can provide people to Free-TV, to cable companies, to OTT platforms and of course, all the online partners we're having like Facebook, like YouTube, like Twitter, like Twitch and so forth as well. So it is a wide range.

[Operator]

We will now take our next call from Victor Höglund.

[Victor Höglund, Analyst]

Sorry, my line was a bit weird there for a while. But I just wanted to -- did I hear right that you think owned and operated could accelerate ahead? Or was that -- did I hear wrong?

[Jørgen Madsen Lindemann, President & CEO]

Yes, we think that the owned and operated will do better next year, that is what we expect. We expect to grow owned and operated in 2019.

[Victor Höglund, Analyst]

Better than the 16% in the quarter? Or just better than '18 in general?

[Jørgen Madsen Lindemann, President & CEO]

Better than '18 in general.

[Operator]

We will now take our next question from Julia Matoshchuk from Morgan Stanley.

[Julia Matoshchuk, Equity Analyst]

So also a quick question from me. The first one on media rights in esports. It seems like the news flow actually has slowed down a little bit. Before, we heard a lot about you signing deals with linear broadcasters and Facebook and Twitch. Could you please speak a little bit about trends there? What are the plans when the deal with Facebook terminates? That's the first question. And the second is, well, my line was a bit wobbly and I misheard. 2018: do you expect profitability of esports? Is it breakeven? And again, in terms of what you've just said about 2019 organic growth in esports, is 16% growth essentially a new trend that we will see?

[Jørgen Madsen Lindemann, President & CEO]

Yes. When it comes to the media rights, as I said earlier, we have more and more takers of media rights. I think you [ only capture to what we -- ] which we had some 6 months ago. I think we had 38 takers of the signal, which is quite significant. So it is -- more companies are taking esports, more also now telco companies, as I said AT&T is the recent one, who we have made a bigger deal with and also prolong the arena battle partnership with them. And Tencent is also now in the second year. So that is what we see. We don't announce every -- all the new ones coming onboard, but we see good traction there. And then when it comes to the Facebook deal, very happy with the partnership with Facebook, and hopefully we will see strong traction also when we are going to prolong that contract or that contract is expiring to see who will then would be the distributor of our pro leagues going forward. Hopefully, there will be opportunities for many. When it comes to the owned and operated, what we are saying -- what we're seeing is that we are getting more sponsorship deals and we get more media rights and so forth, also the 2 segments which are forecasted to grow in esports going forward. And there, we are growing as well and we do expect that to continue also in 2019.

[Operator]

That concludes the question-and-answer session. I will now hand the call back to Jørgen Lindemann for his concluding remarks. Thank you.

[Jørgen Madsen Lindemann, President & CEO]

Thank you all for the time today. We will announce our Q4 results on February 5 and hope to see as many of you before then. We also look forward to keeping you up to date with our further work split into MTG and [ list ] NENT Group. Thank you for your continued interest in the business, for our performance and potential, and goodbye for now.

[Operator]

That concludes today's conference call. Thank you for your participation.