When Ronald Lauder, heir to the Estee Lauder fortune and a former U.S. ambassador to Austria, sent consultant Len Fertig to East Berlin to check out media opportunities in 1991, there were plenty of other U.S. executives doing the same thing.
“There was a period of time when I was first there when the region was very hot and everyone was jumping on planes to get out there,” said Fertig, who is now chief executive and president of Lauder’s London-based Central European Media Enterprises, or CME. “But then it cooled off and everyone moved on to Asia.”
CME persevered and is now the largest private broadcaster in Central Europe after investing more than $200 million in the region. The company runs national commercial channels in the Czech Republic, Romania, Slovenia and Slovakia and has interests in regional commercial stations in the Ukraine and Poland. The prize is the advertising potential of a combined audience of more than 86 million people in six countries.
Nova TV, CME’s first channel launched in 1994 and its most successful so far, now captures 70% of the 10.3-million Czech television audience with its blend of Czech sitcoms, news and American programs such as “Baywatch” and “ER.”
Nova TV turned a profit in just 18 months, rather than the three or more years most broadcasting investments need to break even.
The reason CME got a foothold in Central Europe ahead of other U.S. or European media companies is a complicated blend of strategy and an insider’s knowledge of the idiosyncratic business practices of the former Communist countries.
Ronald Lauder’s deep pockets were key in providing the seed money to take costly risks in the region, but Lauder brought more than money to the venture. Behind the scenes, Lauder’s connections and those of Mark Palmer--a former U.S. ambassador to Hungary who was an original shareholder in CME’s precursor, Central European Development Partners--smoothed the way in the region.
“My involvement in the region goes back many years, and I always knew there would be a once-in-a-lifetime opportunity in media once the Iron Curtain came down,” Lauder said from his New York office.
“When we won the first license in Berlin, there were 20 bids for the same license; in the Czech Republic the bids numbered 27. Most of the companies bidding were based all over the world, and they flew into Berlin and Prague, met the people and left. We were there day in and day out. We understood the importance of being local.”
CME’s strategy is to find local partners in each region and bid with them for commercial terrestrial licenses rather than trying to establish cable or satellite channels, such as MTV, which could be delivered across a number of territories.
Time Warner’s HBO and France’s Canal Plus both have Central European investments, but they have taken the trickier cable and satellite option. Other entities, including John Kluge’s Metromedia International, have stuck to delivery systems in the region such as wireless cable and telecommunications.
Fertig, a New Yorker who now lives in London, brought to CME a knowledge of U.S. broadcasting from his experience in setting up the pay-per-view channel Request TV and the Entertainment Channel, a precursor of the Arts & Entertainment cable channel.
Fertig wooed the Hollywood studios, which would not sell to many businesses in the region because of bad debtors and piracy. Now CME’s channels get to choose from the best television in the world at prices that reflect the lack of competition for U.S. product in the market.
“We are opening up new markets for the studios, and, unlike their other experiences in this region, we pay our bills and protect their copyright,” Fertig said.
CME channels such as PRO TV in Romania and POP TV in Slovenia deliver top U.S. shows such as “Chicago Hope” and “NYPD Blue,” with a proportion of local production mandated in each government license.
CME typically obtains original production through the local partner it recruits in each region.
“In the Czech Republic, Czech TV employs 4,000 people; we have 420 people at Nova. We operate on a third of their budget and one-tenth of their staff but command 70% of the audience,” said Fertig, who works with a staff of 30 at CME’s London headquarters.
Once NOVA took off, it became clear that CME’s strategy in Central Europe could pay off, and CME went public on Nasdaq (traded as CETV), with Lauder retaining the majority ownership.
Investors continue to back CME. Fertig just completed an October roadshow of the U.S. and Europe that raised $150 million.
Investor interest has been helped by a lot of good press, carefully cultivated by flying European journalists to the launch of each of the new networks at landmark venues. PRO TV was launched with a party in the ballroom of the former Ceaucescu Palace in Bucharest, while Nova was launched at Prague’s opulent National Gallery.
CME’s franchise banks on continued growth in the advertising business. For now these newly deregulated markets are expanding. Gross television advertising in the Czech Republic grew tenfold from 1991 to 1993 and last year stood at $114 million. CME’s Nova took $53 million, while state television channel Czech TV took $15 million, according to the London-based consultant and publisher Baskerville Communications Corp.
But CME’s position as the dominant commercial terrestrial broadcaster in many markets will not continue indefinitely. Television markets in the region are maturing and competition will increase.
In the Czech Republic, Premiera TV, a Prague commercial broadcaster, is gaining ground. CME’s newest market, Poland, has a strong existing commercial broadcaster, Poltel, which commands 30% of the audience, making entry into that market tougher.
Some of the breaks implicit in CME’s original licenses will also change. Nova TV’s broadcasting license allows it to sell 20% of each hour for commercials, while state-owned Czech TV is permitted to sell advertising on only one of its two channels and only 10% per hour.
Still, CME has built an impressive base of assets in the region and the brand awareness of being the first commercial broadcaster in many parts of Central Europe. Analysts think CME’ s assets could make it an impressive takeover target for investors who missed out on licenses in the region the first time around.