'NETFLIX AND OTHER GLOBAL PLAYERS WILL NOT JEOPARDIZE US'

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1 DRAŽEN MAVRIĆ, PRESIDENT OF THE MANAGEMENT BOARD AT NOVA TV 'NETFLIX AND OTHER GLOBAL PLAYERS WILL NOT JEOPARDIZE US' Almost everything they offer is already available through various other services. There is no success without offering domestic content, and it is hard for them to invest in local production for a market comprised of four million people. In management, change is allegedly desirable, but in the case of Dražen Mavrić, the model of not disturbing the thing that works well most likely applies. He has been at the helm of Nova TV for 11 years. In this period, he has turned the commercial television network into the national number one, bringing it to leading positions even in the programming segments wherein the public television network was considered as untouchable not so long ago. In the interview for the Globus magazine, he discusses the state of media market, Nova TV s model of success and major changes brought into the media business by new breakthroughs in technology. Last year, Croatia got out of a seven-year recession. Is the positive mood also present in the TV market? Last year was very successful for us, at least compared to the preceding years. We maintained our leading position in all key indicators in our business, from ratings to profitability. We are proud of it, especially because still haven t really noticed any significant positive trends in the market. So, the market is still in decline? The market has been in a free fall since 2009 and even though television has had somewhat better results than the rest of the media industry thanks to its strong position, our assessment is that even this sector of the market has lost around 40 million euros worth of advertising revenue over the past six years. However, we cannot affect this. Advertising budgets, which are our main sources of revenue, are directly influenced by macroeconomic movement in the country, as well as by economic activities of companies and our citizens consumption. Last year s progress is still not enough in this

2 context. To be more precise, according to our experience so far, we do not think that a one- or twopercent increase in GDP can result in a significant market growth. Considering this, it seems that you are in quite a challenging position. You are a market leader which is required to keep ensuring business growth in an environment which is not growing, but stagnating There is not a lot of mystique here. This is a dynamic industry which is constantly changing and where you need to continually adapt from one year to the next in order to maintain your position. You have to do even more than that if you want to achieve further growth. So, this means you constantly need to question your own strategies and the way in which you work, and it also means that you always need to work on new products. But you have to keep in mind that we are a very particular industry when it comes to the relationship towards consumers. What makes it so particular? Well, our final product is completely free for our end users. It is very easily consumed, but it is also as easily not consumed. At any given moment, there is an equally free alternative which can be consumed as easily as our product. In this context, it is also clear that the leading position in the market does not offer any particular protection from the competition in the long run, and it requires nonstop effort and work. This fact is even more highlighted when all the major changes in technology that are currently taking place in our industry are kept in mind. Are you referring to new online video platforms? Not only to them, but also to all other innovative technologies related to production and distribution of video content. Do these platforms pose a threat for the future of the so-called linear television? I firmly believe that they do not pose a threat, but the exact opposite that these new technologies will significantly contribute to the status of television. The fact that video as a format is currently available on numerous platforms and devices ultimately strengthens us and goes to our advantage, but only if we find a way to exploit these new great opportunities to use our business in the long run. Simply said, in the past we used to be able to deliver our content to users only via TV devices, but now

3 we are able to do it through various formats on computers, tablets or smart phones, which I see as enormous potential. I often hear stories about how video on digital media will turn into a sort of disruptor of TV business, but we need to be realistic about it. Although the consumption of this type of video content has grown over the past years, the ratio between, for instance, YouTube and linear television is 5 versus 95 percent. Thus, I don t see digital formats as substitute for linear television, but as sort of an extension of our business. Still, the question that remains is how to monetize this. I agree, monetization is a special challenge. Actually, the concrete problem is not monetization, but performance measurement. This is extremely important for our advertisers, who target specific groups of consumers, and these methods have been developed in linear television to the level highest than anywhere else in the media. The situation is different when it comes to digital media. With digital media, there is no possibility of segmentation to individuals, but only to households or perhaps to the best assumption of age and particular lifestyle, interests or taste of end users, which is very important. It is important for the industry that the rules of the game are clearly established for everyone, so that we can objectively compare effect and value of advertising across different platforms. So, you are able to monetize your online services? That is an evolution in progress. We started developing these new platforms because we had rightfully foreseen key trends in the industry and we had anticipated that we would have to be more oriented towards providing our users with content across all platforms, devices and distribution channels. This knowledge resulted in Dnevnik.hr becoming the first video portal in Croatia, as well as in OYO being the first video on demand platform in the country. As far as monetization is concerned, Dnevnik.hr and OYO are two different stories. Dnevnik.hr is based on marketing revenue, for which I see room for growth through perfecting the measurement methods I described earlier. When it comes to the video on demand model, it is growing in the whole world including Croatia, wherein there are certain negative specificities. The first one is, of course, low purchasing power which also implies a lower disposable income for consumption of this type of content, while the other one is piracy, which is very widespread.

4 So, piracy causes you problems? Of course it causes us problems because, when we publish content on our service and try to sell it to users, the pirated, free version of the same content appears as soon as the next day. In fact, pirated content is often available even before it becomes part of our offer. This puts our business model in jeopardy. If the purchasing power was better and piracy eliminated, do you think that domestic consumers would have substantial interest in buying content like that? Monetization makes sense when you offer the user something extra compared to what they usually get for free. OYO offers an enormous amount of content which is not available on linear television. Additionally, we also offer the option to watch the content which airs on TV even before it is broadcast on television. This is a very popular service because it meets the needs that arise from new consumer trends such as the so-called binge-watching, which is when periodic content like a TV series is consumed within one time span. Do you see Netflix and other global platforms arriving to our market as potential threats? If you carefully analyze the reasons behind the success of Netflix in its home market, the USA, you will see that it is based on significant amount of domestic content. However, in Croatia, Netflix primarily offers the content from American production which is already available through various other services. So, what new content do they have to offer? At the same time, it seems unlikely that Netflix will start producing local content for Croatia a market comprised of four million people. In the past several years, Nova TV has made a significant step forward within the segment of domestic production Yes, I would say that the production of domestic content is embedded in this company s DNA and it has been our main direction from the very beginning. And we have chosen this direction because it is actually the only way to differentiate our product from other products available in the market or from the content that our competition could buy.

5 Still, it seems pretty risky to start producing a 160-episode series, what with the realistic possibility that the market would not like it The risk is definitely gigantic, especially when you do it for the first time. For us, this happened in 2009, when we started broadcasting the series Najbolje godine ( The Best Years ). That was the riskiest move I made in the 11 years I ve spent at Nova TV. I was personally ready for all kinds of ways in which this move would unravel, but I believed that, if we made a good series, it would be extremely successful. The only reservation we had revolved around whether we would do a good enough job and hit the pulse of the audience. It turned out that we succeeded then, as well as every time since then. How does this process of deciding which series you will produce look like? What information and analyses do you use to make such a decision? We would like to keep the details to ourselves, since we don t want to help our competition (laughs). The one thing I can say to all readers of this interview is that Nova TV s doors are open to everyone with an idea or a script that they feel has potential to be turned into a TV format. Of course, throughout these 11 years of being at the helm of this company, I have heard all kinds of ideas. It makes sense that people who are not in this business often think that their ideas are great, only because they would watch that type of program. However, our job is not to satisfy certain niche audience or our own interests, but to think about how to satisfy as wider audience as we can. This is not simple, but we have had a lot of success with it and gained some experience in knowing how to achieve it. As I said, I cannot discuss it in any more detail, but in principle I can say that it is important that you realize why something has not worked and why something else has. By understanding this, you also obtain the realization of how to create something that will become a hit. Were you surprised by the success of some of your TV shows? When we assess the ratings before launching a program from our production, we never think about the maximum result. For us, the primary goal is to achieve the minimum which we need to make the production profitable. Sometimes the results are significantly higher than these minimal expectations. Still, it is important to emphasize that the success of a series or a show is not only a question of

6 production, but also of the positioning of the program. When we first started airing Najbolje godine ( The Best Years ) in prime time, we were the first ones who had done this, so lots of people predicted we would fail. Today, this has become almost a standard on all TV networks. But truth be told, it was quite a risk It was also risky to invest in news programming, especially since HTV was considered supreme within that segment of programming at the time We did not have too many doubts about that, although I have to say that we had a major support from our corporate group in this process. Nova TV normally operates with a very high level of independence from its parent group when it comes to its programming and management, but the group helped us a lot with the development of our news programming. Did they help you financially? They helped us both financially and with their knowledge. I think that the financial aspect of news programming production is often overstated by claiming it is expensive. The production most certainly has its price and it is not small, but it should be observed in the context of the importance that this type of programming has for the whole network. News programming is the only programming element that is broadcast constantly and in predetermined timeslots. In a way, it is the spine of programming and an important segment in defining the network s image. Its ratings on Nova TV have been excellent and they have been continually growing for years. Do you think that specialized cable channels, such as N1, can jeopardize your position within this segment? As I have said before, linear television is without competition when it comes to reach and a live program cannot be replaced with pre-recorded content. In the context of these two facts, I believe that we are offering by far the best combination of values for the users, especially considering the fact that we proved to be very adaptable in the past, as well. For the seventh year running, our news programming has been the most watched. For instance, in the midst of the latest political crisis which lasted for 19 days, we aired as many as 11 hours of breaking

7 news content, and once again we were the most watched. This is due to the fact that we have the strongest and the most trustworthy news programming brand. Viewers trust us and they consume our programming in order to get informed. The key element is the team of top professionals who live their jobs, as well as the state-of-the-art technology we implemented, which provides viewers with additional value of news consumption. Do you have any plans to launch new channels? We always have plans to further develop. At the moment, the situation is unchanged. We operate through two channels Nova TV and Doma TV, and out competition has more channels. I don t want to get into the discussion about whether it is a fair market game or not, but I would like to say that we applied for the tender for allocation of new channels, but our concept was not chosen. At the same time, there is only one empty channel left in the multiplex. However, there is nothing we can do about it, so I don t see any reason for us to worry about it. The goal is to offer our viewers the best possible content on the two channels we have and I am sure that we have succeeded in doing so, year after year. We can discuss new channels when we will have the opportunity for that. After all, even with two channels, we have the highest ratings in Croatia and the highest reach by far. Namely, one advertiser can reach 3.9 million people in the Croatian market with a TV advertisement over the course of one month, and they can reach as many as 3.7 million people only by advertising on Nova TV. We confirm our leading position in the market every minute of every day, and we intend to continue to do so in the future. KEY FIGURES 3920 episodes of Nova TV s News have been aired since its launch 40 countries bought rights to broadcast the series Larin izbor (Lara s Choice) 3.7 million people are reached by Nova TV s program every month

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