Organic growth in Central, Eastern Europe is CME's goal.

Founded in 1994 by Ronald Lauder, the American heir to the Estee Lauder cosmetics fortune, CME--which stands for Central European Media Enterprises--(NASDAQ: CETV), now owns and operates eight broadcasters in five Central and Eastern European territories. As CME gears up to buy an 85 percent stake of the Czech Republic's TV Nova for U.S. $900 million (in a deal expected to become finalized during the second quarter of 2005), this is set to become nine stations in six countries. The acquisition price is made up of approximately $810 million in cash and 3.5 million in CME shares; of the cash element, $680 million has been raised from investors and $130 million came from CME's cash reserves.

The 3.5 million shares represent approximately 10 percent of CME.

CME's chief executive officer, Michael Garin, sees this most recent acquisition as crucial to the development of the group. "Certainly," asserted Garin, "I see the acquisition of TV Nova as being the most important CME has ever made." Underlining the point, Garin continued, "I would go so far as to say the acquisition has transformed CME from the leading regional broadcaster into the dominant regional broadcaster."

Although he did not rule out future acquisitions following the TV Nova deal, Garin explained, "we have no need for acquisitions, our investors are comfortable with our prospects for organic growth, and so we have no need to build. Other companies," he continued, "do deals to shore up, or to maintain growth; we have no need for acquisitions to maintain or defend our dominant position. But of course, if an opportunity came along that stood on its feet financially--offering sufficient ROI--we would certainly be interested."

In Slovenia, the group operates two stations: POP TV, reaching approximately 87 percent of Slovenia's two million population; and Kanal A, reaching about 81 percent of the Slovenian population. Although Slovenia's population is small, it has the highest per capita GDP in Central and Eastern Europe, and television-advertising revenue in 2004 was between $50 and $60 million, up from $35 million in 1996. In 2004, POP TV was the country's most watched broadcaster with an average audience share of 27.6 percent, just ahead of state broadcaster SLO1 with 25.8 percent. Kanal A, whose schedule is designed to be complementary to that of POP TV, was the country's fourth most watched channel with an average daily audience share of 8.3 percent. Both channels offer a mix of acquired programming and local productions, which, in 2004, accounted for 29 percent of POP TV's schedule.

In the Slovak Republic, which has a much larger population of 5.4 million and a much larger advertising market, worth between $75 and $85 million in 2004, CME'S Markiza has built its programming strategy around the strong family values that permeate Slovak society. This, along with a much larger element of local production--representing approximately 45 percent of its schedule--have put Markiza in a dominant position, with a 2004 average daily audience share of 39.8 percent, almost double that of nearest rival, state broadcaster STV1, which commands a 20.0 percent average daily audience share. One of Ronald Lauder's beliefs behind the establishment of CME was that following the Fall of Communism in the region, there would be a huge demand for an independent voice to replace decades of state-controlled news and broadcasting. This could not be truer in the Slovak Republic, where, in 2004, Markiza's evening news attracted an average audience share of 80 percent.

Slovakia's close neighbor, the Ukraine, is easily the most populous country in which CME operates, with a population of 47.6 million. And, although in 2003 the per capita GDP was only $1,040, Ukraine also has one of the most exciting and fastest growing advertising markets in the region. In 1996, television advertising in the Ukraine was worth just $21 million. By 2004, this had grown somewhere between $130 and $140 million. CME operates one television outlet in the country, Studio 1+1, which broadcasts programming, and also sells advertising, on state-owned UT2. Operating 24 hours a day, it reaches 95 percent of the population. Although in 2004 Studio 1+1 had the second-highest average daily audience share of 21.2 percent, behind rival commercial broadcaster Inter with 23.2 percent, its locally produced drama, The Bourgeois Birthday, attracted the largest audience in the history of Ukrainian broadcasting, with a massive 60 percent audience share. The company also has a strong history of filmmaking and in 1997 its film, A Chef In Love, produced by honorary president and former general director, Alexander Rodnyansky, was nominated for an Academy Award in the Best Foreign Film Category.

Ukraine's southern neighbor, Romania, is another rapidly expanding advertising market, having grown from $44 million in 1996 to somewhere between $110 and $120 million in 2004, and is a market in which CME has three broadcaster operations: PRO TV, Acasa TV and PRO Cinema.

PRO TV reaches approximately 72 percent of the Romanian population of 21.2 million, and in 2004 had an average daily audience share of 15.8 percent, which put the channel in second place behind state-controlled TVR1 with an average daily share of 22 percent. However, TVR1 covers 99 percent of the country and the greater daily share is, in part, a reflection of this disparity of distribution. Again reflecting CME's dedication to news, PRO TV's news broadcasts regularly attract over double the audience share of TVR1. Targeting an audience of urban adults in the 18-49 age range with medium-to-high incomes, PRO TV's programming strategy consists of mixing top international series, movies and sports, with a wide variety of locally-produced news, light entertainment and comedy.

Targeting a female audience with telenovelas, films and soap operas, as well as news, talk shows and entertainment programs, Acasa TV is Romania's fourth most popular channel, having achieved an average daily share of 7.4 percent in 2004. However, like PRO TV, Acasa TV also suffers from low distribution, reaching only 58 percent of the population; and in those areas that receive the service, it achieved an average daily share of 13 percent, which would put it in the third spot, ahead of commercial rival Antenal. Similarly to its larger sibling, Acasa TV's schedule contains approximately 40 percent Romanian productions. CME's third Romanian station, PRO CINEMA attracts a very small audience share, focusing on movies, series and documentaries of interest to Romania's educated and upwardly mobile population.

CME also owns Croatia's Nova TV, which reaches approximately 80 percent of the country's 4.3 million people. Broadcasting 18 hours a day, and with approximately 20 percent of its schedule produced locally, Nova TV offers a mix of movies, series, news, sitcoms, telenovelas, soap operas and game shows. Through 2004, Nova TV managed an average daily share of just 14.3 percent, putting it in fourth place behind state-controlled HRT 1 with 39.1 percent, HRT2 with 17.8 percent and RTL with 16.7 percent. But, in November of last year it launched a new soap, Our Little Clinic, which, despite its late launch, finished the year as one of the top-rated shows in Croatia.

Garin believes that it isn't just this impressive stable of broadcast assets that differentiates CME from many of its rivals. "Local partners," observed Garin, "are key to our strategy, and that makes us different from rival companies in the region that operate a much more centralized command and control structure; we believe much more in a collaborative process." Illustrating this point, Garin noted that, "even in the case of the TV Nova deal, Czech group PPF, [from which CME acquired its stake of TV Nova] received 3.5 million CME shares and is therefore still involved, albeit at a 'parent level'."

Garin also believes, "the question of synergies separates us from our rivals. We think synergies are sub-regional, [like, for example,] between the Czech Republic and the Slovak Republic, and between Slovenia and Croatia." Other differences emerge between CME and its rivals, and Garin continued, "we push decision-making as far down as it will reasonably go," explaining, "the Regional News groups meet twice a year to coordinate operations to avoid, for example, CME as a group sending six crews to cover the Pope's funeral. Equally, the Program Acquisitions group meets four times a year to compare notes on what has and has not worked, and also to coordinate future acquisitions, so that they can negotiate as a group." Even in IT and engineering--where individual stations are free to make their own choices regarding the acquisition of kit, enabling them to allow for local variations in areas such as servicing--the two departments still meet twice a year, so that when individual stations have independently decided to purchase the same piece of kit, the acquisition is negotiated on a group basis, in order to leverage purchasing power.

Garin said there is, in fact, a blot on CME's Eastern horizon, and it is "the program strategy of the region's public service broadcasters," who he believes, "have not gotten their heads around the concept of public service broadcasting, and are playing shows such as Pop Idol, which would play on commercial stations anyway. This competition drives up program prices and effects the profit structure of commercial stations, not just in the CME territories, but throughout the region."

But it can't be too big of a problem, as Garin is eager to stress that, "we have no plans to make acquisitions outside the CEE region, which remains our exclusive focus. This defined strategy makes CME very easy for our investors to understand and value," adding, "diversity within our region represents strength; diversity beyond the region only serves to dilute our focus."

CME Execs

Adrain Sarby, general director of Romania's PRO TV, which reaches 72 percent of the country's population and commands a 15.8 percent daily share; and general director of Romania's Acasa TV, the country's fourth most popular network.

Vladimir Oseledchyk, general director of Ukraine's Studio 1+1, which has enjoyed tremendous success with its locally produced drama, The Bourgeois Birthday.

Vladimir Repcic, general director of Slovak Republic's Markiza. Slovakia's TV programming reflects its society's strong family values.

Branko Cakarmis, general director of Croatia's 18-hours-a-day channel, Nova TV. The network airs movies, series, news, sitcoms, telenovelas, soap operas and game shows.