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Communism to risktaking
July 9, 2008, The Financial Times
As a former adviser to Jack Welch and co-founder of Lorimar Telepictures, the company that brought Dallas to the world's television screens, Michael Garin has impeccable capitalist credentials.
Since becoming chief executive of Central European Media Enterprises four years ago, however, he has faced the biggest challenge of his 41-year career: to turn a company whose staff had grown up under communism into one of the fastest-growing profit makers in an increasingly tough broadcast sector.
Mr Garin, 62 this week, inherited "a group of people who, in a virtual sense, had spent the past 70 years in jail," he says. Most were afraid to stick their neck out "because if they did it would get chopped off".
To exploit the huge potential of central and eastern Europe, Mr Garin has had to create a culture in which it is "safe to take risks and fail". His success has earned CME the envious attention of far bigger media owners, and provided a model for others in the region.
For a creative business, risk- aversion can be disastrous, he says, arguing that conservatism is as responsible as audience fragmentation for the troubles western broadcasters are experiencing. "Network television, especially in the US, is in a death spiral," says Mr Garin, who spent 11 years as an investment banker at Furman Selz and ING advising media companies such as NBC Universal and CBS.
In central and eastern Europe, by contrast, traditional TV networks are still delivering remarkable growth, fuelled by the region's economic awakening. After delivering a 39 per cent revenue rise last year and a 46 per cent jump in earnings, CME has forecast another year of 30 per cent-plus growth by both measures for 2008.
It is not alone. According to Informa Telecoms & Media, the region's pay-TV sector will more than double in revenues from $5.6bn (€3.6bn, £2.8bn) in 2007 to $12bn in 2013. Throw in advertising-funded broadcasters, and the market will be worth $23bn in five years.
In his ambitious attempt to change the culture of CME Mr Garin resisted the temptation to change the people and bring in western executives. Of 3,300 employees, he estimates, just 23 come from outside the region.
CME, founded in 1993 by Ronald Lauder, heir to the Estée Lauder cosmetics empire and a former US ambassador to Austria, owned a handful of independent stations in 2004, across Romania, Slovakia, Slovenia and Ukraine. From these, Mr Garin has "created a culture where people feel they work for CME. They don't work for just the news department or TV Nova."
One of his first moves was to give share options to functional heads in every department in an effort to tie rewards to individual and group performance.
The next step was to get different parts of the business collaborating. Few media groups have a strong record on this, Mr Garin says, and with a London headquarters, a stock market listing in New York and 17 channels in six countries, the challenge was particularly acute for CME. But the company has been an eager proponent of video conferencing, encouraging regular sessions between senior executives and news directors.
Local executives have been motivated to collaborate in part because of the difficulty of finding economies of scale in a patchwork of countries, some of which are so small that Mr Garin jokes it would be cheaper to bus people to football games than to launch a premium sports channel.
There have been limits to the opportunities for co-operation, Mr Garin admits. "All media are local," he says, with a nod to Tip O'Neill's observation on politics. Cultural sensitivities mean TV is tougher than most businesses in this regard, he says, because "what's funny in Romania is not funny in the Czech Republic".
For the same reason, most CME channels are run by executives from the country where they broadcast, many joining the company by selling it a stake in their business. "If you're selling your house, you care about getting the best price but if you're renting a room, you care about who your partner is," Mr Garin says, explaining why so many of them have stayed with the group even when, as in Slovakia, Romania and Ukraine last year, it has been buying out minority shareholdings.
On one occasion, the partnership model went disastrously wrong. In 1999, CME lost control of TV Nova in a feud with a partner, only regaining the Czech station in 2003 after suing the Czech government. For a while, the battle threatened to bring the entire company down.
But the model has also allowed the company to find a successor to Mr Garin, who will step down in January 2010. Adrian Sarbu, the former film director who sold CME a stake in Romania's Pro TV in 1995, is "the second most talented broadcaster I know" Mr Garin says - the most talented being Les Moonves, the CBS chief executive who worked as a programme director at Lorimar Telepictures.
Concerned that the industry's scarcest resource in the region is human capital, Mr Sarbu has founded a media university in Romania to train the directors, actors and producers that CME and other broadcasters will need if they are to grow further. "He knows he is training his competitors," Mr Garin says. But the industry will be stronger if it is not dragged down by its weakest competitor.
A deeper talent pool should help CME improve its local programming. Mr Garin hopes strategic alliances with US studios will also contribute: by raiding their libraries for neglected series that can be remade under co-production deals, CME can improve the quality of its local-language output while allowing its US partners to tap into the attractive growth of markets they lack the expertise to enter alone.
CME's growth and 38 per cent operating margins have made it a topic of speculation as investment bankers seek targets that could fit US media companies' need for faster growth than provided by their home market.
News Corp is active on the fringes of CME's region, while CME already competes head-on with RTL and MTG, two European broadcasters.
As fears of an advertising downturn sink western broadcasters' market valuations, Mr Garin remains confident that CME will continue to find growth. Average television advertising spend per capita in its markets was less than $18 last year, compared with $75 in western Europe, he notes, and three quarters of CME's advertisers are pitching basic packaged goods such as food and toiletries rather than luxury goods. "Mature advertising markets sell cars," he says. "We sell soap."
From online latecomer to internet virtuoso
When Michael Garin arrived at CME, he discovered that the broadcaster had "missed the boat as badly as everyone else did" when it came to getting to grips with the internet.
But the nature of its markets in central and eastern Europe, with relatively low disposable income and little venture capital funding, meant that "our boat was still at the dock".
The company has since jumped eagerly aboard. Pro TV in Romania broadcasts 24 hours a day online, while tn.cz, its Czech site, has embraced user-generated content alongside salacious
tabloid news.
In May, CME acquired Jyxo, owner of the largest Czech blogging site, and Mr Garin lauds his team's progress in incorporating high-definition video into 24ur.com, the Slovenian portal: "I showed this to the guys at YouTube and their jaws dropped."
Underpinned by common technology, sharing of expertise across the group and the ability to learn lessons from more advanced online markets, CME's new-media assets "now have the luxury of being able to pursue an integrated strategy we were not smart enough to arrive at on our own", he says.
For additional information, please contact:
Romana Tomasova
Director of Corporate Communications
Central European Media Enterprises
+44 (0)20 7430 5357
romana.tomasova@cme-net.com
