There are two main forms of advertising in the TV market: (a) advertisements broadcast in advertising breaks and (b) sponsoring broadcast before and after selected programs and trailers or in advertising breaks in-between sponsored programs.
Advertising
Broadcasters use two forms of sale of advertising time in advertising breaks: (i) GRP sales and (ii) monthly rate-card sales. GRP sales are based on audience ratings and a specified price per rating point delivered. The valuation of the service is based on fixed price of one rating point.
47 Rate-card sales are based on a broadcaster’s official rate-card for individual advertising breaks. Customers purchase specific advertising breaks at a price determined by the given rate-card.
GRP prices for specific months and rate-card discounts applied as well as annual minimum purchase commitments are set out in annual contracts negotiated with media agencies and customers. Pricing and discounts depend on the level of the annual minimum purchase commitment.
Sponsoring
Sponsor projects are sold throughout the year (usually sold on the basis of a project created together with a client). Prices and discount conditions are negotiated individually for each customer and each sponsor campaign.
Pricing
Pricing of commercials
We set the prices for commercials with the objective of maximizing revenue from the commercial time available (according to law) and based on estimated level of attractiveness of specific programming content next to which the advertising breaks are located on demand forecasts for TV commercials. Forecasts of advertising break audience are prepared for each month based on the overall TV audience, the channel’s share in the overall audience and seasonality (prices of commercials are highest from October to November, before Christmas season, and lowest from January to February and from July to August). In order to provide flexibility to advertising customers, we offer advertising priced on (i) a rate card basis and (ii) cost per GRP.
Rate-card prices of commercials are set and published each month by our advertising sales team at Polsat Media Biuro Reklamy Sp. z o.o. Sp.k. . Advertisers select commercial breaks based on their assessment of which programs target the audience demographic they wish to reach (the channel is not accountable for the audience actually generated by the program).
GRP prices are established for the channel or group of channels each month during a calendar year by Polsat Media Biuro Reklamy Sp. z o.o. Sp.k. advertising sales team and GRP delivery is guaranteed. Advertising sold on a cost per GRP basis is scheduled by Polsat Media on the basis of available resources after the booking of sales based on rate-cards. We believe this sales model to be the most profitable way to sell our advertising breaks. In 2013, rate-card sales accounted for 38.3% of all advertising sales on our main channel, POLSAT.
Pricing of sponsoring
We set the prices of sponsoring with the objective of maximizing our revenue taking into account the programming offer and legal regulations regarding sponsoring limits. Our pricing is based on the relevance of the subject matter of the program to the sponsor’s needs and the target group, the quality of our programs, recognition of brands and the attractiveness of the broadcast slot. In order to provide flexibility to advertising customers, we negotiate sponsoring contracts on a case-by-case basis, taking into account all the factors mentioned above.
Sponsoring revenue is primarily dependent on programming quality and marketing attractiveness for the product and its target audience. As a result, sponsoring is not as dependent on the strength of the economy as advertising.
Item 4.6.3. Sales
The key source of revenue for our Broadcasting and television production segment is advertising and sponsorship revenue (approximately 80% in 2013). Almost all of our advertising revenue is collected through TV Polsat Group’s advertising sales house Polsat Media Biuro Reklamy Sp. z o.o. Sp. k., which acts as an advertising agent (sales house) for us under the terms of a Framework Agreement, dated December 27, 2003. Polsat Media Biuro Reklamy Sp. z o.o. Sp.k. is responsible for the sale of advertisements, sponsoring services and contracts connected therewith. Polsat Media Biuro Reklamy Sp. z o.o. Sp.k. is responsible for the sale of advertising services (advertising time) for all our channels (with the only exception of Polsat Jim Jam).
48 In 2013, Polsat Media Biuro Reklamy Sp. z o.o. Sp.k. carried out the sale of advertising time for eighteen of our TV channels and seven other broadcasters outside our Group. Polsat Media Biuro Reklamy Sp. z o.o. Sp.k. often works with international media buying agencies that operate as intermediaries, negotiating purchase conditions and conducting campaigns for their customers. The sale of advertising time is carried out both through annual contracts entered into with media buying agencies, as well as individual direct customers. In 2013, our ten largest media buying agencies collectively accounted for approximately 71% of our net advertising and sponsorship revenue with no single advertiser accounting for more than 1% of our net advertising and sponsorship revenue. Like the other nationwide broadcasters in Poland, we have a relatively stable group of advertisers that we work with.
According to the Media&Marketing Polska report, in 2013, Polsat Media Biuro Reklamy Sp. z o.o. Sp.k. was the highest-rated nation-wide TV advertising sales office in Poland. Similar evaluation was also given in the previous year as well as in 2009 and 2010. Polsat’s TV advertising sales office is appreciated for high standards of service and business relations with partners, that received the highest evaluation. It is worth noting that the evaluation of Polsat Media Biuro Reklamy Sp. z o.o. Sp.k. in 2013 improved in a majority of areas examined compared to previous measurements.
The second largest source of our revenue in our broadcasting and television production segment after commercials and sponsoring, are agreements with cable TV networks and satellite TV operators, which comprised 17.5% of total revenue in this business segment in 2013. Our agreements with cable TV networks and satellite TV operators are generally non- exclusive licenses for the broadcasting of our channels. Under typical licenses, operators agree to pay us a monthly license fee, the amount of which generally depends on the number of subscribers to individual packages and set rates for the package or channel subscribers.
Sale of content via Internet
Sale of content via Internet is another source of revenue of TV Polsat Group. The main partner of TV Polsat Group in this field is Redefine Sp. z o.o., a company belonging to the media Group Cyfrowy Polsat. Redefine Sp. z o.o. is the operator of IPLA internet television, the leader on online video market in Poland both in terms of availability on different devices (computers/laptops, tablets, smartphones, Smart-TVs, set-top-boxes, game consoles) and in terms of content offered. Online broadcasting of our programming is based on two settling models. In the first model, there is a fixed monthly fee for the broadcasting right to a specified programming. The second model is based on the share in revenue generated from advertisement placed next to transmitted material.
IPLA revenues consist in approximately 75% of revenue generated from advertising, the other 25% is generated by end users purchasing the content.
Sales team
Polsat Media Biuro Reklamy is responsible for sales of our advertising time, sponsorship, campaign planning, after-sales analysis, market research and analysis, development of new products and, most importantly, enhancing relationships with existing and potential advertisers. In addition to providing advice on the scheduling of advertisements on our channels, Polsat Media Biuro Reklamy sales force cooperates closely with advertisers to design special campaigns, including the sponsorship of particular programs and related cross-promotional opportunities. Together with the programming department, Polsat Media’s advertising sales department obtains TV audience ratings data from the NAM telemetric panel on a daily basis. They analyze this data and compare it with audience ratings of our competitors to determine the most effective strategy for scheduling advertising slots to reach advertising clients’ preferred audience in the most efficient manner. The department is also responsible for ensuring that advertising slots are allocated in accordance with client specifications regarding context and timing.
In 2009, Polsat Media Biuro Reklamy implemented PROVYS Sales, a new sales and optimization software compatible with our fully-integrated ERP system, PROVYS TV Office, used by the Group to manage i.a. programming broadcasting. PROVYS Sales enables to simultaneously sell airtime on 25 channels serviced by Polsat Media Biuro Reklamy in 2013 with fully automated broadcasts of commercial airtime as well as campaign results verification based on daily uploaded NAM data. The number of channels serviced by Polsat Media Biuro Reklamy increased to 31 in January 2014.
In addition, Polsat Media Biuro Reklamy advertising sales department conducts a wide range of market analyses based on external independent industry reports, including research conducted by Starlink and ZenithOptimedia. Polsat Media Biuro Reklamy also uses data from TGI consumer research held by the Polish branch of Millward Brown, that is a standard reference on the Polish market. We are also a member of EGTA (international trade association of TV and radio sales houses), which gives us a unique opportunity to interact and cooperate with sales houses from most European countries.
49 Item 4.6.4. Technology and infrastructure
Broadcasting of TV channels
We broadcast TV channels through terrestrial television, cable TV and digital satellite platforms. Analogue terrestrial broadcasting signal was switched off on July 23, 2013.
Terrestrial transmission
POLSAT, our main channel, and channels Polsat Sport News, TV4 and TV6 are broadcast via the nation-wide network of digital terrestrial transmitters within the MUX-2 operated by Emitel (unrelated entity). We have agreements with Emitel for transmission, uplinking, multiplexing and monitoring of the four mentioned channels in digital network. The remaining channels of Telewizja POLSAT are broadcast exclusively via cable TV networks and satellite TV. .
Satellite transmission
We have entered into several agreements for the use of satellite transponders belonging to Eutelsat S.A. These are contribution agreements:(i) two 5-year agreements, entered into in 2012, providing the right to use two slots on the Eutelsat 12 West A (AB 1) satellite, (ii) a 5-year agreement, entered into in 2012 for access to Eutelsat 33A satellite transmission capacity, and one seven-year distribution agreement, entered into in 2010, to provide us with the right to use the entire transponder on Eutelsat HB 13C satellite until the end of 2017 with the right to extend the agreement for additional successive seven-year periods. In addition, through Cyfrowy Polsat, TV Polsat has access to four other Eutelsat transponders.
Technology and infrastructure
Our core technical infrastructure is comprised of: (i) four digital TV studios - one studio used by the Polsat News channel and the main information program - “Wydarzenia”, HD-compliant studio for sport programs, studio of Polsat Biznes and a virtual studio designated for short-form TV shows (all studios are equipped with modern, or recently modernized, equipment fully HD-compliant); (ii) five digital outside broadcast vans, including four modern HD vans and a small SD van for the rapid production of short programs; (iii) a two-camera Slow Motion HD van for slow down effects, (iv) 13 digital satellite news gathering trucks ensuring on-site signal feed; five of which are HD-capable, the rest operate in SD; (v) a multiplexer system ensuring the effective transmission of eleven of our channels; (vi) a multi-channel automatic TV broadcasting system; (vii) a digital audio visual routing system; (viii) an IT network capable of handling technological tasks; (ix) network production systems; (x) more than 80 HD and SD camera units; (xi) digital program archive with a modern system MAM and (xii) technological systems for signal exchange between head office and regional offices; (xiii) EC-135 helicopter used for the needs of POLSAT and Polsat News (twin-engine multipurpose helicopter approved for IFR (instrument flight rules) - flights on instruments only, with zero visibility, fit up with specialized audio-video equipment, being able to transmit HD signal up to 100 km and SD signal up to 200 km – broadcasting system currently being up-graded).