The factors behind Viaplay’s sudden fall from grace

Viaplay, until very recently the poster child for European streaming, with what seemed to be a winning strategy for expanding internationally with a mix of compelling entertainment content and well-judged sports rights acquisitions, came spectacularly unstuck this week.

The deterioration in macroeconomic factors in Viaplay’s core Nordic market, which the company highlighted last year, combined with seemingly falling short in a cost-cutting drive, claimed the scalp of CEO Anders Jensen and forced the company to pull its long-term financial guidance.

The company pointed to three main problems: lower demand in the Nordic and international streaming D2C subscriber markets and lower wholesale subscription sales by linear distribution partners; accelerated deterioration of the Scandinavian TV and radio advertising markets; and slow delivery of cost savings programmes.

Viaplay’s share price dropped by over 60% in a vertical line on Monday and has been skimming along its new floor – in fact dropping even further ­– since, with no immediate recovery in sight.

The streamer has been hit by a perfect storm comprising lower demand in the Nordic and international streaming D2C subscriber markets and lower wholesale subscription sales by linear distribution partners; accelerated deterioration of the Scandinavian TV and radio advertising markets; and the slower delivery of cost savings programmes.

Speaking at this week’s NEM in Dubrovnik, Viaplay North America and Viaplay Select CCO Vanda Rapti told attendees that strategy will “remain the same” following the departure of Jensen, spoke about “adjustments to future projections” and said that Viaplay was “in small markets in terms of volume of customers but we’re a big service in those small markets”.

No easy solution

The result of all this is that Viaplay now has a new CEO – Jørgen Madsen Lindemann, who previously was in charge of the company in an earlier incarnation as Modern Times Group, before the split that saw Viaplay – at the time called Nordic Entertainment – emerge in its own right, with MTG separating to focus on the highly fashionable world of esports. Lindemann led MTG until 2020 and since then has done a variety of jobs, including chairman of retailer ASOS and adviser to investment outfit Kinnevik.

The truth could be that there is no easy solution for Lindemann and Viaplay. Analysts at Berenberg, hitherto a cheerleader for the streamer, noted that the profit warning and departure of Jensen “left the company in a predicament”.

Berenberg’s view now is that Viaplay is effectively caught between Scylla and Charybdis.

If the company continues to tack to its current strategy of pursuing growth in (currently) loss-making international markets at a time when profitability from its core Nordic operation is “under more cyclical pressure than expected”, in Berenberg’s words, that “will only only exacerbate pressure on the shares by increasing fears that the company will need to initiate a capital raise”.

If on the other hand it decides to pull back from international expansion and starts to look to asset sales to improve its balance sheet, alongside more aggressive cost-cutting measures, this course “could potentially transform Viaplay into a much more modest growth company”.

Neither path is likely to help build back shareholder confidence, leaving Lindemann in the position of treading “this unenviable fine line” between the two.

Berenberg’s prescription is to cut back in the near term “in order to secure growth over the longer term”.

However, that formulation somewhat glosses over a number bitter pill(s) that the streamer may be required to swallow. According to Berenberg, Viaplay should abandon direct-to-consumer in early-phase and low-growth markets such as the Baltic states, the US and Canada, while it may also have to give up expensive Formula 1 rights in the increasingly challenged Dutch market, where it likely faces competition “in a tough auction against serious bidders like VodafoneZiggo”.

The analysts also suggest that Viaplay may have to look at a disposal of Premier Sports, the Ireland-based sports channel provider it acquired last year, probably at a price somewhat lower than the £30 million it paid for the company.

General problems

For Tony Gunnarsson, principal analyst, TV video and advertising at Omdia, Viaplay’s troubles reflect the more general problems faced by the streaming business globally.

Viaplay, says Gunnarsson, far from having a fundamentally flawed model, has made a play that is “a textbook example of how you should be doing it”. The company built its own platform, invested in first-run rights and develop its own originals. It  worked closely with partner operators at an early stage to the point where “It is almost impossible not to have Viaplay because it is so liberally bundled with broadband, mobile and other pay TV services”.

Viaplay has also successfully jumped onto the boom in advertising-supported video to diversify its revenue streams, notably with its Viafree offering, which has evolved into a partnership with Pluto TV.

The company’s international rollout, he says, has been impressive, building up a base of over a million subs in countries including Poland and the Netherlands. Viaplay is, he says, “one of the few companies in Europe with the ambition to expand like this”.

Unfortunately, however, Viaplay has hit unexpected headwinds including war in Europe, rising interest rates and inflation. Even if it manages to avoid the need to raise new capital and persuades investors to stick with it, cuts are inevitable. Gunnarsson believes a chunk of the company’s large planned investment in originals and its foray into North America are likely candidates for the chop.

Other major changes may be unlikely. Gunnarsson rules out the prospect of a merger with rival TV4 Play/C More – itself the victim of deteriorating economic conditions in the Nordic market – for example.

Viaplay’s fall from grace highlights the problems currently facing all streamers rather than a particular flaw in its own model or execution. None of this means that SVOD has had its day, but forecasting a recovery anytime soon would be a very risky bet.