Swedish media company Modern Times Group (MTG) is to merge its Nordic operations with Danish telecommunications provider TDC Group to create what the partners call a fully converged provider of media and communications services.

Swedish media company Modern Times Group (MTG) is to merge its Nordic operations with Danish telecommunications provider TDC Group to create what the partners call a fully converged provider of media and communications services. 

Under the terms of the deal unveiled this morning, TDC will acquire MTG’s Nordic businesses, comprising its Viasat pay TV and Viaplay OTT brands, free-to-air TV channels, the MTG Studios content arm, and radio stations. The deal values the MTG assets at Skr19.55 billion ($2.49 billion), which TDC will pay though the issue of 309 million new shares and SKr 3.3 billion ($420 million) in cash. Current TDC shareholders will hold 72% of the new company, with the balance of 28% held by MTG shareholders. It will be headquartered in Copenhagen and will operate under a new brand, with completion of the merger expected during the second half of the year, subject to regulatory approval.

The combined annual revenues of the two companies will be Dkr 30billion ($5 billion) based on 2017 sales. MTG's eSports and gaming divisions, which generated Skr 4.2 billion (530 million) in sales last year, will continue to operate separately. 

Our analysis

The new entity will particularly have a diversified presence in Denmark and Norway, where it will operate across the pay TV, online video, and pay and free-to-air broadcasting sectors, in addition to the broadband, telephony and mobile spaces. The merger will also effectively mark an entry into Finland and Sweden for TDC via MTG’s presence in these markets.

At a time when there is a lot of debate in the industry about the value of content to a telco, the addition of the core TV assets of the Nordic broadcaster and pay TV provider resonates as a strong endorsement of video as a growth driver for telcos. This was very recently demonstrated in another high profile Nordic merger transaction between Com Hem and Tele2 in Sweden, which itself has followed an increasing trend of telcos buying into well-established TV businesses in pursuit of convergence-led expansion strategies. Vodafone, for instance, did so via cable, acquiring first Germany’s Kabel Deutschland and then Spain’s Ono. However, TDC’s acquisition of MTG Nordic is more comparable to moves made by AT&T and Telefónica, which respectively acquired DirecTV and Digital Plus, DTH businesses that have given the telcos a diverse range of channels and content rights to leverage in search of new growth. TDC will now have a similar arsenal to draw on, as it seeks enhance its competitive position in what is a very mature Nordic market.

Adapting to these mature conditions is something that MTG was already doing well, responding to continued declines in traditional pay TV by executing a two-tier video strategy well before many of its operator peers – the launch of streaming service Viaplay in 2007 (or Viasat OnDemand, as it was then) was well ahead of the curve, proving to be a precursor to a plethora of pay TV lite launches over the last decade. TDC itself has experimented with such services, though on a far smaller scale than MTG. The addition of Viaplay to TDC’s product offering will leave the operator well-placed to execute an OTT-led video growth phase that it can gear towards expanding its overall business – the combination of YouSee Mobil and Viaplay, for instance, presents some clear bundling opportunities.

Furthermore, should the merger go ahead, TDC will emerge as the pay TV market leader on a pan-regional basis, with the combination of MTG and TDC’s direct subscriber bases currently exceeding that of Telenor, which claimed a total of 1.85 million TV subscribers across cable, DTH and IPTV at the end of 2017. As of Q4 2017, MTG reported 409,000 direct subscribers via its satellite service, in addition to 529,000 through third party cable and IPTV players. TDC, meanwhile, is currently the market leader in Denmark, with 1,299,000 subscribers to its YouSee brand, and is the second largest player in Norway via cable operation Get. Get, which TDC purchased in 2014, claimed 428,000 TV RGUs at the end of 2017, inclusive of B2B customer relationships.   

MTG itself is to continue operation as a company fully focused on digital entertainment – a position it has been gradually moving more towards in recent years following its exit from a number of TV markets in Central and Eastern Europe, and its investments in multichannel networks, esports and digital gaming.