The
sleek, futuristic headquarters of ITI Holdings dominates one of
Warsaw's more fashionable neighborhoods. It looks like such an
appropriate home for a 21st-century media group that it's hard to
believe the business started out not so long ago making potato chips.
But in 1983, when the communists still ruled Poland, Jan Wejchert and
his partner Mariusz Walter had to take opportunity where they found it.
"Potatoes were one of those raw materials that were easy to obtain
because we could buy directly from the farmers," Wejchert explains. "On
the other hand, the chips required special kinds of potatoes, so we had
to get special seeds. It turned out to be quite complex. But that's how
we started out."
Wejchert and Walter have dealt with a lot more complexity since
then, blazing some trails in Poland's developing financial markets and
wheeling and dealing with the likes of cosmetics magnate Ronald Lauder,
the founder of Central European Media Enterprises Ltd. In the process,
they have built ITI into the leading media and entertainment group in
Central Europe's biggest market. ITI's television company, TVN, is
Poland's largest private broadcaster. Its Internet portal, Onet, is
likewise Poland's biggest, and it ranks among the top five in Europe in
page views. In an age when the boundaries between different kinds of
media are increasingly blurred, this combination of assets, unique in
continental Europe, offers ITI some intriguing possibilities. "That
creates an enormous synergy already," says ITI's recently installed
president and CEO, Wojciech Kostrzewa. "And with the forthcoming
convergence between these two media types, it may offer a variety of
new opportunities."
But as ITI's origins suggest, Poland also offers its own unique
challenges for media executives trying to guide a business through
convergence. Though Poland's 39 million citizens joined the European
Union in 2004, the country's Internet profile remains distinct. Only
about 15% of Polish households have access to broadband, compared with
90% in the EU urban population as a whole and 62% in the rural EU.
Nearly half (47%) of all EU adults used the Internet in the first
quarter of 2005, but in Poland only 29% of the adult population did so.
Yet the trend is strongly upward, with this young media market
showing signs of leapfrogging its way into a digital future. Overall
per capita ad spending in Poland is still only about one-fifth the
average in Europe, Kostrzewa says. But ad spending is growing, and the
strongest gains are coming online - 44% in 2005 and a projected 32% in
2006. A survey by the International Advertising Board in Poland
reported Internet ad spending of €21.2 million ($25.3 million) in
January 2005. The IAB also estimates that the Polish e-commerce market
will jump 47% this year and a further 35% in 2007, to $1.2 billion.
ITI's challenge is to navigate all these trends, and also find a
modus vivendi with some other companies that have noticed them - most
notably, Yahoo! Inc., Google Inc. and eBay Inc., all of which have set
up offices in Poland this year. The company is confident it can. While
Internet revenues accounted for 7% of group sales in the first half of
2005, totaling 40 million zloty ($12.4 million), that figure is
expected to rise to 20% of sales in five years. "There is huge
potential for growth, both in growing market and in growing market
share," Kostrzewa says.
The team that will be working to tap that potential brings a diverse
set of experiences to the task. Wejchert, 55, entered the business
world while still attending the University of Warsaw, where he gained a
degree in economics. He incorporated a Polish subsidiary of a German
trading group that became Poland's first foreign direct investment. By
the time he left to form ITI, the company employed 250 workers, and
Wejchert had acquired the management skills crucial for his next
venture.
Walter, 67, launched his media career in 1960 when he helped
establish a student radio station at the Gliwice Polytechnic. He
followed that up with positions at Polish public radio and later public
television, where he produced over 300 television programs and 60
documentaries. As co-founder of TVN, he plots strategy for all
TV-related operations. In 1991, the partners took on Bruno
Valsangiacomo, 50, an investment banker formerly with UBS and Banque
Paribas, as a third founding shareholder with responsibility for
finance, investor relations and, with the other partners, strategy.
Wejchert is executive chairman, while Walter and Valsangiacomo are
executive vice-chairmen.
"Jan's a visionary, very idea-driven," said Pawel Gricuk, an adviser
to J.P. Morgan who has helped craft several of ITI's deals. "You have
to take them as a group. Jan is the engine; he's street smart. Walter
is the TV specialist. Bruno is the ultimate financial dealmaker. This
is a very unique partnership."
| Convergence begins at home |
| The structure of ITI Holdings, Poland's leading media group |
|
Company |
Industry |
Stake |
| ITI Film Studio |
TV production |
100.0% |
| Multikino |
Movie theaters |
100.0 |
| Legia Warszawa |
Football club |
97.5 |
| Grupa Onet |
Internet portal and services |
82.4 |
| TVN |
Television broadcasting |
62.0 |
|
|
Meanwhile, it falls to Kostrzewa, 45, a former banker who
joined the company as president in January, to implement the strategy
and run day-to-day operations. Rounding out the top team is Jan
Wejchert's son, 32-year-old Lukasz Wejchert, who is president and
director general of Onet, and Mariusz Walter's son, Piotr Walter, who
is president and CEO of TVN.
ITI was set up in 1984 as a unit of International Trading and
Investments Holdings SA Luxembourg. At that time, one could only
incorporate in Poland as a branch of a foreign entity to develop a
corporate business. But while the parent is a foreign company, all the
operations are Polish. ITI Holdings controls 12 companies grouped in
three areas: TV broadcasting and production; entertainment, which
includes the multiscreen theater operator Multikino and the Legia
Warsaw football club; and new media, anchored by Internet portal
Onet.pl. ITI's chief asset is its 62% stake in TVN, the largest
privately owned television broadcaster in Poland with seven channels
and a market capitalization of $1.1 billion, traded on the Warsaw Stock
Exchange.
It was Kostrzewa who, in his previous position as president of BRE
Bank SA, indirectly helped launch ITI's new media platform in 2000. BRE
had acquired a controlling stake in the computer maker Optimus
Technologie SA earlier in the year for about $66 million. In the first
spinoff from a listed company in Central Europe, BRE began the process
of separating it into two entities: the computer company (the listed
Optimus) and one holding the Onet portal (Grupa Onet). In June 2001 BRE
completed the sale of Grupa Onet to ITI for $96 million; ITI would
subsequently increase its stake to over 82%.
The deal was heavily criticized on both sides. BRE shareholders were
unhappy that only one-fourth of the purchase price was in cash. (The
rest was in the form of convertible bonds issued by ITI and slated to
be exchanged when ITI went public the following year - an IPO that was
canceled amidst the dot-com crash. ITI eventually listed on the
Luxembourg Bourse and repaid the bonds.) And while Wejchert considers
Onet as one of his best deals, a source familiar with the project says
he had to work hard to sell his partners on the transaction at a time
when Internet properties were burning money.
ITI had launched its flagship, TVN, in 1997 as a joint venture with
Lauder's Central European Media Enterprises Ltd. The following year,
CME sold its share of TVN and its other interests in Poland to ITI for
$50 million in another deal engineered by Wejchert and co-financed by
BRE Bank. In 2002 and 2003, it repurchased, for $142.5 million, a 33%
stake in TVN it had sold to Luxembourg-based SBS Broadcasting SA in
2000 for €81 million.
The launch of TVN was followed by the creation of seven themed
channels, which today account for 18% of Poland's all-day audience and
29% of the key prime-time audience. In August 2001, ITI launched the
information station TVN24, which became an instant success with its
coverage in Poland of the Sept. 11 terrorist attacks on the U.S.
TVN's target audience is 19- to 49-year-olds living in urban areas
with above-average incomes. In a market that includes state-funded TV1
and TV2 and private broadcaster Polsat, plus an array of cable and
satellite channels, it holds a 29.6% share of Poland's gross television
advertising. Strong momentum in ad spending is expected to boost its
revenues by 17% this year and 12% in 2006, according to a report by UBS
Investment Bank. TVN beat market expectations in the second quarter of
2005, boosting net profits to Zl70.7 million ($21 million), up 16.2%
from the previous quarter.
In 2002, Onet adopted a strategy to differentiate its revenue
sources. The plan calls for creating multimedia campaigns that attract
customers, and cross-refer them between multiple media platforms within
the ITI group. While boosting advertising revenues, the strategy is
also designed to increase sponsoring, e-commerce, pay-per-use and
subscription revenues.
Aside from Onet.pl, ITI's new media portfolio includes Tenbit,
Poland's first interactive entertainment Web site, which was launched
in 1998 by Lukasz Wejchert. Tenbit offers services such as e-mail,
chat, blogging and online games for teens. As an example of its
integration with TVN, it has shown the online TV show "Tenbit.pl" on
TVN and "Tenbit GSM" on TVN Siedem, another of ITI's channels.
Grupa Onet also operates the leading travel guide publisher in
Poland, Pascal, although it is in the process of selling the company as
noncore. Onet also sold OPM, a CD-Rom digital publishing company, and
IT integrator DRQ, inherited from Optimus. It plans to continue
developing many of the 200-odd other services it has created such as
Sympatia.pl, the country's biggest dating service, and OnetPasaz, the
largest online shopping mall on the Polish Internet. It has cooperative
agreements with business partners like Skype Technologies SA, the
global Internet phone service, Allegro.pl, Poland's largest auction
site, and music distributor OD2, with which it created OnetPlejer,
Poland's largest online music center.
Lukasz Wejchert says that when it comes to local content,
he has no fear of Google or Yahoo!, but global applications are a
different matter.
"Google has a search technology that was developed for hundreds of
millions of dollars and deployed worldwide," he says. "We cannot invest
that way because we don't have the sources or the technology. This is
our biggest dilemma. So in those areas where we have global
functionalities, we team up with various players where we can get a
good strategic fit."
One area that has grown significantly is Internet telephone
services. After the U.S., Poland has the second-largest number of Skype
users per capita in the world. That's because former state-held
monopoly Telekomunikacja Polska SA, now held by France Télécom SA,
charges some of the highest long-distance rates in Europe. Onet Telefon
offers connections to 26 countries at rates one-fourth those of TPSA,
which also happens to control Wirtualna Polska, Poland's second most
popular portal. (Google's Polish site is No. 3.)
Onet also leans heavily on strategic alliances and has long-standing
agreements with such companies as Procter & Gamble Co. and
Coca-Cola Co. With P&G, for example, it created a Web site offering
advice for pregnant women, and another for female teenagers. It also
recently signed deals with some of the world's leading newspapers -
including The New York Times, Der Spiegel, Le Monde, The Guardian and
The Independent - from which it extracts and translates news of
interest in Poland. Wejchert hints at some cooperative arrangements in
coming months with eBay, which is in the process of buying Skype and
also owns the Internet payment service PayPal.
Poland's recent presidential elections provided another opportunity
for interplay between Onet and TVN, which broadcast live a debate
between the two leading candidates. Onet staff split up the program
into segments by subject area, allowing Web viewers to pick and choose
what they wanted without wading through the whole debate. TVN viewers
are also prompted to visit the Web site by occasional "more on Onet.pl"
messages as a story is being televised.
One area ITI is closely watching is how to use broadband access to
the Internet for distribution of news, TV programs, sports or music.
The company is experimenting with Internet Protocol Television or IPTV,
but progress remains dependent on many factors, including the amount
and quality of broadband access and whether the service would provide
adequate margins. Kostrzewa is closely monitoring developments in the
U.S., which he's happy to note is about three years ahead of Poland.
"We don't need to pioneer everything," he says. "We can see major
pitfalls and traps."
Lukasz Wejchert, who grew up with the Internet, sees its future as
evolving into a digital media hub. "It can provide content, services
and communications on a PC platform, from the TV screen, or on multiple
devices. So as I see it, the vision is for Onet to be moving away from
being an Internet portal to being a digital-media company."
ITI nurtured Onet through the tough years of 2001 to 2003 when
internet investments bottomed out. The payback began two years ago and
is now accelerating. ITI reported net profit of Zl13.2 million ($4
million) from total Internet activities in the first half of 2005, more
than double the amount for the same period in 2004. And Grupa Onet,
which accounted for the bulk of that, boosted its operating profit by
166% year-on-year. Onet is now producing Ebitda margins of 38% or 39%,
is the market leader by any measure you can name, and it is well
prepared to lead ITI's focus on new media opportunities.
It's a long way from potato chips, a business that ITI folded into a
joint venture in 1991 and finally exited in 2000. The chips are now in
the hands of Intersnack AG, the largest German savory snack and biscuit
producer. As Internet giants like Google and Yahoo! grow ever more
global, could ITI's media businesses follow a similar path? After all,
Polish rules barring foreigners from owning more than a third of an
electronic media company are now being aligned with EU rules that
permit foreign takeovers. But Jan Wejchert says no. "We see our
involvement in TV and the Internet not strictly as a commercial
venture," he explains. "We also think we are playing an important role
in helping build up Polish democracy." - Patricia Koza
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