Claude Schmit

October 2008

This year, SUPER RTL not only celebrates its tenth year as the market-leading TV channel for children in Germany, it also continues on its path toward diversifying its revenues and successfully migrating its content to the online world. SUPER RTL has certainly created a strong bond with kids through television and off screen as well, and it is aided by the significant benefits it derives from its two powerful shareholders. Its advertising is sold through the RTL Group, and The Walt Disney Company provides ever-popular programming. CEO Claude Schmit sees a lot of potential for growth in coming years.

TV KIDS: What factors have been driving SUPER RTL’s business?

SCHMIT: We have succeeded in growing our TV turnover, to more than 250 million euros. And that’s a benchmark because 250 million euros is already a number to play with. We have also reached a point where we make more than 30 percent of our overall turnover in non-TV businesses. And that’s a very important figure in that it’s much more than what TV channels do—normally they do 15 percent. So we are basically more than double the industry average.

We are a very cost-conscious operation, so we have succeeded in having a very good, very lean structure, and we have been continuously increasing our net results or EBITA over the last years. And it looks like this year is going to be another “best year.”

TV KIDS: How would you summarize the strengths of the channel? Why is it that children love it so much?

SCHMIT: We understand exactly what our children need. In June, we celebrated our tenth year as the market leader for children in Germany, which is [quite an accomplishment] because the [competitive landscape] has changed. The target group has shrunk. Today there are a lot less German kids. A couple of years ago we had 9 million, now we have 7.5 million, so it is a huge decrease in the target group. And at the same time, the competition from other channels has increased. We have Nickelodeon in the German market again, which is playing a role. Obviously, the public channel KI.KA is playing a role. And there is a fragmentation from other media as well. Children don’t only watch television. They can also play with their computers, et cetera. Today we are the number one channel, with almost a 24-percent market share among 3- to 13-year-olds, followed by the public, i.e., advertising-free, KI.KA, which has less than 19 percent, and Nick, which is a commercial channel and has about a 10-percent market share.

Those are the strengths. Why do children love the channel? First, we have a very clear target group, which is not only the kids 3 to 13 but also their mothers. Other channels have a slightly different philosophy. For example, Nick is edgier, slightly more boy-skewed. We are more like what I call a full-fledged channel for children, which means we have to cater to the younger ones as well as to the older ones. We have to cater to boys and to girls. That makes it slightly more complicated, but so far we have been very successful together with our partner and shareholder, The Walt Disney Company.

TV KIDS: Are you still focusing on increasing your prime-time audience?

SCHMIT: That is still one of the strategic steps we have to take. We know that we are not going to grow very much, if at all, in daytime among kids, where we already have a 24-, 25-percent share. I don’t think that’s going to increase in the next years because of the competition and fragmentation in the market. But we are going to keep those very high numbers and I [expect] that we also are going keep the advertising
revenues attached to that number.

We can grow in the children’s business, but outside of television. That’s why, for example, the Internet is important. That’s why merchandising is important, because in these areas we can grow within the children’s segment.

On the other side of the TV business there is the potential to grow in the adult target group in prime time. Last year we closed the year with 2.7 percent in prime time among adults, which is basically 10 percent more than the year before, and that was 10 percent more than the previous year. Our target is to grow steadily in prime time, ideally up to 10 percent every year over the next hundred years! (Laughs) I think we are going to [reach] the 3-percent mark this year, and if not this year, then next year. And obviously there also is a financial interest in [improving our ratings] because the higher your market share in prime time, the higher the advertising revenues in prime time as well.

TV KIDS: And speaking of advertising, what is the general climate of the German market?

SCHMIT: Well, the general climate is okay. It is not bullish. It experienced 1.5 percent [growth] last year and I think they are going to close the year with a plus of 1.5, maybe 2 percent. It is more like a flattish type of advertising market, but it is not decreasing.

TV KIDS: What are some examples of how you have diversified your revenues?

SCHMIT: We launched something that everyone thought was impossible, which is a subscription-based Internet offer.

When we thought of the Internet, we had a free advertising-based Internet offer, which was toggo.de, with 100 million page impressions a month, which is huge. But we thought we needed to do something more. That’s why we said, Let’s invest in
subscription-based Internet. We launched the Toggolino Club a couple of years ago, which is a subscription-based educational club for preschool kids, and that’s been successful after only a couple of years. Today we’ve some 70,000 subscribers paying €69 per year, meaning mothers paying for their small children to have access to that club. That’s a big success. And it was so successful that we said, Well, why don’t we enlarge the offer to a slightly older target group, and we launched the Toggo CleverClub, which is the same educational offer for children ages 6 to 10. And with that club we have also almost 60,000 subscribers. With both clubs we have more than 130,000 subscribers paying €69 per year. And that is the best example of the kinds of businesses that help us diversify our source of revenues.

TV KIDS: How important have in-house productions been for you?

SCHMIT: In-house productions are very important, and it became even more important for us over the last years when a new genre, so to speak, popped up, especially in German children’s television, which is science and knowledge. This is something you can do relatively easily with in-house productions. We started with one show called Wow. That has been running for a couple of years and is very successful. We launched three other in-house productions—science shows—which are very successful. We are working on a couple of pilots for the next season. So we focus on knowledge and science magazines because I think that’s one of the main criteria for success in the future.

Co-productions are a different subject, because here we are talking about animation, and it’s a very expensive exercise and quite challenging, because it is not done as easily as an in-house production. We are involved in a co-production on Famous 5, which is a very well-known franchise in Europe. It’s a very famous book series. We do on average only one co-production per year, whereas we do three or four in-house productions.

TV KIDS: With Disney as a shareholder, what are some of their shows that are performing well?

SCHMIT: Obviously, The Suite Life of Zack & Cody is running very smoothly on SUPER RTL right now. Hannah Montana is doing fantastically. Kim Possible is doing very fine. We have high expectations for Phineas and Ferb, which will premiere in the fall. Obviously, we love High School Musical 3, and then 4, 5, 6 and 7! We are looking forward to Camp Rock, which is going to be a big success in Germany and also on SUPER RTL. We are also broadcasting the classic Disney animated movies. We are going to have even more titles next year, which are going to be received very well by the German audience.

TV KIDS: What are your priorities for the next 12 to 24 months?

SCHMIT: Having the best available programming is still the number one priority because that is what is driving our main business. That is important because we generate most of our money with TV advertising. But it is also important because that’s the platform that drives all the other businesses. And then, obviously, the Internet, a non-TV business, is growing daily in importance because we see a lot of advertising money being shifted from classic TV advertising budgets to Internet advertising budgets. So that’s why we have to be involved in the Internet business as well.

TV KIDS: What excites you about the children’s business?

SCHMIT: Children’s television is the most beautiful product you can make. And it’s still a new challenge every year because there are always new things coming up. You have new competitors coming to the market. Fragmentation is coming. So every year is different from the year before, though I’ve been doing this as CEO for almost ten years now. No year was comparable to any other year. It keeps you busy and young!