Exclusive Interview: RTL Group’s Guillaume de Posch

PREMIUM: Guillaume de Posch, the co-CEO of the RTL Group, talks to World Screen about the challenges and opportunities of running a media company today.

WS: Certainly the concept of a brand as a destination that delivers a certain type of entertainment experience is key for a media company today.
DE POSCH: Absolutely. Broadly speaking—in both FremantleMedia and the broadcasting side of the business—we consider ourselves to be a video provider in the broader sense, whether the video is provided through linear TV or on other nonlinear platforms.

Our goal is to recreate the virtuous circle of the traditional broadcast business in the online world: offering the best content, attracting the biggest audiences, and having the most effective distribution and monetization platform. It’s vital to be present on all new platforms, which is why we’ve invested in the multi-channel network BroadbandTV, which—as the name indicates—is TV-like content broadcast online via YouTube. This investment is an important step in the implementation of our strategic plan “Broadcast, Content, Digital”. It significantly accelerates our expansion in the online-video market. Broadband TV is a perfect fit and addition to the digital activities of both our broadcasters and FremantleMedia. It’s about content, aggregation and advertising sales in the online video world, and thus close to our core competencies.

Following our recent acquisition in the online video world, on a full-year basis, RTL Group will register over 15 billion online video views. Our strategic goal is to become a leading player in online video and online video advertising.

WS: For the RTL Group, is online viewing still accretive to the linear viewing of the channels?
DE POSCH: It is accretive. If you look at viewers’ TV usage, which is measured in number of minutes per viewer per day, it has increased across nonlinear channels over the past ten years. PVR, time-shifted, and online viewing—representing around 2 to 3 per cent of total viewing, at least in our footprint—is in addition to, not instead of, linear viewing.

That’s the good news. Over the long term we believe nonlinear viewing could represent up to 15 percent of total viewing. It’s unclear whether this will be additional viewing time, or whether it will take away from linear viewing.

As a consequence, we are focusing on developing our offering on both terrains. That way, if the viewer migrates from one territory to the other, they can stay with RTL.

WS: Have you seen a willingness on behalf of advertisers to move to the online world?
DE POSCH: Advertisers believe that the two media serve different purposes. Linear TV serves for brand recognition and mass appeal. In other words, if an advertiser wants to launch a new brand or a new product, it needs TV to get massive reach within a short period of time.

Online video advertising promises strong growth. We are well positioned in this segment because we already know the advertisers who use audiovisual forms of advertising very well.

Digital is also a nice addition for more targeted advertising or more sales-driven incentives. I know of no advertisers who have permanently switched from TV to online, or who focus exclusively on either media—I believe they all mix the two approaches these days.

When you look at the development of international advertising markets, nearly everywhere there are two winners: TV and online. So as a group, we stand to benefit on two fronts. We are extending our television content into the nonlinear world. Digital is not a separate activity for us, but an integral part of the business, and it will become more and more important in the future.

WS: Everybody is using digital platforms, but young consumers perhaps more so. RTL Group has always been very good at attracting young viewers—RTL II comes to mind.
DE POSCH: Our strategy for attracting young viewers is consistent across the group. We want to make sure we always have a linear TV offering for younger viewers, whether it’s RTL II or RTL Nitro in Germany, W9 in France, or RTL 5 in the Netherlands. But linear alone isn’t enough, which is why we offer catch-up TV as well as.

WS: You mentioned Germany. Mediengruppe RTL Deutschland is doing very well.
DE POSCH: Yes, very well, and this is basically the continuation of the success that has been ongoing for years, with a strong lineup of channels, strong brands, and individual programs. In the first half of this year, Mediengruppe RTL Deutschland generated its best first-half EBITA ever, representing more than 50 percent of RTL Group’s half-year EBITA. It’s a large market, and a key component of our group.

Overall, RTL Group reported strong results for the first six months of 2013. Despite a tough economic environment, all profit indicators—EBITA, profit margin and net result—were significantly up and we generated the second best first-half EBITA in RTL Group’s history.

WS: What are some of the challenges that Antena 3 and La Sexta are facing in Spain now?
DE POSCH: RTL Group has a 20.5-percent stake in the new Grupo Antena 3, which was renamed Atresmedia. The Spanish TV market has been dramatically consolidating over the past few years. Market conditions have been adverse for nearly 18 months, and consolidation has been the best way to react to the market’s weakness.

The integration of La Sexta into Atresmedia allowed the new company to increase its revenues and profit over the past year, as Atresmedia has a stronger position in the market than Antena 3 had before.

During the presentation of their 2013 half-year results, Atresmedia said that in their view, the contraction of the Spanish economy will slow down during the second quarter of 2013, and suggested that the market may be moving into a period of stagnation and that the end of the recession might not be too far off.

In summary, the consolidation between La Sexta and Antena 3 was an answer to the economic crisis, and we hope improvements in market conditions will soon put the company on a growth path again.

WS: Is the RTL model of operating a family of channels an advantage when the economy takes a downturn?
DE POSCH: I think definitely so. It allows each channel to target a specific group, and enables advertising spend to target individual channels, enabling better allocation of advertising budgets across channels.

For example, you can offer more GRPs [gross rating points] at a higher cost on the leading channels, but if an advertiser doesn’t have a large enough budget, you can offer lower reach on one of the secondary channels, with a lower GRP cost. First-tier channels usually command a higher cost per GRP than second-tier channels, so it’s good to have a mixture of both.

WS: Has the family of channels formula also worked in France, another country where the economic conditions are not very good? What has fueled the success of Groupe M6 in France?
DE POSCH: The success of Groupe M6 is driven by a couple of factors. First, their innovative programming has demonstrated over time that their strategy of developing strong brands in peak-time slots paid off. Examples include The Farmer Wants a Wife, which was a big success during the second quarter, but also the access prime-time comedy Scènes de Ménages, or the magazine Capital in prime time. And this strategy is implemented throughout Groupe M6. At W9, France’s leading DTT channel in the commercial target group, a reality program called Les Ch'tis A Las Vegas is very successful in access prime time. So the first factor is creativity in programming.

The second factor is their successful diversification strategy, which allows the company to be less dependent on advertising revenues in times of economic turmoil. This model has proved its resilience.

WS: Since the advertising ban was imposed on the public broadcaster, France Télévisions, have the commercial channels in France been able to benefit from the ban or has the economic recession not allowed them to gain any additional advertising revenues?
DE POSCH: They have definitely benefited in the past from this restriction on advertising in prime time on the public service. We hope that the government will maintain this position; that’s the way it should work, ideally like the model in the U.K. with no advertising at all on the BBC, or at least like the model in Germany with no advertising after 8 p.m. on ARD and ZDF.

That said, when economic conditions are tough you have a combination of two factors: the restriction of supply due to the ban on advertising in prime time on the public service, and reduced demand from advertisers because of the recession. Plus, the additional channels that were launched in December 2012 created a more competitive environment.

WS: Have the RTL stations in Hungary and Croatia seen some success despite the sluggish economy in the region?
DE POSCH: Two years ago in Hungary we made a bold consolidation move. We acquired seven cable channels, propelling our family of stations from one to eight. 

The economic situation in Central and Eastern Europe—including Hungary and Croatia—remains challenging, but the prime-time audience share of our family of channels in Hungary is very strong. We attracted 37.2 percent of our target group aged 18 to 49 during the first six months of 2013, underlining the rationale behind the acquisition of the cable channels. Having a family of channels also enables us to offer advertisers a range of packages focused on various target groups, and I believe this has helped us to fight the economic crisis.

In Hungary, the combination of cost savings at the main channel RTL Klub and stable EBITA from the cable channels contributed to a rise in half-year EBITA, despite the [expense of launching] RTL II.

In Croatia, an increase in ratings in the first six months of 2013 resulted in a larger TV advertising market share and thus brought RTL Televizija’s half-year EBITA to break-even. Just recently, RTL Hrvatska was awarded a license for a new kids and family channel to be named RTL Kockica. The free-to-air channel is scheduled to launch in autumn 2013.

We believe these markets will recover and grow again in the medium to long-term.

WS: The RTL Group also has stations in Holland. Is Northern Europe feeling less economic pressure than countries in Southern Europe?
DE POSCH: On a scale of pain, the further south you go the more pain you feel. Benelux has been relatively resilient, and performance from these countries has been okay. Germany has been the most resilient of all. As our financial results show, overall, we’ve been able to compensate for our revenue shortfall by cutting costs.

WS: Looking further afield, how has Big RTL Thrill in India been performing?
DE POSCH: To put it into context, I would call Big RTL Thrill a flag in a new continent. From the perspective of RTL Group, it’s a relatively small project. Why did we do it? Simply because we realized Southeast Asia, India and China are growing fast and that, in the long term, there should be more appetite for new channels and new programs in the region.

We decided to proceed cautiously, meaning we share the risk with a very strong local group, Reliance, one of the India’s largest conglomerates, and that we roll out the channels in various parts of India gradually.

Overall, the distribution of the channel has been strong simply because 31 million households in India can now watch the channel—that’s the good news. The programming and the ratings are doing fine. Within our target group of male viewers age 15 to 44, we are well ranked against channels that have been in the market for 10 to 15 years.

We now need to further monetize the channel by convincing advertisers that it’s a great channel. And in the TV business, this is a long-term process.

WS: Are you scouting for opportunities in other countries as well?
DE POSCH: As you know, there are three pillars to RTL Group: broadcast, content and digital. Our broadcast strategy includes selectively increasing our presence in our current footprint by launching new channels in regions in which we already have a presence. Last year we launched four new channels: in Germany, France, Hungary and Holland. This autumn, we will launch a new kids’ and family channel in Croatia.

We also want to selectively expand out from our footprint, as we’ve done in India. In August, we announced a new venture in cooperation with CBS Studios International to launch two thematic pay channels across Southeast Asia. This move is part of our strategy for geographic expansion in the fast-growing Asian markets.

But we only undertake new projects there if they meet certain criteria: they must fit with RTL Group’s overall strategy. In the case of RTL CBS it’s a low risk model with one of the world’s most renowned partners, based on a tried-and-tested [growth] strategy. Like in India, synergies with the group through FremantleMedia’s content will help drive returns.

WS: Would you always be looking at a free-TV model? A lot of groups from Discovery to Turner are diversifying their portfolio and planting flags in both free TV and pay TV.
DE POSCH: I wouldn’t rule out that we would launch basic pay channels, which typically offer a combination of advertising revenues and subscriber fees—we already have these within our footprint, especially with our channels in Asia—but we won’t go into premium film and sports channels.

WS: You have called FremantleMedia a jewel. What have been some of FremantleMedia’s strengths, first, in identifying local tastes and catering to them, and second in finding programs that can travel from one country to another?
DE POSCH: It’s a combination of two factors: big worldwide formats, and local formats that can be exported. First, FremantleMedia is very much focused on rolling out worldwide franchises, from The X Factor, Got Talent, Idols to The Farmer Wants a Wife. These are formats fitting for a big rollout in multiple countries: up to 55 countries, in the case of Got Talent. Of course, FremantleMedia ensures each show is adapted to suit local tastes.

In addition—and this has been a more recent development in the company’s history—FremantleMedia tries to create shows that are successful locally, which they can subsequently export. Let me give you two examples. Take Me Out is a dating show that was originally piloted in France, was then exported, and later reimported. In fact, the digital channel W9 will be airing the show in the autumn.

The other example is a fiction program called Wentworth, which is a very successful drama that aired on Foxtel in Australia. As a local show, Wentworth wasn’t initially intended to be a worldwide format, but FremantleMedia believes it has the capability and the strength to be exported.

To summarize, FremantleMedia’s success comes from a combination of big worldwide formats, and local formats that have the potential to be exported.

WS: How would you like to expand international productions even further?
DE POSCH: We will continue growing our content arm through a combination of organic growth and acquisition. FremantleMedia will focus its investments on two goals: fuelling its pipeline of intellectual property across a broad range of genres and serving new digital audiences, for example with YouTube channels or gaming.

FremantleMedia already announced a couple of deals in kids’ entertainment, including a co-production agreement with BBC Children’s, and are currently reviewing their strategy to expand in the drama genre.

WS: FremantleMedia underwent some restructuring earlier this year. What advantages will it draw from separating FremantleMedia International from the digital and branded businesses?
DE POSCH: To answer this question we need to go back ten years. Back then, as you know, branded entertainment and digital weren’t that much of a concern for the production side of the business. Now, ten years later, integrating both digital and branded entertainment within the mainstream production business has become essential.

For this reason, Cecile Frot-Coutaz, the CEO of FremantleMedia, decided to reintegrate these two strands within the core production business to make sure all aspects of the business are fully aligned. The commercial and creative teams will now be even more connected, working side by side from the development stage onwards. By transferring these skills into the local production businesses, FremantleMedia creates a far more direct and seamless integration between its production efforts and the commercial activity surrounding its hit shows.

FremantleMedia International now focuses on licensing programming not only to traditional platforms and broadcasters, but also to new platforms such as Netflix, Hulu and YouTube. FremantleMedia Kids & Family Entertainment focuses on kids’ programming, which requires special attention. This is vital to the business cycles of the new businesses. We already see the benefits of this restructuring on costs as FremantleMedia reported a higher EBITA of €47 million ($62.6 million) for the first six months of 2013. Additionally, this result is driven by increased contributions from FremantleMedia North America and FremantleMedia Asia Pacific.

WS: What challenges and opportunities does the digital world offer a company like FremantleMedia?
DE POSCH: Digital is important for the whole of RTL Group, not just FremantleMedia. FremantleMedia is a content creator, and can therefore be platform neutral. Bare in mind that certain criteria need to be met when you are doing business with all platforms: what level of exclusivity do you grant? What price do you receive for your show? How protected is your show from a copyright point of view? What kind of marketing does the platform offer? All these questions are weighed by FremantleMedia in their decisions regarding whether to be on one channel or another.

TV is the true social medium. In addition to the collective experience of watching television with friends and family, social networks such as Facebook and Twitter stimulate interest in watching live television, making commercial time potentially more valuable.

Accordingly, on the broadcasting side of the business, it’s extremely important that a broadcaster can retain a certain level of exclusivity, to ensure it aggregates the maximum audience on its own channel. But it’s also a matter of branding. We want to make sure the broadcaster relies not only on the individual programming brands, but also on the overarching channel brand.