Gerhard Zeiler

This interview was originally published in the MIPTV 2010 issue of World Screen.

With 45 TV channels and 31 radio stations in 11 countries, the RTL Group is Europe’s largest broadcaster. Every day, more than 200 million viewers across the continent watch RTL stations.

The key to the company’s success—even during 2009, the “annus horribilis” in broadcasting, when the worst economic recession in decades hammered advertising-supported businesses—has been RTL’s family-of-channels concept. The idea is simple and effective: establish a flagship station in a market—RTL Television in Germany, M6 in France, RTL 4 in the Netherlands, RTL-TVI in Belgium, and Five in the U.K.—and then develop a group of secondary digital channels around them. These include W9 in France; Five USA and Fiver in the U.K.; and Passion, RTL Crime and RTL Living in Germany. Each of them has developed a loyal viewership, which helps drive advertising and increase the group’s market share in each of the countries in which it operates. The group also has broadcasting operations in Hungary (RTL Klub), Russia (Ren TV), Croatia (RTL Televizija) and Greece (Alpha TV).

In addition to its broadcasting expertise, the RTL Group owns a content-producing powerhouse, Fremantle­Media, one of the largest international creators and producers of entertainment brands in the world, including Idols, Got Talent, The X Factor and Hole in the Wall. FremantleMedia’s formats give life to the top-rated entertainment shows in the U.K., Europe, the U.S. and more than 40 countries around the globe. It has production operations in some 22 countries, with more than 320 titles in production at any one time. Every year FremantleMedia’s various companies deliver nearly 10,000 hours of original programming to broadcasters. And they directly distribute and license more than 20,000 hours of top-class entertainment to some 150 countries.

As CEO of the RTL Group, Gerhard Zeiler oversees both the broadcasting and the content sides. His career in television began in 1986 as secretary-general of the Austrian public broadcaster ORF. After a two-year period as CEO of Tele 5 in Germany and a further two-year period as CEO of RTL II, he returned to ORF as CEO in 1994 and remained there until November 1998. At that time he joined the RTL Group as CEO of RTL Television in Germany. In March 2003 Zeiler was appointed CEO of the RTL Group.

Nowadays, he spends much of his time traveling from one of the RTL stations to another. Programming remains his passion and he follows the broadcasting side of the group closely. At the same time, he is focused on diversifying the group’s businesses, improving the non-advertising revenue streams considerably, and also keeping a watchful eye on digital opportunities. The RTL Group’s stations have established very successful catch-up TV offerings as well as social networks and online games. He talks to World Screen about all these businesses and stresses his belief in the resilience of broadcasting.

WS: What factors helped the RTL Group pull through last year, which was a rather challenging year, wasn’t it?
ZEILER: It was. All broadcasters, not just RTL Group, demonstrated in 2009 that the TV industry is flexible enough to master the challenges of the future. At the beginning of the year we didn’t know how badly the economic downturn would hit us, we only knew it would. So our main goal was to significantly reduce our costs without destroying value, without losing substance and without losing audience share. And that is exactly what we’ve done.
RTL Group reduced its operating costs by €371 million in 2009. And despite these significant program-cost savings, RTL Group’s families of channels achieved higher audience shares in almost all countries—in Germany, France, the U.K., Belgium and the Netherlands.That shows that successful TV is not only about money. What counts is creativity, ideas, smart program planning and scheduling. We have the best CEOs and the best program directors, and that helped us get through the year.
With a strong year-end finish, RTL Group again achieved good full-year results and continued to operate at high levels of profitability. The net result for RTLGroup shareholders even increased 5.7 percent to €205 million.

WS: The RTL Group has always been “lean and mean,” very cost-conscious. Is there anything you learned from last year that you are going to carry into the future—best business practices that you are going to maintain?
ZEILER: I think the RTL Group’s foremost principle is that we are a very decentralized organization. The more decisions that can be made on the ground, the better. If you really have the right management team, which on the one hand is passionate about the industry and on the other hand is also greatly motivated, they will make the best decisions.
How did we manage to reduce costs so massively? Of course there were some overhead cuts, but the biggest cost for a broadcaster are program costs. To have significantly reduced programming costs without losing audience share shows that the RTL Group’s local management teams have the right judgment about where to invest less and where to invest as much as in previous years. I don’t believe in the principle of slashing everything by 10 percent or 15 percent, across the board. In some areas we don’t need to cut at all; in some we put even additional money on the table because that is what we needed. And that is possible only if you have a very decentralized organization run by TV experts.

WS: So is the future of free TV in Europe as threatened by fragmenting audiences, declining ad revenues and increasing production costs as it is in the U.S., or in Europe is free TV still a viable business?
ZEILER: Not only is free TV a viable business in Europe, but I believe 100 percent in the free-to-air industry. The fundamentals of our business remain strong: people are watching more TV than ever before. Not all of them on TV screens, not all of them linear, but they are watching what we as an industry produce. TV is still the best medium for reaching a mass audience, for building brands and promoting new products—especially in the digital-media world with its many distribution channels and small target audiences.
We must, however, face the challenges you mention, and I will list the five key tasks ahead:
First, I don’t believe that the broadcasting industry will return to the level of advertising revenues we had in the years 2006 to 2008. We therefore have to continue being cost-conscious without losing audience share. This includes not allowing production costs to increase as they have in America.
Second, we have to make a real business out of the growing nonlinear TV habits of our viewers. The good news is that we can learn a lot from the U.S. We all know that in the future a significant portion of the time people spend watching TV will be nonlinear. And we have to get the business model right.
All the catch-up TV ventures we have built up in Germany, in France, in the Netherlands, in Belgium, in Hungary and in the U.K. show there is a huge need for on-demand viewing. RTL Group’s online platforms across Europe collectively registered more than 1 billion video streams, delivering professionally produced content to our viewers—an increase of 49 percent compared to 2008.
We can clearly see that we’re building attractive offers for advertising clients. A new study from IP Deutschland, our German sales house, shows that not only do commercial breaks during catch-up programming have a high impact, but they are regarded by viewers as perfectly normal, because they are used to them from traditional TV. Another study shows that…M6 Replay is the best place to advertise on the Internet in France. Thanks to the positive uptake among advertising customers, the platform already broke even in 2009.
We will also have to identify which part of our on-demand offer is so exclusive and unique that people would be willing to pay a small amount to watch it: on the computer, on the TV, or on any mobile set where it will be possible.
Third, we need to establish a second revenue stream so that all the platforms—cable, satellite, IPTV—pay for the signal and the content we deliver. It has always been a viable business model in the U.S. It was never one in Europe, and we have to find a way so that the people who base their businesses on our signals pay an appropriate price. We are at the beginning of this process in Europe, but there are early signs that we can establish this second revenue stream.
Fourth, we have huge, important and strong channel brands and program brands. Exploiting them better than we have in the past is a priority for the future.
Fifth, at least for RTL Group, we must continue to invest further in content, with FremantleMedia and also online.
To sum it up: I believe in our industry’s ability to adapt. This ability has always been one of our strengths. If we just do our homework, we will not only weather the current climate of economic doom and gloom, we will also turn the technological changes to our advantage and see a return to growth.

WS: In the main territories where the RTL Group operates, what are the major issues affecting the TV industry, and how are the RTL stations performing?
ZEILER: Let’s start with Germany. Mediengruppe RTL Deutschland had a very challenging 2009 for several reasons. First, the comparison to 2008 was tough. You may recall that in 2008, RTL in Germany had benefited from ProSiebenSat.1’s less-than-ideal system of selling advertising, and as a result RTL Group’s German family of channels won enormous advertising market share in 2008. Following this exceptional year, competitors were expected to win back some market share during 2009. To make matters worse, the German TV advertising market declined significantly in 2009, by an estimated 8.5 percent. We knew we would have to work hard to prove to advertisers that we had much higher audience appeal than our competitors.
The ratings success seen in 2009 was actually phenomenal. Despite significant program-cost savings, the German family of channels significantly increased its already clear audience leadership in the key 14-to-49 target group by 1.5 percentage points to 34.4 percent, a new record. This outstanding performance was driven mainly by the flagship channel, RTL Television. For the 17th consecutive year and by a large margin, it was the number one choice among young viewers. RTL Television scored a 16.9-percent audience share in its main target group, achieving the biggest gain recorded by any channel in the reporting period—plus 1.2 percentage points. This was also the channel’s best result since 2003, and put it 5 percentage points ahead of the number two commercial channel, ProSieben.
You can see how well positioned we are for when the market stabilizes in Germany.

WS: And what about France?
ZEILER: In France, Groupe M6 reported an almost stable operating profit of €195 million, so it actually achieved a higher operating profit than Groupe TF1. This clearly shows how strong Groupe M6 is, even in a TV-advertising market that was down by 12 percent in 2009.
M6 outperformed the TV-advertising market, and the company had a very strong year in non-ad revenues, which were up by 8.3 percent. These activities, in fact, more than compensated for the decline in advertising revenue at the main channel, M6. Revenue from Groupe M6’s digital channels continued their strong growth, up 17.7 percent year-on-year. This was mainly driven by the strong performance of the free digital channel W9, which confirmed its market leadership among the DTT channels, with an average audience share of 3.3 percent in the main commercial target group.
In France, 2009 was the first year in which we saw the positive impact of our family of channels concept: Groupe M6 was the only family of channels with growing ratings, driven by the strong growth of W9.

WS: How did your broadcast businesses in other major markets perform?
ZEILER: In the Netherlands, the situation was similar to the one in Germany. RTL Nederland focused its efforts on the programming strategy of its flagship channel, RTL 4. The channel’s prime-time ratings increased even more steeply than those of RTL Television in Germany—from 14.9 percent to 17 percent in the commercial target group. In 2008, the public broadcaster Nederland 1 was the highest-rated channel, in 2009 it was RTL 4 once again. And RTL Nederland actually increased its operating profit from 2008 to 2009, thanks to an early focus on cost reduction.
The U.K. market was probably the most challenging of all Western European countries. Compared to 2005, advertising revenues were down by a third. In 2008, the U.K. TV-advertising market decreased by 5 percent, and in 2009 the market declined by another estimated 12.5 percent. This has led to some clear consequences: the value of more or less all media assets decreased significantly, resulting in a lot of noncash impairments. In our case, this affected the value of Five.
Throughout 2009, Five’s management worked intensively on recalibrating the company’s cost base. The head count was reduced by 25 percent and program costs were also slashed. The important thing is that the management achieved these savings without losing audience shares. In fact, in terms of adult share of viewing, Five was the only terrestrial family of channels in the U.K. to slightly increase its share in 2009, while the ITV and Channel 4 families of channels lost audience share.
Last but not least, Spain, where RTL Group has a 21.6-percent minority shareholding in Grupo Antena 3. Of all the European markets we operate in, the Spanish net TV-advertising market was hardest hit by the economic downturn in 2009, falling by an estimated 23.2 percent. The good news is that Antena 3’s competitive position has improved in the target group of viewers aged 16 to 54. For the first time in a long time, Antena 3 was number one. And we really hope that the Spanish market will stabilize itself from here on in. With the competitive edge that Grupo Antena 3 has gained, and also given the new ban on advertising at the public broadcaster TVE, we have reason to hope that 2010 will be a much better year than 2009.
Finally, our worldwide production arm, FremantleMedia, faces the same difficulty as any supplier of programming: in times of crisis, broadcasters tend to look at production costs and try to squeeze the margins. FremantleMedia is in the same position as all the other big production groups, but nevertheless it managed to reach again the record results level of 2008, with operating profit stable against a slight decrease in revenues.

WS: What opportunities for growth do you see in the next 24 months?
ZEILER: First of all, we have to continue investing in content. Here we have a great company with FremantleMedia, a real powerhouse of creative intellectual property. Second, we have to invest in and expand our family-of-channels concept in the countries where we operate. We need to build more digital channels, invest in high-definition TV services, and expand our catch-up TV platforms and other digital ventures.
Third, while we are happy that we have a great relationship with the advertising industry in all the countries where we do business, we also aim to further increase our non-advertising revenues. We call this diversification. Besides our content production and online activities that are not dependent on advertising, this also includes the pay channels that we offer to cable, satellite and IPTV operators. In return for these exclusive products, such as RTL Crime in Germany or RTL Lounge in the Netherlands, we get a certain portion of the subscriber fees. And last but not least, if we have the right concept, I don’t rule out that we may expand into additional broadcasting territories. We are, for example, looking into Asia to see whether we can develop something there.         

WS: The RTL Group has some of the most successful catch-up TV services in Europe. As they become increasingly popular, are you having a hard time bringing advertisers online?
ZEILER: Yes and no. When money is tight and you start a new venture, it’s always hard to convince advertisers to jump on board right away. In our second full year of catch-up TV, RTL Group’s ventures in Germany, France and the Netherlands had tremendous success in terms of the users. We had 136 million video views with RTL Now in Germany, 148 million with M6 Replay in France and 185 million with RTL Gemist in the Netherlands.
In terms of advertising revenue we are still at the beginning, but I’m pretty sure that 2010 will see a very significant increase in advertising revenue for these platforms, because people are used to advertising on catch-up TV ventures. I’m very optimistic about that; we’ll see a similar growth in advertising in our catch-up TV ventures as our American colleagues have seen with theirs.

WS: What are you learning about who is using catch-up TV?
ZEILER: The more we offer catch-up TV, the more we know about it. First of all, the more successful a program is on traditional, linear TV, the more successful it is on catch-up TV. People really want to see on catch-up TV what they missed on the linear channel. Second, everything that is serialized has an advantage when it comes to catch-up TV: Desperate Housewives and Lost have an advantage over NCIS. All the daily soap formats, reality formats such as Come Dine with Me, and big shows such as Idols, Got Talent, The X Factor and serialized fiction, are all especially popular on catch-up TV.

WS: Is catch-up TV providing your programs with an even broader audience than the one you are reaching on the linear channels?
ZEILER: I’m not ruling out that we may eventually get a broader audience in the long run, but we haven’t seen that yet. What we are seeing is that if our audience wants to watch our formats, and for some reason they can’t watch them when they’re on TV, then they have the chance to watch them on catch-up TV, that is the main aspect.
In addition, people who use catch-up TV watch more TV than people who don’t use it, so I’m pretty confident that if we make catch-up TV available to every viewer, the time that people spend watching TV will increase overall. Nonlinear TV is not a substitute for traditional TV, but a complementary service, which generates additional viewing time.

WS: Nowadays, does all content have to be multiplatform? Or is it sufficient to always start with a good idea and then adapt it to various platforms?
ZEILER: The latter. First the idea has to be right, then you have to make a hit program out of it. Today you also have to think with a multi­platform brain from the very beginning—this is definitely a difference from previous years. But you can’t run something on a new platform if it hasn’t been a success on traditional TV. The idea has to be right, the execution has to be right, and then you’ll have the chance at building a brand, first on TV and then also on other platforms, with merchandising, live events, iPhone apps, magazines, games.

WS: How has your sales team been working with advertisers during the past year?
ZEILER: We tried to give them extra value, not only with additional discounts, which all broadcasters were forced to give, but also by concentrating on new promotions and non-spot advertising. We tried to put more advertising on the screen during programs, such as 30-second or 20-second logos. We have special advertising cleverly included in the programs.
Unlike our U.S. counterparts, we have to take great pains to convince our regulators to allow product placement. We are increasingly able to do that and are getting much more placement than just two or three years ago. That is how we approach our clients. We tell them we know it’s as tight for you as it is for us now, but we try to give you more value for the same amount of money.