Germany Tunes In

May 9, 2011 World Screen

 

This article originally appeared in the MIPTV 2011 issue of TV Europe.
 
Great changes are taking place in the German market, as a recovering economy is spurring digital growth and an influx of foreign cash into the pay-TV space.
 
Europe’s largest economy has bounced back from the global economic downturn faster than the pundits could have predicted. With that recovery has come a return to form for the television business, with ad revenues well on the mend. However, the market has shifted dramatically since the prerecession days.
 
For instance, in 2010, the commercial broadcaster RTL Tele­vision, which for many years has led the rankings among younger viewers, also bested its public-broadcasting competitor ARD among all adult demographics. It was a small shift, but a significant one, particularly given that 2010 was a World Cup year, with ARD and ZDF holding the free-TV rights to broadcast the tournament from South Africa.
 
RATINGS GAME
Last year, RTL scored an overall viewing share across all demographics of 13.6 percent, 0.4 points ahead of ARD. And its ratings highs have continued; the local version of I’m a Celebrity, Get Me Out of Here! garnered a record prime-time audience, with shares peaking at more than 50 percent, boosting the overall daily share up to almost 27 percent during peak-viewing hours. RTL has also fared well with other format-based productions, notably Deutschland sucht den Superstar (Idols) and Das Supertalent (Got Talent).
 
RTL’s ratings ascent hasn’t been the only surprise in Germany’s TV industry. ProSiebenSat.1 Media’s new streamlined corporate structure for the German TV channels—now under the management of Andreas Bartl, who sits on the executive board—together with the revitalized local advertising market, created higher profits for the group. The response from the financial community was positive: the company’s preferred stock price skyrocketed by almost 190 percent, to more than €24 a share.
 
Ratings highlights for the group have included Germany’s Next Topmodel (hosted by Heidi Klum) and Schlag den Raab (Beat Your Host) on ProSieben, and the local legal dramedy Danni Lowinski on Sat.1. SevenOne International, ProSiebenSat.1’s international distribution division, has found international success with the format rights to both Beat Your Host, adapted in numerous territories, and Danni Lowinski. The latter is the first fiction format from Germany to be adapted for the U.S. market, with CBS Television Studios working on a pilot for The CW.
 
For 2011, Bartl is hoping to score ratings increases with more U.S. imports for Sat.1, which has already acquired American hits like Hawaii Five-0 and The Defenders. But the number of new German series will also increase. “We intend to dedicate Monday evening slots to German series,” Bartl says.
 
In the pay-TV space, Sky Deutschland has been holding steady. Since its takeover by News Corporation almost three years ago (when the service was known as Premiere), the platform’s subscriber base has remained stable at around 2.5 million. Sky has said that it needs to reach a base of 3 million before it makes a profit. A silver lining is on the horizon, with Sky adding a net 131,000 subscribers in the fourth quarter, but the platform will remain in the red for some time as it makes additional investments to improve the service and lure new customers.
 
MONEY MATTERS
Clearly, Germany’s TV market is in a strong position; the question is, how long can it last?
 
In 2010, advertising revenues totaled €11.06 billion. Of the free-TV channels, RTL came out on top, taking in €2.69 billion, a 17-percent increase over 2009. Ad revenues at ProSieben came in at €1.94 billion, up 20 percent, while Sat.1’s grew by 17 percent to €2.06 billion. However, this does not represent the actual income of the channels, since advertising has been sold at considerably discounted rates in order to entice advertisers. This practice started during the downturn two years ago and has continued despite the rebound.
 
With the robust figures from last year, German TV channels are already getting back into the partying mood—too soon, some critics state.
 
“At the moment we’re celebrating last year’s unexpected high growth in TV spending and, maybe for the next couple of weeks, will rejoice in the expectation that this year may go on as the last one,” says Jürgen Blomenkamp, the global CEO at GroupM Trading. “But soon, the heavy punch will strike. We will see that we are operating in an overmature market. This will be no fun for anybody in the TV business.”
 
Martin Krapf, the CEO of IP Deutschland—which sells advertising across the RTL German portfolio—is of a different opinion. The rise of the Internet as an ad medium, he notes, will compensate for any shortfalls in the TV advertising sector. “Over the last five years [online buys] are increasingly adding to our revenues and profits,” he says.
 
For the German public broadcasters ARD and ZDF, the key issue is that of declining license-fee revenues. An increasing number of people are no longer paying their TV dues, either because they are unemployed or because they are simply not making enough. Nonetheless, the €7.6 billion in license-fee revenues that it takes in annually make the German public-broadcasting system the world’s richest.
 
However, programming cuts can’t be avoided, according to Dagmar Reim, the director general of ORB, the regional public broadcaster of Berlin and Brandenburg and a member of ARD. “Some of them will hurt,” she said at a media convention in Berlin last year, noting that all genres, regardless of tradition, will have to be scrutinized.
 
PUBLIC OPINION
Others are more optimistic about the future of German public broadcasting. A new system for collecting the license fee has been approved by the German state governors for introduction in 2013. The new model will no longer be based on the number of TV and radio sets available in one’s home, given the myriad of devices now available for accessing content. Instead, a flat fee will be levied on all homes, regardless of whether or not they own a device capable of receiving public media services. Some observers believe that with the new system, public broadcasters will have upwards of €1 billion more in funding than they did with the previous model. For sure, this is cause for concern for the commercial broadcasters that are dependent on the highs and lows of the ad market.
 
Also causing a ripple of fear has been pubcasters’ expansion into digital media, such as Internet portals or mobile apps. These moves are being eyed suspiciously by the German publishing industry, which is afraid that they will interfere with their own digital business models. The reach of the public broadcasting giants can’t be ignored; when ARD launched a free iPad app for its highly popular news format Tagesschau, it saw 700,000 downloads within just a few weeks.
 
EYES ON THE FUTURE
Digital media is certainly reshaping the German television landscape, with broadcasters’ web portals becoming increasingly popular. RTL Television, for instance, reports monthly increases on its catch-up and preview service RTL NOW for series such as the daily soap Gute Zeiten, Schlechte Zeiten (Good Times, Bad Times). One source indicates that there are times when more people are watching these shows online than on TV. So, not surprisingly, RTL Germany and ProSiebenSat.1 plan to launch a joint video-on-demand platform. The groups have insisted that the ser­vice will not be a German Hulu, with the VOD platform to operate independently from ProSieben’s maxdome. Nonetheless, the German antitrust regulator nixed the proposal in mid-March. At press time, it was unclear if the German broadcasters would appeal the decision.
 
It’s not just the major commercial broadcasters that are finding success online. Deutsche Telekom’s (DT) IPTV service Entertain has been having an almost record-breaking growth spurt. The platform broke through the 1-million subscriber mark in September 2009, and today is reaching as many 1.7 million households, sources indicate. Those numbers are for viewers accessing the regular TV channels, like RTL, ProSieben or the public stations. The numbers for the pay-TV bouquet are far smaller. Regardless, Entertain offers a very attractive soccer package with Germany’s first soccer league, Bundesliga. The shows are aired in HD and selected ones are even in 3D.
 
There are a variety of reasons that the pay service is not taking off faster. Introducing interactive features in an IP environment requires an enormous extra investment. In addition, DT acquired only the IPTV rights to the Bundesliga. (DT, controlled by the German state, is not allowed to control both the platform and content.) The regular pay-TV rights are held by Sky Deutschland, with a strong subscriber base for traditional cable and satellite service. For that reason, Sky is optimistic that DT will not mount a significant challenge, says a company source. “Talk to the regulators; they are quite suspicious about the current DT strategy,” the source says. “DT will always remain as a distribution platform.” Meaning that, in the long run, Sky could revert to being DT’s natural partner.
 
Sky is not relying solely on the Bundesliga to drive subscriber gains. Significant marketing spending and the launch of HD and 3D services are finally generating the intended results for Sky Deutschland. The platform also forged new alliances with cable operators. So far, it’s been with the smaller ones, but Sky eventually expects to tie up with bigger operators like Kabel Deutschland (KDG) and Unitymedia.
 
These partnerships do break with the old Premiere tradition of keeping sole control over its subscribers. And while that measure will be maintained in satellite, in cable the platform is keen to develop new partnerships. “This should have been done much earlier,” states an executive at a Sky partner.
 
There is plenty of other action taking place in the German cable industry. Unitymedia has been owned by John Malone’s Liberty Global since early 2010. Further expansion of the operator is expected. Kabel BW, a regional operator in the southwest of Germany that reaches more than 2 million customers, is for sale, and Liberty seems to be the natural buyer. Malone already failed once in Germany when he took over the old DT asset, which made up the vast majority of German cable systems in the 1990s, and the deal was nixed by the German antitrust watchdog. If his current plan works, a merged Unitymedia and Kabel BW would have about 8 million subs, second only to the leading cable operator KDG, which has more than 9 million customers.
 
While foreign money is making its way into the pay-TV business, the commercial broadcasters are increasingly looking outward; RTL’s parent company, RTL Group, is expanding to India. ProSiebenSat.1’s Red Arrow Entertainment Group has been busily snapping up production companies across the globe. And ZDF’s commercial arm, ZDF Enterprises, continues to invest in international programming rights in addition to monetizing its deep German content library.
 
Between its international ambitions and its rapidly changing domestic landscape, Germany looks set to remain one of Europe’s most dynamic media markets in the years to come.