Herbert Kloiber

July 6, 2009 World Screen

April 2009

When Herbert Kloiber and his partner, Fritz Buttenstedt, acquired Tele München Grüppe (TMG) in 1977, the company’s main business was the production and distribution of classical music programs—with a strong emphasis on quality. This strategy immediately paid off. In 1978, the concert recording of Vladimir Horowitz performing at Avery Fisher Hall in New York won five Emmy Awards. Since then, TMG has diversified its business. It produces high-end TV product as well as movies, it acquires the rights to some of the best U.S. series and feature films to resell in German-speaking territories and beyond, it owns movie-theater multiplexes and has a vibrant DVD business. It also has a merchandising business and owns stakes in the TV stations RTL II and Tele 5 in Germany and ATV in Austria, among other companies. Kloiber shares his vision for his company and his perspective on the German-language markets.
 
TV EUROPE: What is the general health of the German-speaking TV markets?
KLOIBER: One of the great positive elements is that the theatrical market in the last quarter of 2008 and the first weeks of 2009 has been extremely positive. In the doom days of all sorts of bad news, I guess going out and spending $10 is still an affordable pleasure. So we’ve had a fantastic start of the year with Twilight and Vicky Cristina Barcelona, and even Valkyrie has taken off quite well. So there is a plus there, which clearly does not come from advertising, but simply ticket sales.
The ad market in 2008 on the TV front was mildly up, so it was not such a bad year. This year has created the famous new [phrase] “low visibility,” which means we really don’t know anything beyond the first quarter, because a lot of the large agencies and big clients simply have not decided [on their marketing budgets]. The general consensus at the moment looks like [the ad market is] going to hover somewhere between minus 7 and minus 10 percent, which is fairly dramatic, but still livable.
But what does occur more and more, because of ProSieben’s inability to restructure their ad sales in 2008, they’ve opened the gross-to-net-revenue bracket very heavily—meaning that they have kept on rebating and giving clients more and more conditions. This difference between net and gross, which used to be not far from fifty-fifty, has now opened further and is being applied against pretty much all the constituents in the market. So even RTL is feeling the pinch. It’s like when you have too many hotels and people say, “We’re getting a deal at the Ritz-Carlton, why don’t you give us one, too?” So even if RTL is doing very well in the ratings, extremely well, in fact, better than for the last several years, they are still feeling a lot of pressure from the market to lower the conditions.
Tele 5 had the biggest hike in audience share of all the networks. From December 2007 to December 2008 we’ve had a 40-percent increase in market share in the target group: 14 to 49. And we’ve increased our revenues 100 percent. Obviously, from a small base it’s easier to kick up, but it’s part of the process of the fragmentation that the big guys keep on living with a little bit of erosion and the smaller guys are getting a good boon—not all of them, but this time at least we are.
Austria is also seeing pretty much the same general macromarket development. A reduction in 2009 of about 8 percent, a much healthier growth in 2008 than Germany, and a very clear decline of ORF’s market share. That’s now basically the normal advent of the public network going down, although a little later than anywhere else in Europe.
 
TV EUROPE: In your production business, TheSea Wolf has been a success.
KLOIBER: Yes, huge! Sea Wolf is happily in the can, edited and in the process of being delivered to the various stations that have taken part in it. As we’ve announced, we are definitely doing Moby Dick as a big two-part movie that will be slightly more expensive because it will be a bigger fish that we need to deal with! In other words, we’ll have a lot more special effects and more complicated animatronics. But we are planning to shoot that in August, September and October of this year between Nantucket and further up the [Massachusetts] coast. The producer is already hunting for boats, and I think we will try to put together the same production team—writer, director—and obviously the cast is still to be defined.
We are still happy to do ambitious big projects. We likewise continue to do our opera and concert projects. We’ll be doing more with the Cleveland Orchestra, and we’ll be making more operas. So the plan for 2010 and 2011 is pretty much defined and goes much at the same pace as in the past years.
 
TV EUROPE: When you are in that kind of high-end niche business, is it somewhat recession proof?
KLOIBER: Much more. I think the recession hits the series business that has traditionally had its home at Sat.1, where I understand the commissions have come to nearly a full stop. Or there is some conversion from fictional series to reality shows that has a huge impact on their bottom line. That means the producers of the run-of-the-mill mainstay of the fiction schedule are in trouble. They are looking for a bit of shelter or to combine companies and go with Grundy UFA or people who can hopefully support them for a couple of years.
RTL continues with one or two fictional series like Alarm für Cobra 11, but they won’t be expanding much. Here in Germany, the insulated part of the market, which stimulates the entire industry, is the public networks. They, together with the €8.5 billion [from the license fee], let’s not forget, are nearly immune to the recession in the advertising market because their advertising portion is less than 6 or 7 percent of their revenues. So when that goes down by 10 percent they have a difference in their total budget of 0.6 percent. And we have traditionally always worked in production only with the public networks, so the downturn doesn’t affect us much.
 
TV EUROPE: So you will still find your financing partners.
KLOIBER: The public networks ARD and ZDF are totally fine. They have a long-term view of what they need to do to stay competitive, and, if anything, they are increasing the number of shows that they are generating in production. And don’t forget, there are no American fiction series on the air on ARD or ZDF.
 
TV EUROPE: Are you seeing stations decrease their original productions and acquiring more?
KLOIBER: Yes. Some of them are trying to replace some of the production slots with acquisitions, but there is very, very little at the moment that is attractive in the marketplace. The American TV seasons, both 2007–2008 and 2008–2009, have not generated anything much that really will stay the course of maybe four, five or six seasons. We luckily picked up Flashpoint, which seems to be one of the very few new shows that CBS has that is going to be renewed and has already got a 31-episode commitment. But there is little that you can turn to in terms of one-hours and indeed even the comedies have not proved very rich in past years. So when you ask if there is a lot more buying, well, if there was more stuff there would be more buying. But the fact of the matter is, there really isn’t.
And we’ve retrenched a little bit from doing output deals—we still have one with MGM where we are doing another series of Stargate, which is a typical product that at least will get a 44-episode order and is in the sci-fi area, which is very hard for anyone but American producers to make. But the classic Fox, Sony, Paramount output deals, you would have to cherry-pick too much to be able to really fulfill the needs of what our clients are looking for.
But we are buying more and more features, like Twilight, for instance. We had a very good run with the Summit output deal we did. We got Shutter Island, which is the big [Martin] Scorsese picture that Paramount will release in October. We’ll do an Iron Man 2 this year, which is the Marvel franchise. And on those pictures we’ll have all rights, including DVD and VOD and free and pay TV. We are looking to spend more money on single projects than to just be at the receiving end of a big output deal.
 
TV EUROPE: What areas of growth do you see for TMG in the next 12 to 18 months?
KLOIBER: In the last few years, we have embarked on increasing the number of high-visibility feature-film and television productions. Our theatrical business has now become a very, very big integral part. We are the second-biggest exhibitor in Germany. With a 24-percent market share and 400 screens, it’s a $250-million business with nearly 2,000 employees.
We have a very well-positioned lab business called CineMedia, which is also a public company, which did extremely well in 2007 and 2008 and clearly is living in a transitional world, from classic analogue print-making to digital processing and digital post-production. We have organized quite a big [capital expenditure], and they have bought a lot of new machinery so that their business can become more profitable over the next years.
We will be continuing to provide product to all the German market television constituents. Every other day there is a new channel that looks to buy 500 features and 4,000 hours of tele­vision for what we call secondary-pay rights or low-pay rights, and clearly it’s putting more and more demand on our organization to fulfill those needs. We had two clients until 1984, then we had six clients, and how we have more than 100.
The DVD business in Germany has far from fallen back as much as it has in other territories. I recently saw our numbers for 2008 for Concorde Home Entertainment, and they are 8 percent better than 2007 and we were actually forecasting a 15-percent decline. Even though big titles like Iron Man had not reached the absolute ultimate top numbers of a couple of years ago, our library has been able to compensate for that. And library titles have a better margin than some of these top titles that get thrown out there. Some of the majors have been dumping prices very badly so that you could buy all the Harry Potter films for $8 at Christmas.
 

Also with some of the franchises—when we hit Iron Man 2 we can repackage it with Iron Man and when Lara Croft II came we did a lavish box with the two titles.

We have acquired the worldwide rights to the Mutual Film Company library—these are pretty good-visibility films with stars like John Travolta and Michael Douglas. It is a good addition to our Carolco [Pictures] library, which we still have for certain regions. So we are giving our sales guys not only TV product like Flashpoint and Sea Wolf and Moby Dick, but also a good feature package that they can go and play with!