Deutschland

This article originally appeared in the MIPTV 2013 issue of TV Europe.

 

Is the new system for collecting public broadcaster license fees at odds with the German constitution? That’s just one of the accusations levied against the new regulations, which went into effect at the beginning of this year. Historically, the fee was based on TV- and radio-set ownership in an individual home; now, a monthly flat fee (€17.98) is imposed on every household, regardless of the kinds of devices used. This is in response to changes in viewers’ media-consumption habits and a reflection that the TV set is no longer the only device being used by Germans to access content. Indeed, prior to the implementation of the new regulations, a German federal court ruled that smartphones and all kinds of personal computers must be considered broadcast receivers.

 

Critics of the new system, however, contend that this home-based flat fee is a tax—and therefore contravenes the rule in the Grundgesetz (federal constitution) stating that the government cannot influence or fund the public-broadcasting system. Some German companies are also protesting the financial burden of the license fee. The drug-store chain Rossmann, for example, has filed suit alleging that the system is unfair; it has to pay a license fee for each of its 1,700-plus branches across the country and is expecting an annual outlay of more than €200,000.

 

These accusations add to long-simmering resentments by commercial broadcasters toward Germany’s public brodcasters, which already receive about €7.5 billion a year in license-fee funding. The new system is expected to bring in an additional €1.9 billion a year for ARD and ZDF. If those predictions are right, ARD and ZDF will still be unlikely to go on a spending binge at the end of the year. KEF, an independent regulatory body, has oversight of pubcasters’ spending and is charged with setting the license fee for next year. Should the coffers be flush with cash, KEF may consider lowering the monthly fees in the future.

Indeed, ZDF has already begun preparing for a possible reduction in its primary funding source. Under new director-general Thomas Bellut, a cost-reduction plan could cut up to 400 positions as part of a streamlining initiative.

 

However, not everybody sees the need for cost cutting in Germany’s public-TV landscape. Members of ARD have expressed a wish to launch Jugendkanal, a new digital channel for youth audiences, positioned in the gap between the kids’ and general-entertainment services. It would be run as a joint venture with ZDF, similar to the doc channel Phoenix and the kids’ channel KiKA. How serious these plans are is unclear. ZDF’s Bellut has told TV Europe that in order to launch Jugendkanal, other channels would have to be eliminated. The proposal could very well just be an argument to justify maintaining, or even increasing, the license fee when it comes up for review in two years’ time.

 

The chances for the launch of Jugendkanal should be considered low anyway, since ZDF has already said it is not interested due to its tight financial situation. Moreover, ZDF relaunched its portfolio of thematic digital channels last year, with ZDFneo, which targets a young demographic, having already been turned into something similar to ARD’s proposed Jugendkanal. The channel delivers a mixture of young and fresh magazine formats and talk shows on topics such as games and music, plus buzz-worthy U.S. imports like House of Lies and Mad Men. Even though ZDFneo’s viewing share is well below 1 percent, ZDF considers the relaunch to have been a success story, given the channel’s slow but steady ratings gains.

 

The main critics of Germany’s public-broadcasting regime can be found at the country’s commercial broadcasters. For example, when ZDF unveiled the repositioning of its thematic channels and subsequent acquisition of a number of high-profile American series, Katharina Behrends, the managing director at NBCUniversal Germany—which operates a portfolio of pay-TV channels, including 13th Street and Syfy—argued that the pubcaster was driving up the prices for American series. ZDF, Behrends argued, could pay high prices for series to air on lower-rated channels without having to worry about recouping those investments from ad revenues or subscriber fees.

 

Nevertheless, the situation for commercial pay TV in Germany appears to be improving considerably. For many years, given the dominance of free TV, both public and commercial, prospects for the pay-TV industry seemed dim. Today, however, Sky Deutschland is experiencing major gains, adding to its subscriber base and limiting churn. Now owned 54.5 percent by News Corporation, the satellite platform reported 2012 financial results earlier this year that showed an increase of 351,000 customers to 3.36 million subscribers. It also managed to narrow its loss from €155 million to €51.1 million and increased its average revenue per subscriber to €31.90, a €1.44 gain from the previous year.

 

At the heart of the platform’s turnaround from its beleaguered Premiere days has been News Corp.’s steady investments, as well as last year’s Bundesliga deal. The new agreement for the popular German football league runs for four seasons, beginning August 2013, and encompasses Internet rights to the games, previously held by Deutsche Telekom. In January, Sky Deutschland announced an agreement with the telco giant that brings football coverage, as well as other Sky-branded services, to Telekom Entertain IPTV customers. A similar deal is said to be in the works with Telekom’s competitor Vodafone for its IPTV platform.

 

Eyebrows were certainly raised over the €485.7 million Sky agreed to pay DFL, the German football league, per season for Bund­esliga rights. “I’m quite satisfied with this deal and if necessary I would have paid even more,” Sky Deutschland’s CEO, Brian Sullivan, is quoted as saying. “Compared to the international standards, the prices in Germany are still comparably low.”

 

German cable operators are also seeing gains, thanks to broadband and triple-play rollouts. With download speeds of over 100 megabits per second (mbps) in the highly populated urban centers of Germany, cable is blazing past the old fixed-wire network owned by the former state mono­poly Deutsche Telekom—its VDSL [very-high-bit-rate digital subscriber line] services are still limited to 50 mbps. Until it can upgrade its VDSL network, Deutsche Telekom is promoting its LTE [long-term evolution] network for mobile use, where it can deliver speeds equivalent to cable in some of the lesser populated parts of Germany, which, until now, were poorly served by network operators, if at all. Here, Telekom also has a serious competitor—Germany’s second-largest mobile operator, Vodafone.

 

The situation for mobile operators is changing, given the state of the DTT market in Germany. With the country’s current cable- and satellite-TV penetration, the demand for DTT services has been low. Less than 2 percent of the German population use digital terrestrial television as their primary TV source. Citing the need for costly investments in digital terrestrial infrastructure and government uncertainty about the DTT spectrum, RTL revealed in January that it would cease its DTT transmissions, beginning in Munich this year, followed by the rest of the country in 2014. This situation will free up part of the spectrum, which could be used by mobile operators to expand their services, for which there is expected to be strong demand.

 

As a matter of fact, German TV players, free and pay, are also investing heavily in mobile apps, over-the-top services and second-screen applications. Sky has its Sky Go application for mobile devices, which offers feature films and TV series, Sky Sports News and some live sports feeds. It is, at least for the time being, included for free in the premium packages for movie and sports. ProSiebenSat.1 Media operates two streaming media platforms, MyVideo and maxdome. The ad-supported MyVideo is similar to YouTube but is increasingly being used to as a second window for popular TV programs. The VOD platform maxdome offers movies and series as individual rentals or for a monthly subscription fee.

 

Competition in this online content space is building, thanks to YouTube’s European expansion and the German availability of the Amazon-owned over-the-top service LOVEFiLM. Netflix, which currently has limited European reach, is said to be eying further rollouts in the region, including in Germany. The streaming platform posted a classified ad on its website last year calling for “experienced linguists” in seven European and Asian languages, including German, to customize the site for “target” markets. Thus far, it has not formally announced any further European expansion beyond its existing territories: the U.K., Sweden, Denmark, Norway and Finland.

 

Nevertheless, gearing up for an increasingly competitive OTT landscape, Pro­SiebenSat.1 and RTL Group last year announced a joint-venture online-video platform that was being billed as “the German Hulu” by the local media. Those plans were nixed by the federal cartel office, the Bundeskartellamt, due to the two groups’ dominance in free-TV broadcasting. This is in line with the watchdog’s previous decisions, such as the one to reject publisher Axel Springer’s efforts to buy Haim Saban’s stake in ProSiebenSat.1 in 2005.

 

Those decisions were criticized by many industry spectators, largely because they were seen as preventing German companies from competing on the same playing field as the global media conglomerates.

 

In the meantime, all the major free-to-air networks have their own catch-up services. In order to better monetize those ser­vices, the major broadcasters, through their representation in the ratings agency AGF, are exploring ways to add online viewership to linear viewing data. Regular reporting is expected from early next year, with test reports set to be available this summer.

 

This is a necessary step for the commercial TV networks, since there are early indications that average linear consumption time—currently at 289 minutes daily—could decline. Moreover, previously stable viewing shares seem to have become more flexible, as the leading free-to-air network RTL has experienced. Anke Schäferkordt, co-CEO of RTL Group, has said that no channel can expect to see its viewing shares continue to rise given the increasing competition from new channels and OTT services. Even long-running hits have seen their fortunes turn; RTL’s Deutschland sucht den Superstar, the German version of the Idols format, has experienced ratings erosion.

 

Meanwhile, ProSiebenSat.1’s second-largest general-interest channel, Sat.1, is still struggling to recover its former glory. ProSiebenSat.1 has committed its resources to the German market, shedding most of its international channel holdings last year. Indeed, Germany remains the economic engine of the European continent, and was recently ranked by ZenithOptimedia as the only Western European territory in the world’s top ten contributors to adspend growth from 2012 to 2015. For media companies looking to make the most out of this market in flux, the emphasis will certainly be on bolstering their digital-media activities in order to fend off local upstarts and international competitors.