Zeiler Bullish on Broadcasting

RTL Group today revealed that its 2010 net profit almost tripled from 205 million euros to 611 million euros. The gains for the year included a recovery in ad revenues across its Western European assets, plus a 7.5-percent hike in revenues from FremantleMedia.

RTL Group’s CEO, Gerhard Zeiler, talks to World Screen about the strengths of the group’s channel strategy.

WS: Are you bullish on TV in the next five years?
ZEILER: I’m very bullish. After all, what did the industry prove during the economic downturn? We can be flexible with our costs to a much higher degree than anyone had predicted. When we saw the rapidly declining ad bookings at the beginning of 2009, we had one goal: cut as many costs as possible, but without losing audience share. RTL Group’s whole incentive program was built around this. Some of our competitors didn’t impose that condition—they cut costs but didn’t focus on retaining their audience share. Our strategy helped us maintain both our audience shares and TV-advertising market shares.

Advertisers rediscovered that there is no way they can get their message to consumers without TV because it’s the only medium that touches the heart. Whenever you want to build an image or introduce a new product, you need TV. It establishes the central concept of a major campaign, which then resonates through other media. Thus, TV is compatible with online, radio, newspapers and magazines. You can argue whether it makes sense to go with TV and online or with TV and radio, but you can’t argue whether TV is essential. I haven’t seen any country in Europe where TV’s share in the advertising media mix has been reduced significantly in the past five years.

I believe that in the next five to ten years Europe will be having the same discussion we’re seeing in the U.S. right now, between the big platform owners and the major networks. The networks are saying the platform operators get most of their audience and most of their money from our programs, so they should take a small part of their profits and give this fair share to us. This whole retransmission-fees discussion will come to Europe. As a consequence, broadcasters will get a second revenue stream, whether it’s from the cable and satellite operators paying us or opening some space for us so we can launch additional channels.

Apart from that, broadcasters have to invest in content, get their business models for catch-up TV and video-on-demand right and be creative for their advertising clients.

WS: As TV viewing has fragmented, how has the RTL Group’s “family of channels” concept helped the group grow and maintain loyal viewership?
ZEILER: When we saw, five to ten years ago, that technology is moving in the direction where there will be hundreds of channels in every single country, we decided we’d rather fragment ourselves than have others fragment us. That was the origin of our “family of channels” concept. RTL Group operates five free-TV channels in Germany plus three digital pay channels. M6 Groupe has 11 channels in France, RTL Nederland has four free-TV channels plus a digital pay channel, and so on. If you want to be number one, you need a 30-percent audience share, which you can capture with a complementary family of channels. And that’s what we’re aiming for.

WS: And through the family of channels you aggregate audiences and build market share?
ZEILER: You look at the combined audience share of the family. It’s a simple equation: the higher the audience share, the higher the advertising market share and eventually the financial results. To obtain the critical mass, you need a strong flagship channel such as RTL Television in Germany, M6 in France or RTL 4 in the Netherlands. However, even the most successful channel won’t be able to cater to all the needs of our viewers. So the main channel needs brothers and sisters—and building this family is all about positioning. For example, Vox in Germany is focusing more or less on three genres, and it’s highly profitable. Finding the perfect positioning for your channel, building a strong brand, is the art.

WS: What are you learning from your various catch-up-TV services?
ZEILER: We’re already learning a number of things, although we’re still at an early stage. First of all, catch-up TV is not cannibalizing linear TV. Linear TV is still growing, and so far catch-up TV has been additional viewing.

The second aspect concerns fragmentation. In the linear world, digitization always meant further fragmentation, with viewers being spread over ever more channels. In the nonlinear world, it’s the opposite: on-demand means less fragmentation. If you take a closer look, it’s quite logical. What do people watch on demand? Their favorite shows they missed on linear TV because they weren’t at home or had other things to do, or there were other programs that were even more interesting. So on-demand viewing is about viewing blockbuster shows. Regardless of whether you look at data from the U.S., U.K., France or Germany, it’s always the same picture: the top-rated shows get a much higher share on nonlinear than in the linear world. In other words: on-demand favors the most popular programs, favors big channels, and therefore favors companies such as RTL Group.

Finally, nonlinear is all about what you missed in a serial. So Desperate Housewives and Lost are watched more than CSI. This is true not only for the fictional world but also in the reality genre. A program such as Come Dine with Me in France is one of the top shows on nonlinear because it’s serialized. You know the results will be presented on Friday but you missed Wednesday’s episode, so you want to know what happened and you catch up on nonlinear.

See more from Zeiler in the MIPTV edition of World Screen.