The German TV market as seen from abroad

Public value is not appreciated until it is lost.

Journalism professor Johanna Haberer used this rather pessimistic motif on 13 March to open a Berlin Conference that examined the effects of an ever more commercialised television landscape.

The association of the German state media authorities (DLM) invited about 250 representatives of media organisations and journalists to the high-level meeting. Among the speakers were policymakers as well as media business leaders and a handful of specialised academics.

In a short series of articles I will examine what was discussed in Berlin.

New worries about the direction of the German TV market were incited in December 2006, when financial investors KKR and Permira acquired one of the two major commercial TV chains, ProSiebenSAT.1 Media AG. I discussed this in one of my EJC Magazine articles of 8 October 2007. This happened shortly after an attempted merger of the television group with publishing company Axel Springer AG had been stopped by the German authorities in order to prevent concentration of both economic and opinion-forming power. Ever since, a heated discussion has been going on about what is worse – creating a domestic media giant that has an inherent interest in creating content, or, instead, leaving an ostensibly important commodity such as television to owners who do not really care whether they make their money with media enterprises, steel mills, or speculation in stock.

Subsequently, the German media regulation bodies felt compelled to launch a study on the role of financial investors in television and cable, and the Berlin meeting was supposed to contribute to the debate prior to the study results, which are due in April this year.

Harry Hampson, a banker at JPMorgan, explained why international investors see Germany as a lucrative media market despite a number of spectacular business failures during the last two decades:

  • Advertising expenditure is low in relation to the nation’s GDP, compared with other European economies;
  • While the ad markets of most comparable countries have pretty much recovered from the economic crisis that began in 2001, Germany has so far not managed to do the same, but remains sluggish;
  • German advertising spending still goes predominantly into newspapers, while television ranks second;
  • Profitability of European free-TV companies averages at 29 percent (on EBITDA level, i.e., before debt service and depreciations), while the major German groups RTL and ProSiebenSAT.1 so far reach only 21 percent and 25.5 percent respectively.

Hampson’s conclusions: The German TV market can only go up, because with the decline of newspapers, advertising money will be soon need to be shifted to online and television. Furthermore, the country’s recent economic growth is likely to make ad expenditure catch up with the pre-2001 situation. The advertising market as a whole will probably be invigorated as well. And as soon as international specialists further trim down costs and share their management expertise with the Germans, profitability will rise at least to the European average, if not beyond.

At first glance, this sounds convincing. But the question Hampson did not answer is why the German advertising and media economies have been developing at a different speed and with different priorities than elsewhere. Part of it surely is mentality, and that does not change quickly. Of course, for instance, even in a nation with a deeply rooted newspaper tradition such as Germany, the printed press is bound to lose readers and reputation to the Internet in the long run. But that is going to happen over the course of the next two or three decades rather than during the typical three-year attention span of financial investors.

Secondly, what about the structure of the German TV advertising market? It is – for quirky reasons going back to the 1950s – very complicated to manage, and it has compiled layers and layers of special handling, measurement and discount practices over the years which preclude innovation and simplification. If you are in the US or the UK, you can put commercials on television much faster and more flexibly. In fact, the German cartel office had the two commercial TV groups pay a hefty € 216 million fine last year for allegedly unfair conduct in ad sales, and there has been a major scandal about foul play in a large media agency as well. But the actual result of these events is that all players have increased efforts to hedge their bets, thus making practical work even more difficult. These burdens on the German ad market will not go away very soon, either.

Additionally, there is a very strong system of well-funded, mostly ad-free public television in place which retains over 40 percent share in total TV consumption. Much like newspapers, the pubcasters are bound to lose more viewers, especially in the younger demographics, but they are much better equipped than the print media to defend their position. Backed by constitutional rules, a public value remit, and high mandatory license fees, they have already made forays into the online realm in order to meet their audience where it actually hangs out.

Similar arguments can be made for other sectors of the German media economy as well, such as the cable sector, pay-TV platforms, television production, etc. Therefore, it is quite tough to simply import international business strategies to Germany without tailoring them closely to the specifics of the market – a lesson that quite a number of foreign media investors have learned the hard way.

Everyone who sells high-quality content such as Hollywood movies and US series to the Germans can make tons of money, and the same goes for financial transactions which take advantage of serendipitous situations, such as when Haim Saban acquired ProSiebenSAT.1 Media AG for around € 600 million from insolvent media mogul Leo Kirch in 2003, only to sell it three years later for a whopping € 3.1 billion. Successes in operating rather than buying and reselling television channels, however, are few and far between.

The next article in this series will examine the Berlin conference’s view of the behaviour of financial investors and at European notions of how to safeguard public value in broadcasting.

This article was originally published by the European Journalism Centre (EJC).