ProSieben,Channel 5 up RTL for and sale? German TV fragmentation

François Godard The ongoing digital migration and the resulting audience +39 3355 289127 [email protected] fragmentation have led to rating losses at RTL and ProSieben, but with the latter retaining its younger Eva Knoll +44 207 851 0903 viewers. From a low base global operators are gaining [email protected] share 15 April 2014 [2014-030]

Leveraging their high market shares within a benign economic environment means RTL and ProSieben are in a position to withstand the increasing competition. ProSieben has been more active in developing diversification businesses – on which we have mixed feelings

The main extra growth prospects are in the distribution fees charged to TV platforms for HD channels, allowing a progressive shift to a mixed funding model

Germany’s TV market, not unlike the country’s economy, is a by-word for conservatism and progressive adjustment. In this regard it comes in sharp contrast to the turmoil experienced by British TV in the past few years. The impact of the internet on the German media ecosystem is still moderate (physical video sales were up in 2013), a quarter of households are still hooked to analogue television and premium pay-TV penetration is barely above 10%. It could be argued that is simply late and is still to face the disruption associated with the shift to digital, but this report takes the view that the gradual transition will continue because of the underlying strength of the major players, starting with the de facto advertising duopoly of RTL and ProSiebenSat.1 (P7S1). This report will firstly look at the rise of digital television platforms and the resulting audience fragmentation. Then we will explore the increased competitiveness of the TV advertising market, the impact of the internet, and the stabilising effect of the broadcast duopoly. Following this we will review P7S1 and RTL’s recent operational results and strategies with a focus on their digital diversification, contrasting a more agile and aggressive ProSieben with a more cautious RTL. The digital switchover Germany experienced audience fragmentation much earlier than other European markets, as a result of the boom in (analogue) cable and satellite reception in the 1990s, bringing multi-channel to a larger number of homes much earlier than other key EU markets. Therefore the 2000s digital migration, and associated audience fragmentation, has not had the destabilising effect it had elsewhere.

With 30+ free analogue channels to choose from already, Germans were less incentivised to switch to digital. Digital television launched in Germany in the mid-1990s like much the rest of Europe, but its penetration grew at a snail’s pace compared to other markets. The key reason for the slow transition is the two types of cable customer. In urban areas most residents rent, and landlords (often housing associations) strike deals with cable operators under which the basic service is supplied to all households within the building. Tenants usually pay for cable through their monthly service charge – they have no direct commercial relationship with the operator. Indirect subscribers who want to access digital packages generally need upgrading to fully fledged subscriber status and must pay extra, and consumers have been reluctant to consider this, many preferring to shift to free satellite reception. Households who pay their cable bills direct have always had the economic incentive to shift to free satellite (but the option is often not physically available in many flats). Today 26.7% of German homes still get analogue TV reception, all of which are on cable (Figure 1).

Figure 1: Digital TV penetration, 2001-2014 (% of households)

80 73.3 70 60 50 40 30 20 10 0 Q1 2001 Q1 2014

[Source: AGF ]

This explains why satellite has grown steadily in popularity and overtook cable in 2013 as the main TV platform in Germany. Satellite analogue transmissions were switched off in 2012. Because cable coverage is lower there, satellite dominates much more in eastern Länder.

Figure 2: Household penetration of TV platforms (%)

70 57.4 60 50 45.2

40 46.7 30 36.6 20 10 6.0 4.3 3.8 0 January 2004 January 2014 Cable Satellite Terrestrial IPTV [Source: AGF]

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The terrestrial platform’s reach started to shrink in the 1980s as households began migrating to cable and satellite to access newly launched commercial TV channels. By 2002, when digital terrestrial TV (DTT) was introduced, terrestrial penetration was 7% of homes. The erosion has continued; in 2014, six years after analogue terrestrial transmissions were switched off, only 4% of homes, which tend to have an older age profile, are exclusively on DTT. In 2013 RTL decided to withdraw from DTT broadcasting as regional multi-year contracts ended – starting with Munich in July 2013. P7S1, whose Sat.1 channel has an older audience profile, is committed until 2018. The very future of the platform is now in the balance; terrestrial TV frequencies would attract substantial sums if auctioned to mobile operators. Broadcasting regulators and public broadcasters (the strongest supporters of DTT) have started looking at alternatives for the basic, universal, free service, notably over-the-top (OTT). IPTV has struggled to emerge as a credible rival to cable, with only 2m homes connected at the end of 2013, mostly to Deutsche Telekom’s Entertain package. But IPTV reach is improving with the roll out of VDSL. The acquisition of Kabel Deutschland (KDG) by Vodafone (effective on 1 April) is expected to lead to a more proactive TV strategy and greater investments in IPTV in areas not covered by KDG. Next generation platforms Platform-wise, the most promising development was the 2010 decision by RTL and P7S1 to encrypt the HD versions of their main channels and give exclusive access through the pay platforms. The intention is for a long-term transition to a mixed funding model with both subscription and advertising revenues, similar to the model that emerged in the United States in recent years with the boom in retransmission fees.

Figure 3: Households subscribing to commercial channels in HD (m) 3 2.8 2.5 2.5 1.9 2 1.4 1.4 1.5 1.2 0.9 1 0.6 0.5 0.2 0 0 June 2011 June 2012 Dec 2012 June 2013 Dec 2013 HD+ (satellite) Cable, Sky, IPTV [Source: Enders Analysis from HD+, RTL and ProSieben]

RTL and ProSieben have struck deals with cable and IPTV operators who retail the package of HD channels to their subscribers, usually as part of a broader HD option. On satellite, Astra launched a new pay platform under the brandname HD+. At the end of 2013, the total number of homes subscribing had reached 4.2 million, up 50% in one year, and the HD penetration is now 36%. In 2013, P7S1 reported distribution revenues of €75 million (up 37%), or 3.8% of sales of its Broadcasting German-speaking division. RTL is probably grossing a

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similar figure. HD+ recently raised its annual fee from €50 to €60, an indication of solid demand growth. But this approach has failed so far online. The German competition regulator, the Bundeskartellamt, has vetoed two OTT platforms in a similar vein to the UK’s YouView, one jointly backed by RTL and P7S1 and the other backed by the PSBs (ARD and ZDF) and a string of independent producers. At this point each broadcaster has its own catch-up TV service on the web for PC, tablet and mobile usage. For viewers wanting catch up on their TV screen, besides the PVR, options depend on the platform they are on. Only the IPTV packages give subscribers a generous VoD offering (including catch up). Cable has yet to deploy on-demand services to most digital households. Most satellite homes use the FTA service without any STB-broadband link and only a minority of HD+ subscribers have bought a connected set-top box. Sky has been connecting subscribers (on satellite and cable) to broadband since last year, but so far it does not include catch up from FTA channels. Finally, as elsewhere, the offering on smart TV sets (the installed base is estimated at roughly seven million), and other devices connected to the TV sets, like game consoles, is poor and very fragmented. Moreover, at this point, German broadcasters cannot charge platforms for their catch up TV content because key contracts with copyright owners prevent it. From the point of view of FTA broadcasters, the fragmentation of platforms is both a blessing and a curse. A blessing because there is no threat in the form of a dominant pay TV operator, a curse because it is much more difficult to figure out a transition to connected television in ways that preserve the prominence that traditional broadcasters enjoy on the standard EPG. The result is often sub- optimal; for instance commercial channels do not allow recording of their HD versions, another example is cable operator Unitymedia which does not allow the use of the remote control’s ‘red button’ on smart TV sets that would otherwise allow viewers to shift from the broadcast to the online feed. Audiences and programming In this slow-moving market, at first glance it seems audiences are also stable, but a closer look reveals important underlying shifts. For the whole 3+ population the trends since 2009 are broadly flat with some decline in viewing to RTL and P7S1, balanced by increases at public and other channels. But in the 14-49 age group, to which most advertising is pitched, RTL has experienced a sharp decline in the past two years that led P7S1 (thanks to new channel launches) to considerably reduce the gap between the two groups. In 2013 P7S1 increased its 14-49 share by 0.3 percentage points while RTL’s declined by 0.8pp; in other words, RTL’s audience profile is aging while P7S1’s is getting younger. In 2013 RTL shifted from the 14-49 to the 14-59 age group when reporting viewing trends in its financial results. The duo’s decline is a direct consequence of the digitisation of television reception discussed above. If the FTA offering was stable from the mid-1990s until 2010, the passing of the 50% threshold in digital TV penetration in 2012 could prove a tipping point. Up until recently, it was difficult to launch a new channel as basic analogue cable was saturated, but on digital platforms there is no shortage of bandwidth.

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Figure 4: Audience shares 3+

50% 44.1% 42.9% 43.1% 41.2% 42.9% 40%

26.5% 30% 25.2% 26.1% 25.4% 24.6%

20% 21.0% 20.4% 20.3% 19.8% 18.9% 10% 10.9% 10.4% 12.0% 11.9% 12.4%

0% 2009 2010 2011 2012 2013 Public TV Mediengruppe RTL ProSiebenSat.1* Others *Excluding n-24, divested in 2010 [Source: Enders Analysis from AGF]

Figure 5: Audience shares 14-49

40% 35.0% 35.0% 34.4% 33.7% 35% 32.9%

30%

28.8% 28.5% 28.9% 25% 27.8% 28.1%

20% 2009 2010 2011 2012 2013

Mediengruppe RTL ProSiebenSat.1* * Excluding n-24, divested in 2010 [Source: Enders Analysis from RTL (2009-12), ProSieben and Wunschliste.de (2012-13)]

Crucially, amongst 14-49 year olds RTL and P7S1 combined lost two percentage points over four years. Broadcasters with rapidly growing audiences include principally global players like Sky and Discovery’s free to air service DMAX – although their totals are still very small. Discovery is soon to take control of Eurosport from TF1, and it is expected to move the FTA service up one notch in terms of rights acquisitions. Competition also increased in January 2014 when The Disney Channel launched a FTA version aimed at children in daytime and family audiences in the evening. Early reports put its 14-49 share at 1% in February, behind DMAX and SuperRTL, both hovering at around 2%. Public channel ZDFneo, launched in 2009, has also had some traction with young adults. P7S1 has managed to rejuvenate its audience profile by reshaping its channel line up to respond to the new competition. P7S1 sold its 24 hour rolling channel to local investors (but kept a long-term news bulletin supply contract), closed the struggling service and launched three new channels targeting key demographics (see Figure 6). Over the same period, RTL launched only one extra service. The channels most affected by audience losses have been the flagships RTL and Sat.1.

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Figure 6: RTL and ProSieben families of channels Launched Genre and target Share*** Mediengruppe RTL RTL 1984 General interest, 14-59 12.3% n-tv 1992 All-news, 30+ male 0.9% RTL II* 1993 Reality TV, 14-49 4.2% VOX 1993 Entertainment 14-59, female skewed 5.6% Super RTL** 1995 Scripted entertainment 14-39, children in daytime 1.9% RTL Nitro 2012 Scripted entertainment, 30-59 male 0.7% ProSiebenSat.1 Sat.1 1984 General interest, 14-59 8.2% ProSieben 1989 Entertainment, 14-39 5.7% 1992 Scripted entertainment, 14-49 male skewed 4.0% 2010 Drama and factual, 14-39 female 0.3% ProSieben 2013 Entertainment, 30-59 male (children in daytime) 0.1% MAXX Sat.1 Gold 2013 Domestic entertainment, 40-64 female 0.6% [Source: Enders Analysis from operators and AGF] * 36% owned by RTL (other shareholders include Bauer, Tele München and Burda) ** owned 50/50 by RTL and Disney *** 2013, individuals 3+ According to 2011 data from the joint organisation of the Medienanstalten, the regional regulators, RTL’s programming output is the most diverse – to an extent it is more akin to that of public broadcasters ARD1 and ZDF. RTL carries more original programmes, especially factual and light entertainment, but also news and sports, than P7S1, which is focussed on American series and films. Sat.1 has a broader spectrum of programmes than its sister channel but still narrower than RTL. In programme-making terms the sharp contrast between the two is as a result of RTL’s ownership of FremantleMedia, a global game and reality show production house. The company’s turnover makes it the second largest unit in the group, after German broadcasting and ahead of France’s M6. It is difficult to evaluate the synergies gained by RTL, and the mediocre profitability of FremantleMedia (the EBITA margin was 8.9% in 2013), even if comparable to other producers, has raised concerns with investors. On the other hand RTL can leverage for a direct, in-depth knowledge of format trends around the world – a valuable insight that is obviously difficult to quantify. The group insists that there are no `forced synergies’ between and RTL channels as programmes are bought and sold at market price. P7S1 is deploying a different strategy. It set up the Red Arrow group in 2010 as an acquisition vehicle. Munich-based but with a majority of staff located outside Germany, the unit has up to now mostly been concerned with reality-based and fiction shows produced for the international market and with global distribution of third-party content.

TV advertising market trends

In 2014, with total TV net advertising revenue (NAR) expected to pass the €4.3 billion mark, German TV advertising should generate a turnover 4% higher than during the last business cycle peak in 2007. This is slightly less good than the UK market, but notably better than France, Italy or . As elsewhere, the cyclical nature of the TV market magnifies wider economic trends, which can be

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demonstrated by the TV share of the advertising pie that fell during the 2008-09 recession and has risen since.

Figure 7: German TV advertising

4,300 23.2% 23.5% 4,200 23.0% 4,100 22.2% 22.5%

4,000 22.0%

3,900 22.0% 3,800 21.4% 21.5%

21.1% 21.5% millions

3,700 € 3,600 21.0% 3,500 20.5% 3,400 3,300 20.0% 2008 2009 2010 2011 2012 2013 TV net advertising revenues (€m, LH axis) TV share (%, RH axis) [Source: Enders Analysis from ZenithOptimedia ]

It is however difficult to assess the relative performance of the two leading broadcasters in 2013 with both RTL and P7S1 claiming that their share grew faster than the market as a whole; if both were true, the smaller broadcasters would have experienced a collapse – which they did not. The market is structured around rate cards for which discounts vary widely. RTL used to publish estimates of net advertising shares, but the last figures released were for 2012 with 41% for P7S1 and 44% for RTL (including minority-owned RTL II sold by a separate sales house). Now only P7S1 discloses a figure for its TV advertising revenue, but it includes sales in and . Gross data from industry monitoring services are not very helpful as discounts vary. It is made more difficult as there are several overlapping tiers of discounts, per client, per media buying agency and finally for audiences lower than expected.

Within this context RTL and P7S1 follow divergent strategies. P7S1 has proved commercially more innovative, notably by making bulk airtime deals with media agencies, by using airtime to finance their investments in digital media (the “media equity model”, see below) and also by simply discounting more than RTL, according to media buyers we spoke to. P7S1 offers special discounts to advertisers shifting budgets away from print, an approach RTL is said to be more cautious with. On paper, RTL’s main advantage lies with its eponymous flagship channel. With a viewing share 50% bigger than its nearest rival Sat.1, RTL is almost impossible to ignore for advertisers seeking mass reach for their campaigns. In a previous report we have shown how ITV 1 sustains a hefty price premium over the small digital channels (The ITV merger ten years on [2013-033]). But in Germany it does not quite work like this and, according to advertising industry sources, RTL’s share of NAR is lower than its share of commercial audiences. One reason being that RTL carries less advertising airtime than its rivals according to data from the Medienanstalten. Another reason is that advertisers trade off reach against frequency when buying RTL’s airtime. But beyond the strategic divergences what amounts to a stable duopoly remains, which is hardly conducive to price wars (RTL and P7S1 capture 85% of NAR, against 76% for the top two broadcasters in Italy, 71% in France and 66% in the

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UK). The biggest third party players, PSB channels from ARD and ZDF, are limited by regulation in the airtime they can sell to advertisers and the bulk of their sales is in peak where demand is very strong. Other commercial operators like Sky, Discovery and Disney, although growing, still have market shares far too small to impact market CPTs. Short to medium term market prospects look healthy mostly because of a positive outlook for consumption: the forward-looking index produced by GfK was stable in April at a five-year high of 8.5, the unemployment rate was 5.1% in February, the lowest rate since 2002, with employment at a record-breaking 42 million (according to the Federal Statistic Office), consensus growth forecasts from The Economist show a gentle, if unspectacular, increase to 1.8% this year and 1.9% in 2015. Looking ahead to the longer term, growth and stagnation factors look finely balanced. The main upside singled out in the industry is the share of total advertising expenditure enjoyed by TV in Germany, lower than in most big industrialised countries – 23% vs 27% in the UK, 32% in France and 51% in Italy (in 2013 according to ZenithOptimedia). But this primarily reflects the resilience of German press rather than the weakness of German TV: the decline in print advertising revenues has been much slower in Germany (-25% in 2007 vs 2013) than in the UK (-50%). The decline in UK press did not lead to a corresponding increase in TV NAR. Declining print revenues seems to have mainly been at the benefit of on-line, raising the question of the overall impact of the internet on the German media landscape.

Figure 8: Share of advertising expenditure by media

70% 58.0% 60% 50% 45.3% 40% 30% 22.0% 23.2% 20% 22.0% 10% 11.1% 0% 2007 2008 2009 2010 2011 2012 2013

TV Press Internet [Source: Enders Analysis ZenithOptimedia]

Despite broadband penetration roughly in line with that of the UK and France, Germany has seen a much slower take up of internet usage and thus a far less visible impact of the internet on the media ecosystem. German e-commerce turnover per capita is less than half the UK level (sources differ on the size of the discrepancy). In 2013 internet advertising was only 22% of total expenditure of German advertisers against 41% in the UK (according to ZenithOptimedia). This may be partly explained by an established German reluctance to settle payments through credit and debit cards – in 2012 the per capita value of card transactions was five times higher in the UK than in Germany (according to the European Central Bank). The resistance to use plastic would have been a factor hampering the migration from physical to online shopping. In turn, a slower

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development of e-commerce has preserved the retail footage devoted to CDs and DVDs, also supported by library building – there was no spectacular bankruptcy à la HMV or Blockbuster in Germany. The decrease in the physical German video market since 2004 has been only 16% against 30% in the UK; thanks to Blu-ray, the German physical market grew by 1% in 2013 (data is from BVA and BVV). As e-commerce has proved to be the engine of internet advertising, both have seen correspondingly slower rates of growth in Germany. We do not think that the shift to e-commerce will accelerate notably, in a way that could destabilise the advertising market, mostly because the retail industry will not change overnight, and we therefore do not see any dramatic changes in the advertising market. The slower emergence of the digital economy implies that physical retailers have more time to adapt and are thus less vulnerable, even if the transition will inevitably take place. We think that consumption remains the key factor to predict advertising developments and long-term trends provide a sobering background to the recent (moderate) upside. The share of household final consumption to gross domestic product in Germany is lower than in most big economies; in 2012 it was only 58% against 66% in the UK (according to the World Bank). This smaller share reflects a structural bias towards exports that dates from the 1950s and for which we have little indications of an upcoming change. Consumption could even decrease further as the proportion of the German population over 65 years old is to grow from 20.7% in 2010 to 28.1% in 2030 – comparing to a much softer shift in the UK, from 16.4% to 21.2% (based on Eurostat data). Operational results and strategy Results from the German-language TV broadcasting segments of P7S1 and RTL over the past four years show remarkable similarities. They are of similar size – RTL’s revenues are a fraction of a percentage point higher – and generate profits comparable in value.

Figure 9: Revenue trend (€ million)

2,050 2,003 1,998 2,000 1,982

1,950 1,926 1,912 1,903 1,892 1,900 1,853 1,850

1,800

1,750 2010 2011 2012 2013 Mediengruppe RTL (Germany) ProSiebenSat.1 (German-language) [Source: Enders Analysis from ProSieben and RTL ]

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Figure 10: Earnings trend (€ million)

800 666 665 679 700 631 622 581 600 551 529 500 400 300 200 100 0 2010 2011 2012 2013 Mediengruppe RTL (Germany) EBITA ProSiebenSat.1 (German-language) EBITDA [Source: Enders Analysis from ProSieben and RTL ]

P7S1 reports its “recurring” earnings before interest, taxes, depreciation and amortisation (EBITDA), the figure excludes one-offs (€ 33 million in 2013 at group level). RTL uses EBITDA solely at group level, disclosing EBITA (after depreciation) at segment level. For the German-speaking broadcasting segments (comparable in scope) the P7S1 EBITDA is higher than RTL’s EBITA, but the difference is similar to that between RTL Group’s EBITDA and EBITA.

Figure 11: Operating margins

38% 36.0% 36% 34.5% 34.0% 33.2% 34% 31.1% 32% 29.1% 29.3% 30% 27.7% 28% 26% 24% 22% 20% 2010 2011 2012 2013

ProSiebenSat.1 (German-language) EBITDA Mediengruppe RTL (Germany) EBITA [Source: Enders Analysis based on ProSieben and RTL]

RTL’s profit margin has been increasing since the recession in contrast to P7S1’s – probably illustrating diverging focus. In 2013, RTL’s EBITA margin was up almost two percentage points reflecting an ongoing effort on cost control, while P7S1s EBITDA margin was eroding as it incurred the costs of new channel launches, an effort that has paid off in audience gains. The forays into diversification of the two players are, again, broadly comparable in scale and direction. Investments are modest and focussed on pay television, the web and programme production. The pay-TV market in Germany remains small but it is growing healthily. Since 21st Century Fox (then News Corporation), took over management of in 2009, its subscriber count has increased by 1.2 million to 3.7 million and revenue per user has surged by almost a third. Meanwhile cable operators are growing their

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base of subscribers who take optional pay services with the total at about four million – although most subscribers only pay so that they can receive a set top box with recording functionality. IPTV, following a pay model, has about 2.5 million subscribers. So far RTL and P7S1 have launched basic thematic channels in an attempt to leverage existing brands and core target groups – RTL Crime, RTL Passion, RTL Living, ProSieben Fun, Sat.1 Emotions and . Pay channels are also trying to capitalise on rerunning specific programmes previously aired on FTA. While these new channels may offer some benefits, we are rather sceptical of the capacity of the two broadcasters to establish competitive, self-sustaining pay-TV divisions. The pay market in Europe is dominated by global brands able to spread costs on tens of millions of subscribers; the only advantage the two German groups have, besides some niche programming genres, are their well-known brands – we are doubtful whether these brands are enough to compete. Elsewhere in Europe free to air channels have struggled to break through in pay-TV. In May this year RTL will move in a more promising direction with the launch of Geo, drawing from the magazine title of the same name published by Grüner und Jahr, a sister company in the media conglomerate. The print version has a global readership and, conceivably, it could be leveraged to mount a challenge to the likes of Discovery and National Geographic. P7S1 has the most proactive digital development strategy with investments in a range of new ventures under the “media equity” model – the group’s capital injection comes in the form of advertising airtime. P7S1’s Digital & Adjacent activities are its fastest growing division, with 2013 revenues of €483.7 million, up 44% year on year. The largest part of it is represented by ecommerce, including a large cluster of travel services. The segment also includes Maxdome, the most successful German VOD service (transactional and subscription VOD) in terms of usage, according to Gfk data quoted by P7S1. It is difficult to make a proper assessment of the digital developments because of the opaque nature of the airtime equity barter. The argument can be made that a breakthrough in the digital market place is often critically dependant on media coverage and that P7S1 is exploiting competitive advantages. But, in the longer run, we are relatively sceptical on the capacity for local players to fight against competitors with global economies of scale like Expedia, Trip Advisor or Netflix. The best outcome maybe to sell at the right time – like RTL’s French sister broadcaster M6 has just done with its Mister Good Deal unit. Other P7S1 digital ventures include catch up TV and advertising-supported VOD which are similar to other offerings, although we think that single broadcaster platforms will be vulnerable to open interfaces provided by third parties or pay-TV operators. P7S1’s diversification meets RTL’s in the production and distribution of YouTube channels. P7S1 is developing these operations under an online umbrella brand, Studio71, aimed at the German market, and through a recently acquired 20% participation in US-based Collective Digital Studio. RTL has bought majority control of a dedicated Canadian startup, Broadband TV, which directly operates a range of YouTube channels and Fremantle has its own stable. Broadband TV and Collective, with their global operations, present little synergies, though valuable insights in OTT business models may be at hand. For Studio 71, P7S1 claims not

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unreasonably that its ownership may give it direct access to a new generation of talent. In any case, investments appear contained. Conclusion For over fifteen years from the mid-1990s the two German FTA broadcasters operated in a market where little changed. But since 2011-12, with digital television finally in a majority of households, audience fragmentation is increasing and the duo’s dominant position is eroding at the margins. P7S1 and RTL’s response has been to diversify cautiously away from their core FTA business. P7S1 is undoubtedly more reactive to market changes. The group is smaller and focussed on Germany whereas RTL Deutschland has to get clearance for major moves from the Luxembourg-based RTL Group, which may sometime have to get approval from its 75% owner Bertelsmann. Besides, RTL does not have majority control of SuperRTL and RTL II. On the other hand RTL’s position as the most popular channel in Germany remains unchallenged. RTL has also delivered growing profitability whereas P7S1 has entered an investment phase with many digital developments not all relevant to its core business. All in all, we think that that the two rivals’ main growth potential resides in their distribution revenues, as HD TV penetration grows. We believe that an increased focus on the quality of the viewer’s experience on the main TV set, and on monetising it, through more HD and on-demand content, represent the best possible way to invest in developing their business.

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13 | 13 ProSieben, RTL and German TV fragmentation [2014-030] 15 April 2014

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