CAMPAIGN REPORT ON GERMANY: International media alliances - Globalisation is persuading German media companies to open their doors to foreign investment and joint ventures, Robert Gray writes

The attractions of Germany for international media owners are easy to fathom. As Western Europe’s largest market and biggest economy, it presents some mouth-watering opportunities. Get the media product right and vast sums of money stand to be made.

The attractions of Germany for international media owners are easy

to fathom. As Western Europe’s largest market and biggest economy, it

presents some mouth-watering opportunities. Get the media product right

and vast sums of money stand to be made.



Yet, historically, domestic players have dominated the German media

market.



Although not quite an impregnable fortress, Germany has proved a tough

nut to crack for multinational media conglomerates looking to establish

a presence in Europe’s industrial engine-room. Just ask Viacom, whose

Nickelodeon channel came and went during the 90s.



However, over the past year or so, there has been a flurry of activity

which suggests a change is afoot. Last December the satellite

broadcaster BSkyB paid pounds 930 million for a 24 per cent stake in

Germany’s leading subscription television company KirchPayTV. In

February Pearson launched FT Deutschland in a 50:50 joint venture with

the German publisher Gruner & Jahr. And in June 1999 Dow Jones and

Verlagsgruppe Georg von Holtzbrinck announced a swap in minority stakes

in the Wall Street Journal Europe and Handelsblatt, Germany’s leading

business newspaper. The von Holtzbrinck group bought 49 per cent of the

WSJ Europe in return for which Dow Jones took a 22 per cent stake in

Handelsblatt.



’There is certainly a trend,’ Stephen Dunbar-Johnson, the worldwide

advertising director of the International Herald Tribune, says. ’You

would have to be blind not to spot it. FT Deutschland has stirred up a

market that had been staid for years.’



The IHT itself has not been immune to the outbreak of alliance-building

and joint ventures. In pursuing what it calls a ’global-local’ strategy,

The IHT has formed a partnership with Germany’s heavyweight daily, the

Frankfurter Allgemeine Zeitung. One important upshot of this was the

launch at the beginning of April 2000 of an eight-page English language

news section appearing daily in the FAZ. Underpinning this editorial

cooperation is an advertising deal that offers any advertiser buying

space in both the IHT and FAZ a 12.5 per cent discount after any volume

discount.



The arrival of FT Deutschland has put the cat among the pigeons in the

business news market. However, there are wider forces at play that are

having an impact across the German media landscape. For a start, there

has been an explosion of interest in the German equity markets.



’Germany as a whole has been opening up to private investment as well as

international investment,’ Jonathan Barnard, the knowledge management

manager at Zenith Media, says. ’The flotation of Deutsche Telekom two

years ago brought a lot of private investors into the markets. The stock

market has taken off and more companies are using it to access capital -

which does open them up to hostile foreign investment.’



The most prominent example of this was Vodafone AirTouch’s recent

contested takeover of its Dusseldorf-based rival Mannesmann. Following

Vodafone’s triumph, the German government has begun working up UK-style

takeover legislation that may make cross-border acquisitions easier than

in the past. Chancellor Gerhard Schroder has taken a personal interest

in developments.



Allied to this, Germany, like other countries, has woken up to the

globalisation phenomenon where the received wisdom is that bigger is

better. The proposed merger of the country’s two banking behemoths

Dresdner and Deutsche Bank is testimony to this changing perspective.

Media companies the world over are being driven by the same imperatives,

as evidenced by Time Warner’s much-trumpeted proposed merger with the

internet company America Online.



Clearer regulations on takeovers in Germany, coupled with the

globalisation of businesses, including media, should see further foreign

investment in German-based media corporations in the coming years.



That is not to say, however, that rich pickings are there for the taking

for the international media groups. Some analysts believe that the

leading German media owners will defend their prime assets and territory

vigorously.



Jamie Wood, the head of media and internet teams at Dresdner Kleinwort

Benson, says: ’It is still a closed shop. The big movers and shakers are

still Bertelsmann, Kirch and, increasingly, Deutsche Telekom. They are

looking for partners outside Germany but are wary about giving away the

crown jewels in Germany.’



As Wood points out, Kirch’s sale to BSkyB was down to a need to raise

cash. The money it raised is being pumped into building pay-TV

penetration - so far the pay-TV business has two million subscribers in

Germany and Austria, just a fraction of the 33 million homes in Germany

alone. Without the need for cash, Wood believes Kirch would have been

reluctant to let in an overseas partner.



For BSkyB’s part, the deal is a great chance to establish a presence in

a potentially lucrative market. ’It gives us the opportunity to acquire

a strong foothold in Germany,’ Julian Eccles, the BSkyB corporate

communications director, says. ’Considering our experience of running

pay-TV in the UK, we are in a position that gives us a big opportunity

for growth.’ Rupert Murdoch, the chairman of BSkyB, has gone on record

with his view that the German pay-TV market has the potential to be even

more successful than the UK’s.



Local and cultural differences can be significant barriers to entry -

which is why many international media owners are keen to forge

partnerships with German companies that understand the needs and

idiosyncrasies of their domestic market.



’We think we can grow faster with a local partner than without one,’ Ken

Herts, the publisher of the Wall Street Journal Europe, says. A

long-standing ad sales package - Europe Now - connecting the Journal

with Handelsblatt was cemented by last summer’s minority stake swap. The

strategic alliance between the two titles also includes sharing

editorial information and other resources.



The TV channel CNN has a news sharing arrangement with a German partner,

the news channel n-tv, which is 49.97 per cent owned by CNN’s parent

Time Warner. Another US giant, Disney, has a programming agreement with

Super RTL.



’I’m not surprised that these things are going on,’ Charles Courtier,

the managing director for Europe, the Middle East and Africa at Young &

Rubicam’s media specialist, The Media Edge, says. ’Germany is 30 per

cent of Europe - 30 per cent of the media money spent, 30 per cent of

the chewing gum chewed, 30 per cent of pretty much everything. It’s

unquestionably the powerhouse of Europe.



’But the influence of the world outside on German media has been

relatively slow to exert itself compared with what’s happened in much of

the rest of the world. It’s been more a case of German media owners

getting involved in things outside their own country. Germany was one of

the slowest countries to liberalise in terms of broadcast media and it

had some quite archaic media selling practices until recently. Now,

though, the approach to how media is sold has become more flexible.

There’s more of a service-driven approach and buyers have got more power

than they used to have.’



Greater buyer power is, of course, a sign of a competitive

marketplace.



Germany is also a mature marketplace; in other words, a hard one for

foreign media owners to break into. That is another reason why much of

the activity involving foreign media groups has either involved joint

ventures with German partners or the purchase of equity in existing

media properties.



Olivier Fleurot, the worldwide managing director for the Financial

Times, says: ’We felt the timing for our launch was very good. We

suspected that what one might call Germany Inc. is going to be

restructured in quite a radical way. That process is just beginning.

But, even so, we decided it was sensible to have a local player as a

partner.



’The local media groups are quite strong in Germany so I don’t know if

it would have been that easy to break in unless we took a stake in one

or had a joint venture. It’s very hard to make inroads in Germany on

your own. The media players are stronger than, for example, in

France.’



Bertelsmann represents one of those media strongholds and is also a

major player on the global stage. With AOL Europe, a 50:50 joint venture

with AOL, it had, until recently, one of the most powerful transatlantic

media relationships in the world. Now that partnership has ended, as a

result of the Time Warner/AOL merger, it is expected that Bertelsmann

will look for new alliances.



Fleurot expects to see German media owners involved in consolidation and

mergers in the coming years, both in a push for growth and to access

new-media technology and fresh distribution channels. He also believes

that deals between content companies and telecoms companies are going to

transform Germany. ’I don’t see how Germany could be isolated from this

wave,’ he says.



It seems that the iron grip that German media companies have had on

their domestic market may slowly be beginning to loosen, prompted

largely by the unstoppable force that is globalisation.