CAMPAIGN REPORT ON GERMANY: Online shock waves - Germany is huge in the European online market, but economic downturn and the regional structure of its media handicap its struggle with predatory US-owned rivals, Andy Fry says

Not even the most successful internet company has been spared the

effects of the downturn in the online economy. Despite its prominence,

Germany's leading internet service provider, T-Online, has had its share

of problems,compounded by internal unrest. Last summer, T-Online's

chairman, Wolfgang Keuntje, quit the company after a strategic split

with his Deutsche Telekom bosses.



According to Jupiter MMXI's analyst Olivier Beauvillain, T-Online's

long-term prospects require it to make major strategic acquisitions -

along the lines of last year's Terra Lycos deal, Wannadoo's acquisition

of Freeserve, or the proposed dollars 850 million tie-up between Tiscali

and France's LibertySurf. 'If the European ISPs are to compete

effectively with US rivals like Yahoo!, MSN and AOL, they must

consolidate. That way they can amortise marketing and editorial costs

across a bigger market,' Beauvillain says.



Before he left T-Online, Keuntje evidently shared this view, arguing

that 'our greatest competitors are likely to be other incumbents looking

for new markets, (just) as we are'. Under his management, T-Online

acquired Ya.com in Spain and built a presence in France, Austria and

Switzerland. It is known to be keen to make a move in Italy.



Undoubtedly, T-Online's competition is intensifying. In March, AOL Time

Warner's chairman, Steve Case, said his company planned to increase

international revenues from 17 per cent to 50 per cent of its business

over the next decade. A lot of growth will come from 'strategic

investments and substantial acquisitions' in Europe.



Keuntje's replacement, Thomas Holtrop, quashed rumours that T-Online was

planning a new-media alliance with either Axel Springer or the Kirch

Group. The key, Holtrop said, will be non-exclusive agreements with

media content providers similar to relationships between broadcasters

and production companies. 'The net is developing as a mass-media

business and nothing will stop this,' he says.



Holtrop knows that the immediate goal is profitability rather than

growth for growth's sake. He has abolished flat-rate internet access for

analogue and ISDN subscribers (a loss-making venture) and plans to offer

subscription and pay-per-use services from the first quarter of next

year.



The jury is out on Holtrop's move away from flat-rate access. While

T-Online will save money, it may lose subscribers to AOL Deutschland,

which still offers flat rates.



Germany's traditional media players have been slow to act in the online

arena. Exceptions are the publishing giants Axel Springer and

Bertelsmann, which are pursuing aggressive growth strategies online.

Axel Springer's strategy is to transform itself from being 'a German

print publisher to (become) an international media company'. In December

last year it announced plans to invest DM300 million in new media via a

newly formed subsidiary, AS Venture.



Although AS is primarily concerned with the exploitation of Axel

Springer brands, it hopes to acquire equity in independent new-media

operations in return for cheap ad space in its traditional media

portfolio. Springer has also positioned itself as a market leader in the

sale of online ad space. In addition to selling its own websites, an

Axel Springer subsidiary, Interactive Media, markets ad banners for

Infoseek Deutschland and T-Online (though Holtrop plans to take ad sales

in-house).



Given its publishing activities, Bertelsmann is an obvious beneficiary

of new-media distribution channels - so much so that it has even been

mooted as a possible purchaser of the ailing Yahoo!.



Bertelsmann sells books and videos through its BOL.com site and plans to

expand into music, where its BMG subsidiary is a major rights

holder.



Bertelsmann was the largest online advertiser in Germany last summer,

according to Forrester Research.The company's online strategy was

muddied last year when Terra, the online arm of the Spanish telco

Telefonica, acquired the US search engine Lycos (making it the

third-ranked web portal in Germany through Lycos.de). Bertelsmann is an

equal partner in Lycos Europe, but whether its long-term goals match

those of Terra Lycos remains to be seen. Last year, however, Telefonica

and Bertelsmann signed a dollars 1 billion content deal to develop

downloadable media and e-commerce services across digital platforms.



Pierre Naggar, the European research director at Real Media, is

optimistic that the medium-term picture for online ad revenue in Germany

is positive - despite growth being hampered by eastern Germany, which is

going online slowly. 'There is short-term uncertainty in the online

market - backed up by fear of a global economic recession. But I expect

there to be a recovery in confidence before too long,' he says.



Traditional advertisers aren't replacing dotcoms on the web: 'They're

still hesitant about spending marketing budgets online,' Beauvillain

says.



FACT FILE



Germany is one of the biggest internet markets in Europe. With 11.99

million home internet visitors in January 2001 and a total online ad

spend of 204 million euros last year (source: Jupiter MMXI), it vies

with the UK as the region's largest online economy. Currently, the UK

has 12.84 million home users and a market value of about 224 million

euros. Between them, these two territories account for 45 per cent of

Europe's 943 million-euro online ad market.



Germany's online market is growing rapidly. Despite persistent gloom on

the world's stock markets, it added 700,000 unique users in the last

quarter of 2000.



The major German-owned ISP is the Deutsche Telekom subsidiary

T-Online.



The high-profile play by a telco mirrors France, Italy and Spain where

leading ISPs (Wannadoo, Tiscali and Terra) are also owned by telecoms

companies. According to Jupiter MMXI, T-Online.de currently reaches 52

per cent of all digital media users. All of its major rivals are

US-owned companies with the exception of ISP Web.de - a pure internet

player which reaches 3.4 million unique visitors a month (28.4 per cent

reach).



As a rule, T-Online and Web.de users spend more time online than users

of rival sites such as Yahoo! (31 per cent reach), MSN (26.5 per cent)

and Lycos (26 per cent). This is one reason why T-Online takes the

biggest share of local ad revenue. In 2000, T-Online made 110 million

euros from e-commerce and advertising (although it is worth noting that

half of this revenue came from Deutsche Telekom ads).



MAGAZINES



The magazine sector was quick to grasp the online opportunity. This is

not so surprising given the high-profile role that weekly current

affairs titles such as Focus, Stern and Spiegel play in Germany.



In keeping with the magazine's entrepreneurial track record, Focus has

displayed the most aggressive online strategy. Its print title now sells

in excess of a million copies a week. It has overtaken both of its

established rivals, Spiegel and Stern, which expected to see off the

upstart with little trouble. In the online realm, Focus.de boasts

707,000 unique visitors a month (5.9 per cent reach). This compares with

350,000 for Stern.de and 405,000 for Spiegel.de.



Axel Springer's major activities have centred on electronic magazine

spin-offs from its red-top newspaper, Bild. Its portfolio now includes

magazine and web versions of Sport Bild and Auto Bild. The heavy male

skew of these Bild spin-offs is balanced by investment in Planet

Allegra, an online site for young women. There are also sites called

Familie & Co and Finanzen.



Two years ago Axel Springer also linked up with Bertelsmann to launch

specialist magazines. This joint venture is now actively building online

portals. One of the most successful to date is the science portal Link,

which registers 14 million page impressions a month.



RADIO



Radio is going through a mini-boom, according to Radio Marketing

Services - which markets airtime on behalf of 80 per cent of German

commercial networks. Kristian Wentzell, who pitches the medium to

UK-based agencies on RMS' behalf, says: 'a 30 per cent rise in

listenership coupled with an unjustified price hike by the big TV

networks has made the radio story much more compelling.'



Although radio is a 6 per cent medium in Germany (comparable with the

UK), it does not boast the sort of strong quasi-national networks

controlled by UK players such as Capital, Chrysalis, GWR and Emap, and

there has been less transference of national brands online.



Those that have gone online are popular with regional listeners, RMS'

interactive sales executive, Ann-Charlotte Lange, says. 'People in

Germany are very loyal to their local radio networks,' she says. 'Their

websites feature a diverse mix of information and entertainment news

from the local area.'



RMS markets a package of 19 radio and music-based websites to

advertisers, including leading regional private stations such as FFH

Frankfurt, Radio Hamburg and Radio SAW in eastern Germany. 'Apart from

Bavaria, we can offer clients an online opportunity that covers most of

the country,' Lange says .



As in the UK, the radio sector pitches itself as complementary to new

media in terms of usage and demographics. Online radio networks are

growing, Marcus Ronig of MediaCom Germany's new-media subsidiary, Magic

Response, says. He cites Chart Radio, Das Ding, Das Webradio,

Internetradio.de and Cyberchannel as examples.



TELEVISION



ZDF was slow to adopt the net compared with the BBC. But, by January

2001, it had made up some ground - attracting 665,000 unique visitors

(still less than Focus.de). Germany's other public broadcaster, ARD, is

hamstrung by its regionalised structure. Nevertheless, one of its

powerful regional constituents, Cologne-based WDR, had 450,000 unique

visits in January.



Kirch Gruppe controls the digital platform PremiereWorld and the

free-to-air networks Sat 1 and Pro 7. It could be a serious web player

by combining the technological capabilities of its digital platform with

the promotional muscle of its TV network, but so far it hasn't.



The big development in the relationship between TV and the web came when

the commercial network RTL2 aired the first series of the Endemol

gameshow Big Brother last year. That generated 200 million page views

and 25 million video streams. A second series scooped 150 million page

views and 20 million video streams. Even when the show isn't on air,

500,000 fans log on.



Endemol Entertainment's Marco De Gast says Big Brother (left) was the

Big Bang in terms of the way 24-hour webcasting and TV work

together.



'Broadcasters are now much more aware of the way online can create a

powerful mix of community, news and video streaming.' Endemol is now

working with RTL on four TV/online projects (Big Brother 3, Buzz,

Hairdresser and Big Diet). Rival network Sat 1 has responded with Taxi

Orange and Girl's Camp, while Lycos and T-Online have carried Big

Brother specials.



NEWSPAPERS



German's leading newspaper publishers were slow to populate the net.



However, they are now making up for lost time, Jupiter-MMXI's Olivier

Beauvillain says. He has observed substantial investment from Axel

Springer.



Springer's national tabloid title Bild is one of the biggest media

brands on the web - but has slipped in recent months. In November 2000

it attracted 538,000 unique users, according to Jupiter MMXI. But by

January 2001 this figure had fallen to 431,000. Springer has also taken

Computer Bild, the upmarket daily Die Welt and the weekly Euro am

Sonntag online. Welt.de has built up a strong presence with 189,000

unique visitors a month (1.6 per cent reach).



The upmarket title FAZ (Frankfurter Allgemeine Zeitung) has been slow to

move into this area - which some observers blame on FAZ's complex

management structure slowing down strategic decision-making. That said,

online expansion plans are due to roll out.



The leading financial daily Handelsblatt has made aggressive moves

online.



It first entered the new media space in the mid-90s and recently

redesigned its website to be more user-friendly. Although it attracts a

decent volume of traffic, observers complain of a lack of integration

between Handelsblatt's newspaper and its online sister. By contrast, the

rival business title FT Deutschland is perceived as having got the

balance right.



The German print industry is largely composed of regional monopolies -

which partly explains conservatism about the web. The Berlin market is

fast emerging as the new-media capital of Germany. It is no accident

that three of the top ten news and information sites in Germany are

Berliner-Morgenpost.de, BZ-Berline-de and Berlinonline.de, nor that the

first two belong to Axel Springer.



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1 Job description: Digital marketing executive

Digital marketing executives oversee the online marketing strategy for their organisation. They plan and execute digital (including email) marketing campaigns and design, maintain and supply content for the organisation's website(s).