GERMANY: DIFFUSING THE DRAMA

Times are tougher for advertising and media in Germany than elsewhere in Europe. Elke Low reports on a new kind of advertising to emerge from what is normally a strong and stable market.

With the German economy the way it is, small wonder one consumer electronics chain by the name of Saturn has been using the slogan "greed is great" (Geiz ist Geil) to entice bargain-hunters to its stores. The campaign has sparked considerable column inches of discussion in the German press and its appeal is hotly debated in agencies.

Is it, as Bernd M Michael, the chairman and chief executive of Grey Global Group Europe, Middle East & Africa, puts it, the communications own goal of the year?

Or, in the words of Lothar S Leonhard, the chairman of Ogilvy & Mather, is it the promise of a trademark that has been banking on the lowest prices from the start?

"Advertising," according to Leonhard, "does not have an economic remit, and certainly doesn't have a moral or educational duty."

Yet wherever you stand on the slogan, the Saturn brand is certainly getting itself talked about in all the right places. It is now Germany's third-biggest advertiser, with a gross spend of 215 million euros. By boosting its adspend by more than 8 per cent last year, Saturn undoubtedly bucked the general trend.

The advertising recession is hitting Germany much harder than the rest of Europe because the economic crisis is affecting it so much more acutely. Aleksander Ruzicka, the chief executive of HMS & Carat Group Central Europe, has identified the current national and international political situation as a substantial element weighing down the economy, adding that Germany has always followed America directly in an economic downturn: "The way up usually only starts after a delay of four to eight months."

German advertisers spent 4.4 per cent less on advertising in 2002 than in 2001. Today, the industry is so fraught over the slump that reports indicating that advertising turnover is not dropping as dramatically as in previous months are heartily embraced as good news.

There is as yet no overall data available on advertising spending this year, but the picture is likely to be bleak.

"Purchase terms have an even greater significance than ever before," Thomas Koch, the managing director of Tkm Starcom, says. "Customers who are not receiving significantly higher discounts through their agencies may now feel cheated. After all, every advertiser wants to benefit from the weak position of certain media."

Klaus-Peter Schulz, the chief executive of OMD Germany, explains how this is possible, using television as an example: "Interesting programmes which used to be fully booked before can now be had at short notice, even every feature film and top shows like Deutschland sucht den Superstar (Germany's version of Pop Idol). The room for negotiation increases accordingly."

Ludger Vornhusen, the managing director of Nielsen Media Research, adds: "It's not that there is less advertising around, but advertisers are spending much less on it."

Last year was the second consecutive tough year for media agencies, as can be seen from the ranking published in early March by the Organisation der Media-Agenturen (Organisation of Media Agencies, OMG) (see table).

The big news from the latest ranking was that MediaCom usurped HMS & Carat as the market leader in planning and booking volumes. HMS traditionally occupies the top slot in Germany.

Yet MediaCom, having won contracts last year from, among others, Shell and Deutsche Bank, boasted new business to the tune of 2.9 billion euros.

"Eighty per cent of the pitches we went for we won," Juergen Blomenkamp, the managing director of MediaCom, says proudly. The new business won by MediaCom's Dusseldorf office alone amounted to half a billion euros.

For HMS & Carat, based in Wiesbaden, it was only the second time in its 30-year history that it was pipped to the post by MediaCom for planning and consultancy business.

Initiative Media also had a good 2002 for new business. Winning some 20 new budgets, including Biosiegel and Financial Times Deutschland, enabled the Hamburg agency to turn its operation round after two negative years.

Universal McCann, MediaPlus and MindShare also scored above-average increases in planning business.

In contrast, smaller media agencies in 2002 suffered heavy losses, in some cases in the two-digit percentage range. And the picture was no less gloomy for the creative agencies. Creativity, unfortunately, is no longer considered the be-all and end-all of advertising. As Schulz says: "Image advertising is analysed far more critically now. Sales are increasingly won over the price of a product."

With this strategy, brands are seeking to emulate the success of the discount chains Lidl, Aldi and Plus. These three stores are the undisputed winners in the present consumer crisis, attracting customers with low prices and the "greed is great" approach.

A key factor for the success of the low-price chains is their increase in advertising expenditure, which Nielsen Media Research established at 18.1 per cent for Lidl and 19.8 per cent for Aldi, again bucking the trend. With 267 million euros for advertising in 2002, Lidl ranked fifth among the big spenders, while Aldi came 13th, spending 117 million (the year before, it had ranked only 22nd).

Almost all of this money ends up in newspapers, but even this injection of cash could not protect the newspapers themselves from crisis. According to figures from the newspaper marketing association, ZMG, Germany's newspapers lost some 13 per cent of their advertising last year, and the national papers lost about half their previous income from job ads.

The newspapers are fighting a losing battle in the recruitment sector against increasing competition from the internet. Experts are now agreed that, even under optimum economic conditions, employment ads will not fully return to the print sector.

The main cause for the drop in job ads, however, is far easier to identify: while Germany's economic slump continues, staff are more likely to be made redundant than they are to be newly employed by a company. This applies even for well-established newspapers such as Suddeutsche Zeitung and Frankfurter Allgemeine Zeitung, where several hundred staff had to leave. By taking a number of drastic steps, including the merger of Die Welt and Berliner Morgenpost, Axel Springer Verlag has managed to creep back into the black.

For Koch, however, the problems are partly of Germany's own making. "Germans, unlike any other nation, really thrive in times of crisis. We lament like no-one else in the world," he says. The consequence, Koch adds, is that "this basic feeling is eventually also reflected negatively in the economy".

As a result, forecasts for the advertising industry are pessimistic.

While Ruzicka expects that "the world economy will be on the way up again during the third quarter", he has serious reservations over developments in the Middle East. And Schulz, when asked whether he sees any signs of a recovery in the industry, replies with a short, sharp: "There are none."

Koch speculates that advertising investment during 2003 will dwindle still further, arguing that the first half of 2003 will probably still be in the red, while "during the second half, clients are unlikely to spend more than in 2002".

In a similar vein, the media agencies questioned during OMG's winter 2003 survey predict declining advertising revenues for the year for all media sectors - with one notable exception: online advertising. The greatest losers will again be the consumer publications (down 3.4 per cent), daily newspapers (down 2.5 per cent) and television (down 1.7 per cent).

Cutting costs is therefore the order of the day in many publishing houses and TV stations. Reductions in staff, however, affect not only the media but also the media and advertising agencies. The number of highly experienced unemployed staff in the industry increased by 30 per cent in 2002, according to statistics supplied by the German advertising trade body ZAW demonstrate.

However, even with this dramatic rise in unemployment, only 4.9 per cent were out of a job in the advertising sector, compared with an overall unemployment rate in Germany of 9.8 per cent.

Yet according to the findings of Media-Monitor, 4 per cent of staff were made redundant in media planning while the number of ads for advertising jobs - media planning, marketing management, graphic design or agency management - fell by 59 per cent. The last time demand for advertising staff was so low was in 1983.

Whereas in the past year advertising was the engine that boosted consumption, now the industry has to wait for consumer spending to give the economy the kick-start it needs. But it may well be some time before consumption picks up again, even though this may have less to do with a lack of money than with a lack of interest in spending it. According to an analysis conducted by the weekly news magazine Focus, Germans last year stashed away in savings about 10 per cent of their income - a clear increase over previous years. Some 142 billion euros ended up in bank, savings and secure deposit accounts.

There will be widespread hope - not least within the advertising industry -that these savings will soon see the light of day in Germany's struggling shops and businesses.

TOP 20 MEDIA AGENCIES IN GERMANY

Rank Agency Planning volume %age change No of

in euro millions on 2001 employees

1 MediaCom 2,886.1 6.1 403

2 HMS & Carat 2,620.2 -4.6 620

3 OMD Germany 1,931.8 -9.3 404

4 Mediaedge:cia 1,512.0 -0.7 271

5 MindShare 1,461.0 2.2 159

6 Universal McCann 1,100.0 5.8 127

7 Tkm Starcom 1,088.0 -5.2 122

8 Initiative Media 851.5 18.1 139

9 More Media 634.7 -1.6 122

10 MediaPlus 515.0 8.0 114

11 Optimedia 330.0 2.0 65

12 Schmitter 310.0 1.9 60

13 Springer & Jacoby Media 232.6 -1.0 36

14 M&MC Media 223.9 10.1 17

15 Ariston 221.0 0.0 29

16 Crossmedia 177.0 19.6 31

17 Zenith Media 145.0 -16.2 20

18 Media-Promotion 123.0 2.5 12

19 Pilot Media 121.0 -41.0 33

20 Dr. Pichutta 107.0 -16.4 20

Source: OMG.

THE TENSION MOUNTS: THE YEAR TO DATE IN GERMANY'S MEDIA

April 2002 - KirchMedia files for insolvency.

KirchGruppe's TV Berlin files for insolvency. Burda launches Young Lisa, for females aged 16 to 22.

Online Today (Gruner + Jahr) is discontinued. The film dealer Herbert Kloiber revives the TV station Tele 5.

May - Deutsche Staedte-Medien GmbH of Frankfurt, a big player in outdoor advertising in Germany, is put out to tender, attracting as interested bidders JCDecaux, Stoeer Out-of-Home Media GmbH and awk Aussenwerbung.

June - TaurusHolding GmbH & Co. KG and KirchBeteiligung, both part of the KirchGruppe, file for insolvency.

FAZ, a daily newspaper, discontinues its Berlin section and announces redundancies due to poor operational results. The Handelsblatt publishing group closes down its investor magazine Teleborse.

July - Jetzt, the youth supplement of the Suddeutsche Zeitung, closes. Suddeutscher Verlag makes 10 per cent of its 5,000-strong workforce redundant.

Thomas Middelhoff, the chairman and chief executive of Bertelsmann AG, is forced to leave unexpectedly. Board member Gunter Thielen takes over.

August - RTL Group takes over the shares held by the publisher Holtzbrinck in the Berlin news service n-tv. ProSiebenSat.1 Media AG reports a drop in turnover of 4 per cent for the first six months of 2002.

September - AS Young Mediahouse launches Starflash youth magazine with an initial 420,000 circulation.

RTL Group announces an increase in turnover of 5.1 per cent during the first six months of 2002.

October - Gruner + Jahr launches the fortnightly women's magazine Woman with a guaranteed paid-for circulation of 250,000 copies. The general-interest title targets professional women aged between 25 and 44 juggling work and family life. FAZ Business Radio shuts down its service.

November - Computec Media presents Widescreen, a monthly movie magazine with an expected circulation of 700,000.

FAZ announces a further cut of 200 jobs and expected losses amounting to 60 million euros for 2002. Suddeutscher Verlag expects a drop in turnover of 88 million euros in 2002 and announces a further cut of 300 jobs until the end of 2004.

December - The pay-TV station Premiere reports an increase of 100,000 new customers, exceeding the 2.5 million subscriber threshold.

January 2003 - Financial Times Deutschland announces the launch of FTD Kompakt, a free commuter paper with an estimated circulation of 40,000 and content from FT Deutschland.

February - Burda launches Amber, the UK equivalent of Young Lisa, to challenge Company and Bliss. Its initial print run is 300,000.

March - The Bertelsmann-owned RTL Group announces it has no plans to sell its 65 per cent stake in the UK terrestrial station Five, despite reporting losses of £38.8 million.

April - FHM plans to launch an FHM-branded supplement.

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