Outside the US, Germany is the most important broadcasting
marketplace in the world. Not only is it home to 33 million television
households, it is at the heart of a booming European production business
which ties in France and Italy as partners. In addition, Germany’s
proximity to emerging economies such as Poland, Hungary and the Czech
Republic makes it a crucial staging post for marketers with ambitions to
Such factors explain why so many global media heavyweights are seeking
to secure lasting influence in Germany. Unfortunately, building a
beachhead has proved complex and costly - with no guarantee of ultimate
The most important players are the domestic media giants, Bertelsmann,
Kirch and Deutsche Telecom, which have fought tenaciously to protect
their positions. Then there are the outsiders - News Corp, Silvio
Berlusconi’s Mediaset, Canal +, Disney, Time Warner and Viacom -
circling the market like a pack of half-starved wolves.
As if that isn’t enough competition for one market, there are also two
publicly funded broadcasters, ZDF and ARD, which between them attract 30
per cent of free-to-air viewing. Like the BBC, they have extended their
influence into thematic television with the launch of the children’s
channel, Kinderkanal, and the news network, Phoenix.
Unlike the BBC, they air four hours of advertising a week between
All of this is good news for German viewers who can gain access to an
unparalleled range of sports, movies, news and entertainment via more
than 30 free-to-air channels.
But it has been crippling for media owners. The combined cost of
production, movie acquisitions and marketing has been astronomical.
Currently, less than half-a-dozen free German channels are reckoned to
be in profit.
There are two problem areas for Germany’s media owners. Firstly, there
are limitations on the potential for revenue growth in the free-TV
sector. Secondly, there is the distinct lack of interest that consumers
have shown in Kirch founder, Leo Kirch’s, efforts to kickstart digital
Although international headlines have been dominated by the lack of
progress made by digital, the free television market, which attracts
around DM12.5 billion (pounds 4.3 billion) of ad revenue a year, is
easily the most significant part of the German television economy.
Currently, it is carved up between the public broadcasters, Bertelsmann
Through CLT-Ufa, a joint venture with Luxembourg’s CLT, Bertelsmann
controls one of Europe’s largest television production studios as well
as Germany’s leading commercial TV network, RTL.
Although RTL’s market share has been eroded in recent years, it
currently takes 16.1 per cent of the German audience. It also has three
sister channels: RTL 2 (with a 3.6 per cent share of the market), Vox
(3.1 per cent, a joint venture with News Corp) and SuperRTL (1.6 per
cent, a joint venture with Disney).
Like Bertelsmann, Kirch has a vast production and programme rights
business (which, incidentally, holds the TV rights to the FIFA World
Cups in 2002 and 2006). It also owns a commercial network, Sat 1 (13.3
per cent) and a free-to-air thematic sports channel, DSF (1.2 per
In addition, Leo Kirch’s son, Thomas Kirch, runs the country’s third
major commercial network, Pro Sieben (9 per cent) and Kabel 1 - a
relatively new network which has taken a 3.9 per cent share of the
market since it launched in 1993.
While the cost of running such networks is growing, the potential
returns are not. Sat 1, for example, stunned onlookers when it went into
the red in 1997. Although a relaunch may return the network to profit in
1999, the prospects for growth in free-TV look bleak.
A key reason for this is that the volume of commercial airtime on German
TV is close to its legal limit. Also, agencies are seizing the
opportunity to squeeze discounts out of media owners.
Alexander Rutziger, Carat Germany’s managing director, believes the big
general entertainment networks will continue to come under pressure. ’A
30-second ad on the major channels is decreasing in impact,’ he
’Advertisers are now looking to build an effective campaign across a
wider portfolio of channels. The big commercial stations need to find
intelligent and flexible ways to reach the viewer.’ Rutziger suggests
that ad revenue will grow faster among Germany’s free niche
The experience of German news channel, n-tv, owned by the publisher,
Handelsblatt, and the Time Warner subsidiary, CNN, seems to confirm this
trend - it went into profit for the first time last year. Although its
average audience share is 0.5 per cent, it recorded ratings as high as
2.2 per cent during events like the Austrian avalanches and war in the
Balkans, according to Kenneth Jautz, its managing director. ’We are
benefiting from the emerging era of niche television in Germany,’ Jautz
says. ’Our ad revenue growth is double digit while the likes of Pro 7
and Sat 1 have projections which are flat to low.’
Wide distribution via cable, as well as CNN’s input, have helped n-tv to
secure a reputation as Germany’s leading news-only network. ’News is a
high-cost production environment,’ Jautz says. ’But we can draw on CNN’s
correspondents and infrastructure in our coverage.’
The pan-European sports broadcaster, Eurosport, also claims to have
established a firm foothold in Germany.
Currently, the network has 90 per cent distribution in Germany and a
market share of 1.3-1.6 per cent. By targeting an homogeneous audience
of sports fans with major events, the network can run as a profitable
business, says Thomas Deissenberger, Eurosport Germany’s managing
director. ’Our depth of coverage gives us a close relationship with our
viewers which creates a big point of difference from general
entertainment networks,’ he says. ’The slowdown in advertising growth is
more of an issue for them.’
The hardship brought about by flat ad revenue is made worse because
Deutsche Telecom has an effective monopoly over the German cable system.
Many private networks are reliant on DT’s 17 million cable households to
secure national distribution. However, unlike the rest of the cable
television world, DT charges channels for carriage - rather than paying
fees to the channels.
The result is that broadcasters are not only denied a second
subscription-based revenue stream, but they incur additional
The parlous state of the free-TV market in Germany makes it harder for
foreign players to get involved in any meaningful way. Time Warner
(n-tv) and Disney (SuperRTL) both have small footholds but Viacom’s
Nickelodeon abruptly quit the market last year. The launch of ARD/ZDF’s
Kinderkanal, coupled with Nickelodeon’s inability to get widespread
cable distribution, made the market uneconomic for the US children’s
Rupert Murdoch has also found Germany a frustrating target. So far, he
is restricted to 50 per cent of a small general entertainment network -
Vox - and two-thirds of TM3, a struggling Munich-based network. However,
analysts believe that TM3, acquired in 1998, could provide a launchpad
for Murdoch’s Fox Kids Network.
The abundance of German free-TV stations has also had a debilitating
impact on the progress of Leo Kirch’s digital pay-TV platform, DF1.
Launched in 1996, DF1 had lost Kirch more than DM1 billion by the end of
In that period, it attracted around 160,000 subscribers - less than
SkyDigital secured in its first three months.
Kirch has strived to boost consumer interest in digital and to find
partners that will share the financial risk. Murdoch, Bertelsmann and
Canal + have all been touted as potential partners.
Although Kirch’s underlying problem has been the strength of the free-TV
proposition in Germany, another factor has been the presence of a robust
analogue pay-TV platform called Premiere, which launched in 1990. Until
1997, Premiere - which by then also had a digital offering - was owned
by Bertelsmann (37.5 per cent), Canal + (37.5 per cent) and Kirch (25
Once Kirch’s losses began to mount, it became clear that the only way
for DF1 to thrive was for it to merge with Premiere - which required
Canal + to disappear from the scene. This was achieved by swapping the
French company’s stake in Premiere for Kirch’s 45 per cent share of
Italian pay operation Telepiu, plus a cash premium.
With Canal + gone, Bertelsmann and Kirch found themselves on the verge
of an unlikely alliance. Despite being long-term business rivals, Kirch
needed Bertelsmann because of Premiere and Bertelsmann needed Kirch
because of his company’s digital know-how.
At this point, the German competition authorities stepped in, declaring
that a 50-50 alliance between Bertelsmann and Kirch in German pay-TV was
unacceptable. The situation remained like this until January 1999 when
Kirch, needing cash to keep his digital dream alive, reorganised his
business with a view to floating the profitable part (the rights
portfolio and free-TV business) and using the proceeds to back
Three months later, Kirch announced a free-TV alliance with Mediaset and
Saudi Prince Al-Waleed, bringing together broadcast and production
interests in Germany, Spain and Italy. Kirch also announced plans to
float its free-TV operation ’in the next two to three years’.
Almost simultaneously, Kirch surprised observers by revealing an
agreement with Bertelsmann to buy its stake in Premiere - a move
unlikely to attract any repercussions from the German competition
authorities. As a result, Kirch has picked up two million pay-TV
subscribers from Premiere and cleared the way for his digital
The group will invest a further DM1.7 billion in digital, says Dieter
Hahn, Kirch’s vice-chairman. Some of this, presumably, will be offset by
the cash raised from Mediaset, Al-Waleed and the prospective
Hahn predicts the newly merged pay operation will reach 20 per cent of
households (6.5 million) by 2008.
As a result, Murdoch’s entry points into Germany look limited. He was
linked to the Kirch/Mediaset deal but is reported to have lost interest
when it became clear that Kirch’s pay-TV business was not part of the
package. Likewise, Bertelsmann’s decision to concentrate on free-TV,
production and online - leaving Kirch to digital - makes the prospect of
Murdoch getting into pay-TV remote.
Adam Smith, Zenith Media’s head of knowledge management, has followed
developments in Germany closely. ’If you believe that digital is a
better technology and that analogue will eventually be redundant, then
that argues in favour of Kirch’s strategy,’ he says. ’But we just don’t
know what level of demand there will be in Germany for more channel
choice or interactive applications.’
The picture is equally murky in the free television market, Smith
’From an advertiser’s point of view, it doesn’t really matter if the
channels are making a loss,’ he says. ’But from a commercial
stand-point, you can’t make losses for ever. That said, German
broadcasters have shown remarkable durability. They have been working
this way for ten years with hardly any consolidation.’
Part of the reason for the lack of consolidation is what Rutziger calls
’the chain of commercialisation’. For example,Kirch owns a massive
library of movie rights which he can push through outlets like Sat 1 -
effectively subsidising the channel. Likewise, Kirch’s free-to-air
sports channel, DSF, though loss-making, is regarded as an important
shop window for the digital platform.
Kirch and CLT-Ufa’s production activities also introduce important
economies of scale. By producing TV programmes for a number of their
outlets across Europe, they effectively reduce the cost of programming
for their German networks.
It is not clear what will happen to the free stations which are neither
part of big groups nor niche in appeal. Many hope that Deutsche
Telecom’s monopoly position in cable will be broken by the European or
German regulators - effectively opening up a new income stream.
Rutziger believes that so long as the smaller networks provide a cheap
airtime alternative or carve out a clear position, they will continue to
feature on advertisers’ schedules. ’We buy target groups. So the key
issue for the broadcasters is whether they can build target audiences
that appeal to advertisers. ARD and ZDF, for example, have older
audiences which are important to sectors such as over-the-counter
drugs,’ he says.
Murdoch, meanwhile, is likely to persist with Vox and TM3 because owning
television frequencies in Germany is still regarded as a long-term
And if one thing is certain, winning the broadcast race in Europe is all
about taking a long-term view.