Germany - a complex market to crack

At Mediacast's Convergence Summit, advanced-television hosted a panel discussion on the German TV market (21 May 2002).

Unusually for an event outside Germany, the panel was comprised of German media experts who informed the international audience about the complex nature of the German TV market. "Who better than German experts themselves to reveal the finer nuances of conducting media business in Germany? To the best of my knowledge, it's the first time that an international convention here in London has asked an entirely German panel to discuss the country's media industry," Tony Morbin, Executive Editor of Advanced-Television.Com commented.

Walter Neuhauser, CEO of the RTL channel's advertising broker, IP, Deutschland GmbH

And the concept worked! Some140 attendees crammed into Room One of Mediacast's 'Convergence Hub'. "Usually on such an occasion you have people coming and going with only a few staying the entire session. But here it was different and nobody left," noted Walter Neuhauser, CEO of the sales house of the German RTL channels, IP Deutschland GmbH, who came from Cologne for the day specifically for the session. The other panellists did the same, including: Juergen Brautmeier, Deputy Director of the German regional Media Regulator LfR, NRW, who returned to Dusseldorf the same day while the MD of Universal Studios Networks Germany GmbH, Wolfram Winter, took a detour on his way to LA where he was attending the May Screenings.

The eyes of international investors have been directed toward the world's second largest single TV market for some time, but especially recently. The once mighty TV power house, Kirch Group, lies scattered in pieces under insolvency regulations. Moreover, German trust busters blocked Liberty Media from taking over six regional TV cable entities reaching over 10 million homes from former state telco Deutsche Telekom AG. "Given the difficulties outlined for foreign investors, what are the incentives for foreigners to invest, and what changes are needed?" asked Morbin, opening the session.

Juergen Brautmeier, Deputy Director of the German Media, Regulator LfR

The event Chairman and Organiser, Dieter Brockmeyer, Advanced-Television's German Correspondent, Brautmeier told the audience, "From a legal point of view the German market is open - with no limits for foreign investors - but with more than seven public service broadcasters, seven regional regulators - all with their own strong political support - plus national TV and telecoms regulation, and a tendency of the public service broadcasters to launch in competition with any new channel entrants, it is a complex and difficult market - especially for niche channels seeking to compete with the 33 analogue channels and 30 digital channels."

Wolfram Winter, of Universal's channel subsidiary in Germany, which runs two digital pay channel's on Kirch's pay TV platform Premiere World, concurred, commenting, "The failure of Liberty Media was more a result of how they went about entering the market, rather than what they did. People are not even aware that they have a cable provider and are dependent on the local states - which have their own self interest in terms of what channels are shown - with very little reference to the consumer. As a result, the biggest problem cable operators face, coming from outside with models from the UK or US, is that there are no "basic tiers" etc - its all about deals with the giants such as Kirch or the public broadcasters. Within Kirch there are two completely different interest groups, and I wouldn't be surprised to see Kirch not only as two or three completely different organisations in two months time. It might become more entities than that."

Wolfram Winter, MD of Universal's German Digital Channel Subsidy, Universal Studios Network Germany GmbH

Walter Neuhauser, agreed, but said that there were still opportunities for new Pay TV channels - but the business model would have to be just 15 per cent or less revenue coming from advertising and the rest from subscriptions. This statement was surprising for those that have followed the moves by German Bertelsmann AG, the parent company of RTL Group, which broke out of Premiere some two year ago and since then says it no longer believes in Pay TV. RTL is clearly seeking its growth via advertising funded TV.

However, there are rumours in the German market state that Bertelsmann is in negotiations with Premiere again. Which sounds like a good reason for being a bit cautious about taking on pay TV at the current time. The current market shake out in Germany is making all the players shuffle their deck anew. But its not only Pay TV that has had a difficult time in this market, TV investments in general are still in the red. Neuhauser said that the total private TV market in Germany is still negative in terms of return on investment. This is not true, of course, for ventures like RTL Television or the Pro Sieben channel. But all the others still are in pay back or are negative on a yearly base.

However the complexity also applies to cable operators. Investors need to be aware that buying Telekom systems does not actually mean owning the entire network to all the homes they reach, Brautmeier reminded the audience. The German cable is divided in a Level 3 and a Level 4. The Investors then own mainly the Level 3 while most Level 4 systems which connect the final part of the network to the homes are held by small cable companies or huge real estate companies that hold the systems as part of the apartment blocks. Considering the problems of Level 3 and 4 cable structures, and the fact that the debate in Germany has taken place either against the consumer, or without the consumer, it was made abundantly clear that the German market is not for the faint hearted. But with 33 million TV homes - in Europe's most affluent market - it is one that global players cannot ignore.

However, Winter made it clear that to invest in Germany you had better know the situation you have to cope with before you go there. "You need to consider the very particular situation in the German market and have to know that your investments only will return in the longer term. You need to be patient," he advised.

Advanced-television.com Germant TV pannel was chaired by:
	Tony Morbin Editor in Chief advanced-television.com			Dieter Brockmeyer German Correspondent. Dieter is an extremely well connected and respected industry veteran based in Frankfurt, where he writes and provides consultancy on the German media scene. advanced-television.com

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