Ad crisis puts free TV business models to the test

Added: (Mon Mar 15 2010)

Pressbox (Press Release) - The financial and advertisement crises left their mark on the private TV landscape: advertising slumps, revenue declines, cost cutting measures, program restructuring, bankruptcies, and the sale of channels - nearly every day there is new bad news from the once-shining television camp. The changes have had a particularly strong impact on ad-financed special interest channels. After climbing steadily in recent years to at least 43 channels in 2008, the number of free, special interest channels in Germany fell by more than ten percent by the end of 2009, to just 38.

Established channels, like Comedy Central (currently remaining on air only as an evening program, using a slot shared with children’s channel Nick) and the German version of business channel Bloomberg TV, were among special interest channels that had to at least partially restructure in 2009. Games channel Giga Digital was moved to the internet in 2009, after ten years of broadcast. The negative trend continued in January 2010. Other channels, including a do-it-yourself channel, XXHome, went into bankruptcy. Tier-TV and TIMM are considering a switch to the pay model. New business models that do not rely on ad revenue and more cost-effective broadcasting methods are at the top of many channels’ priority lists.

Gaining new sources of revenue was on free TV’s agenda even before the ad crisis. The share of free TV’s alternative revenue sources was already at a respectable 20 percent in 2008 (from the study "Economic situation of German broadcast 2008/2009", Goldmedia/BLM). Free TV providers were able to generate more than 900 million euros in revenue from sources other than traditional advertisement (teleshopping also not included). Clearly, this revenue share must be expanded in light of the advertising market situation and the threat of further revenue declines.

One segment of the TV industry was able to realise independence from the advertising industry by 2009. Defying the downward trend, German teleshopping channels recorded solid, countercyclical growth of around six percent and annual revenue of 1.3 billion euros for 2009. Some providers even achieved growth in the double digits. 1-2-3.tv announced that the company had gained about ten percent in 2009. Not least among indicators of growth is the launch of new shopping programs. After HSE24’s creation of a second digital station as early as 2005, Channel 21 launched a purely-digital sister channel on Astra in October of 2009.

From TV stations to multi-channel stations, the shopping channels are no longer strictly television companies. Their presence has become particularly strong in the internet. 1-2-3.tv started a TV channel dedicated solely to the internet in December 2009, and the company’s online business should bring in as much as half of revenue in the middle term. By the end of 2008, about 13 percent of all German teleshopping revenue was generated via the internet -- a figure that free-TV stations, shaken by the crisis, probably won’t reach in the near future if at all, despite their efforts to loosen dependence on advertising revenues. At the end of 2008, the online share of traditional, free-TV stations’ total revenues was less than one percent.
Outliving the crisis poses considerable challenges for the TV industry over the next decade. Digitisation not only increases opportunities for diversification but also the risk of spreading channels too thin. Economic problems continue to fuel the (advertising) crisis markedly in 2010.

Author: Mathias Birkel, Senior Consultant, Goldmedia GmbH