The Recession Is Dead. Long Live The Recession.

Michael Hedges August 26, 2010 (Follow on Twitter)

Yet more evidence pours in; that nasty recession is over. Or maybe it’s mostly over. In any case, television – advertising included – is still hot.

RTL Group posted it’s best ever first half profit (August 25). TV advertising, mostly in Germany, France and the Netherlands, pushed company revenue to €2.66 billion, 7.5% more than first half 2009. RTL Deutschland increased earnings before interest, tax and amortization expenses (EBITA) 62.7%. Group M6 (France) increased EBITA 20.7%, with RTL Radio (France) increasing 87.5%. EBITA at the Netherlands operations doubled.

“The stronger than expected rebound seen in the Western European TV advertising markets is the result of the overall economic recovery,” said CEO Gerhard Zeiler in a statement, “but it also demonstrates the strength of television, as many advertisers have re-discovered its unique value for building brands and reaching mass audience.”

Better ad sales notwithstanding, Mr. Zeiler has had an exciting year. Severing loss magnet UK television channel 5 brought in a bit of cash, €124 million, in addition to plugging a cash drain. The recession sent media companies searching for savings in every corner. No egos were spared.

Economists consider ad spending a lagging indicator of economic growth. Advertisers spend once consumer gain confidence and spend. “The summer party among German companies continued unabated in August,” wrote UniCredit analyst Alexander Koch, quoted by AP (August 25). The Ifo Research of German business confidence rose to its highest level in three years in August.

Every big broadcaster feeling confident and sitting on cash thinks about new markets. Because of its existing holdings RTL Group has few expansion opportunities in Western Europe. Companies of RTL’s scale don’t dig small potatoes. And every CEO knows the only difference between a big deal and a small deal is the number of zeros on the bank transfer.

“We want to enter new markets,” he said to Dow Jones (August 25). “Geographically we will look at Asia and Eastern Europe, in which we expect a recovery of the television advertising market."

No deals, he said, are “in the pipeline at this stage.”

In Eastern Europe RTL Group owns or has interests in RTL Klub (Hungary), Ren TV (Russia) and RTL Televizija (Croatia).

Zeiler’s reasonably conservative strategy is clear. Last year RTL Group – along with the entire Bertelsmann family – screwed down costs. There was no hesitation. As a result, the company’s cost basis in the first half 2010 rose only slightly year on year. Zeiler called it a “cautious but flexible cost approach.”

Attention cuts two ways. Strengthening the current portfolio, RTL Group has acquired this year a third radio station – Radio 10 Gold - in the Netherlands and topped up television production companies in Denmark, Sweden and the Netherlands under the FremantleMedia brand. 

“Future growth,” said Zeiler, will come from “investing in content production, on-demand platforms and mobile services, leveraging our strong brands and creating a win-win  situation with platform operators. The digital world offers many business opportunities, and we have the creativity, flexibility and financial strength to take advantage of them.”

This, obviously, includes pay-TV channels. The recently reported plan to offer a Hulu-like IPTV service in joint venture with ProSiebenSat.1 Media moves in this direction. Ad spending might be on the rise but broadcasters, smart ones at least, are betting elsewhere. Neither Zeiler nor ProSiebenSat.1 Media CEO Thomas Ebeling, who released stunning results two weeks ago, are venturing “visibility” beyond the next quarter.

Mr. Ebeling also engaged in considerable cost cutting over the last year. ProSiebenSat.1 Media consolidated its headquarters operations to Munich. More recently the company severed loss-making news channel N24.

During the investors conference call Mr. Zeiler put to rest any speculation about his tenure. His contract has been extended through 2015. There had been some speculation, largely in Austria, that he might return (“to save,” said Horizont (August 25) to public broadcaster ORF at the end of his current contract. Zeiler was ORF General Director between 1993 and 1998 after which he joined RTL.

See also in ftm Knowledge

Media in Germany

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Bertelsmann - Europe's Biggest

Few media groups have the scale and dynamics of Bertelsmann. From austere beginnings as a hymnal publisher, it has become the dominant European publisher and broadcaster through subsidiaries RTL and Gruner + Jahr. And it's arms reach around the world. ftm explores Bertelsmann and RTL. 30 pages. PDF (April 2010)

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