Broadcasters move beyond ad-driven model

MADRID — What do Italian TV group Mediaset’s Fabio Confalonieri, German web RTL’s Gerhard Zeiler and the U.K.’s Archie Norman, head of ITV, have in common?

Having taken big hits on advertising revenue in 2009, the chief execs at three of Europe’s biggest commercial nets all see light at the end of the tunnel.

ITV has emerged from the fire of recession with an opportunity to change itself,” Norman said on March 3.

We are quite happy with the development of markets,” echoed Zeiler, March 11.

Last year “was a perfect storm,” said Confalonieri, presenting the 2009 results on March 24. “It’s now behind us.”

Back in February even a highly guarded Nonce Paolini, chairman-CEO of Gaul’s TF1, promised 2010 growth, if only 2%.

Mediaset, RTL, ITV and TF1 control nine of the 12 major commercial broadcasters in Europe’s Big Five markets.

So what has happened to give these toppers cause to hope?

Their opinions are prompted by signs of a partial recovery in the advertising market and Europe’s digital switchover, which is kicking in with a vengeance.

Escalating digital terrestrial TV auds plus the urgent need to evolve beyond traditional advertising income, are tranforming business models — especially at Mediaset and its Spanish broadcaster Telecinco — that were once content to milk core-channel cash cows.

Change is coming despite a modest rebound in ad revenues in some quarters.

Telecinco’s February ad revenues rose 40% year-on-year. First quarter ad revs grew 5% at Mediaset, 7% at ITV. Christophe Cherblanc, at Societe Generale, expects similar 7% growth at TF1.

Zeiler said RTL networks — comprising RTL, France’s M6, Spain’s Antena 3 and the U.K.’s Five — saw “a slight increase in most countries and a good increase in Germany.”

But these signs don’t add up to sustained recovery, says Vincent Letang at Screen Digest.

Early 2010 results compare to some of the direst months in TV advertising history, which hit the biz in early 2009.

In the U.K. and France, “Agencies see no plans from their clients to significantly increase spending on a full-year basis, beyond the 1Q surge,” Letang adds.

In Spain, the rebound is juiced by pubcaster RTVE’s Jan. 1 ad nix, says Adrian Zunzunegui at Iberian Equities. “There’s no macro recovery, just E400 million ($537 million) being shared between other players.”

And, after the recession and market fragmentation, broadcasters won’t bet their shirts on the vagaries of core channel advertising.

As recently as 2004, 97% of Mediaset’s Italian revs were ad-driven. Now “the classical broadcasting model is outdated,” says Mediaset exec vice-chairman Pier Silvio Berlusconi. “We have a new model.”

Mediaset is morphing from an ad-driven analog network into a multi-channel digital TV operator, part paybox and content controller, via Endemol.

Driven by DTT soccer, paybox Mediaset Premium added 423,000 subs from Jan. 1 to March 21. In May, Mediaset launches femme-skewed DTT channel La 5.

Norman’s reading off the same page.

ITV’s challenge is to reduce its dependence on the free-to-air model,” Norman says. One way is by “creating great content” at ITV Studios, he adds.

For the contents biz to really impact a broadcaster’s bottom line, big shows, such as Endemol’s Mip TV bet, “101 Ways to Leave a Gameshow,” must turn into behemoths. That’s a gamble.

In less mature DTT markets — such as Italy, Spain and France — broadcasters are forging families of channels.

Gaul’s Conseil Superieur de l’Audiovisuel TV watchdog last month approved TF1’s purchase of DTT nets TMC and NT1.

In Spain, Telecinco bought Cuatro and 22% of paybox Digital Plus in December.

This allow us to replicate our Italian strategy of free and pay TV operations,” Berlusconi says.

Cherblanc adds, “In a fragmented market, you need four-to-six channels to exploit programming synergies, using first-run programs on lead channels, then second-tier services.”

Also, multi-channel ownership allows key demos to be better targeted and adds bargaining muscle with ad agencies.

The good news is the Euro webs’ changes are opening up sales opportunities.

In March, Spain’s La Sexta inked Warner Bros. and MGM multi-year deals for its core and quite possibly DTT channels, free and pay.

Expect more big deals to go down, thanks to Europe’s network makeover, at mid-April’s Mip TV programming mart in Cannes.

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