West Euro TV ad sales in slump

Nets seek new revenues as economy struggles

MADRID — Early spring bloomed with Europe’s most powerful broadcasters — Hollywood’s biggest clients — trumpeting 2010’s robust ad market recovery and projecting growth.

But the hot days of summer brought bad news: Western Europe’s TV ad market — worth $32 billion in 2010, Zenith Optimedia estimates — is, in the best of cases, stalling, and in the worst, double-dipping.

In hindsight, that was always in the cards: Post-recession, the Eurozone is roiled by sovereign debt crises, anemic economic growth and waning consumer confidence.

But Europe’s TV ad relapse begs large questions: If advertising is failing, and looks set to struggle for years to come, what new revenues can webs leverage for growth? And how do acquisitions fit into this new mix?

Webs — such as the U.K.’s ITV, France’s TF1 and M6 and Spain’s Telecinco and Antena 3 — are under even more pressure to answer these questions, given their latest financials.

From April to June, TV ad revs plunged 21% at Spain’s Mediaset Espana (which includes Telecinco and Cuatro), 4% at Antena 3 and 6% at ITV. France’s TF1 saw revs grow 4% in the first quarter and 5% in the second, but its ad revs will fall in the second half, predicts Daniel Knapp at IHS-Screen Digest.

In Italy, citing a difficult economic climate, Silvio Berlusconi’s Mediaset issued a late-June profit warning; its second quarter TV ad sales dropped 5%.

Germany’s RTL and ProSiebenSat.1 ad income was down 1% and 0.8%, respectively, in the first quarter, Knapp adds, although they do not report half-year results until August.

“There’s no clear indication on how quickly Europe will recover from recession, so it’s very difficult to predict the rate and strength of recovery of its TV ad market,” says Jean Baptiste Sergeant, at Paris-based stockbroker Gilbert Dupont.

Italy is facing austerity measures pushed through by the government, but the impact on TV ad revs has yet to be seen, says Alessandro Baj Badino, director at Deutsche Bank of Italy & European media terms.

For Knapp, Europe’s economic recovery is slower than expected, and consumers’ disposable income doesn’t go as far as it did before the crunch, now mainly due to higher energy and food prices in Western Europe. Also, while the Internet is not cannibalizing TV ad budgets, its scalability, measurability and targetability are putting the perceived return-on-invest-ment of TV advertising under pressure. This year, advertisers and agencies often have proved unwilling to accept major rises in TV ad prices.

Although growth agendas differ from country to country, most broadcasters’ strategies involve two elements: content production for a global market and multichannel growth at home.

“The economic environment calls for new production models …and investment in international co-productions,” says Joerg Graf, RTL head of production management and foreign programming.

German broadcasters are upping their bet on international content production and sales. RTL is teaming with Atlantique, Luc Besson’s EuropaCorp, HBO and M6 to produce “Transporter: The Series,” an English-language skein based on the film franchise.

ProSiebenSat.1’s Red Arrow Entertainment Group has bought a 51% stake in both U.S.-based Kinetic Content and the U.K.’s the Mob Film Co. ProSieben’s sales agency, Seven One Intl., has opened an L.A. office with an eye to expand its portfolio of English-language content, says managing director Jens Richter. And starting in 2012, Red Arrow will be targeting expansion in Asian markets, says ProSiebenSat.1 spokeswoman Stefanie Prinz.

ITV Studios chief exec Adam Crozier is building what he calls “a lean ITV that can create world-class content, executed across multiple platforms and sold around the world.”

Now in seven territories, ITV Studios has plans to operate in 17 markets, Crozier adds.

But, whether by sales of original programs or formats, producing directly for foreign broadcasters or buying into local production companies, creating an international presence in content is no slam-dunk to enhanced revenues, says Theresa Wise at T Wise Consulting, which specializes in the entertainment, cable, TV, film and sports industries in the U.K. and internationally.

“It is possible,” she says, “but it’s really difficult to make substantial revenues from international content. Broadcasters need capability in scale such as the Hollywood studios have to offset risk on single shows failing, and deep pockets for deficit financing.”

She adds that the U.S. is a very difficult market to crack despite successes including ITV Studios co-producing “Prime Suspect” for NBC. The real challenge is to find a “Big Brother”-style behemoth or convert notable sales on individual shows into a year-round triple-digit business.

With mature market growth limited, one of the most interesting strategies may be RTL’s, which has inked channel joint-ventures in Croatia and with Reliance in India.

Channel growth is another key seen to help grow the bottom line. In less mature digital terrestrial television markets such as France, Italy and Spain, broadcasters want to grow multichannel market share.

“The strategic question of (channel) bundling is one that will dominate Europe’s TV ad agenda over the next couple of years,” says Knapp, as more channels seek to grow share and bargaining muscle with advertisers.

Burgeoning niche nets can drive growth: TF1 digital channels TMC and NT1 increased revs by €24.5 million ($34.7 million) from January to March.

All those new outlets need to be fed, of course, and U.S. studios have benefited from this growth.

Rolling off the L.A. Screenings, TF1 announced in July a banner deal with Sony Pictures Television Distribution for series, TV films and features.

“With our three free-to-air and pay-to-view channels, we can offer top-quality exposure for studios’ programs: powerful (exposure) on (core channel) TF1, more targeted on the other free-to-air channels TMC and NT1 and our pay-to-view channels, such as TV Breizh,” says Benoit Louvet, TF1 exec VP of acquisitions and program distribution.

In Spain, Mediaset Espana’s bouquet — now encompassing Cuatro, Factoria de Ficcion, Divinity and Boing — opens up a bigger array of possibilities.

“We’re being cautious as always, but very active on the acquisitions front,” says ME acquisitions head Ghislain Barrois. “We haven’t taken our foot off the gas pedal for one minute.”

But annual DTT program budgets are very much smaller than established channels — around $71 million at TMC, one of France’s largest DTT services, says Christophe Cherblanc at bank Societe Generale.

Some broadcasters are determined to sell advertising on their multichannel outlets at the same price as incumbent channels, Knapp observes, with smaller German channels having to offer 80% to 90% discounts on rates.

Paradoxically, Spain’s double-dip has opened up buying opportunities. With pubcaster RTVE and regional nets debt-crunched, Spain is becoming a buyers’ market for Antena 3 TV and Mediaset Espana.

Leveraging a lack of competition, Antena 3 TV has struck hefty firstrun movie deals with Disney, Sony and Universal.

Antena 3 TV’s 2011 acquisitions budget will surpass 2010’s, though offset by its outsourcing services and productions, says David Gomez Baquero, head of investor relations.

But broadcasters want more bang for their buck.

TF1 will start a Sunday night movie slot, 40% stocked by foreign pics. But that won’t call for extra investment, says Louvet.

The big growth opportunities now lie elsewhere.

Media watchers predict that the next five years will see average annual ad growth in Western Europe run 2%-5%. And like box office, the real growth is in the East, with predictions that the Chinese market will grow 13% and Russia 12%.

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