Hard to believe, but the phrase “a licence to print money” originally applied to television broadcasting. These days, it’s more of a licence to kiss it goodbye.
Europe’s free-to-air broadcasters are struggling. In recent years, the twin threats of channel fragmentation and competing media – notably online – have driven away audiences, and hence the advertising receipts, they depend on. Incumbent operators such as Italy’s Mediaset and TF1 Group in France are basically restructuring stories: too big for their domestic markets, but too small to expand beyond them.
Mitigating the impact of audience drift is hard enough, without punitive regulatory regimes that restrict advertising output and cap pricing. And efforts to keep up with smaller, nimbler web-based rivals often stumble. Witness a recent plotline about contacting old friends online in Coronation Street, ITV’s flagship soap opera, which failed to mention the network’s own site, Friends Reunited.
Of the larger companies, RTL – almost entirely owned by Bertelsmann – and ProsiebenSat.1 Media look best placed to counter these forces. As the only truly multi-country operators, they have the double attractions of lower revenue volatility and exposure to more vibrant ad markets in central and eastern Europe. They also offer the benefits of scale, giving them more muscle when buying up borderless hits like Endemol’s Deal or No Deal, sold to over 100 countries, or when seeding internet ventures. Finally, the German duo is more experienced than other European providers in coping with the current wave of channel proliferation. Pre-digitisation, 98 per cent of homes in Germany were already multi-channel, via cable or satellite.
Prosieben in particular looks solid. In the grip of hedge funds after being taken part-private by KKR and Permira last year, the stock has been heavily sold since the summer’s credit squeeze for being a mid-cap with debt almost five times earnings. It is now trading some way adrift of even bearish price targets, while offering disposal opportunities and synergies from this year’s merger with SBS. Even with a sluggish core German ad market, there is value to be had.