“We are already 100 percent digital”

08.12.2014, Luxembourg, RTL Group

For the latest installment in its Talking Business series, Benet interviews Guillaume de Posch, Co-CEO of RTL Group and a member of the Bertelsmann Group Management Committee.

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Since April 2012, Guillaume de Posch has led RTL Group – Bertelsmann’s biggest revenue and profit contributor – as Co-CEO along with Anke Schäferkordt. He is one of the most experienced television executives in Europe, sits on the Bertelsmann Group Management Committee (GMC), and is responsible for RTL Group's broadcasters outside of Germany and for its production business, FremantleMedia. As part of Benet’s Talking Business series, Guillaume de Posch discusses how the two areas are developing, and also talks about the digital transformation of the television business – with international takeovers such as those of BroadbandTV, StyleHaul and SpotXchange playing a major role.

Since February 2012 as Co-CEO of RTL Group you have been responsible for the broadcasting business outside Germany as well as the production business. How are RTL Group’s main channels developing, and what about the markets in which they operate?

Guillaume de Posch:
Let's start with the TV advertising markets, because a small ‘Tour d'Europe’ will explain quite a lot. The Benelux countries were relatively stable and solid in the first half of this year. After a long lean period, Spain has begun to recover since the end of 2013. In Hungary, the market is growing again this year, but since the summer we’ve been confronted with a fiscal policy that can only be called expropriation. France is economically and politically in a very difficult position. And most countries lack one thing above all: growth. In brief, these are the framework conditions for our broadcasting businesses, which are stable overall, but with a certain degree of volatility. Of course, our channels will have to continue showing the best shows and formats in their programme lineup in order to achieve high ratings – which is easily said, but a major challenge in the day-to-day business.

RTL Group is probably facing especially large challenges in France…

Guillaume de Posch:
Indeed France, with Groupe M6 and RTL Radio, is our second-largest market after Germany. And as I said M6 is doing an impressive job standing its ground in a very tense macro-economic environment. The broadcasting group generated a healthy return on sales and is many times more profitable than its closest competitor TF1. This is due to strong cost discipline, and to the successful diversification with which Groupe M6 has reduced its dependence on the advertising market. The company has also given the right strategic response to the rapid fragmentation of the French TV market that has been ongoing since 2006, and to the emergence of ever more new channels, by establishing its own family of channels around the free-to-air TV channels M6, W9 and 6ter. And finally M6 is decisively driving forward the development of non-linear TV. Our French radio family with three stations, RTL Radio, Fun Radio and RTL 2, has only come under pressure in the past few months. It is still operating profitably, but will have to distinguish itself even more in future against strong competition such as NRJ and Europe 1.

“The new platforms of the digital world are hungry for our content”

Your colleagues in the Netherlands are doing an exemplary job managing the transformation to digital – how is RTL Nederland doing overall?

Guillaume de Posch:
RTL Nederland has been generating strong results for many years now, and in 2013 its operating profit exceeded €100 million. In a market of such limited size, but which is RTL Group’s third-largest market in Europe, this is an excellent result. We are the clear number one in the Netherlands, are expanding our family of channels there in the next year with another new free-to-air TV channel, and are very active in the digital domain. With Videoland Unlimited, for example, RTL Nederland has created its own local Netflix –and this is just one of many digital initiatives there.

How do you plan to strategically develop RTL Group’s “big three” and all its other broadcasting businesses?

Guillaume de Posch:
For broadcasting, we have formulated three clear strategic goals, which are in line with Bertelsmann’s strategic priorities. First, given the increasing fragmentation of the TV markets we aim to occupy as much “shelf space” as possible – and that specifically means strengthening and expanding our linear families of channels. For this reason we have launched more channels in the past three years than ever before. Second, we must systematically develop new revenue streams for our channels, for example through “retransmission fees,” that is, additional fees paid by platform operators for our content. And third, we will expand into new, fast-growing markets. One milestone here was the agreement with CBS to create new pay-TV channels in Southeast Asia.

Quite a small step in such a huge growth market…

Guillaume de Posch:
…but one that follows clear rules that cannot be compared with those of our core markets. It would be too risky to hastily launch or take over new channels in India, China, Brazil and other emerging markets. The key and right thing to do is get a foot in the door, get to know the markets, and then invest more at the best possible time. That is also why we have a small 20-strong team on the ground in Singapore that manages both our pay-TV channels, RTL CBS Entertainment and RTL CBS Extreme.

RTL Group is already well represented in the growth markets and everywhere else in the world with its production arm, FremantleMedia – another of your responsibilities on the RTL Group Executive Board. How are things in this sector?

Guillaume de Posch:
Of course there is a correlation between the broadcasting and production business: when channels cut back and buy fewer new formats, it later affects the production companies. This is being felt at FremantleMedia despite the fact that the company was reorganised two and a half years ago under the leadership of Cécile Frot-Coutaz. We clearly defined the four objectives of this realignment: Existing shows that have often been successful over the years like The Farmer Wants a Wife or Got Talent are systematically refreshed and further developed. At the same time, FremantleMedia is expanding its portfolio of genres: Besides the big primetime shows, we need more drama content such as daily and primetime series. UFA in Germany is already very strong in daily series, with event-scale movies and mini-series, but FremantleMedia is also strengthening its drama production in the US, the UK and Australia. Moreover, FremantleMedia will expand geographically by opening up new markets, and finally we will significantly increase the share of the digital business.

You mentioned the big primetime shows that have been so essential to FremantleMedia’s success story in the past decade. Do they still have a future?

Guillaume de Posch: Got Talent, Idol and X Factor will remain very important pillars for FremantleMedia’s global business over the next five years – even if in some countries where they have been on air for a long time, they are no longer achieving the outstanding ratings of just three or four years ago. But at the same time the formats are continuing to launch in many new countries. And as for the overall theme of opportunities for production companies, then for me the formula of “Distribution is king – but content is King Kong” applies. The new platforms of the digital world are hungry for our content. All we have to do is deliver it. In the long term this is a great opportunity for FremantleMedia as one of the world’s leading independent production companies.

But at the same time the digital world poses RTL Group new challenges, which you are countering with a fundamental digital transformation. What does this transformation actually look like in practice?

Guillaume de Posch:
The digital transformation of all businesses is just as essential for RTL Group as for Bertelsmann overall. I’m pleased that Thomas Rabe so resolutely initiated and pursued this process. The discussion that begun in the Group three years ago has been very good for all of us. But we have one advantage in TV: Our business is already 100 per cent electronic or digital, so we don’t need to move from an analog to a digital medium. Instead, the important thing for us is to expand our linear TV offers that we grew big on and will remain big with for a long time, to include an increasingly non-linear offer.

And what is your strategy here?

Guillaume de Posch:
Again, we are following three approaches. First, extending our existing TV content into the non-linear world. Second, creating original web content, producing new content specifically for digital platforms. And third, we see another source of growth in the aggregation and marketing of online videos on sites such as Youtube, which are relying more than ever on professionally produced content. We already have strong initiatives in place for all three areas.

Can you name a few?

Guillaume de Posch:
We’re moving existing content online with our catch-up TV services such as 6Play and RTL Now, that is we’re making our formats available online so that they can be watched at any time and on all devices, from computers, smartphones and tablets to living-room TVs. Programmes that we already produce exclusively for the Web include the successful comedy Golden Moustache from M6 in France, and the content produced by FremantleMedia for Munchies, a new online platform on food for a young audience, jointly run with Vice. In the Youtube sector, we have significantly strengthened our market position with the majority shareholdings in BroadbandTV and StyleHaul. These were keystone investments.

“In a period of transformation, teams are much better than a lone fighter”

How do you plan to earn money with these digital businesses?

Guillaume de Posch:
That is still the crucial question. And it’s not easy to answer. First we need to develop new advertising formats. Unlike the commercial breaks that are several minutes long on traditional TV, online there are a maximum of two to three spots, which are also much shorter than the regular 30-second spots on TV. And when we produce web original content, the clips are usually only a few minutes long and shouldn’t cost more than about €5,000. Just for comparison, a big primetime show on television costs from €300,000 upwards. These are only two of many examples that show how we need to adjust the economic aspects of production and advertising sales for the online realm.

And you expect the acquisition of a majority stake in SpotXchange to help you?

Guillaume de Posch:
With a view to monetising our Internet activities, this is a significant step because SpotXchange is a leading global technology platform for the sale of online video advertising, a kind of Nasdaq for online commercials – and that is a rapidly growing market. What happens here in a matter of milliseconds is impressive: When a user visits a website, data about them is transferred to SpotXchange, which identifies advertising companies for whom this particular user could be interesting, offering them the chance to immediately serve advertising. The advertisers bid on this advertising slot, and as in an auction the highest bidder’s advertising is instantly served to the user. As I said, it all happens in the background, in fractions of seconds. The user only sees the result: advertising that is tailored to their interests. This is how SpotXchange now serves an average of more than three billion ad impressions per month, which makes it the number five in the US today. The company works with leading advertisers and brands such as Ford, Verizon and Procter & Gamble. You can see that we need to go entirely new paths in advertising sales – and are now doing so.

The same goes for the businesses on and with Youtube, which you have already mentioned several times, and where the investments in Broadband TV and StyleHaul play a key role. Can you please give us the rationale behind these two investments, too?

Guillaume de Posch:
First, the background: in connection with YouTube the question is raised as to whether it is going to be the new television or replace TV. But these questions won’t get us, RTL Group, anywhere. The fact is that Youtube is increasingly relying on professionally produced content and is by far the world’s largest platform for short-form videos, while television remains the clearly dominant medium for long-form content. There’s no getting around Youtube in the online video segment. Does the content produced specifically for Youtube differ from that for traditional television? Yes, both in terms of its length and production costs – but we are also seeing how rapidly the quality of these productions is growing. In the end, the professionally produced content on Youtube is still video. And video production has always been our core competence. The clear conclusion from this analysis is that it makes sense to build a strong presence in this dynamic market. So we asked ourselves how we could take advantage of Youtube.

And what is the answer?

Guillaume de Posch:
It’s really quite simple: we build and market our own channels and networks on Youtube, and “surf” the Youtube wave. That is exactly what BroadbandTV and StyleHaul are all about. As aggregators, they pool videos of specific genres and sell them to advertisers. While BroadbandTV is a tech-oriented generalist, with content aimed primarily at a male audience, StyleHaul is focused on topics such as fashion, beauty and lifestyle – and so has more of a female target group. The two complement each other perfectly. They offer targeted advertising, and know of the potential of attractive advertisers on the other side. They are protagonists on a really big global stage. All this makes these multi-channel networks so valuable for RTL Group. However, Youtube is a strong gateway and also takes its “toll” on advertising revenues, so long-term, the aggregators will need to build new, additional revenue streams.

Could you imagine forming a separate business unit from this within RTL Group?

Guillaume de Posch:
At this point, we are focusing on integrating and developing our acquisitions BroadbandTV, StyleHaul and SpotXchange. Of course, we are also thinking hard about the next steps – further investments into the online video sector, or the question of whether grouping these global activities makes sense and what the organization behind this might look like. Because on the one hand we need a comprehensive and global approach, and on the other, as we have so far, a totally dedicated team that wants to push our overall digital transformation forward – in close cooperation with the business units, of course. Finally, it’s also clear that the linear and non-linear world will continue to merge and converge going forward.

Anke Schäferkordt answered this final question by saying the dual leadership was working so well that she even missed you a bit after you did the joint roadshow before the “re-IPO.” But hand on heart, you have to share everything with her - TV Awards in Cannes, successes and setbacks, and the title of CEO. Is that really so great?

Guillaume de Posch:
Back in 1776, Adam Smith wrote in his famous work The Wealth of Nations: The division of labor increases productivity! Our roles and responsibilities as Co-CEOs are clearly defined and separated. The personal relationship between Anke Schäferkordt, our CFO Elmar Hagen and me is one of great mutual respect. And especially in a period of transformation, teams are much better than a lone fighter. You need two, three or sometimes even ten people to tackle new issues. We spent a whole year having long discussions to understand SpotXchange’s highly complex business model enough for us to decide on the investment. It probably would have taken much longer alone. So while dual leadership may be unconventional and not in the management textbooks, it works very nicely and fits well into this period of transformation.

Source: Benet

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