Digitalization and Economic Growth
Digitalization and innovation are relevant to all our segments. The digital business will contribute over EUR 1.7 billion in revenues by 2018. ProSiebenSat.1 is seeking to generate over 50 % of its consolidated revenues outside the TV advertising business by 2018 (2012: 23 %, 2016: 47 %).
Broadcasting German-speaking segment
ProSiebenSat.1 is facing new challenges in the TV business in the wake of digitalization, while attractive growth opportunities are simultaneously arising. ProSiebenSat.1 Group bundles all its TV activities and the distribution business in the Broadcasting German-speaking segment.
Fragmentation of the TV market: Digitalization means that there is an unlimited number of broadcast frequencies, resulting in significantly more stations on the German TV landscape now than at the turn of the millennium. In 2000, households in Germany could receive an average of 36 free TV stations compared to roughly 80 in 2016. The group of large, familiar TV brands is basically the same, but numerous smaller special-interest stations focused on specific target groups have come onto the scene. ProSiebenSat.1 Group is benefiting from the fact that it recognized this trend early and helped to promote it. The Group has launched three new free TV stations since 2010 in the shape of sixx, SAT.1 Gold, and ProSieben MAXX, followed by another station, kabel eins Doku, in the fall of 2016. Expanding the station portfolio allows the Group to reach new audiences and advertising customers. The Group gained over 100 new advertising customers in 2016 alone.
Thanks to technical advances, such as television in HD quality, large screens, and the integration of Internet functions, television is becoming more attractive and diverse. On average, 46 % of viewers aged between 14 and 29 switched on their TV set every day in 2016. As a result, this figure did not change year-on-year in spite of the constantly growing number of other possible forms of media usage. This resulted in an average daily viewing time of almost two hours (2016: 119 minutes; previous year: 118 minutes). Thus, television remains the most popular free-time activity in Germany.
Digitalization of TV advertising: Television is the most used medium in Germany. In order to increase its advertising impact, the Group is consistently integrating its television business with digital entertainment. The Group designs individual campaigns for advertising customers that spread to all media platforms from the core medium of TV. ProSiebenSat.1 is also focusing on new technologies.
With our subsidiaries SevenOne Media and SevenOne AdFactory, we are the most innovative TV marketer in Germany. For instance, we were the first TV group in Germany to broadcast addressable TV campaigns with the hybrid broadcast broadband TV (HbbTV) technological standard. These advertisements combine the high reach of traditional television with the opportunities provided by digital advertising, including target-group-based advertisements individualized to devices. This is offering ProSiebenSat.1 additional growth prospects.
Distribution of content: The topic of distribution has become much more significant with the diversification of transmission and reception methods. ProSiebenSat.1 Group therefore has long-standing agreements with all major distribution partners and is collaborating with many digital platform operators. The Group is extending its reach in this way. At the same time, additional refinancing models are emerging. In distributing stations in high definition (HD), ProSiebenSat.1 participates in the technical service fees that end customers pay to the respective providers for programs in HD quality.
Digital Entertainment segment
The Internet is creating new ways to reach viewers and users and to address different media-use interests with various digital offerings. Programs can be accessed at any time and any place and can be viewed on traditional TV screens and other devices, such as tablets. New growth areas and refinancing models are thus presenting themselves for ProSiebenSat.1 Group.
Diversification of screens and revenue models: With its offerings, ProSiebenSat.1 Group has all modern forms of media use covered. By extending TV formats to digital platforms, the Group is also increasing viewer loyalty and creating cross-media advertising space. As a result, the Group is also the market leader for the marketing of online video content in Germany. In Germany, ProSiebenSat.1 Group reaches around 26 million unique users every month with offers on conventional websites. At the same time, the Group is increasingly offering more exclusive content on its digital platforms and diversifying its revenue models, e.g. via the video-on-demand (VoD) portal maxdome. maxdome generates its revenues via subscription and pay-per-view income.
ProSiebenSat.1 Group aims to also grow sustainably in the Digital Entertainment segment. To that end, the Group will sharpen its international focus with partnerships or further acquisitions. In 2015, the Group therefore acquired a majority in the US multi-channel network CDS and integrated the company into its own Studio71 brand. At the same time, the Company is extending its reach with innovative distribution partnerships. One example is the collaboration with Deutsche Bahn for the VoD portal maxdome. Since the spring of 2017, maxdome has been the first and only VoD service available on the ICE Portal. Deutsche Bahn counts around 80 million passengers a year on its ICE trains in Germany.
Digital Ventures & Commerce segment
In recent years, we have built up a Ventures & Commerce portfolio whose growth we promote through the strategic link-up with the TV business. It is now the biggest growth driver in the Group and is thus making a material contribution to the expansion of digital revenue sources.
Growth via synergies: Digital commerce is growing dynamically worldwide in the double-digit percentage range. ProSiebenSat.1 Group is expanding its portfolio in order to maximize its participation in the growing online business. To achieve this, ProSiebenSat.1 is investing mainly in companies that can be marketed efficiently with TV advertising and that add value to the existing portfolio. The Group bundles its commerce investments by topic, resulting in revenue and cost synergies. At the same time, the Group quickly and efficiently increases the revenues of its investments with relatively low marketing costs and without high cash investments via TV and online advertising. With this investment model, ProSiebenSat.1 is leveraging synergies that exceed usual efficiency and revenue potential in the industry. This is an important basis for long-term organic growth in the digital business.
However, digitalization is not only driving e-commerce, but also creating the conditions required in order to integrate value-adding processes using various platforms and distribution channels. For instance, viewers can already obtain product information with their remote control thanks to HbbTV, an online-based TV technology. The Group is leveraging this potential by establishing a commerce ecosystem about living a healthy lifestyle. ProSiebenSat.1 already has various health, nutrition, wellness, fashion and fitness offers and successfully sells these on digital platforms. The Group is now embedding these lifestyle offers into a holistic commerce ecosystem and linking it to its entertainment offerings. The next step is to complete the value chain with bricks-and-mortar retail. The idea that lies behind this strategic measure is to accompany consumers throughout the customer journey.
Investments with a balanced risk profile: In the e-commerce sector, the Group often takes a share in new companies in return for media services. We use TV media as a primary investment currency and, in return, participate in the value creation of these companies in the form of an equity stake (media-for-equity) or a share in revenues (media-for-revenue-share). ProSiebenSat.1 thus expands its portfolio without high cash investments and with limited business risk. Moreover, ProSiebenSat.1 approaches many acquisitions by first acquiring a minority stake in order to limit financial risks and find out how an investment enhances the value of the existing portfolio.
While ProSiebenSat.1 has been expanding the digital portfolio, particularly with media investments and smaller investments, and collaborating with strategic partners in recent years, major acquisitions have also been made with etraveli, Verivox and PARSHIP ELITE Group in the second half of 2015. This has accelerated our profitable revenue growth once again. As a result, we increased our medium-term revenue targets again in October 2016. In 2016, the digital commerce portfolio was the Group’s most significant revenue driver.
Promoting entrepreneurship: Raising brand awareness quickly is a decisive competitive factor, especially for young companies in an early stage of development. We therefore use our wide reach to enhance our portfolio with commerce platforms and business models. We tap into new market segments in line with the “reach meets ideas” principle. It is important to gain access to promising companies at an early stage and further expand our network with company founders and investors.
The Group has been running its own investment program for three years, ProSiebenSat.1 Accelerator, which is aimed at consumer start-ups in the growth phase that address a broad public. Since 2013, around 40 start-ups have been through the Accelerator program, and ProSiebenSat.1 participates in these companies via a variable investment. In parallel, the Group also supports entrepreneurial thinking within the Group and encourages employees to push ahead with new projects. Every employee of our Company contributes to enhancing ProSiebenSat.1’s strengths with their knowledge and ideas.
Content Production & Global Sales segment
The Red Arrow Entertainment Group complements our value-adding processes. This company develops, produces and sells programs. Red Arrow is a global company, but it focuses on the US.
Expansion of the production market: In the US, the TV market has also grown as a result of digitalization. Households in the US currently receive over 200 channels, including a wide range of stations with a focus on particular interests. This has significantly increased the number of program buyers. At the same time, the ranks of the clients have been risen by the operators of multinational streaming platforms. Against this backdrop, the ProSiebenSat.1 subsidiary is increasingly directing its strategic focus onto the US market — including with regard to acquisitions. In addition, the Group is increasingly digitalizing its portfolio and making use of interaction within the Group. In this context, Red Arrow founded Ripple Entertainment in the US. As a result, the Group has laid an important foundation in order to expand the program supply of digital platforms with attractive content.