Digital Future

As TV Viewership Slows in Europe, RTL Switches to U.S. Web Ads

  • Why it matters

    Why it matters

    The Luxembourg-based group is shifting from expansion of its broadcasting franchise to new countries in order to focus on new markets emerging on the Internet.

  • Facts

    Facts

    • RTL paid a hefty €104 million for SpotXChange, a purveyor of automated sales of online video advertising.
    • Advertising on the Internet has become a business worth over $8 billion a year.
    • German media giant Bertelsmann is majority owner of the group.
  • Audio

    Audio

  • Pdf

A satellite dish of RTL Television is seen on the roof of the former RTL headquarters in Cologne. Source: Reuters
A satellite dish of RTL Television is seen on the roof of the former RTL headquarters in Cologne. Source: Reuters

 

Between a McDonald’s restaurant and a shopping mall in the dreary southern part of Budapest are the offices of the country’s most-watched television channel, RTL Klub. The station, which is majority-owned by Germany’s Bertelsmann as part of its RTL broadcasting group, is among the last media companies in Hungary still fighting for freedom of expression against the populist right-wing government of Prime Minister Viktor Orbán.

Previously, the  station made most of its profits from selling cheap entertainment. Now it’s taking a stand for independent information in the face of political pressure, and in Hungary that can be expensive.

A new advertising tax aimed at RTL Klub will cost the station €15 million ($20.08 million) annually. Those are more taxes than any other media company in the troubled central European country has to pay.

Since Mr. Orbán  took office in 2010, he has targeted media outlets in a crackdown on press freedoms.

RTL, Europe’s largest broadcaster, doesn’t want to abandon Hungary, despite the growing government crackdown on the media. Nor does it intend to pull out of any of its other European markets, where it is  facing other difficulties that are straining its finances.

In pursuit of new revenue streams and new markets, the Luxembourg-based RTL Group recently acquired a majority stake in SpotXchange, a U.S. company that has developed a platform for automated sales of online video advertising.

With SpotXchange, which is based in Denver, Colorado, RTL has an opportunity both to increase sales of digital products and to establish a foothold in the important North American market. Until now, the Bertelsmann subsidiary has been producing only low-margin TV productions.

RTL aims to expand its digital product offerings and may make additional U.S. acquisitions.

With its new digital strategy, RTL is expected to spark interest from investors. Its shares have been trading at about €58 ($77) on the German stock exchange MDAX, but analysts at the French bank BNP Paribas see the price going up to €80. Deutsche Bank expects it to climb to €112 and Liberum as high as €120. And interim dividend is also being rumored.

Analysts such as Laurie Davison from Deutsche Bank and  Lisa Hau at Liberum have recommended buying the stock.

The experts approve of RTL’s move beyond traditional advertising business, even though the restructuring costs money. The company paid  €104 million for for a 65 percent stake in SpotXChange.

According to industry data, video advertising on the Internet has become an $8.1 billion-a-year business. Experts see huge growth potential.

The RTL Group has its sights set on more digital targets, possibly in United States, according to sources close to the company. Insiders expect that the group to expand its involvement in the U.S. online-video network for fashion and cosmetics, StyleHaul.

RTL has suffered some expensive international failures, for instance, in Britain and Greece. Recently, the  company abandoned a smaller venture in India, and then there is the tax situation in Hungary.

New digital markest appears to be the solution for the German company to grow in the future.

Hans-Peter Siebenhaar is a media correspondent for Handelsblatt. He can be reached: at siebenhaar@handelsblatt.com

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