Defying Orbán

Bertelsmann Vows to Fight Hungary’s TV Tax

Orban won't be watching RTL Klub tonight. Source: AP
Orban won't be watching RTL Klub tonight.
  • Why it matters

    Why it matters

    The company says Hungary’s tax is aimed at squelching press freedom by devouring profits at its RTL Klub TV station, but it’s only one of many trouble spots on Bertelsmann’s balance sheet.

  • Facts

    Facts

    • Under the controversial new ad tax, RTL must pay about 40 percent of its profits to the Hungarian treasury.
    • Bertelsmann has also been hurt in France, where it makes €1.2 billion of its €7.8 billion in total revenues.
    • In the first half of 2014, Europe’s largest media group had to make write-offs of €88 million, or about $116 million.
  • Audio

    Audio

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The last bastion of media freedom in Hungary is a drab, no-frills building in the south of Budapest. TV station RTL Klub operates out of the space, hemmed in by a shopping center and a highway. The atmosphere at the broadcaster – up to now a revenue gem for German media giant Bertelsmann  – is grim, but combative.

“The government sees us as a risk and danger,” said a station manager, in a dig at the rigid media politics of Hungary’s right-wing populist prime minister, Viktor Orbán. “We are not going to allow ourselves to be brought to our knees.”

RTL is the last TV station in the European Union country that still defies pressure from the government. To bring the highly profitable station to its knees, Hungary’s parliament issued a special advertising tax aimed squarely at RTL.

The tax requires RTL to pay about 40 percent of its profits to the Hungarian treasury – more than any other company in the central European country. It made the first advance payment of €3.4 million a few days ago. The next installment is due at the end of November. Mr. Orbán’s government defends the tax as a fee for economic recovery in the heavily indebted country.

In its fight for journalistic freedom in Hungary, RTL Klub is receiving support from Bertelsmann subsidiary, the RTL Group. “We will defend ourselves with all legal means,” said Thomas Rabe, Bertelsmann CEO, in allusion to Hungary’s special tax. “In our view, it is not compatible with the basic values of a free Europe.”

Mr. Rabe has a bad standing with the Mohns. Because if you factor out the increase in sales through the merger with Penguin, Bertelsmann would post a decline in revenue.

Already in the first half of 2014, Europe’s largest media group had to make write-offs of €88 million, or about $116 million. That is more than half the value of its Hungarian subsidiary. Mr. Rabe said his company would defend itself against unfair treatment before the European Court of Justice, as well as the E.U. Commission.

Meanwhile, uncertainty in the German business community is growing over the ability to do business in Hungary. Deutsche Telekom only recently gave up on an online portal that was a real thorn in the side of the Budapest government.

But repressive Hungary is by no means the only problem for Bertelsmann, based in Gütersloh in Germany’s North Rhine-Westphalia. The media group has been hurt by the ongoing economic crisis in France, where it makes about €1.2 billion of its €7.8 billion in total revenues. Bertelsmann revenues declined about €33 million in the first half of the year.

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The TV production subsidiary, Fremantle Media, is also causing problems. Once-popular shows like “Pop Idol” and “X-Factor” have fizzled out.

And finally, its publishing problem child Gruner+Jahr continues to be trouble. Julia Jaekel, head of the Hamburg-based firm, could spend €500 million over five years to finally negotiate the long and arduous road to digital transformation. In the first half of 2014, sales declined from a €1 billion to €908 million. An austerity program to cut 400 jobs might have hurt the balance sheet because of provisions due. Bertelsmann boss, Mr. Rabe, believes Gruner+Jahr will still make a net profit, however.

Given so many difficulties, it’s understandable that despite a 6.7 percent sales increase, the media group’s €1.015 billion in before-tax earnings barely changed – and its net profit dropped from €419 million to €254 million. That comes in part because of acquisitions and mergers in the company’s book division through consolidation of Random House with Penguin.

None of it has helped the CEO’s position.

“Mr. Rabe has a bad standing with the Mohns,” said one insider, referring to the Mohn family that controls the media group. “Because if you factor out the increase in sales through the merger with Penguin, Bertelsmann would post a decline in revenue.”

Against this backdrop, Mr. Rabe’s outlook for the whole year is a modest one.  Sales should increase and before-tax earnings should be stable. But the combined result will be below 2013.

This article was translated by Anna Park Kim. Greg Ring also contributed to the story To contact the authors: renner2@handelsblatt.com and siebenhaar@handelsblatt.com

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