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International Insights:  RTL Group’s Video 2.0 Strategy Pays Off

RTL Group, headquartered in Luxembourg, is one of Europe’s largest media companies. Last week, RTL CEO Bert Habets, presented the company’s results from 2018, emphasizing that their “Total Video 2.0” strategy is enabling them to reduce reliance on downward-shifting TV advertising revenue.

With record revenues of €6.5 billion, the share of overall revenue from TV advertising fell  from 47.5% in 2017 to 45.8% in 2018, while digital’s share of revenues grew from 13.0% to 15.1%.  

What is RTL’s Video 2.0 Strategy?

Unlike U.S. media companies, RTL is not pursuing multi-billion euro acquisitions. Three pillars underlie the company’s Video 2.0 Strategy: 1) STREAMING: leveraging their over-the-air broadcast business to become a leading provider of local streaming services; 2) CONTENT: expanding their content production business and 3) DIGITAL: growing their ad-tech business on a global basis.

  1. Streaming

RTL operates SVOD services in two of their leading territories—TV Now Premium in Germany and Videoland in the Netherlands. At the end of 2018, the two services combined had 1 million paying subscribers, a 77% increase from 2017. This total does not include those viewing these services for free on an ad-supported basis, which the company views as a vehicle for upselling new subscribers. Habets announced that the company would be investing more than €350 million over the next three years to build out these services.

The goal is to secure over 3 million paying subs in Germany and the Netherlands as well as build out the company’s SVOD platforms in other European territories, including France and Eastern Europe.

  1.  Content

Fremantle is one of the world’s leading production and distribution companies. With production operations in over 30 territories, some of Fremantle’s best known IP includes global franchises like Idols (American Idol)  and The X Factor and scripted dramas, such as The Young Pope and Picnic at Hanging Rock.

Going forward, the company is focused on keeping global franchises like Idols on the air and increasing its drama business. Since launching its drama production business in 2013, the company has produced 35 series for premium platforms like HBO, Starz and Netflix and currently has 75 scripted series in the pipeline with 20 in advanced production stages. Habets also hinted that Apple is a potential future buyer.

The company expects to generate over €500 million from international drama production by 2021, up from €300 million in 2018.   They will leverage their success to date in building global drama properties, e.g. The Young Pope and My Brilliant Friend (HBO) and Picnic on the Hanging Rock (Amazon).

At the same time, RTL is seeking to increase the amount of Fremantle programming available on its broadcast and SVOD operations in Europe, thus reducing their reliance on American studio fare. It has also established a working group between Fremantle and its SVOD platforms to develop signature series to propel the growth of their SVOD platforms.

  1. Digital

RTL stands out amongst its European peers for its investments in digital, both programming and ad tech. The company’s digital video group includes multi-platform networks (MPN’s) StyleHaul, UFA X, and Divimove, representing a 15% share of YouTube’s global video views.

On the ad tech side, the company has also become a leading provider of video advertising solutions through SpotX, one of the larger US SSPs (supply side platforms—companies that sell ads for networks and publishers.) RTL acquired SpotX outright in 2017.

The company further expanded its ad tech stack at the end of 2018 by acquiring YoSpace, a UK provider of DAI (dynamic ad insertion, e.g., real time ad insertion)  solutions.

Why It Matters

With TV ad revenues shrinking and audiences becoming more and more fragmented, European broadcasters have been looking to build and develop new revenue streams.

While RTL has done an excellent job of diversifying into digital and expanding its content production business, they are not the only European broadcaster looking at ways to diversify revenue.

The UK’s ITV has seen success in building its ITV Studios into a significant global production company, with revenues of £1.7 billion in 2018, representing 44% of the company’s overall revenues. With their partner BBC, they have also announced their intention to launch their US-based OTT service, BritBox,in the UK, in partnership with the BBC.

Similarly, Germany’s ProSieben has its own entertainment production and distribution company, Red Arrow Studios known for producing Bosch for Amazon and reality formats like Say Yes to the Dress and The Taste. In addition, like RTL, it has invested in an ad tech stack.

ProSieben has also been a global leader in exchanging excess ad inventory for equity in digital companies. As a result, their 2018 commerce revenues of €830 million represented over 18% of total revenues. These commerce revenues are generated through their NuCom subsidiary, which ProSieben controls in partnership with General Atlantic. They own and operate a portfolio of consumer internet brands.  On the SVOD front, it is launching a German SVOD service with Discovery, combining its owned and operated OTT service Maxdome with Discovery’s Eurosport Player.

These moves represent smart revenue diversification away from dependence on the shrinking television advertising market.  Leveraging global production and distribution capabilities enables these companies to become key providers to the ever growing global market for SVOD services, while investment in ad tech allows them to reap the benefits of that booming market as well.