ProSieben trims down to bulk up
Will cut costs at home to grow in E. Europe, new mediaGerman-based TV group ProSiebenSat.1 outlined its strategy Tuesday as a newly minted pan-European powerhouse, less than a month after its $4.4 billion deal to buy SBS Broadcasting.
Put simply, CEO Guillaume de Posch plans to cut costs at home in order to focus on expansion in Eastern Europe and in new-media businesses.
"We have reached the natural limits of our expansion potential in Germany," de Posch said, citing ProSiebenSat.1's 29.4% market share of German viewers ages 14-49. "We can't expand through the acquisition of new channels (in Germany)," he added. "We need to break free of the cyclical nature of the German advertising market … by taking advantage of the growth markets of Eastern Europe and diversifying."
De Posch confirmed that long-suffering Berlin-based channel Sat.1 will bear the brunt of the cuts in Germany. Once the group's flagship, ratings at Sat.1 slumped last year, and the channel's profitability lags behind its Munich-based stablemate Pro7.
On recommendations from consulting group McKinsey & Co., ProSiebenSat.1 has drastically cut Sat.1's news operations, canceling three of Sat.1's four daily news programs. Sat.1 will cut about a quarter of its work force, about 60 jobs.
Matthias Alberti, who took over at Sat.1 in January, is charged with the channel's restructuring. He will undo much of what former Sat.1 boss Roger Schawinski built up in his three-year run at the network.
In total, ProSiebenSat.1 is expected to cut about 180 jobs, or 6% of its work force.
The media group's new owners — private-equity companies KKR and Permira — are pushing for higher profit margins. De Posch is targeting operating profit margins of 25%-30% in the coming years, compared with the current 22%.
"Pressure from the private-equity side will increase to squeeze as much profit as possible out of ProSiebenSat.1," said one senior analyst at Germany's DZ Bank, commenting on de Posch's strategy. "But that is risky because cost savings will mean investment into online, and other new business fields will slow down. I'm sure there will be no major investments in Germany in the near future."
Instead, de Posch has set his sites on the rapidly expanding East.
Through SBS, ProSieben already has footholds in two Eastern European territories: commercial channel TV2 in Hungary and Prima TV and Kiss TV in Romania.
De Posch is keeping mum about expansion plans, but Poland and Russia, which have seen rapid progress in digital and Internet platforms, could be on his to-do list.
In Poland, with little analog left, the market is buzzing in digital, cable, satellite and VOD services.
Tim Horan, executive vp for ITI Group — a company whose interests include television channels TVN, TVN7 and TVN 24, cinema and the Internet — said that the Polish market is one of the most advanced in Europe.
He cites the groundbreaking success of ITI Group's satellite subscription platform, N, which has grabbed between 100,000-150,000 subscribers since its October launch.
"In Poland, there are 12 million-13 million television households. Some 80% of cable provision is already digital. There is very little analog cable left," Horan said. "Some 3 million out of the 12 million or so households are already digital."
De Posch has expressed interest in rolling out ProSiebenSat.1's VOD service, Maxdome, across the SBS footprint in Benelux, Scandinavia and Central and Eastern Europe. The service, a joint venture with United Internet in Germany, could easily be adapted to Eastern markets.
Russia might prove a harder territory to crack. There is little opportunity for a non-Russian company to buy up a nationally available TV station or frequency. One possibility would be to follow the tack of competitor RTL Group, which holds 30% of Moscow-based REN-TV, and acquire a strategic stake in an established channel.
De Posch made it clear that ProSiebenSat.1 will continue to invest in German production, particularly reality and show formats that can be easily adapted and rolled out across multiple territories.
These include such shows as "The Biggest Loser," which Pro7 is adapting for the German market with former Olympic skating star Katarina Witt as host, and the Uri Geller mentalist show "The Successor," which ProSiebenSat.1 recently sold to NBC, where it will be adapted for the U.S. market as "Phenomenon."
De Posch said that, while ProSiebenSat.1 will centralize its acquisitions and advertising sales together with SBS, individual territories will "remain largely independent in their management decisions."
In his address to company shareholders Tuesday, de Posch deflected criticism that job- and cost-cutting were simply part of KKR and Permira's exit strategy — to boost profit figures before selling the company.
Instead, de Posch struck an almost patriotic note, arguing that the strategy was necessary to create a strong, and truly European, television group.
"If we as Europeans don't manage to create a strong pan-European media company, others will do it for us," he said.
Dieter Brockmeyer in Frankfurt, Germany, and Nick Holdsworth in Moscow contributed to this report.