Aging 'Idol,' 'X Factor' Formats Prop Up RTL Results (Analysis)

Chris Watson American Idol - H 2013

Chris Watson American Idol - H 2013

With the European TV giant relying on older shows, some observers predict slowing growth despite management's confidence in their continued strength.

Like a winning sports team full of veteran stars, Europe's No. 1 TV company, RTL Group, is heavily dependent on an aging stable of big entertainment shows – including X Factor, American Idol and Got Talent – to drive its broadcasting, production and new-media businesses.

RTL produces these shows and other pan-European hits, such as agricultural-romance reality series Farmer Wants a Wife, via its FremantleMedia production arm. These format juggernauts drive revenue at Fremantle, but they are also the ratings flagships -- and therefore advertising drivers -- for many of RTL's European channels and the prime traffic magnets for RTL's VOD and online operations. The problem: they are all fairly old.

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Got Talent, the youngest of Fremantle's global hit formats, launched in 2006. X Factor is nine years old. Idol and Farmer Wants a Wife are both 12 years old.

During a conference call Monday announcing RTL's 2012 year-end results, co-CEO Guillaume de Posch insisted that Fremantle's “core franchises remain strong,” highlighting the continued ratings-drawing power of these golden oldies. American Idol has been the top-rated show in the U.S. for the past nine years. Britain's Got Talent was the highest-rated entertainment show in the U.K. last year, with an average total audience share of 40.8 percent. And Farmer Wants a Wife remains a ratings winner in Germany, France and the Netherlands.

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Both X Factor and Got Talent actually continue to launch in new territories: Got Talent added a further seven territories last year and is now on air in 52 regions worldwide, while X Factor added another six territories to bring its global tally to 35.

But RTL's formats already occupy the prime real estate – the big international territories – and with few exceptions, they are past their peak ratings-wise. The season finale of American Idol last year was the lowest-rated in the franchise's history and down some 32 percent from 2011. In the U.K., Simon Cowell's X Factor had a well-publicized fall from grace, averaging fewer than 10 million viewers per episode for its ninth season, the lowest level since 2007.

Some analysts forecast growth at Fremantle's content business to slow from 20 percent last year to low- to mid-single-digit percentage gains in 2013.

"Aging formats are a concern," although revenues from individual shows are relatively small and still seem to have a few years left in them, said one observer. “But although small, if they all begin to fade, this will be a big concern.”

De Posch also stressed that Fremantle continues to invest in development and that new formats are in the pipeline. The group has also inked a number of production deals, which should increase the ratio of new shows, including a five-year co-development and co-production deal for children's programming with the BBC and a first-look deal with Random House Television. The latter will see the TV division of the publishing giant develop scripted TV content for both domestic and international markets based on fiction and nonfiction books published by the shingle's North American and foreign imprints.

Julien Roch, analyst at Barclays Capital, also downplayed the significance of RTL's reliance on older shows, while highlighting that the entertainment business is always hit-or-miss. "People had the same concerns with Endemol (makers of Big Brother) when it went public, and they (then) came up with Deal or No Deal,” Roch told THR.

Potentially more significant than the age of RTL's shows are the downward pressures on profits at Fremantle's content business. While revenues shot up to $2.26 billion (€1.71 billion) last year, operating profit (EBITA) fell slightly to $182 million (€138 million). Broadcasters continue to squeeze license fees, slimming margins at Fremantle and forcing the company to make up the difference elsewhere, namely in digital and ancillary operations.

That shift was one reason for Fremantle's structural overhaul earlier this year that got rid of the company's international licensing arm FremantleMedia Enterprises and replaced it with two new stand-alone divisions: one focused on global distribution and the other on kids and family entertainment. Key to the restructuring was a shift that will see FremantleMedia's regional production operations take control of all ancillary businesses connected to their local versions of Fremantle shows -- including digital, licensing and sponsorship deals, the areas the company hopes to see strong growth from in the future.

But as with its old media operations in free TV, Fremantle's aging flagship shows also drive this ancillary business. Formats such as X Factor and Got Talent account for the bulk of traffic behind RTL Group's impressive VOD figures – 2.4 billion video views across all operations in 2012 – as well as the 4.5 billion hits for FremantleMedia's YouTube channels last year.

As RTL and Fremantle work on creating the next big hits, they continue to rely on their old stars to deliver a few more winning seasons.