Characteristics of TV Markets in General and in Germany
General Characteristics
TV products and services have specific characteristics, many but not all of which are applicable to Internet-based TV. They possess some attributes of public goods as consumer rivalry is absent (e.g., Baumol & Baumol, 1984; Musgrave & Musgrave, 1989). Disregarding costs for content rights, marginal costs for additional distribution of traditional broadcast TV tend to be almost zero (Spence & Owen, 1978). TV programs are experience goods as defined by Nelson (1970). TV products, both traditional and Internet-based, are confronted with the information paradox (Akerlof, 1970), which describes the fact that consumers have to experience a good in order to value it. However, after they have experienced the good, they hardly have any incentive to demand the product (Shackle, 1952). Due to this information paradox, in this case better termed 'entertainment paradox' (Dietl & Franck, 2000), providers do not have an incentive to let customers inspect, i.e., experience, the goods before acquiring them. This leads to customer uncertainty and therefore to the fact that customers will be willing to pay the same price for 'good' programs as for 'bad' ones (see also Baumol & Bowen, 1977; Rothenberg, 1962). Ex-ante, they do not know which programs are 'good' and which are 'bad'. If 'good' programs are not able to overcome this uncertainty, they risk being driven out of the market.
TV programs, particularly news and information programs, can be seen as 'merit goods' or 'merit wants' as defined by Musgrave (1998). They are provided at an imposed rather than at an individually determined consumption level, as their variety and information relevance are socially and politically desirable.
TV stations usually act in two different markets: (1) the market for audience and (2) the market for advertising. This is the so-called 'dual-market phenomenon' (see among others Picard, 1989). Both markets can be analyzed along the dimensions of customer functions, customer groups, and alternative technologies (Abell, 1980). For an application of these functions to TV markets, see Habann (1999).
The dimension customer function can vary. If TV providers offer pay TV, their function is to deliver content (information, entertainment) to directly paying recipients. If they provide commercial-free TV, their function is to attract attention to commercials, as their main customers are advertisers to whom they sell the attention of their recipients (Blumenthal & Geedenough, 1998; Picard, 1989).
The same customer groups—advertisers and audience—which are served by traditional broadcasting, could also be served by Internet-based TV. Technically, the potential reach of Internet-based TV—limited only by the access constraints of the Web—is broader than the reach of traditional TV stations, which operate primarily on a national basis. Practically, however, TV programs are produced in a given language and cater to national culture(s), information needs, and taste (see also Roscoe, 1999). Whether they are distributed via broadcast or the Internet is irrelevant. One might then argue that the potential viewers of Internet-based TV and traditional TV stations are the same. This also holds true where sizeable national populations speaking a minority language exist (e.g., approximately one million Turkish speakers in Germany). If they are already served by TV channels, they represent a sufficiently large group to be an attractive market for Internet-based TV entrants and their advertisers. Additionally, niche program opportunities, not economically viable using the means of traditional TV, could be supported by Internet-based TV when combining the benefits of decreased 'sunk costs' and low content costs.
If the potential public is scattered in foreign countries, Internet-based TV may also have additional potential when cost-efficient solutions for clearing rights are available. However, considering content rights, cost efficiency is only possible for Internet-original content (Waterman, 2001) or station-made content (see public broadcasters streaming their own news and documentaries).
Specific Characteristics of the German TV Market
Germany is the largest television market in Europe comprising 36.5 million TV households (IDATE, 2000; Zeiler, 2002). It is characterized by a strong public broadcasting sector, dominated by the public stations ARD (with 11 regional stations) and ZDF. Both ARD and ZDF also collaborate in co-financing and programming ARTE, the French-German cultural channel; Phoenix, specialized in parliamentary coverage and information; and 3SAT, a German-language channel in collaboration with the Austrian ORF. Until April 2002, when the Kirch-Group claimed insolvency, two major private players existed: The Kirch-Group, and the RTL-Group dominated by CLT-UFA with Bertelsmann holding an 89% share. Stations operated by the Kirch-Group include SAT.1, Pro7, and Kabel 1, which, even following the insolvency, combine to provide a full spectrum of traditional program genres, and DSF, a sports channel. The RTL-Group operates four stations: RTL, reaping Germany's highest ratings in 2001/2002; RTL II; VOX; and Super RTL, the latter being a pure entertainment channel (see Table 1).
| Station/Program | Audience/Station (in %) | Audience/Group (in %) | Advertising/Station (in %) | Advertising/Group (in %) |
|---|---|---|---|---|
| SAT.1 | 10.20 | 20.87 | ||
| Pro7 | 8.10 | 18.75 | ||
| Kabel 1 | 5.10 | 4.82 | ||
| DSF | 1.10 | 0.03 | ||
| Kirch Group | 24.50 | 44.47 | ||
| RTL | 14.80 | 28.60 | ||
| RTL II | 4.00 | 6.24 | ||
| Super RTL | 2.80 | 1.97 | ||
| VOX | 3.10 | 4.03 | ||
| RTL Group | 24.70 | 40.84 | ||
| ARD | 26.80 | 4.09 | ||
| ZDF | 13.10 | 3.80 | ||
| Publ. Broadcasting | 39.90 | 7.89 | ||
| Other (18 Prog.). | n.a | 10.90 | n.a. | 6.80 |
| Sum | 100.00 | 100.00 |
About 84% of all German TV households can receive more than 30 free-to-air programs (e.g., Zeiler, 2002). Depending on their region, viewers may also receive KIKA with children's programming, Eurosports, VIVA and M-TV specializing in music, N-TV with primarily news, and a variety of free-to-air programs from neighboring countries. No other country in the world offers as many national free TV programs (Johns, 1998). However, several entries into the German TV market failed recently. A rather prominent example with little success is the small station, TM3, in which Robert Murdoch was involved. For the first two years, this station targeted female audiences. With funds invested by Rupert Murdoch, TM3 then repositioned itself by acquiring the exclusive German rights to the soccer Champions League in 1998/1999. In 2000, TM3 sold the Champions League rights to RTL and became—again—a niche player. In late 2001, it repositioned itself once again, re-entering the market as the specialty TV station, Neun Live.
Despite news reports announcing declining advertising revenues in 2001–2002 and the insolvency claim registered by the Kirch Group in April 2002, investment offers from Murdoch and Berlusconi, and subsequently by the Saban Capital Group, hint at a persisting market attractiveness.
In the next three sections, we analyze the German TV market using the three criteria—market attractiveness, legal and technical constraints, and revenue sources— described in our sequential framework.
EAN: 2147483647
Pages: 198