Market Attractiveness of the German TV Market


Two characteristics are considered to analyze the structure of the German TV market for advertising and audience: (1) the market form, e.g., concentration, and (2) contestability, e.g., the impact of low entry barriers. (For the contestability concept, see among others Baumol, 1982; Baumol et al., 1982.)

Concentration in the German TV Market

The Hirschmann-Herfindahl-Index (HHI) is used to measure both audience and advertising market concentration. It serves as an appropriate measure for TV markets (Heinrich, 1999). The HHI is defined as the sum of the squared market shares of all firms in the industry. For example: If there are four firms in an industry with market shares of 40, 30, 20, and 10 (equaling 100%), the HHI is 402 + 302 + 202 + 102 = 1,600 + 900 + 400 + 100 = 3,000. The formula for calculating the HHI can be expressed as:

where Xi represents the market share of each single firm 'i' of n firms in the market.

The range of the HHI, when expressed as an absolute number as in this chapter, is between 0 and 10,000. The HHI is interpreted by the merger guidelines of the U.S. Department of Justice. A market with an HHI below 1,000 is considered as 'slightly concentrated' or 'not concentrated at all'; a market with an HHI between 1,000 and 1,800 as 'somewhat concentrated'; with an HHI between 1,800 and 2,700 as 'highly concentrated'; and a market with an HHI above 2,700 as 'very highly concentrated' (Bates, 1993).

The HHI for the German TV market has been calculated based on the numbers presented in Table 1. Selected HHIs resulting from the calculations are shown in Table 2.

Table 2: Hirschmann-Herfindahl-Index (HHI) for the German TV Market

Audience

Advertising

Single Station / Program

1.339,21

1.718,54

Group

2.921,16

3.753,98

Source: Own calculations; see also Loebbecke & Falkenberg, 2002a

Table 2 reveals the audience market as being 'somewhat concentrated' if single stations are considered (HHI = 1.339,21) or as being 'very highly concentrated' if corporate groups are considered (HHI = 2.921,16). The advertising market is 'highly concentrated' for single stations (HHI = 1.718,54) and 'very highly concentrated' for groups (HHI = 3.753,98).

The assumption underlying the calculation of concentration figures is that high concentrations lead to extraordinary gains. This is supported by the profit margins registered by the two large, private German players which amount to 14.1% for the Kirch-Group and 14.2% for the RTL-Group (Media Perspektiven, 2001). Nevertheless, the importance of the market form is no longer indisputable. One may question whether the correlation between concentration and profits always holds (see among others Daughety, 1990; Farrell & Shapiro, 1990).

Contestability

According to the theory of contestable markets (e.g., Baumol, 1982; Baumol et al., 1982), the attractiveness of a market for potential entrants depends more on the entry conditions than on concentration (see in this context also Wigand, Picot, & Reichwald, 1997). Potential market entrants may be more attracted by the condition of low sunk costs than by high concentration (Young, 2000). Traditionally, broadcasting markets have had strict barriers to entry and little variation in the degree of concentration (Bates, 1993; Heinrich, 1999). Based on the theory of contestability, new technologies like Webcasting could become a threat to traditional broadcasters. Internet-based TV has lower sunk costs and therefore lower market entry barriers than broadcast TV, since it benefits from existing communications networks and requires neither heavy investment in broadcasting infrastructure nor in license fees. This coincides with Barrett's (2000) observations on the Irish media industry where, among other factors, new technologies have played a role in increasing contestability.

Internet-based TV providers can therefore thrive with lower scale economies than those needed by traditional broadcasters. Hence, Internet-based TV providers would be less dependent on a highly concentrated market than traditional broadcasters to recoup their investments (e.g., Demsetz, 1973).

Having analyzed the attractiveness of the German TV market based on the two criteria 'market structure' and 'contestability', it can be stated that market attractiveness is high. Due to the positive answer to question '1' of our sequential framework, we proceed to its second layer, which explores technical and legal issues.




Social and Economic Transformation in the Digital Era
Social and Economic Transformation in the Digital Era
ISBN: 1591402670
EAN: 2147483647
Year: 2003
Pages: 198

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