Archive notice: This article was originally published on March 3, 2008. Links and embedded videos are preserved as part of the historical record.
1) Advertising revenue eases the burden on licence-fee payers
a. Giving up advertising and sponsorship would require the fee to rise by 1.42 euros
According to calculations by the KEF (15th KEF Report. Vol. 2, p. 17), giving up advertising and sponsorship would require a compensatory licence-fee increase of 1.42 euros. During the last fee adjustment, the minister-presidents and state parliaments reduced the KEF recommendation by 0.21 euros (plus a postponement of three months), citing the need to keep the fee level socially acceptable. It is therefore not to be expected that, in addition to the fee adjustment of 0.95 euros already recommended by the KEF, they will now make a further increase of 1.42 euros to compensate for the loss of advertising and sponsorship revenue.
The states face a strategic decision as to whether their primary aim is the lowest possible broadcasting licence fee or whether they want public-service broadcasting funded purely by licence fees.
b. Advertising revenue helps keep the fee level socially acceptable
Public-service advertising revenue from the two main television channels and radio amounts to around 500 million euros per year and helps ease the burden on licence-fee payers and maintain a broadcasting fee level that is acceptable to society as a whole. Licence-fee payers already have to compensate for revenue shortfalls of around 700 million euros per year resulting from the statutory provisions exempting low-income households from the fee, rather than the state doing so, as is usual with other social benefits.
Based on current knowledge, this situation will become even more acute in future because the number of households paying the fee will continue to decline beyond the coming fee period. A 2007 report by the Institute for Broadcasting Economics forecasts a decline in fee-paying households of around 6 percent for television and around 4.5 percent for radio between 2013 and 2020, which will bring further annual fee revenue losses in the hundreds of millions.
In addition, according to current estimates, a change in the fee collection model towards a household levy threatens a possible loss of fee revenue of 150-200 million euros per year.
2) Public-service providers ensure a minimum of competition in the television advertising market
The German television advertising market is dominated by a largely “uncompetitive duopoly” (a quote from the Federal Cartel Office) of the two major private broadcasting groups, which already divide almost 90 percent of the market between them. During the merger proceedings involving Springer AG and ProSiebenSat.1 Media AG, the Federal Cartel Office therefore expressly welcomed ARD and ZDF’s limited television advertising offering as promoting competition. In June last year, the Federal Cartel Office searched the marketing companies of the two major broadcasting groups on suspicion of illegal agreements and obstruction of competition. As part of the investigations, in the autumn the Cartel Office imposed a whole series of conditions on RTL and ProSiebenSat.1 for allocating their advertising slots, as well as fines totalling 216 million euros.
3) The advertising industry supports retaining advertising opportunities on ARD and ZDF
The advertising industry advocates retaining advertising on the public-service broadcasters. On the one hand, this is to avoid being entirely at the mercy of the two major private broadcasting groups, and on the other, because a whole range of interesting target groups can only be reached through ARD and ZDF’s television programmes.
In a press release on January 29, 2008, Uwe Becker, Chairman of the Organisation of Advertisers within the German Brands Association (OWM), warned: “Complete monopolisation of advertising and sponsorship by private commercial providers leads to distortions of competition and price increases.” Franz-Peter Falke, President of the German Brands Association, said: “A ban on advertising and sponsorship on ARD and ZDF means advertising messages fail to reach important target groups. This is very disadvantageous for many companies and brands.”
4) Advertising revenue strengthens the independence of public-service providers
Advertising, like other sources of commercial revenue, helps strengthen the independence of public-service broadcasting. This was reaffirmed by the Federal Constitutional Court in its eighth broadcasting judgment of February 22, 1994. Without advertising revenue, ARD and ZDF would be even more dependent than before on unpredictable political circumstances and would lose part of their financial and editorial independence and their distance from the state, as well as part of their economic activity.
5) Advertising and sponsorship are indispensable for acquiring TV rights to sporting and cultural events
The ability to offer and market advertising and sponsorship plays an absolutely crucial role in negotiations with sports associations and, increasingly, for cultural events as well. Without it, public-service broadcasting, which cannot in any case take the same risks in bidding as commercial agencies, would no longer be competitive. As a consequence, public-service broadcasting would have to withdraw from broadcasting major sporting events and a number of cultural events.
6) Private broadcasting groups do not depend on public-service broadcasters’ advertising revenue
a. Contrary to other claims, the television advertising market is not declining
It is not true, although still often heard, that the television advertising market continues to decline. A marked upturn was already recorded in 2006. This trend continued in 2007: according to research by Kress-Report based on figures from Nielsen Media Research, gross advertising revenue on German television exceeded 8.7 billion euros in 2007, an increase of 5.3 percent on the previous year.
b. Private providers are increasingly opening up new sources of revenue
It should also be noted that both private free-TV providers and private pay-TV providers are increasingly relying on a combination of pay TV and advertising. Examples include the digital pay-TV channels of the RTL and ProSiebenSat.1 broadcasting groups, the (activation) fee for digital cable reception of commercial channels (in the satellite sector, a monthly fee is being sought through SES Astra’s Entavio model), the wide range of activities in transaction television (premium-rate telephone services, competitions, betting, teleshopping etc.) and paid on-demand offerings of feature films, series and sports broadcasts. On the other hand, pay-TV provider Premiere has continuously expanded its advertising during half-time breaks in sports broadcasts. Added to this are new forms of vertical integration between platform operators and content providers.
c. Private providers are doing extremely well economically
Given their strong economic position, with target EBIT margins of up to 30percent, the private broadcasting groups do not depend on the advertising revenue of public-service broadcasters. In any case, it cannot be assumed that ARD and ZDF’s advertising revenue would automatically transfer, as it were, one-to-one to private television providers (and radio programmes), since different audiences are addressed and the advertising industry would probably switch in part to other media.
