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14 Apr 2008, Posted by Eric Karstens in Media Policy,Television, 0 Comments

Barking up the wrong tree: Quality in commercial television


German politician Franz Müntefering, former head of the Social Democratic Party, a few years ago coined the expression that hedge funds and private equity investors behave like swarms of locusts – buying good companies, squeezing them for all they are worth, and subsequently leaving them for bankruptcy or in a zombie-like existence, a mere shadow of their former stature. As catchy as metaphors can be, Müntefering’s dictum has since then become the leitmotif of a sometimes hysterical debate concerning virtually any kind of foreign or financial investor in Germany – irrespective of how these investors actually behave.

More than anything else, this reflects the fact that Germans feel increasingly uneasy about the effects of globalisation on their economy. The prosperous post-war Germany managed to establish what was fondly called Deutschland AG (“Germany, Inc.”), a situation in which all major corporations were basically owned by each other and where non-domestic owners had little, if any, influence. This model considered corporate governance and public governance to be one and the same. It effectively kept competition under control. It also managed to spread wealth not only to shareholders and managers, but to the general population. It was one of the main reasons why social differences in Western Germany had been very much smoothed over by the 1970s.

However, since the late 1990s, this has changed very much. The notion of shareholder value and increasing global competition led the German corporations to adapt new strategies of streamlining, of outsourcing production to low-wage countries, and of buying into foreign businesses. In turn, international investors acquired stakes in German companies, thus speeding up the process of change even more.

This is why Müntefering’s locust metaphor became so popular: It is a key phrase describing the loss of the cosy, protected feeling that post-war, pre-unification Western Germany provided to its citizens and workforce – very much like Switzerland still does for the Swiss.

Media adhered to the same basic idea. Their ambition (which was, however, not always achieved) was to serve the country as much as their owner’s profit interest. Large newspaper and magazine publishers such as Der Spiegel or Axel Springer tried to proselytise their clientele for their respective ideas of a better Germany. For the same reason, public service broadcasting is traditionally huge and still thriving: It stands for civic self-assurance but offers further development, education, and refinement at the same time.

Late in 2007, the German state media authorities commissioned a study on the influence of financial investors on the media. The 2006 takeover of one of two major private television groups, ProSiebenSAT.1 Media AG, by investment companies KKR and Permira prompted this initiative. Financial concerns over some cable providers played an additional role. At a March, 2008, conference in Berlin, experts discussed the issue and presented initial results of the study, which is due by the end of April.

In my articles of 19 March and 3 April, I discussed why private equity funds are special for investors, in addition to a discussion of what prompts them to look at the German media market with interest. In this concluding article, I try and shed some light on the general background of the discussion.

When private, commercial television was finally introduced in the mid-80s, everybody expected it to contribute to the same set of rules and ideals as the rest of the economy. People thought private TV might be perhaps a little more entertaining and business-friendly than its public counterpart, but they expected it to be a pillar of the political public sphere nonetheless.

Then came the first shock. Commercial television turned out to be the precursor of things to come about a decade later. It showed sex, violence, and bad entertainment. It engaged in general silliness. It tried to make money with as little effort as possible. What it did not do was to inform, educate, or appeal to the finer sentiments of its audience. Yet, since it is ideally supposed to fulfil a public remit, there is a substantial system of public supervision in place – the state media authorities. These were not too powerful to begin with and have been losing influence ever since. It is like mandating that fairground attractions put educational values into the foreground, while they are actually only about cheap thrills.

However, during the first 15 years of its existence, private TV seemed to hold a promise. It was financially booming. Thus, the huge amounts of money flowing into it generated step-by-step more expensive and thus better-looking programmes. Observers got the impression that commercial television was going to mature into a medium of real public value. But then came the second shock.

The recession that had started even before 9/11 but was massively amplified by this catastrophic event hit the commercial media full force. German television has not really managed to recover since. About a fifth of the sector’s total advertising revenues, around €1 billion annually, simply went away and have not yet come back. At the same time, competition between TV stations increased. Second-tier channels grew, ever more new channels entered the market. DVDs and the Internet made high-quality audiovisual product available independent of pre-determined schedules. And this means that if private TV companies want to go back to their pre-2001 profit margin or even increase it, they have only one choice: Operate at lower costs. Fire staff, produce cheaper programmes.

The market no longer rewards the extra effort put into shows. In the early days, you could make programmes more elaborate and more expensive, and you would have a good chance to make proportionately more money off of them. Now, this effort is futile. A cheap docu-soap attracts the same audience and the same amount of advertising as a high-priced, domestically-produced fiction series.

Therefore, the perceived – and most probably actual – quality loss in private television in Germany has structural reasons. Hedge funds and private equity investors are not to blame. Rather, the sorry state of the business sector itself, combined with a few shortcomings of pertinent regulation systems, has presented foreign financial investors the opportunity to enter the market. Media companies that are not controlled by private equity do not, in fact, systematically behave any differently than those which are.

While, for sure, the business model of hedge funds has inherent risks for economy and society as a whole, this is not a matter for media regulators. It is one for general economic policy. Content-wise, financial investors are not really the problem. Instead, it is time to realise that the fundamental change in German business has not stopped at the commercial media. It seems a bit naïve to expect commercial media to perform a public service, to feel compelled to do so by a common understanding. We should come up with a substantial new governance model – or we better leave them alone.