By moving slowly, the German media market stays ahead
BY THE summer of 2005 the future of music seemed to be digital. Apple was selling iPods by the boatload, and the iTunes store was doing brisk business. But in Germany, a different path was being laid. Universal began to tinker with CD packaging, offering lots of “deluxe” editions of albums while putting others into cheap cardboard sleeves to appeal to bargain-hunters. “We did not forget about the physical market,” says Frank Briegmann, head of Universal’s German operation. Neither did German consumers.
Despite iTunes, piracy and a shrinking population, CD sales have fallen much more gently in Germany than elsewhere (see chart). Germany used to compete with France for the title of Europe’s second-biggest music market, well behind Britain. It is now Europe’s biggest market. The country has exported pop acts like Tokio Hotel (pictured) across Europe. Unheilig, a band that sings in German, popped up on last year’s global top 40 albums chart, beating the likes of Gorillaz and Robbie Williams.
As customers shun Anglo-Saxon media stores such as Waterstone’s and Borders, they keep coming to Germany’s Media Markt and Thalia. German home-video sales have been virtually flat for six years, according to Screen Digest. In America, by contrast, sales are down by 29%. Sales of German magazines and newspapers are declining, but in a more orderly fashion than in Britain or America, and from a higher starting-point. As a result, they remain attractive to advertisers.
Why the attachment to tangible stuff? “There’s a collecting mentality,” suggests Keith Feldman, the head of international home entertainment at 20th Century Fox. Although Germans do not consume film or music as avidly as Britons or Americans, they are far more committed to buying it. Blockbuster, a video-rental store, failed in Germany, and digital streaming has not caught on. Fox has even begun to put videos on sale weeks before it releases them for rental-something that would be unthinkable almost anywhere else, and impossible in America, where there are laws to prevent it.
Law and institutional conservatism play a part, too. Efforts to introduce free music-streaming services to Germany have been held up by the country’s performing-rights society. Fixed-price rules prevent Amazon and other digital distributors from undercutting bookstores. Publishers are allowed to lock people into long-term subscriptions. And Germany’s legal system has allowed media firms to demand mass prosecutions of file-sharers, which seems to have deterred piracy.
Germans also have money to spend on newspapers, books, CDs and DVDs because they aren’t spending it on television. Public broadcasters levy a compulsory fee, but relatively few people pay cable or satellite broadcasters for extra channels. In Britain, BSkyB is a pay-TV powerhouse, with 10.1m customers and profits of £174m ($279m) in the most recent quarter. Sky Deutschland (like BSkyB, controlled by News Corporation) has 2.7m customers and quarterly losses of €86.9m ($118.9m). Meanwhile the free-to-air broadcaster RTL is making a fortune.
Oddly, though, German media executives are as anxious as their counterparts elsewhere. Newspaper publishers fear the growth of internet advertising. Music executives worry about rising piracy and lament the lack of streaming services like Spotify. The consensus is that Germany is bound to follow America and other countries. It will be disrupted by technology. It just isn’t as far along the path.
It is likely, too, that pay-television will continue to grow. Extremely late, German consumers are being introduced to digital video recorders, high-definition pictures and video-on-demand-areas in which pay-TV companies have a big advantage. Few expect them to pay much for such fripperies, at least at first. Lutz Schüler, head of Unitymedia, a cable company, says Germans still regard things like cars, holidays and saving as more essential than entertainment. But pay they will. The rise of pay-TV, like the rise of the internet, is bound to disrupt older media businesses.
Yet it is a lot easier to cope with slow, inexorable change than the abrupt kind, especially if you get to watch other countries change first. With time on their hands, many German firms are positioning themselves to endure or even profit from disruption. Axel Springer, publisher of Bild, is reinvesting German newspaper profits in online classified-ad services. Hubert Burda Media, a family firm, has done similarly. Several are pushing into fast-growing Polish and Turkish media markets.
German moguls may be anxious. But that is because they know more-or-less what is coming. They can plan for disruption, whereas American and British outfits must often simply react. Firms everywhere like to tout their digital innovations, and boast of having “first-mover advantage”. But it can be better to go last.
source : http://www.economist.com/node/18929054?story_id=18929054
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