Opportunity management
Growth opportunities are identified as part of the Group’s opportunity management and are specified in the planning process. Over the next around five years, ProSiebenSat.1 Group intends to increase revenues to EUR 6 billion (2018: EUR 4,009 million) and adjusted EBITDA to EUR 1.5 billion (2018: EUR 1,013 million). 50% of revenues are to come from the digital business (2018: 29%). Further portfolio measures and in particular larger bolt-on acquisitions offer additional potential.
Our opportunity management is part of the intragroup management system. The objective is to identify and seize opportunities as soon as possible using suitable measures. At ProSiebenSat.1 Group, the management of opportunities is decentrally organized in the business units and is supported and coordinated by the “Group Strategy & Business Development” department. The department is in close contact with the individual operational units. This allows the department to gain detailed insight into the business situation. In addition, market and competition analyses and sharing experiences with external experts are important sources to identify growth opportunities for ProSiebenSat.1 Group. Defined opportunities are reported in the strategy plan. Relevant growth opportunities are prioritized, specific objectives are derived, and measures and resources for operational target attainment are determined.
101 / Opportunity Management
Explanatory Notes on Key Opportunities
We have incorporated opportunities that we consider to be likely in our forecast for 2019 and in our planning until 2023. In addition, economic performance-related factors such as cost awareness and efficient process management are key requirements for further strengthening ProSiebenSat.1 Group’s market position. We report on these growth opportunities in the Company Outlook. In addition, there is potential that has not yet been or not fully been budgeted for. In particular, this potential may arise from strategic measures. In the section below, we report on these opportunities if they are material and important for the planning period until 2023.
The media industry is in the midst of digital transformation. New competitors and technologies have emerged, altering both revenue models and media usage itself. ProSiebenSat.1 Group is consistently pushing ahead with its transformation from a traditional TV company into a digital group with a diversified business portfolio. The Group is linking its segments and business areas increasingly closely, using digital technologies, and tapping into additional markets with acquisitions or strategic partnerships.
Leveraging synergies by networking business areas: In order to remain competitive going forward and continue growing profitably, ProSiebenSat.1 Group’s portfolio has been organized into three segments since January 2018. Bringing together the linear TV business and digital entertainment was an important step here. At the same time, the Group reinforced its digital production expertise by integrating digital studio Studio71 into the Content Production & Global Sales segment. By dovetailing its investments and producing or bundling successful formats for use on various platforms from one source, the Group increases the efficiency of its investments and creates additional growth opportunities through synergy.
These days, television content is accessed regardless of time and place and watched not only on TV screens but also other devices such as smartphones and tablets. One example of this is the ProSieben format “Germany’s next Topmodel by Heidi Klum”: The show reached an average of around 8.8 million viewers on TV in 2018 (viewers aged 3 and above) and another approximately 1.0 million users via digital platforms such as the station’s website. By disseminating content via as many channels as possible, the Group is serving addition media usage interests and especially the growing popularity of digital media among young target groups. At the same time, cross-media marketing offers allow ProSiebenSat.1 Group to better monetize reach. This development is being driven by broadband Internet access with fast data transfer rates.
Concurrently, commerce and entertainment are stimulated by each other. The Internet has changed not only media usage, but all facets of consumer behavior. It is firmly integrated into our everyday lives, so purchase decisions are increasingly being made online. This applies to consumer goods and services alike. For example, 26% of 14- to 69-year-olds have already bought a product online as a direct result of TV advertising. TV’s stimulation of online searches is particularly significant for brands that have their own online store. ProSiebenSat.1 Group brings strong brands in the entertainment and commerce sector together under one roof, so we benefit doubly from our networking potential here.
Firstly, ProSiebenSat.1 Group offers its customers coordinated campaigns across all platforms, including TV, online, mobile, and social media. Secondly, we can use our e-commerce portals and digital entertainment offerings to build up extensive knowledge of consumers. Advertising will be customizable in a more targeted manner in the future, allowing it to be adapted to context or even personalized. Conversely, the commerce portfolio is benefiting from our strong reach: We are raising the awareness of consumer brands with advertising on TV and digital entertainment platforms. This synergy potential and the clear consumer focus of our commerce and entertainment portfolios give rise to opportunities for ProSiebenSat.1 Group that have not yet been fully budgeted for. The Institute of Retail Research in Cologne put the volume of the e-commerce market in Germany alone at around EUR 63 billion in 2018; ProSiebenSat.1 Group had a share of less than 1% in this market.
Data-based business models and digitization of TV advertising: ProSiebenSat.1 Group is consistently linking its television business to digital entertainment media and expanding its total reach in this way. As the next step, this reach is to be made addressable so that advertising can be tailored to the respective viewers in an optimum manner (smart reach). In the next approximately five years, the Group is aiming for 25% of revenues in the Entertainment segment to come from addressable advertising (2018: 6%). ProSiebenSat.1 Group is looking to new technologies to achieve this. For instance, we were the first TV group in Germany to broadcast addressable TV spots with the hybrid broadcast broadband TV (HbbTV) technological standard. In 2018, around 394 addressable TV campaigns were booked in total, 25 of which were spot campaigns. These advertisements combine the high reach of traditional television with the opportunities provided by digital advertising, including target-group-based advertisements individualized to devices.
Within the limits of what is legally possible, we aspire to increasingly use data on our digital platforms and online TV use in order to target users in a more personalized way. We see high potential here in the field of ad-technology (AdTech), as new marketing techniques help us integrate advertising on an automated basis and with even greater target group focus. For this reason, the Group expanded its AdTech portfolio in January 2018 and acquired Kairion, an e-commerce marketer that aggregates the advertising environments and data of more than 80 online shops. In addition to this high reach for digital advertising offers, the company gets valuable insights into different target groups — for example, with regard to specific purchasing interests: Using real-time targeting, advertising messages can be displayed as soon as the consumer signals an interest in purchasing something. Kairion can also help extend branding campaigns from TV into retail. ProSiebenSat.1 Group is thereby responding to changes in consumer behavior: Different media and channels are being used simultaneously, with the effect that TV, digital entertainment and commerce are increasingly complementing and converging with each other.
Entry into business areas with strong growth and expansion through portfolio enhancements: The successful M&A strategy has sustainably strengthened the Group’s growth. One focus of investment is the dynamically growing commerce sector with NuCom Group. Products and services that add value via the mass medium of TV are particularly relevant for ProSiebenSat.1 Group from a strategic point of view. With TV advertising, the Group can quickly and efficiently increase the revenues of its investments without high cash investments. These are key pillars of our M&A strategy. New investments must meet major customer requirements and also link in particularly well with the existing digital portfolio. This results in revenue and cost synergies. Over the next around five years, ProSiebenSat.1 Group aims to increase commerce revenues to EUR 2 billion (2018: EUR 831 million), driven by the core NuCom brands Verivox, Parship Elite Group, Jochen Schweizer mydays, and Flaconi. Other portfolio measures offer additional opportunities. The same applies to the Content Production & Global Sales segment. In this segment, ProSiebenSat.1 Group will continue to consider strategic partnerships if they boost the growth of the production business. The focus is on Red Arrow Studios’ core markets in the US and UK. At the same time, the Company will make increasing use of synergies from the interconnection of the Entertainment and Content Production & Global Sales segments.
The Group is also expanding its portfolio through partnerships in the Entertainment segment. In 2018, ProSiebenSat.1 Group repositioned its OTT platform 7TV as part of a joint venture with Discovery Communications. It will undergo an extensive relaunch in 2019 with the addition and involvement of further partners. The aim is to establish 7TV as a competitor in the platform market with strong content — and thus to develop it further both as an alternative to global platforms and as a central port of call beyond various isolated industry initiatives. The platform is expected to draw around 10 million users in the first two years. Around 3.5 million people already use the 7TV app (launched in 2017), maxdome and the Eurosport Player. The entertainment market promises enormous growth potential for ProSiebenSat.1 Group. According to PricewaterhouseCoopers GmbH, the market volume in Germany totaled around EUR 37 billion in 2018 (previous year: EUR 36 billion); of which EUR 30 billion was attributable to the traditional (previous year: EUR 30 billion) and EUR 7 billion to the digital entertainment market (previous year: EUR 6 billion). ProSiebenSat.1 Group achieved a market share of less than 1% here.
102 / Overall Assessment of the Risk and Opportunity Situation — Management View
Our industry is characterized by constant change. This is why we have structured our organization around agility and greater efficiency so that we can actively translate this transformation into growth potential. Today, ProSiebenSat.1 Group is already a broad-based entertainment and commerce company with strong brands, a leading position in the audience and TV advertising markets, innovative marketing offerings, an international production network as well as a profitable commerce portfolio. In the medium term, ProSiebenSat.1 Group intends to increase revenues to EUR 6 billion and adjusted EBITDA to EUR 1.5 billion.
The digital development opens up new growth markets for all of our segments. But there are also risks. Social, technological and economic areas have significantly changed as a result of digitalization. This trend will continue and gather pace in the years to come. Therefore, the identification and management of potential opportunities is just as important for our Group as the recognition and controlling of potential risks. We have implemented an effective risk management system that integrates all relevant business units and was systematically enhanced in 2018. This also includes the adjustment of the risk matrix to the three-pillar strategy and the sharper focus on interconnecting the Entertainment, Content Production & Global Sales, and Commerce segments.
We estimate that there are no risks that, individually or in combination with other risks, could have a material or lasting adverse effect on the earnings, financial position and performance. The identified risks pose no threat to the Company as a going concern, even looking into the future. Against this backdrop, the Executive Board still considers the overall risk situation to be limited as of the date this report was prepared, although the overall risk has increased compared to the previous year. The opportunity situation has not changed. Acquisitions are part of our strategy, with which we are promoting our transformation from a TV to a digital corporation.
It describes earnings before interest, taxes, depreciation and amortization, adjusted for certain influencing factors (reconciling items).