Technology, Media and Telecommunications

The German media and telecommunications industry is going through a period of unprecedented upheaval. The mobile internet is growing in importance and social networks are catching on across large sections of the population. Companies are having to adapt their business models if they do not want to miss the boat. Werner Ballhaus, Partner and Industry Leader Technology, Media and Telecommunications at PwC, explains where the opportunities are to be found.

In recent years, the Internet has become a mass medium and for a lot of people the most important medium of all. Nevertheless, the users are habitual to getting contents free of charge. Will that change in the future?

Werner Ballhaus: Overall, we are optimistic in this respect. The readiness to pay for digital contents is increasing, especially if users can see an added value in comparison to free sources. This becomes evident in the supply of high-quality information, multimedia applications or a special operating concept. It is not a coincidence that we are seeing a shift away from the previously common “free-of-charge” mentality, particularly among the users of mobile data services. This is due above all to the “app” user culture. In coming years, however, new payment models for media contents will also establish themselves for non-mobile applications.

What trends will dominate the media market in coming years?

We continue to see increasing digitalization and media convergence as the main developments in the media market. The strict separation of different media products and services will start to crumble. Television broadcasters will also offer online applications with text elements whilst newspapers and magazines will also provide their contents online with moving image formats. In this respect, there will be an ever-increasing merger of media. At the same time, we are seeing a convergence of devices. Today, consumers can do everything using modern tablets and smartphones: watch TV, read the paper, listen to the radio, read books and write emails. These possibilities are having a sustained changing effect on media usage and the industry has to react to this upheaval.

Advertising expenditure on the Internet will exceed spending for television and newspaper advertising for the first time in 2011. What should companies do to adjust to this change?

Ballhaus: A lot of business models that were successful in the past will no longer function in the future and in most market sectors it is now recognized that the current changes have to be seen as part of a larger structural change. Many companies are having to combat a massive migration of advertising expenditure to the Internet. For this reason, newspapers and magazines need a high-quality Internet presence in order to compensate at least partly for falling advertising revenue in the print sector and not lose contact with readers. All media companies will have to command a multiplatform strategy – accessible to users wherever they are and presenting the contents in such a way that they can be called up with any device. This represents real added-value. Nevertheless, we are still in the middle of an experimental phase. Companies need to react fast now, but may have to make adjustments to their course at a later date.

What growth possibilities do you see for the media industry?

Ballhaus: Fundamentally, the Internet offers numerous new opportunities for sales and revenue possibilities – for all types of media. At the same time, however, sources of income outside of the core business will have to be developed. Merchandising and events, for example, have long since been used successfully in the music industry in order to compensate for the decline in classical music sales. And cooperations are also called for. Not just between individual media companies and types, but also across different sectors of industry, for example with companies from the telecommunications and technology sectors. Tomorrow’s customers will demand all-in-solutions: all contents in one device, simple and intuitive. Packages consisting of mobile data, media subscription and subsidized hardware could be one solution. Companies could obtain the necessary know-how through cooperations. Takeovers, however, are also a possibility for companies to expand their own range of product and services.

What opportunities does social media offer for companies?

Ballhaus: In Germany, we expect social media to continue playing a significant role in the coming years. Social networks are used in Germany by a wide area of consumers and are now part of everyday life: whether for job-seeking, purchase decisions or dating. This opens up completely new distribution as well as marketing opportunities for media companies. Here, for example, companies can advertise their products and services personally and test pilot products. Opening up to the online community calls for a lot of courage but can also offer a great deal of opportunities if handled professionally.

Does the success of the Internet mean the end for a lot of regional newspapers?

Ballhaus: Regional daily newspapers enjoy a great deal of popularity in Germany. The diversity is very large in comparison to other countries. The fact is that circulation figures are falling and daily newspapers are suffering most from the migration of advertising expenditure to the Internet. Above all, it is the market for classified and job advertisements that is shrinking. For this reason, regional newspapers will have to focus more on their regional competence in the future. They will have to see themselves as local service providers who offer their customers not only news but also service information – and who have reader loyalty as their utmost priority.

How does PwC support its clients in this current period of change?

Ballhaus: We are constantly analysing trends and future developments of the TMT sector so that we can offer our clients optimum solutions at an early date. As an example, the German Entertainment and Media Outlook which is published on an annual basis provides a foretaste of our industrial expertise. On the basis of this knowledge, we generate the special know-how, products and services in order to pinpoint potential problems and risks to our clients at an early stage and offer them appropriate solutions. Of particular importance in this respect is that our clients are constantly supported by industry experts with in-depth knowledge of the sector, its trends and developments – irrespective of whether we are actively involved as consultants, as part of auditing, national or international tax consulting, transaction support or any other topics.