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TV for everyone

Digitalisation is opening up the TV market for innovative start-ups, says Wellington Partners. It takes only one number to realize how dramatically the media industry is changing: In the old analog days, it cost €2,000 to €4,000 per hour to produce programming for television. Today, you can start your own digital TV business at costs of €15 per hour.

"Digital technologies are creating enormous time and cost advantages and are opening up a wealth of new opportunities for new providers," analyzes former ProSieben board member and current Wellington Venture Partner Michael Wölfle.

A new media economy is taking shape. The changeover to digital technologies throughout the entire value chain - from production right through to consumer devices - is changing the face of business models in all media sectors and enabling more and more new players to enter the market. What began on the Internet is now spreading throughout the entire industry: Both online magazines as well as mobile content providers or interactive TV channels are garnering growing viewership. At the same time, the market for digital players is soaring: In 2004, alone, more than 10 million MP3 players were sold in the industrialized nations of the world. But it's not just digitalization that's changing the media environment - three further developments are also fueling the "get-up-and-go" atmosphere:

• Digitalization is enabling innovative media convergence. On the one hand, entrepreneurs can combine individual media (audio, video, text) into new business concepts, as has long been demonstrated by ringtone providers or SMS services. On the other hand, content providers are maximizing their reach through the parallel employment of multiple infrastructures - from cable TV to 3G.
• This media convergence is enabling interactivity. "The interplay between the various media, augmented by new backchannel technologies, is paving the way for innovative, interactive business concepts." That's the con viction of Arnold Bahlmann, a former member of the board of Europe's largest media corporate, Bertelsmann. This interactivity makes it easier to individualize content, thus generating even greater customer loyalty to the medium.
• Transaction-based business models, which are increasingly edging out advertising, and fee-financed models, are benefiting from this customer loyalty. The revenues here are generated by the sale of products, SMS and telephone charges, as well as by payment for individual formats (pay per view).

Right at the very heart of this revolution is television, the world's most expensive, most widely used and highest-revenue medium. In Germany, alone, the TV industry is generating revenues of EUR 15 billion, one quarter of the media industry total. One hundred years after the invention of the cathode ray tube, the switch to digital technologies is fundamentally transforming this industry. Some 40 million households throughout Europe are already using digital television, and their numbers are growing at breakneck speed. And since these households can use the same transmission capacity to receive more channels, new opportunities are opening up for new players.

Booming home shopping

These newcomers are going with transaction-based business models right from the beginning. One good example of this is home shopping, which has been posting annual revenue growth of 50 percent and more since its inception in Germany in the 1990s. Since October 2004, 1-2-3.TV, a new Wellington portfolio company (see page 6), has also been operating in this boom market. At 1-2-3.TV, the viewers are the ones who set the price by submitting their bids for the showcased articles. It's a concept that's flourishing in Germany, the land of bargain-hunters. "Viewers like the gaming element that's involved in this kind of shopping," notes media expert Wölfle.

Interactivity at its best

During a live bidding, they can see exactly who's offering what prices on the TV screen and then set their bids accordingly. "That's real-life interactivity," stresses 1-2-3.TV co-founder Henning Schnepper. 1-2-3.TV is initially going with a hybrid infrastructure in which viewers use the telephone to submit their individual bids.

Munich-based start-up Betty Mitmach TV is already working with the next generation of interactivity: Communication between the TV station and the consumer via remote control. Under this concept, viewers get the information they need from the TV set and respond over the telephone line via a wireless modem. Europe's largest satellite provider, SES ASTRA, is thinking one step further. It intends to upgrade the satellite dish with a backchannel. Reinhold Zanoth, VP Sales, explains the crucial advantage: "This enables viewers to identify with their familiar TV remote control; they can use it to communicate and to even pay for their merchandise."

TV is becoming mobile

Nor is the popularity of the interactive, digital future restricted to the living room couch. Mobile value added services providers, for example, are already enhancing their ringtone and image offerings by adding video clips to their offerings. DVB-H (Digital Video Broadcasting - Handheld) intends to set an entirely new transmission standard for mobile content. The objective: TV on a mobile, whether it's the goals scored by the user's favorite club or breaking news. Nokia, Philips, Universal Studios and Vodafone have just successfully concluded a pilot project in Berlin. Berlin has always proven to be a digitalization pioneer in Germany.

In the German capital, TV reception over a classical "rabbitear" antenna is already a thing of the past; even the terrestrial signals are digital. In addition, the plummeting costs stemming from digitalization is enabling the medium of television to be used in totally new ways. Berlin-based Questico, which started off as a pure Internet expert portal for life advice, is now using TV as a platform for winning new customers. Its Astro TV channel offers around-the-clock programming in the fastest-growing life advice segment: Astrology. "Our television presence enables us to reach new customer segments and enhance customer loyalty," explains Questico CEO Sylvius Bardt. But he continues to generate his fast growing revenues by receiving a commission on his experts' telephone fee income.

Digital variety

Astro TV stands for the new generation of TV channels: Transaction instead of advertising-based, digital and highly cost-effective. Given the fact that there are already channels today for hobby sailors, hobby chefs or fashion freaks, it's only a question of time until your hobby, too, gets its own TV channel - after all, it already has its own magazine and its own Web portal.

Wellington Partners is a Munich-based venture capital firm that manages funds totalling €350m. Founded in 1991, Wellington Partners invests in technology companies in the areas of infrastructure technologies, communication solutions, enterprise software, applied materials and life science.