Internet and IPTV growth in the German television market

German television market has been a major part of the country's cable network operations that has continued to generate huge revenues in the recent past. Actually, the digital television market accounts for more than 70% of cable network operators as usually forecasted. There are three major drivers of growth in the nation's cable television market i.e. digital Pay Television, telephony, and the Internet. As the revenues from Pay TV continue to experience steady growth, the Internet has played a crucial role in the German Television market. While there were fears that the Internet would replace private television channels in the country, it has complemented it and contributed to its significant growth. The role of the Internet in the expansion and growth of the German television market is evident in the fact that over 15% of cable TV customers receive Internet access from the cable provider ("German Cable Market 2012," n.d.).

Emergence of IPTV Product:

As previously mentioned, the Internet has played a crucial role in the recent growth and productivity of the television industry in Germany. This has led to the emergence of IPTV product, which is a new competitive product that is being marketed by several major stakeholders in this market. Private television channels have specifically taken advantage of this new product to increase their share in this industry, which has traditionally been controlled this industry. One of the most significant measures taken by these channels is the creation of ARENA by smaller German cable companies as a new competitor to Premiere, which was the main cable television in the country. Moreover, digitalization of IPTV product contributed to an explosion in the number of television channels. This considerable increase followed the various stages of moderate growth in special interest and comprehensive television programmes.

Consequently, the development of Internet Protocol Television in Germany has forced major channels to lose significant portions of their audiences to smaller and more specialized channels, which makes the industry to become very fragmented (Cushion & Lewis, 2010, p.300). In the past few years, the annual market shares of major television channels have not risen above 15% while five main stations account for between 10 and 15%. Notably, the explosion of IPTV product has some offensive and defensive elements. From an offensive perspective, smaller companies in this industry position themselves as successful competitors to the fixed-line operators because of the expansion of networks and provision of telephony and broadband internet. On the other hand, the defensive element means that these channels must position themselves rapidly because of increased competition in the market.

Analysis of the Industry Using Porter's Five Forces:

An effective analysis of the German television market requires the use of Porter's Five Forces market analysis, which is a widely recognized reliable and precise mechanism for many years. The analysis will focus mainly on the private television channels, particularly on how the Internet is complementing rather than substituting these channels. Generally, the country's television industry is an unusual one with a relatively minimal penetration of subscription television. Currently, this market is dominated by free channels while generation of revenue is mainly through license fee and advertising. Nonetheless, penetration of Pay TV is seemingly high because of the presence of several cable connections for basic television services instead of premium content. Consequently, there is universal access to most of the famous programs and events that are aired on non-subscription channels. The seemingly minimal penetration of subscription television is attributed to the quality of standard broadcasting format, which makes many German viewers to consider subscription television as irrelevant.

Businesses play a crucial role in this market because advertising fees account for a significant portion of broadcasters' revenues. The other major factors in generating revenue for broadcasters include the quality of content, ability to make their products appealing to advertising businesses, and viewership. While the number of smaller broadcasters has increased in the recent past, large television channels still maintain higher percentages of capital expenditure in buying broadcasting rights to most popular content. This in turn makes it difficult for new players to succeed in the German television industry. Even though the Internet complements this market, the increase in legal and illegal downloads of programs may have some effects on the industry (MarketLine Industry Profile, 2012, p.12).

Bargaining Power of Buyers:

The main players in the German television industry are public broadcasters and independent or smaller television companies. Public broadcasters in the market generate revenues through various ways including state-imposed license fees, advertising, and government funding. Due to these revenue sources, public broadcasting companies cater for less lucrative television viewers. On the contrary, the independent, private broadcasting firms generate revenue through subscription fees and selling advertising time to businesses. As a result, the German television industry basically has two kinds of buyers i.e. customers or viewers who pay subscription fees and advertising companies or businesses that purchase screen-time.

In essence, the bargaining power of buyers is usually dependent on the seeming importance of their purchases, which means that greater concentration contributes to greater buyer power. The bargaining power of individual buyers in this market is relatively low or limited because license fees are fixed by the government and act as legal requirement for owning a broadcasting company. Customers in this market can only make huge collective impact through demonstrating preferences for a product by increased viewership. In addition, they can demonstrate their buying power by choosing whether or not to subscribe to the pay television services. However, some customers consider these services as necessity since they are usually have exclusive rights to broadcast sport and major drama programmes.

Despite the introduction of Internet Protocol Television, the buying power of individual customers is still limited. In this case, the individual customers do not have considerable impacts on competition because the services are basically provided to individual households, which are not interconnected (Fritz, 2008, p.42). As a result, the households lack significant influence on competition since they do purchase large volumes as compared to seller sales and are not concentrated. Generally, the bargaining power of buyers is usually high when individual buyers or buyer groups are concentrated and buy large volumes that are comparable to the sales made by providers or sellers.

The other significant buyers in the German television industry are businesses that purchase advertising screen-time. It is important to examine the bargaining power of these buyers because advertising fees account for a considerable percentage of revenues for broadcasting companies. Since these companies are dependent on revenue from advertisements, the bargaining power of buyers as a whole is relatively high. However, the overall buyer power of businesses in relation to the entre German television market is considered as moderate.

The moderate bargaining power of suppliers is partly attributed to technological advancements that contribute to significant expansion in the market. In the past few years, there has been large movement towards high definition television products, which has significant impacts on buying power. As customers continue to use a large portion of their income to upgrade to new technologies such as Internet Protocol Television and high definition TV products in the television market, they continue to lessen their buying power (MarketLine Industry Profile, 2012, p.13).

Bargaining Power of Suppliers:

Suppliers in the German television industry are production companies that provide content for broadcasters. The broadcasting companies in turn determine whether to commission the production of programming or purchase broadcasting rights for particular programmes. The bargaining power of these production companies is dependent on various factors including the quality of content, ability to make their contents attractive to advertising companies, and viewership. The viewership element of these production companies is usually determined by the figures of viewing among target audience.

The major suppliers in this market are large companies that benefit from economies of scale because of their ability to make significant investments in research and development. Consequently, these large companies have the ability to create strong brands that are widely recognized by many customers. On the contrary, smaller production companies primarily compete on price, but do not have the same level of brand loyalty as compared to the larger production companies.

In the digital television segment, suppliers compete on the basis of satellite dishes, which account for a huge portion Pay TV revenues in the market. This is followed by cable and terrestrial, which accounts for a minimal market share of German television market. Notably, the Internet has also played a crucial role in this market because digital transmission system involves the use of computer technology rather than standard signals. While the computerized digits from these systems can be received by satellite dishes, standard aerials, or cable, they have to be decoded and converted into vision or sound (Data Monitor, 2003).

The technologies used by these production companies must be generic in order to be compatible for broadcasting. This in turn prevents a single company from dominating the market and increases the number of suppliers. For instance, HD technology that is used by many broadcasters is produced by many suppliers in the market. Despite high brand awareness, broadcasters have the ability to choose certain brands over others with regards to supply of television content.

Similar to the bargaining power of buyers, the overall supplier power in the German television industry is moderate. Providers of transmission service offer significant technical services for terrestrial channels' broadcasts. While large companies act as the main suppliers in the market, there are few large players in the controlled transmission service market. Even though the minimal number of suppliers raises supplier power to a certain degree, the overall bargaining power of suppliers is still moderate.

Threat of New Entrants:

Individual broadcasting companies succeed in the German television industry based on overall figures of viewing while individual customers to not incur any costs of switching unless they choose for subscription television channels. Following the recent switch from analog to digital broadcasting, the threat of new entrants is relatively high because of increased availability of frequencies. The switch made it easy for the broadcast of more channels through terrestrial platform and provided numerous opportunities for new entrants to the market.

However, the threat of new entrants in the Internet Protocol Television is seemingly low or limited because of technical restrictions that hinder the dissemination of Internet-based TV (Doukidis, Mylonopoulos & Pouloudi, 2004, p.208). One of these challenges is the fact that broadband technology is still in infancy, which necessitates significant improvements to make Internet-based television available, acceptable, and a feasible alternative to conventional television. Secondly, television companies face challenges with the standardization of media players that are crucial for reception of online audio-visual content. The lack of standardization of media players not only hinders diffusion of Internet-based television but also lessen the threat of new entrants in the market. Third, while the quality of Internet transmission is slightly improving, Internet Protocol Television transmission is comparatively unreliable. Fourth, the threat of new entrants is low in Internet-based Television because of access costs. In this case, if access is costly, many viewers are unwilling to cater for additional costs for content.

In the cable and satellite broadcasting platforms, there is significant higher threat of new entrants because of higher channel capacity. As compared to terrestrial channels, viewership figures and advertising revenues are normally lower in these platforms. Despite higher channel capacity in these platforms, new entrants face difficulties in obtaining rights to famous foreign programs that require huge amounts of money. One of the major factors that new entrants must consider when entering the German television industry is that they are subject to strict regulations from the European Union. Actually, the television market is one of the most regulated markets or sectors in Germany in relation to broadcast content and source of televised programs (Guerrieri, Lapadre & Koopmann, 2005, p.54). Private television channels are the most affected in this sector since they are regulated by nearly 20 regulatory bodies. The main motivation behind the increased regulation is the need to ensure the development of a television system that reflects the pluralistic German society and the diversity of views. Furthermore, the regulation is geared towards ensuring that this sector is free from government intervention. Since the German television industry has experienced stagnation in the past few years and an unpromising future, the overall threat of new entrants is considered as weak.

Threat of Substitutes:

The potential substitutes to the television in the German television industry are other forms of entertainment such as personal computers, film, and video games. The increased popularity of these other entertainment forms could have huge impacts on the number of viewers of television channels and contribute to probable decrease in advertisement revenues. In addition to film, computers, and video games, the other potential substitutes to broadcasting and cable television market are audio and reading devices.

In the past few years, the Internet has emerged as a major threat or substitute to the German television market. One of the major ways with which the Internet is a potential substitute is the availability of television programming through the Internet on personal computers and hand-held devices. Furthermore, the increase in the popularity of legal and illegal downloads have also acted as potential substitutes in the market. This rise has enable people to download episodes of popular programs before they are televised and enabled people to avoid payment of subscription fees for premium broadcast content. Internet advertising is also expected to significantly affect television advertising though television remains the most effective advertising form. Generally, potential substitutes to the television market in Germany have been brought by exponential diversification in media products and digitalization of IC technology (Bens & Hamelink, 2007, p.42).

However, the threat of the Internet as a substitute has been minimized by the emergence of Internet Protocol Television and development of smart televisions with the ability to access videos directly on the Internet. The television market will continue to remain relevant because of the well-established nature of television system and the development of Internet-based television. Television companies have recognized the potential threat of the Internet and taken measures to minimize this threat by using the Internet to complement their services. Internet Protocol Television and smart televisions counter the threat of video streaming through computers and other devices by enabling viewers to conduct these activities on their television sets. As a result of these measures, the threat of substitutes in the German television market is moderate.

Internal Rivalry:

The various players in the German television industry do not compete directly for revenues from end-users but for the number of viewers. Viewership figures in turn determine the revenues generated by these companies from commercial players through advertising. With regards to switching, individual customers do not incur any costs when selecting between television channels unless they are moving to Pay TV services that also generates competition for the number of viewers. Broadcasting companies or television stations basically compete in two different markets i.e. The market for advertising and the market of audience or viewing figures or numbers, which implies a dual-market phenomenon.

There are various elements that contribute to internal rivalry in the German television industry. First, internal rivalry between broadcasting companies is strong with regards to purchasing broadcasting rights for the most famous programs, public functions, and sporting events. The competition to purchase broadcasting rights is fueled by the fact that broadcasters rarely generate their own programs because of lack of sufficient resources to develop, produce, and televise entertainment programs and shows (Moran, 2009, p.86).