Hard-hitting news ‘social obligation’ to inform viewers

For other companies a burden similar to that faced by RTL Klub with the advertising tax could be a reason to throw in the towel. CEO of M-RTL (RTL Hungary) Dirk Gerkens, however, doesn’t contemplate giving up. He is a man confident and determined to stay loyal to the Hungarian market.

What do you have to say about the advertising tax?

There isn’t much to say about it. Neither were there, nor are there now any discussions with the government. This law went into effect without us or the industry in general having a say. We represent approximately 15% of the advertising market but we have to pay about 80% of the tax this year. There were two loopholes – tailored for TV2 – where the government initially failed to realise that we can also make use of them. For example the option to deduct previous losses from turnover. Later these were quickly changed, thus RTL Klub is no longer able to benefit from them. It is probably clear to everyone what the government was trying to achieve with this.

Do you believe these laws to be politically motivated?

Obviously!

Why do you think they hit your company so hard?

It’s simple: unfortunately all media outlets are basically followers of the government. And for them it does not seem to be acceptable that a national channel presents objective news reports. We are being blackmailed with the tax.

Your news reports are much more critical of the government since the introduction of the advertising tax. Is that your way of fighting the new levy?

We are the market leader in television. The only exception was previously the news. A question we have been asking ourselves for a long time is why we are in all other areas at the top, but not in the news segment. Then we tried a lot of things. We moved the evening news from 6.30pm to 6pm. Then there was the issue of content: should we go in the direction of TV2 and mainly report accidents, crimes and such, or should we do something else and offer viewers an alternative? After we tried a new model on RTL2, we immediately noticed that people are a lot more interested about news reports that cover politics and other important subjects. The change in the news broadcast had nothing to do with the advertising tax but was part of our change in strategy. And it worked.

The new format was welcomed by a number of blogs and opposition news portals. Is that confirmation for you?

In our news broadcast we talk about issues otherwise ignored by the rest of the mass media. Our colleagues are obviously happy because such reports were only discussed by the niche media before. But ultimately we are not doing anything but serving our viewers, who are interested in just that.

What do you think of the state media?

The purest propaganda watched by nobody. Their market share is negligible. Only for major sporting events do viewers turn to the public broadcasting channels. And this despite the fact that their budget is a number of times higher than ours or TV2’s

What was your first thought when you heard about the advertising tax?

(laughs) One could really only laugh or cry. Forty percent of turnover is to be paid as tax? Who makes a 40% profit margin these days? Also it is a completely discriminatory law, since a single market participant has to pay 80% of the tax burden alone. Some argue that these eight to ten billion forints are necessary for the state budget. Just as a comparison: the public broadcasting stations cost HUF 80 billion every year. If these eight billion forints from the advertising tax were so important, why not do something similar for the public media? Eighty billion forints for ratings close to nil! If this money is so important why do state monopolies or state organisations with nothing to sell have a HUF 40-50 billion advertising budget? The National Bank of Hungary for example. What kind of product do they have to sell? None at all. And they spend 50 billion forints on nothing. It is so clear what is at stake in the background.

Have you spoken to Prime Minister Viktor Orbán or Chancellor János Lázár since the introduction of the tax?

No, I personally have not.

The law is making some waves abroad as well. What is the thinking at your headquarters in Luxembourg?

We are still committed to the Hungarian market. However, one must not forget that since 2008 advertising spending has almost halved. With the advertising tax the government has further reduced the wiggle room of an already distressed industry. Although we almost have as strong a market share as six years ago, our turnover has fallen by 50% compared to 2008.

What was the downward trend the result of?

Many of our customers had to reduce their advertising budgets. Banks for example (laughs). I can fully understand why they don’t run large-scale advertising campaigns on foreign-currency loans any more (laughs). The auto industry also cut back their advertising heavily because the purchasing power is missing on the customer side. Unfortunately there is a direct relationship with the economy.

Will the advertising tax have an effect on your programming or spending structure?

We have thought a lot about that. But our owners have decided that we want to defend the market-leading positions that we have achieved over the years. And that’s why we also decided to invest even more into programming. If you take a look at the line-up for the autumn, you will see that we will air extremely strong shows. We also intend to maintain the longer format of our news programme, which also adds to the costs. We will continue to walk this path.

Will the news programme of RTL remain so critical of the government?

People simply have an interest to know what is happening in Hungary. It is our social obligation to inform them. All our stations will cover such topics. This has, as I said, nothing to do with the tax. The strategy in terms of news is working; the ratings confirm that the audience is there. We already have better ratings in urban areas than TV2 but in rural areas they are still better.

Despite the heavy burdens you seem to be very ambitious. Wouldn’t there be alternatives?

And what would that be? Sure, we could also cut shows and eventually get lost in the sea of small broadcasters. The only advantage of that would be lower sales and therefore we would have to pay less tax.

The government argues that the tax is necessary to increase the quality of programming.

(laughs) What does a tax have to do with that? But even if it had something to do with that, who among the MPs is in the position to express an opinion on the quality of a television programme? That would be a debate well into the night. We are a commercial broadcaster and the Hungarian market is very diverse. There are more than 100 channels available, so every viewer has the option to choose according to their taste.

What about the payout big broadcasters were planned to receive for being included in various cable packages? With the introduction of the Media Act in 2010 you and other providers were granted this possibility by the government. Now it looks like you will not have the chance to do that. Was there a conversation about this in the past four years between you and the government?

No. Never. There was no talking to our industry whatsoever. We negotiated this during the analogue-digital conversion in exchange for a number of compromises that we made.

What compromises?

We decided that we will not slow down the conversion and that we will switch to the Digital Terrestrial Platform and much more. We were promised to be compensated by these cable fees. And suddenly in the midst of negotiations for 2015 – we are allowed to introduce the fee from 1 January – the government wants to take this right away from us because it would increase the monthly cost of the subscribers. Why would cable networks raise their prices at all? Customers already pay for the packages in which RTL and TV2 are included. And it’s not like we want a lot of money! Cable providers should simply adapt their portfolio. There are more than 100 channels they offer and the average consumer receives about 60 to 70 of these but never watches most of the channels. The stations that are really seen by a lot of people – TV2 and RTL – are the only ones cable providers don’t have to pay! Even M3, the state nostalgia station, gets money from UPC. A subsidised state broadcaster without an audience gets money from the cable provider! Meanwhile the broadcasters with an actual audience receive nothing. There must be a connection between the ratings and the funds cable companies have to pay the networks. That would be logical. And that was, as I said, also contractually agreed upon. The government cannot say they knew nothing about that because in 2010 we sat together at the table and made a decision on this.

What about your relationship with your competitor and new government favourite TV2? Has it changed since the introduction of the advertising tax?

There is now this interesting development where suddenly not only RTL is pressurised but also TV2. I’m talking about the above-mentioned revenue loss from the cable fees. Now it looks like TV2 is no longer treated differently. But we’ll see what happens. The law is not written on that yet, but it seems sure that we won’t be able to charge cable providers such as UPC and MinDig TV for putting our channels in the various packages.

You paid this year’s advertising tax on 20 August. Will you pay it next year too?

Right now it looks like that. If we have to pay, we will pay, because we always pay our taxes. Never mind the people who say otherwise. We are part of the RTL Group and of course we pay the taxes in all countries where we are active.

How much advertising do you get from state-owned corporations?

Minimal. Practically nothing. In this respect TV2 is doing much better.

You said that you will take legal action against the advertising tax. Both home and abroad?

Yes.

When is the first step to be expected?

The wheels of justice turn slowly. Our strategy is clear but the implementation takes a little bit of time.

Are you sure of your success?

Yes, I have no doubt that we will win.

Let’s talk about the Media Law a little bit. In 2011 it caused quite a bit of international havoc. How did that affect RTL?

We have talked a lot about this law but for us it even improved a few things. As a result of the market liberalisation we can have multiple channels within the RTL Group, which was previously not allowed.  Sponsoring changed a lot as well. Where it really caused problems was the de facto abolition of the source protection for journalists. This is not acceptable but it was corrected. I think bloggers and internet journalists were hit really hard with that. By that time we already had a developed structure and the law did not have a significant effect on us.

Hindsight is always 20/20. Were the criticisms justified at the time?

I think the Media Law was part of a strategy, a process to oust objective media from the Hungarian market. But that’s just a guess.

How do you see the future of the media market?

It is worrying that practically all media outlets seem to be concentrated in one hand. Everyone knows what went on in the background, for example at the online news portal Origo, even if something else was communicated officially. Or the theatrics during when TV2 was sold.

And what does the future of RTL look like?

We will continue to do our job professionally and objectively.