DIGITAL TRANSFORMATION

Digital Transforma/on Case Study Professor: J. Rubén G. Cárdenas

Case Study Digital Transforma/on Strategies

Background

ProSiebenSat.1 Media SE (referred to as “P7S1”), a large TV broadcaster with a

turnover of €2.6 billion ($2.95 billion)10 and more than 3,500 employees. It is one of the

leading TV enterprises in Europe. Munich-based P7S1 operates in 12 countries and owns 15

TV sta/ons, which reach more than 42 million households. P7S1 was founded in 2000 and

originated from the former Kirch Group, which established itself as one of two large TV

companies in Germany aZer regulators opened up the market to private TV sta/ons.

Business Drivers for Digital Transforma6on

P7S1’s roots lie in the TV business. When the company’s managers first considered the

opportuni/es and threats arising from new digital technologies, the core business was

thriving and highly profitable. Thus, the need for immediate ac/on was not as strong as in

other branches of the media industry. Nevertheless, managers recognized the poten/al of

digital technologies—both for P7S1’s current ac/vi/es and for new business opportuni/es.

This led to the decision to pursue a two-pronged approach to exploring and exploi/ng new

technologies. One was to digitally enrich the company’s TV pordolio. The other was to

ac/vely seek out new digitally enabled business models to diversify its business.

Digital Transforma6on Outcome: Developing New Business Areas

Ten years ago, digital technologies primarily had a suppor/ng func/on at P7S1 and

were mainly used to op/mize business processes and provide an efficient infrastructure.

Now, however, P7S1 perceives digital technologies as enablers of innova/ve products and

services. To foster the transforma/on of ideas into new products and services, a dedicated

innova/on lab was established in 2012. Thus far, though, P7S1 has not sought to be a

technology leader but has focused its digital ac/vi/es on branding and customer interac/on

via established technologies.

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The impact of digital technologies has been mainly on P7S1’s products and services,

especially its TV business where digital transforma/on has led to, for example, video-on-

demand or gaming content related to TV content. Produc/on processes have also become

increasingly digital. In 2013, P7S1 earned €484 million from digital products and services,

approximately 19% of its total turnover. In addi/on to digitally enhanced broadcast offerings,

P7S1 is also ac/vely deploying digital technologies in business segments not directly related

to content, such as e-commerce or mergers & acquisi/ons. These ac/vi/es include websites

that supplement linear TV programing (from online text to mobile offerings), content

pladorms (“video on demand”) such as maxdome and MyVideo, and online games portals

such as SevenGames.de. Another area of digital investments is in online travel services. In

this area, P7S1 generates earnings through revenue sharing and adver/sing.

P7S1 generates revenues from its digital products and services both indirectly via

adver/sing and directly via paid content, the sales of virtual goods within online games, or

through “freemium” models (providing a free version with a basic func/onal scope and a

paid version that creates addi/onal value; an example is the music streaming pladorm

AMPYA). Synergies between digital and tradi/onal offerings are ac/vely fostered. For

instance, content from tradi/onal TV channels is recycled in digital offerings, users are

referred from tradi/onal to digital products and vice versa, and cross-media adver/sing

campaigns are conducted. The laoer, for example, has been used for the cas/ng format of

“Germany’s Next Top Model,” a reality TV show, which is complemented by content

pladorms, web services and corresponding events.

P7S1’s main focus, however, remains on content crea/on, aggrega/on and distribu/on

(via its TV business). Addi/onally, though, it strives to expand its revenues from the

management of content pladorms and e-commerce. Digital ac/vi/es are expected to

become the second pillar of P7S1 in addi/on to its tradi/onal TV business.

P7S1’s pure digital business unit is led by a board member and is supported strongly by

the CEO. Most of P7S1’s digital ac/vi/es are organized within a separate business unit called

“Digital & Adjacent.” P7S1 establishes a new business internally (if necessary, in the form of

a joint venture) or takes over startups at an early stage. For the laoer, the company has

launched a dedicated incubator (“ProSiebenSat.1 Accelerator”), which offers incen/ves to

startups, oZen in the form of free adver/sing /me on P7S1’s TV channels in exchange for

equity par/cipa/on (“media-for-equity-program”).

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Because P7S1 sees its digital ac/vi/es becoming a second pillar complemen/ng its TV

business, a large share of corporate investments is made within the digital area. These

investments are financed internally. The primary focus of the investments has been and

remains the takeover and development of digital businesses that complement P7S1’s

tradi/onal TV business.

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