CARSTEN SCHMIDT: Achieving Mission Impossible

carsten-schmidtAn increasing number of mobile devices doesn`t necessarily translate into a decline of classical TV.
Carsten Schmidt, Chief Officer Sports,
Advertising Sales & Internet of Sky Deutschland

As a youngster Carsten Schmidt’s parents were worried that he spent more time reading football magazines than doing school work. That, he reassured them, was because it was what he needed to do to become a sports journalist.

That passion for sport and sports media has never left him and today, as head of sports ad sales and internet at surging Sky Deutschland, he is playing a key role in achieving what, he says, was once considered mission impossible – turning Europe’s biggest media market into a land of opportunity for premium pay TV.

Having qualified as an accountant he moved into sports media in 1992 as marketing director of Wige Media near Cologne making the move to Sky as head of sport in 1999.

It was, he says, a move which made his parents proud and happy.

“The exciting thing about working in sports media is the constant change , working with great people who share the passion for sport and the unbelievable pace of technical innovation. It keeps you young”, he said.

For Schmidt, life is full of “must see” sports events including the NBA. NFL, UEFA Champions League and every game played by DC St Pauli, the Hamburg-based Bundesliga 2 team he supports.

“It is not always the most beautiful football but, as we say, there is no love without pain“.

Sports Media and Finance asked Carsten Schmidt about the key issues facing his organization and the sports media industry as a whole.

How does the Pay TV market in Germany differ from other European countries and what challenges does this present to the business?
Germany and Austria have great potential.
Overall penetration of premium pay-TV is still low compared to other European countries and Germany is Europe’s largest market with 38.5 million households. With another 3.6 million households in Austria, Sky’s target market is 42 million households. Pay-TV penetration in Germany and Austria is at 17 percent, lower than its European peer markets and well below European average.
While pay-TV in Germany and Austria has underperformed in the last

20 years, the industry has been gaining traction since 2010: Pay-TV is currently the fastest-growing segment in the German television market according to the Association of Private Broadcasting and Telemedia (VPRT).
The association’s most recent prognosis (July 2014) sees an ever increasing number of German consumers willing to pay for television. And German consumers are very steadfast:
It takes quite a while to convince them to sign up, but once they have analyzed the cost-performance ratio and decided that they want a subscription, Sky becomes a pillar of family life.Considering that the discretionary buying power of the German consumers is bigger than in other nations, too, this makes for some great opportunities.

To what extent does sport drive subscriptions?
TV is a seasonal business – and so are sports.
Traditionally, the beginning of the Bundesliga season in August and the return of the UEFA Champions League in September drive sales. Having all teams, all competitions, all in HD makes it hard to resist for a real fan. And then there are single events that suddenly generate awareness for Sky`s exclusive offer.
A great example for this is the women`s tournament at Wimbledon in the summer of 2013, where Sabine Lisicki became the first German in 14 years to reach the final.

What initiatives is Sky Deutschland taking to grow its subscriber base from the current level?
The continuous subscriber growth has two simple reasons: Keeping our existing customers satisfied while at the same time convincing new customers to sign up.
In Q2 2014, we added 82,000 new customers for a total of 3.813 million customers.
By improving our products and our customer service we have managed to reduce our annualized churn rate to 7,7 percent which is the lowest we have ever had in the history of the company.

Showing the most exclusive programs, delivering exciting innovations, and providing the best customer service are our strategic pillars.

How has your program offering changed since launch?
Definitely the most spectacular change was the launch of Sky Sport News HD in December 2011.
Most people told us we were crazy as they couldn’t grasp the relevance of having a 24-hour live sports news channel. With more than 6.3 million unique viewers since launch and 360,000 viewers per day on average in Q2 2014, Sky Sport News HD has become a distinct brand and an established player in German sports journalism. And it became the offer in our portfolio with the youngest demographic.
It has been an important factor in supporting our ambition to bring younger generations to Sky earlier and have them talking about new sports. We have broadened our offering by acquiring the rights for the Velux EHF Champions League in Handball and the new and promising Formula E.

How important is football to your offering?
Football is by far the favorite sports of Germans, which makes the Bundesliga, UEFA Champions League and DFB-Pokal ( German Cup) important assets.
Without a doubt, our football rights are a very strong corner stone for the further development of the company and a guarantee for the attention Sky receives in the media and general public.
Football is an initial part of our family entertainment proposition, however, new channels such as Sky Atlantic HD which shows the best productions of HBO have strongly increased our customers` interest in fictional content as well.

How is Sky Deutschland innovating to improve the experience of viewers / sports fans?
Experimenting with new technology and creative concepts is part of Sky`s DNA.

You might have heard of the Sky HD Fan Zone which allows viewers to watch multiple football Bundesliga or UEFA Champions League matches all on one screen and all in HD. Viewers can decide via their remote control which match they want to see in full-screen mode, switch from stadium to stadium and select between different audio tracks.
The Sky Sport News HD live ticker is integrated directly into the Fan Zone to keep viewers informed with the latest sports news. In addition, it also offers continuously updated live statistics and social media feeds.
Further, we constantly develop our live broadcasts by integrating the latest camera technology.
Ultra HD is a big issue, too: Earlier this year we gathered important know-how from the first end-to-end productions during live football matches which helps us to establish a future Ultra HD offering to our customers and maintain our top position as an innovation driver in the German market.What impact will the creation of Sky Europe have?
It`s a bit too early for that question.
What happened is that on 25 July 2014, 21st Century Fox announced its intention to combine its European satellite television holdings. As part of this proposed transaction BSkyB has agreed to acquire the 21st Century Fox 57.4 percent equity stake (fully diluted) in Sky Deutschland, and has announced its plan to launch a voluntary cash offer for 100 percent of the outstanding share capital of Sky Deutschland.
The Management and Supervisory Boards of Sky Deutschland have evaluated the offer of BSkyB with the support of both financial and legal advisors and issued the official statement as required under German Law on 16 September 2014.

What do you see as the greatest challenges facing Sky Deutschland right now?
Every day of the year, Sky strives to offer its customers a special TV experience, consisting of exclusive live-sports, fictional programs and entertainment

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and entertainment for the entire family: anytime and anywhere. But obviously there are many other players in the market place. Creating continuous awareness for Sky`s unique proposition among a flood of marketing messages will be an ongoing challenge that we are taking on very successfully.
Therefore we need to listen to the consumers very closely and have to translate these learnings into our strategic pillars of innovation, customer service and exclusive content. And we have to find answers accordingly. To maintain exclusivity across all platforms (whether TV at home or mobile devices) is another task to deal with in a dynamic market.

Thus, the prevention of piracy is a topic that is extremely relevant for us. Not surprisingly, the area in which Sky Deutschland is most susceptible to signal theft is the live broadcasting of sporting events.

..And the biggest opportunities?
After being used to getting content for free for years, more and more people in Germany are finally willing to pay for high-quality programs.
This development motivates us to strive for long term contracts for those sports events, series and films that really make a difference.
The long term contract with HBO is the basis of our channel Sky Atlantic HD which has been turning a lot of viewers into dedicated series fans since May 2012Beyond football, which Sky sports content draws the biggest audiences and what new sports do you feel might make an impact in the years ahead?
Although being shown on free-TV as well, our Formula 1 broadcasts are among the most popular with our customers. Without commercial breaks and with four supplemental channels for each race, we present motor sports like no other TV station in Germany.
Since 2011, Sky has also been the exclusive home of Wimbledon which will continue through 2018. Showing basically every important professional golf tournament including all four majors and the Ryder Cup makes Sky a “must-have” for all golf enthusiasts in Germany and Austria.
Nevertheless, we are always trying to extend our sports portfolio: Last summer we started with broadcasting beach volleyball, this autumn we are showing the Formula E exclusively for its inaugural season and just this week we have enlisted former handball world champion and former German national coach Heiner Brand as a Sky expert for our live broadcasts of the VELUX EHF Champions League.

How has the Sky Go changed the business?
Our average customer is 41 years old which is younger than the average German FTA viewer. Sky Go which is extremely popular among young people plays an important factor in targeting new audiences.
Overall, there are more than 60 different OTT players in the German market with many different business models. But Sky Go is the only one to show exclusive live sports as Bundesliga or Wimbledon, blockbuster

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films and the most recent series like “Game of Thrones”, “24” and “True Detective” just after the US release in one single app. Only a couple of weeks ago we have redesigned the whole app adding some features to increase its usability, lots of fictional content and an improved news-section for sport fans. And Sky customers are becoming ambassadors for Sky: At airports, in golf clubs, in offices.
Sky Go has become a beloved product and added huge value to the subscription.Will we ever see the World Cup and Olympic Games delivered by Sky across Europe?
According to the German Interstate Broadcasting Treaty (Rundfunkstaatsvertrag), events like the FIFA World Cup or the Olympic Games have to be available to all people living in Germany, which means free to air. In general Sky Deutschland`s policy is to obtain exclusive rights.
This year we haven`t purchased the live-broadcasting rights for these events because it didn’t make sense from a financial point of view. Our live sports channel is nevertheless even more popular during such big sports events as many viewers are looking for extended background information before and after the matches and contests.
This summer, Sky Sport News HD had a solid increase in viewership due to the coverage of the FIFA World Cup compared to June 2013.

What do you feel the European Pay TV market will look like in 5 and 10 years’ time and what’s the future for sport on Free To Air?
After witnessing the impact of second screens on consumer behavior and the consequences I believe we just entered into a 24/7-anytime-anywhere- sports entertainment era. We will see a lot of new pay products coming to the market, especially for underserved sports.
I think from a German perspective we are seeing a shift towards greater understanding for the extra value pay offerings are bringing to the consumers – on every platform. In FTA there will be one last resort for linear viewing: live sports.

So the competitive intensity will remain. Between pay and FTA, but also between FTA and FTA.

What have been the biggest game changers in sports media in the past decade?
One of the big changers has been the fact that major sports events attract large crowds who want to watch the match together outside the stadium: public viewing screenings.
It is a phenomenon: In Germany 1.3 million people visit a sportsbar every weekend. Many of them have Sky at home. And obviously the arrival of second screen video and its high quality is an important factor. This in combination with social media elements is creating new emotional experiences and drives our markets.
Accessibility to sports journalism and stories is much easier than ever before.

How has the depth of fan engagement with sports media content changed and how can it be measured?
In our experience fans obviously want to participate in the coverage on their favorite sports. A year ago, we established “0800 Du bist drauf” on Sky Sport News HD, a call-in show for fans that is especially popular among young viewers. The growing response in all sort of social media activities and participation ratings in our various formats show us that viewer-engagement is building up.
There is no editor or producer at Sky Deutschland who does not consider how to make our viewers part of our journey.

Which sports properties in particular are making the best use of new technology?
It is no surprise that football with a lot of financial investment resources on hand is on the forefront of this development in Germany. But especially Red Bull as a producer of a range of younger sports impresses me with their innovation DNA. We at Sky are making an effort to lift beach volleyball to the next level. As owner of Europe’s largest tour, the smart beach tour, we are experimenting with a lot of new camera technologies

How is the second screen becoming more commercially important and what business models are there for monetizing it?
An increasing number of mobile devices doesn’t necessarily translate into a decline of classical TV. In our experience, mobile devices are an addition, not a substitute. Smart TV might catch up as well once internet connections and bandwidth are extended.
For instance right now after we have made Sky Go free for all Sky customers it works strongly as a door opener to the classic subscription. Sky has only recently started to open up its online and on demand-products for digital advertising.
We are excited to see which products, services and apps are going to find the acceptance of the consumers in a market that will be even more fractured. Only then it will be possible to assess the best approach for monetizing those products.We definitely see Sky Go as a huge added value for our whole offering and a significant factor in our efforts to drive satisfaction and prevent churn.

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