In Germany's duopoly TV advertising market, where ProSiebenSat.1 and RTL Group command more than 80 per cent of total net advertising revenues, smaller channels are struggling to grow their market share. Advertisers and media agencies focus their budget negotiations on these large groups and to a lesser extend on public channels ARD and ZDF, which attract older demographics that commercial channels have trouble addressing. Smaller channels, especially those targeting a younger audience which is well-catered to by the large commercial groups, need to offer high discounts on ratecard prices, often in excess of 70 per cent, to attract advertising spend.

During the 2009 recession, net advertising revenues at MTV Deutschland dipped sharply because advertisers more than ever focussed on gross audience reach, concentrating investments on the big commercial groups even more than usual. Screen Digest expects it will be 2014 before the German TV net advertising market returns to its 2007 level of €4.16bn with flat growth thereafter. In order to attract advertising spend in such an environment, audience share is key. Generally, three per cent audience share is considered a threshold to command one per cent of net advertising revenue. This correlation is not linear, and any channel below three per cent audience share in the relevant target demographic struggles to make a profit from advertising revenue.

Removing MTV from free-to-air television in order to help flagship VIVA achieve this threshold seems a wise move by Viacom. More so than MTV, VIVA has a unique content portfolio in the German TV landscape which makes it attractive to advertisers: VIVA mainly airs music videos, which no other free-to-air channel in Germany places its emphasis on. MTV in contrast has ceased to air music videos and instead broadcasts soaps, talkshows and reality TV formats, like many other entertainment channels. In a stagnating TV advertising market, Viacom's pay TV income in Germany has tripled since 2006.

Making th core MTV brand digital only and pay-exclusive will be an important boost to Viacom's pay strategy, with a carriage fee uplift now possible for the group. Screen Digest figures show that MTV currently reaches 16m homes in Germany via free satellite and around 18m by cable and pay satellite. The move is thus a vote of confidence in the developing digital pay TV market in Germany. Channels have to pay for carriage on analogue cable, but with the complications that have held back the development of digital now largely solved and channels moving to digital tiers where they can expect to generate carriage income, the pay market is far more attractive than it used to be. Although German digital TV uptake still lags far behind other Western European markets, the size of the market means that small shifts can have a dramatic effect. Screen Digest estimates that Viacom's pay TV income in Germany currently stands at around €15m a year. Although the loss of analogue cable households will result in a drop in overall reach of MTV, a boost in the carriage income of the channel will still have a significant impact on revenue. Viacom will also be saving the costs associated with analogue cable carriage.

The question for German consumers and pay TV operators alike: is this the start of a mass migration away from the free TV market in Germany that will finally enliven subscription TV in the country?