LONDON/MUNICH In November last year, the head of Germany's ProSiebenSat.1 went cap in hand to his biggest investors looking to raise more than half a billion euros.
The cash was to be used to finance the company's further shift away from relying on its television advertising business and create a more broadly based digital powerhouse, ProSieben Chief Executive Thomas Ebeling explained.
More than six months later, shareholders are still waiting for Ebeling to spend the money and are increasingly uneasy about the strategy.
The broadcaster says its plan is simple -- to encourage viewers of its TV shows to use its online sites as well.
Investors said an initial partnership with Zalando some five years ago raised expectations as the online fashion retailer grew into a European leader thanks in part to being promoted on ProSieben's channels.
"Our strategy is to realize synergies from the combination of our entertainment and commerce assets. The underlying idea is: watch, click and buy," said a ProSieben spokeswoman.
But critics say the company lacks a clear leader in an e-commerce portfolio which they argue is too diversified, with activities in travel, price comparison, online dating and even sex toys.
Shares in the group, which have been part of the DAX index of leading German companies for more than a year, have underperformed European media sector peers by 17 percent over the past 12 months.
"There is a lot of scepticism at the moment," said a top 10 ProSieben shareholder, noting that some investors opted to sell when the shares fell after the capital increase.
"Everyone is now afraid of further value destruction," he added. "It's not clear how they'll grow digital."
Defending the strategy, the company spokeswoman pointed to profits of 250 million euros ($282 million) generated by the 40 e-commerce firms ProSieben has bought at a cost of 1.1 billion euros since 2012.
ProSieben has just passed the landmark of generating more than half of its revenues outside its traditional TV advertising business and aims to extend this trend in 2018.
ProSieben, whose programs include "Germany's Next Top Model", faces familiar challenges to other established broadcasters in European markets.
Rival streaming services are disrupting viewing patterns and making it harder to deliver the mass audiences for which advertisers are prepared to pay premium rates.
Faced with this changing landscape, ProSieben has held informal talks with a number of peers about possible tie-ups over the past 12-18 months, according to sources with knowledge of the talks.
However, ProSieben's digital business, its strong German focus and still relatively high valuation, have put off all the potential partners.
Only Britain's main commercial channel ITV - described by all the sources as the ideal partner in ProSieben's view despite the potential negative impact of Brexit in the short-term - could offer a glimmer of renewed hope after the departure of Chief Executive Adam Crozier at the end of this month.
Crozier was seen as being opposed to a merger after successfully turning the British broadcaster around.A spokesman for ITV said the group does not comment on speculation.
ProSieben, however, thinks it is under no pressure for a transformational deal for at least the next five years, said sources familiar with its thinking. The company declined to comment directly on M&A plans.
Meanwhile, Ebeling is hoping partnerships with European peers in video-on-demand (VOD) and production will help it fight off competition from the likes of Netflix.
ProSieben recently joined forces with Discovery, Italy's Mediaset and France's TF1 to create shows and content for Internet platforms such as YouTube.
But some investors say the company risks falling between two stools as things stand.
"They are not growing enough for a growth investor, not generating enough cash to be a proper cash return stock," said Artemis fund manager Jacob de Tusch-Lec, a former top 25 investor before he sold his shares at the start of this year.
"The patchy digital strategy and the dilution stemming from the cap hike make them the typical artificial growth stock."
ProSieben's own streaming platform Maxdome, its response to over-the-top media players such as Netflix and Amazon, is fading after a promising start.
It has lost ground to those U.S. online competitors and now ranks only fourth in its home market behind sector leader Amazon, Netflix and Sky Deutschland, according to media consultant Goldmedia.
"U.S.-based over-the-top players will eventually get better than European broadcasters at matching customers' expectations in every market in which they operate thanks to their data analytics capabilities," said Wesley Lebeau, portfolio manager at CPR Asset Management.
"This will cause a profound disruption and force free-to-air TV players in Europe to consolidate their market."
ProSieben is aiming to defend its position in the media market by supplying its own content to Netflix and Amazon.
It is also on the lookout for regional acquisitions to strengthen its presence in German-speaking TV markets, although such small deals would hardly move the needle, the people said.
ProSieben says its energy comparison site Verivox and most of its online travel agents are market leaders. Other online properties like dating site Parship are household names.
However, a recent decision to explore a sale of some strong performing travel assets including eTRAVELI which it values at 500 million euros has added to concerns that the company is simply piling up cash with no clear plan how to spend it. "I held ProSieben from 2010 and it's been a great story for some time," said de Tusch-Lec of Artemis.
"It's not clear what the next chapter will be."
For a graphic, click: reut.rs/2rZL4Zb
(Reporting by Sophie Sassard; Editing by Keith Weir)