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INDUSTRY REVENUES & BUSINESS MODELS
March 2012
PROJECT BACKGROUND
As part of Red Bee’s Tomorrow Calling programme, MTM London was engaged to explore the key
trends and developments impacting the long-term evolution of the UK broadcasting industry’s
revenue streams, to stimulate thinking about the shape of the industry in 2020
The project was structured around a programme of depth interviews and an online survey
completed by a cross-section of senior industry participants – the research was undertaken
between December 2011 and March 2012
All interviews were completed under the Chatham House Rule – unless otherwise noted, all
quotations and survey findings derive from the industry research
The project was managed by Stella Medlicott, Matthew Neale and Lynne-Mei Lee at Red Bee
Media.
The project team at MTM London was led by Jon Watts , Caroline Rushton and Stephen Adshead.
The contents of this report draw upon the views and opinions of the industry participants who took
part in the research – however, the findings are solely those of the authors and do not necessarily
reflect the views of the individuals or companies named in this report or of Red Bee Media
STRUCTURE OF PROGRAMME
Stage 3 of the Tomorrow Calling programme explored industry revenues and business
models through to 2020
Building successful companies in a changing media market
1. Networks,
platforms and
devices in 2020
2. Changing
media audiences
3. Industry
revenues and
business models
Building
successful media
businesses
Three stages Final Report
Focus of this
report
The project was structured around four main worksteps, completed over a three-month
period
• Identify trends and developments impacting
evolution of industry revenues streams
• Gather views from wide range of experienced
industry participants
1. Industry research,
interview programme
2. Quantitative survey of
industry experts
A four-stage approach Caveats and qualifications
• Sample not census, of qualified, experienced
industry participants, selected in conjunction
with Red Bee
• Interview questions based on domain expertise
of interviewee, given limited time, with scope for
wider discussion
• Interviewees expressed individual views, based
on professional experience and expertise –
however, visibility of wider industry trends was
sometimes limited
• All views have been interpreted, cross-checked
with industry data and other interviewees (where
possible), and synthesised to produce an overall
view
• Develop clear view of market evolution, and a
picture of the shape of the industry in 20204. Analysis and synthesis
of research findings
3. Think
Tank
• Online survey of 138 senior media and
technology industry experts
• Questions on prospects for specific industry
revenue streams and business models
• Industry seminar, debating emerging findings
with cross-section of industry participants
APPROACH
The project team completed depth interviews with senior decision makers across the
industry and held an industry seminar to discuss emerging findings
Depth interviews Seminar participants
This document reflects solely the views of the authors and not of the interviewees or think
tank participants – all interviews were completed strictly under the Chatham House Rule
INTERVIEWS & SEMINAR PARTICIPANTS
By 2020, as a result of these (and other) developments, industry participants expect the
industry’s major revenue streams to look very different
Video advertising
• “The underlying trade mechanics and shares will change. We won‟t still be
trading on share deals, sponsorship and AFP will grow, we‟ll see a
converged video ad market covering multiple platforms. Today, TV and
online video ads are still sold as separate products. That won‟t be the case
in 2020 – the market will be much more integrated, with video ads sold
across different platforms through trading desks and other platforms, and a
much greater emphasis on creative partnerships”
BBC income allocated to TV
• “The BBC‟s not going to get any less important – it‟s going to be the biggest
investor in British programming. But it‟s never going to be as rich as it once
was. By 2020, it‟ll be a smaller part of the overall market – still a big
player, but more focused on doing a few big things well, rather than doing
the range of things it does now”
Pay (subscriptions and
transactional)
• “There are going to be lots of different business models and windows: TV
anywhere, DTO and DTR, SVOD, ad-funded, and so on. DVD will have largely
shifted to digital, but the revenues will be distributed across lots of
windows. I don‟t think the big pay-TV platforms will suffer much, but they
will face more competition from alternative offers”
SUMMARY
Depth
interview
findings
Quant
survey
findingsKey:
The last
10 yearsAds Pay BBC
Areas of uncertainty
SummaryEvolution of industry revenues
Investment in
TV content
Challenges
and
opportunities
1. THE LAST TEN YEARS
Overall, broadcasting industry revenues remained relatively robust between 2001 and
2010 – growth was driven primarily by subscriptions
BROADCASTING AND DVD INDUSTRY(1) REVENUES (2001-2010)
Total industry revenues, UK, real terms - 2010 prices (£bn) (2,3)
Notes: (1) Total broadcasting and home entertainment (DVD) industry. Excludes TV shopping and interactive revenues; (2) Advertising revenue includes TV NAR, online
video rolls and sponsorship; transactional revenue includes DVD retail and rental, PPV, VOD and EST
Sources: (3) Ofcom, Communications Market Report (August 2011); BFI, Statistical Yearbook (2011); IAB-PWC, Online Adspend Study (2010); and MTM analysis; (4) Oliver
& Ohlbaum, A comparison of international television advertising markets (August 2011)
“Subscription has been the big change in the UK market – it accounts for
the biggest share of the industry‟s profits, it‟s matured and throws off a lot
of cash. It creates the opportunity to make some big bets and to spend
more on content and new products”
Developments from 2000 to 2010
Decrease driven primarily by economic cycle and decline in price
of TV airtime (average price down 32% in nominal terms,
between 2000-2010(4))
Little growth in DVD revenue across the decade: revenues grew
strongly at first, before falling prices and volumes impacted the
market; digital revenues growing steadily
Strong growth driven by growth in penetration of pay-TV services
and growing ARPUs at top end of the market – SVOD
propositions also emerging, but still small scale
Average spending increased in real terms, driven by licence fee
settlements and growth in number of TV households – however,
2010 settlement will see value of licence fee fall
Advertising
TV NAR, sponsorship and
internet video rolls
Transaction
DVD retail and rental,
PPV, VOD and EST
Subscription
Pay-TV subscriptions
and SVOD
BBC
Licence fee spending on TV
PA
Y
The last
10 yearsEVOLUTION OF BROADCASTING INDUSTRY REVENUES
However, growth in pay-TV subscriptions and multichannel penetration is now slowing,
as the market matures
MULTICHANNEL TAKE-UP IN UK HOUSEHOLDS (2001-2010)
70% 67% 64% 61% 58% 56%
0
2
4
6
8
10
12
14
16
18
20
22
24
26
28
Q1 2
001
Q1 2
002
Q1 2
003
Q1 2
004
Q1 2
005
Q1 2
006
Q1 2
007
Q1 2
008
Q1 2
009
Q1 2
010
Q1 2
011
Analogue terrestrial only
Digital terrestrial only
Analogue cable
Digital cable
Free-to-view digital satellite
Analogue satellite
Pay digital satellite
TV households (million):
Audience share of 5 main channels:
Source: Ofcom, Communications Market Report (2011)
“The PSBs have lost
[audience] share as
multichannel
penetration has grown,
but the transition to
digital is almost
complete – it‟s a more
mature market and
they‟re not losing share
as fast as they were.
They‟ve over the hump
now and it‟s the
multichannels who are
starting to see a slow-
down in growth”
The last
10 yearsEVOLUTION OF BROADCASTING INDUSTRY REVENUES
2. EVOLUTION OF INDUSTRY REVENUES
Depth
interview
findings
Quant
survey
findingsKey:
The last
10 yearsAds Pay BBC
Areas of uncertainty
SummaryEvolution of industry revenues
Investment in
TV content
Challenges
and
opportunities
There appears to be a strong consensus across the industry that the collision of
broadcasting with broadband will define the next decade
A DECADE OF CHANGE AHEAD
“In 2020, the notion that we‟ll be able to point at something called the broadcasting
industry, with distinct revenue streams, simply won‟t hold. As the underlying platforms
evolve, broadcasters are going to face competition for their traditional revenue
streams and are going to diversify into new areas”
“The mix is going to change, in terms
of market share – the big display
platforms, like Facebook and Google,
will keep on growing. The weaker
parts of the TV market are going to
get hit”
“The big trend will be a shift away
from the household as the unit of
consumption to the individual –
personal devices, personal accounts,
recommendations, and so on”
“The market looks very stable,
superficially – we don‟t see huge
change on the surface, but the
underlying mechanics and shares will
change. Today, video ads are still
sold as separate products. That
won‟t be the case in 2020 – the
market will be much more
integrated”
Ads Pay BBCEVOLUTION OF INDUSTRY REVENUES
TRENDS & DEVELOPMENTS
Many industry participants are positive about the prospects for the industry – however,
there are concerns about economic conditions
MACROECONOMIC CONTEXT
• The economic downturn has already had a
significant impact on industry revenues, especially
TV advertising and transactional revenues
• Going forwards, many industry participants believe
that low economic growth and pressure on
disposable incomes (e.g. through increased
taxation, rising commodity prices) will impact the
growth prospects for the market
Note: (1) Survey response to question: How positive are you about the prospects for the UK‟s broadcasting industry to 2020?
Positive about the industry’s prospects(1) … … but cautious about the economic outlook
Positive
78%
Negative
6%
Neither
16%
“Total discretionary
spend on video
entertainment isn‟t
going to grow much,
overall”
“I think we‟re going to
see a decade of
slowing change –
consumers aren‟t
going to adopt new
things as quickly”
“I‟m really positive about the
prospects for the industry –
consumers will have more choice
and control and more
opportunities to consume great
content”
Ads Pay BBCEVOLUTION OF INDUSTRY REVENUES
TRENDS & DEVELOPMENTS
2. EVOLUTION OF INDUSTRY REVENUES - ADVERTISING
Depth
interview
findings
Quant
survey
findingsKey:
The last
10 yearsAds Pay BBC
Areas of uncertainty
SummaryEvolution of industry revenues
Investment in
TV content
Challenges
and
opportunities
Most industry participants expect the TV ad market to face significant challenges –
potentially leading to considerable change
KEY CHALLENGES INCLUDE:
Limited change in ad
formats – spot ads
dominate
Slow change in trading
mechanisms
Concentration of supply /
sales points
Link between TV ad
revenues and economic
growth
Historic characteristics Challenges to 2020
Limited economic growth
Rapid pace of internet ad
innovation
Proliferation of
competing video
platforms
Growth of ad spend
outside of current share
deals
• Poor outlook for economic growth and consumer spending – for example, high street
retail and entertainment are expected to be low growth sectors and may decline
• Rapid pace of change and innovation in internet ad formats, platforms and sales
mechanisms is changing expectations of advertisers and agencies: “Advertisers want to
see similar platforms and innovations in TV”
• Increasingly complex and competitive TV and video advertising market – online video
aggregators and video ad platforms proliferating onto screens, potentially creating
competition for TV ad spend
• “The grey market is going to grow: sponsorship, product placement, creative
partnerships, AFP. These deals happen outside of share deals. And as they grow, the
share deals will become less relevant. It will eventually break down”
“It‟s clear that TV advertising isn‟t dying, but the TV spot market has struggled to grow and develop –
there‟s going to be a lot of change during the next ten years, which will create big challenges”
EVOLUTION OF INDUSTRY REVENUES - ADVERTISING Ads
There is a strong consensus that the TV and video advertising markets will become
increasingly complex and competitive
SUPPLY OF ADVERTISING
PSBs core channels
Examples of
competitors:
Linear TV advertising Non-linear video advertising
Multichannels Catch-up services Online video aggregators
PSBs
Multichannel broadcasters Platforms’ on-demand services Online video aggregators
“The number of TV shows that can attract
mass audiences has clearly declined. It will
continue to decline. We‟re going to see
increased polarisation between big live
shows and fragmented channels that will
attract advertising targeted by audience,
rather than content”
“The mix is going to change, in terms of
market share – the big display platforms,
like Facebook and Google, will keep on
growing their share. They benefit
enormously from the explosion of data,
hugely powerful computing platforms, the
growth of online media consumption,
auctions, trading desks, and so on”
EVOLUTION OF INDUSTRY REVENUES - ADVERTISING Ads
Industry participants expect the commercial PSBs to defend their share of the TV ad
market – however, smaller multi-channels will face growing competition
SHARE OF ADVERTISING REVENUES
PSBs Multi-channels Video aggregators
• Industry participants expect that
PSBs will defend their share of UK
TV advertising revenues
• Smaller multi-channels may
struggle to generate reach in a
more fragmented market
• Video aggregators are expected
to grow their share of video
advertising revenues
EVOLUTION OF INDUSTRY REVENUES - ADVERTISING Ads
Original content and innovation will help PSBs defend their share of audiences and
advertising revenues, but growth is likely to be limited
AD REVENUES – PSBs
PSBs Multi-channels Video aggregators
Large-scale investment in
original content
Delivery of high reach
(increasingly scarce)
Development of new
approaches
“There is a risk that if you lose the scale of the big
broadcasters (and their ability to cross-subsidise big
programmes), then no-one will be able to afford really
expensive content that attracts mass audiences”
By 2020, half of survey respondents predict there will be far
fewer advertising spots on linear television that are capable
of reaching mass live audiences (5 million or more)
“We are working on major innovations that can give us
additional and complementary data about our audiences,
which will further strengthen our long-term position in the ad
market”(1)
Source: (1) David Abraham Royal Television Society speech (2011)
EVOLUTION OF INDUSTRY REVENUES - ADVERTISING Ads
Many industry participants believe that smaller multichannel broadcasters will come
under increasing commercial pressure during the decade
AD REVENUES – MULTI-CHANNEL
PSBs Multi-channels Video aggregators
Audiences are concentrating
around big programmes
Competition from on-demand
offerings is growing
Limited scale and leverage
“The big multichannels currently make a healthy margin, but have struggled to
create break-out programmes that really rate. We‟re seeing a consolidation of
viewers around big programmes, and there aren‟t very many of them. They‟re
going to come under pressure – I‟m sure they‟ll have to cut down on the number
of channels they offer”
“The lower quality multichannel offerings – with lots of library material and deep
repeat patterns – do look vulnerable, as catch-up services proliferate on
connected TVs. There‟s going to be more competition for viewers – and more
options for advertisers”
“It‟ll be the mid-tier of multichannels who
will suffer – they‟ve not got much
leverage in their negotiations and
platforms will look to drive down fees to
pay for the „must have‟ channels. This
will drive consolidation in the mid tier”
“The smaller channels will suffer – they don‟t
own much content, give away lots of value to
platforms, and struggle to invest. If they‟re part
of a bigger international network, like Discovery,
they‟ll be ok – but the small standalones will
find it very tough”
EVOLUTION OF INDUSTRY REVENUES - ADVERTISING Ads
Video aggregators are expected to grow their share of advertising revenues, as online
viewing increases and their ad offer improves
AD REVENUES – VIDEO AGGREGATORS
PSBs Multi-channels Video aggregators
Sources: (1) Survey response to question: Which companies will be most successful in growing their share of UK video advertising revenues, between now and 2020?
Who will grow their share of video ad revenues?(1)
67%
53%
41%
33%
Online video aggregators
Pay-TV platform owners
Multichannel broadcasters
Commercial PSBs
“The mechanics of sales will become much more
complex – exchanges, networks, data-driven
offerings. The role of the agency and the sales
house will be hugely disrupted, around non-
premium offers. There will be more price
competition, more transparency around what works
and what doesn‟t. Do broadcasters understand
auction-based mechanisms?”
“It‟s going to create opportunities for technology
companies and agencies to gain share and
reposition themselves in the market –
someone‟s going to lose out”
EVOLUTION OF INDUSTRY REVENUES - ADVERTISING Ads
“We‟ll see a converged video ad market covering
multiple platforms. Today, video ads are still sold
as separate products and the process of ad
insertion is still very manual. That won‟t be the
case in 2020 – the market will be much more
integrated, with video ads sold across different
platforms through trading desks and other
platforms”
PC VOD
TV VOD
Convergence
Online advertising market
TV advertising market
“Trading platforms will be common in all media –
including TV. It‟s a huge, massive change. Lots of
cost will be taken out of traditional media. It will
fundamentally change the commercial models in
traditional media, which is mostly a commodity
sell. There will be one converged market for
traditional display media”
“TV and online will be a hugely powerful
combination for video – the two media will
converge. The investments that the agencies are
making in their trading desks, the stakes that
agencies are taking in new tech – the market will
be transformed”
EVOLUTION OF INDUSTRY REVENUES - ADVERTISING Ads
By 2020, these changes should result in a more converged market – however, there are
uncertainties over the rate of change
ADVERTISING SALES CONVERGENCE
There are also considerable uncertainties about the prospects for TV VOD advertising
and addressable advertising on existing platforms
ADVERTISING – UNCERTAINTIES
TV VOD advertising Addressable advertising
“I‟m sceptical about the prospects for VOD
advertising, even by 2020. There‟s some
evidence that catch-up viewing has already
peaked, though connected TVs will deliver
some growth. But it‟ll be fragmented
across various broadcasters and I don‟t
think there‟s going to be that much volume
of VOD inventory in the market”
“TV and online are a hugely powerful
combination for video – the two media
will converge. TV VOD has been slow to
grow – the technology hasn‟t moved
fast enough and the platforms are sub-
scale. The energy is all in online – TV
VOD will be there, but it might be much
smaller than we think”
• Systems providing addressable advertising on linear TV services (e.g.
Sky AdSmart) are emerging, but have gained limited traction to date
because of:
− challenges in developing workable business models that provide
incentives for broadcasters, advertisers and platforms
− ingrained TV ad trading system that rewards reach rather than
targeting
− technology challenges around TV platforms (versus online and
mobile)
− privacy issues relating to the collection and use of consumer data
for targeting
“Targeted TV advertising is going to be a long
time coming – the systems aren‟t cheap, it‟s
not clear what value it will add for lots of TV
advertisers, and the market is going to be
very fragmented. It‟s why big aggregators
are so important – but who‟s going to
aggregate enough”
EVOLUTION OF INDUSTRY REVENUES - ADVERTISING Ads
2. EVOLUTION OF INDUSTRY REVENUES - PAY
Depth
interview
findings
Quant
survey
findingsKey:
The last
10 yearsAds Pay BBC
Areas of uncertainty
SummaryEvolution of industry revenues
Investment in
TV content
Challenges
and
opportunities
The pay-TV market is expected to become more competitive and complex, with a
greater range of offerings competing across different platforms
CONVERGENCE OF TRANSACTIONAL AND SUBSCRIPTION
DTV
platforms:Free: Hybrid: Hybrid: Pay:
Subscription:
Transactional(1):
OTT
services:
A more complex and competitive market
Possible
providers
of new
offers:
Note: (1) Transactional = DTO and DTR services.
• Industry participants expect free and pay offerings to continue
competing strongly to 2020 – free catch-up services will spread
across new platforms, while pay offerings also proliferate
• Hybrid platforms (e.g. YouView, BT Vision) will blur traditional
distinctions between free and pay platform
• A proliferation of OTT offers are expected to provide mainly library
content at low prices:
• There are also strong expectations of disruptive new offerings,
brought to market by major technology and internet businesses
“It‟s a battle
between free and
pay. The big
question is: how
attractive will the
free offer be in
2020?”
“YouView will
lead to a whole
new tier of pay
offers, many
offered by free
broadcasters”
“The cost of
entry has
plummeted and
prices will fall:
look at Netflix
and LoveFilm,
competing to
offer more for
less”
PayEVOLUTION OF INDUSTRY REVENUES - PAY
New SVOD offers will grow the market (illustrative)
2010
Pe
ne
tra
tio
n o
f TV
ho
use
ho
lds
2020
Pay-TV
Pay-TV and SVOD
SVOD
0%
100%
“Consumers will ask – are
we satisfied with just the
free offer – increasingly,
the answer will be no”
“The £40-50 price bucket
won‟t grow much, but lower
priced packages will grow
substantially – at £5-10”
“The shift from the
household as the unit of
consumption to the
individual will drive some
growth in the market – but
not that much”
70% of respondents believe that a much greater proportion of UK households will pay to subscribe to some form of film or TV service in 2020
53% of respondents believe that a significant proportion of UK households will subscribe to pay offerings from more than one pay provider
PayEVOLUTION OF INDUSTRY REVENUES - PAY
In general, industry participants do not expect low-priced SVOD offers to cannibalise
existing pay-TV offers – instead, overall penetration will grow
GROWTH IN PAY PENETRATION
Competition from new pay entrants is expected to increase, but many expect incumbent
pay-TV platforms to remain resilient
PROSPECTS FOR PAY COMPETITION
Pay-TV platforms OTT Transactional
• Industry participants expect major
pay-TV platforms to defend their
position
• OTT players will grow but there
are significant uncertainties
about their long-term prospects
• Low-cost, flexible services will
proliferate, creating a complex
ecology of transactional offers
PayEVOLUTION OF INDUSTRY REVENUES - PAY
Pay-TV platforms are expected to defend their position, helped by the strength of their
content and the introduction of new services
PAY COMPETITION – PAY-TV PLATFORMS
Pay-TV platforms OTT Transactional
Key competitive
advantages expected to be
maintained
… and pressure on carriage
fees
Overall, most expect pay-TV
businesses to be resilient
However, more competition
in film …
“There‟s a big difference between first-run content and library
material … the ability to offer first run content remains critical –
live sports, first run US content, films, original production. It‟s
expensive and hard to do”
Only 24% believe that ARPU for the major pay-TVplatform operators will decline significantly from current levels
On average, respondents expect pay-TV revenues to increase by 27% from 2010 to 2020(1)
“The film market is clearly going to be a lot more competitive. It‟s
a very international space, pan-regional deals are becoming more
common. Consumers are going to have a lot more choice”
“The big pay-TV platforms are going to face lots of margin
pressure, which will put pressure on carriage fees – and some
big brands will start thinking about going free-to-air or direct to
consumer”
“I think the major pay platforms will be stable – Virgin and Sky offer
great services, with lots of value. Consumers like the bundle of content,
technology and services. Most consumers aren‟t going to subscribe to
lots of different offerings – and most services are already available
across different platforms”
Notes: (1) Relative to Ofcom data for total 2010 pay-TV revenues including Sky, Virgin Media, Talk Talk TV, BT Vision, ESPN, and Top Up TV.
PayEVOLUTION OF INDUSTRY REVENUES - PAY
OTT offerings are proliferating, with activity from major new entrants – but there remain
significant uncertainties about their prospects
PAY COMPETITION – OTT
Pay-TV platforms OTT Transactional
• There is consensus that major internet competitors will
launch major new propositions into the market…
• …but uncertainty about their prospects, especially in meeting
local market needs
Ability of standalone OTT competitors to sustain investment
and to reach critical mass?
Prospects for major new entrants – internet companies,
technology businesses?
“There is only so much appetite in the UK for pay services,
because of the strong offerings provided by the BBC, ITV,
C4. Catch up services are going to become more widely
available and are already on many different platforms. It‟ll
limit demand for the SVOD offers. I‟m not convinced that
OTT will do as well in the UK, as it has in the USA”
“It is unsustainable from an
economic perspective… The
new acquirer will struggle to
make a return, give up the
rights or not renew”
“Netflix will struggle to
capture a significant share
of the market, unless they
are planning to throw
astronomical amounts of
money at it”
“Google and Apple are the 800lb players. They have
the cash flow, the scale, the ability to invest in
technology and content across every platform”
“They can outbid local competitors [for rights]…
but it is difficult for the big players to be good
at local content”
PayEVOLUTION OF INDUSTRY REVENUES - PAY
As DVD revenues decline, a new and more complex ecology of DTO, DTR and SVOD
services is expected to emerge
PAY COMPETITION – TRANSACTIONAL
Pay-TV platforms OTT Transactional
Two-thirds of respondents believe that sales of physical TV and film DVD will be almost entirely replaced by digital distribution methods by 2020
Complex emerging ecology of DTO, DTR and SVOD
£2bn
£0bn
20202010
Growth of DTO,
DTR & SVOD?
Expected decline in DVD revenue – illustrative
“PPV growth will depend on windows. If there‟s a well-
protected pay transactional window, it could do okay – but
it‟s not clear how it will happen”
“The technology and infrastructure underpinning EST will
become more advanced, with common standards, locker
technologies and so on, but it won‟t replace lost DVD revenue”
“EST and VOD will grow, especially as technologies improve
to make the proposition as compelling as for music, but it is
likely that they won‟t replace DVD”
“Subscription will be a more important feature
of the market than DTO or DTR – people are still
resistant to one-off purchases, if the technology
isn‟t right. But subscription will be
concentrated – there aren‟t going to be many
big businesses”
PayEVOLUTION OF INDUSTRY REVENUES - PAY
2. EVOLUTION OF INDUSTRY REVENUES – LICENSE FEE
Depth
interview
findings
Quant
survey
findingsKey:
The last
10 yearsAds Pay BBC
Areas of uncertainty
SummaryEvolution of industry revenues
Investment in
TV content
Challenges
and
opportunities
Industry participants expect the BBC to remain under pressure, with spending on TV
decreasing in line with the licence fee settlement and new commitments
PROSPECTS FOR BBC INCOME ALLOCATED TO TV
• 2010 settlement froze licence fee at £145.50 to 2016/17, with additional commitments
costing £345m p.a. by 2014/15(1)
• Impact may be mitigated by growth in UK households (c. 1% p.a.(2)) and increasing income
from BBC Worldwide
• But still likely to result in a 17% real terms decrease(3) to the BBC’s income by 2016-17
• Most industry participants expect BBC
income to come under further pressure, in a
tough economic climate and challenging
commercial market
Sources: (1) House of Commons Culture, Media and Sport Committee, BBC Licence Fee Settlement and Annual Report (May 2011); (2) Department of Communities
and Local Government, Statistical release: Household projections (2010); (3) MTM London analysis (note: value highly sensitive to inflation forecasts)
• Prospects for next Charter renewal process
and licence fee settlement uncertain:
“there‟s going to be a lot of debate about
the role and size of the BBC”“Low economic growth and
pressure on the public finances
will put real pressure on the
licence fee. You just can‟t see it
growing much, and there will be
more pressure to share”
Less certainty after 2016-
17 …
2010 settlement – a
significant decrease
… but industry participants
expect further pressure
EVOLUTION OF INDUSTRY REVENUES – LICENSE FEE BBC
3. INVESTMENT IN TV CONTENT
Depth
interview
findings
Quant
survey
findingsKey:
The last
10 yearsAds Pay BBC
Areas of uncertainty
SummaryEvolution of industry revenues
Investment in
TV content
Challenges
and
opportunities
There is a consensus that the PSBs will continue to be the major funders of UK original
TV content – however, growth will primarily come from other areas
SPEND ON ORIGINAL UK PRODUCTION
PSBs Sky and multi-channels Internet businesses
• Industry participants expect that
PSBs will continue to be the
major funders of UK original TV
content
• BSkyB and major multichannel
broadcasters are expected drive
the majority of growth in
expenditure on original UK
programming
• Industry participants also expect
investment in original content by
internet businesses to grow
INVESTMENT IN TV CONTENTInvestment in
TV content
The PSBs are expected to maintain their high levels of investment in original content –
however, commercial pressures will limit overall growth
ORIGINAL PRODUCTION SPEND – PSBS
PSBs Sky and multi-channels Internet businesses
“I just don‟t think there‟s going to
be much change. The big
terrestrial broadcasters will
definitely still be the biggest
funders”
“It‟s unlikely that it will decrease
significantly. There is too much
competition in the private sector for
any other player to replicate the
BBC‟s activity – it‟s going to remain
important”
“It will be very difficult to grow
BBC spend – and net
advertising revenue, C4 and ITV,
is a declining model”
“Public service broadcasters are going
to invest more in commissioning and
reduce their spend on acquisition. It‟s
about owning their own content,
supporting their brands,
regionalising/localising their own
content”
INVESTMENT IN TV CONTENT – PSB’sInvestment in
TV content
BSkyB and major multichannel broadcasters are also expected to commission more
original UK programming, although there are doubts over sustainability
ORIGINAL PRODUCTION SPEND – PAY CHANNELS
PSBs Sky and multi-channels Internet businesses
59% of respondents believe that by 2020 Sky’s expenditure on original UK TV production will exceed that of ITV
“Sky is the big growth area –
they‟re commissioning huge
volumes… 12 months ago I
would never have guessed it”
“A lot of the multichannels are also
commissioning more – it‟s big
multi-territory multichannels
commissioning big budget,
standout programmes”
“How effective will Sky‟s
investment be? It won‟t
generate much viewing. It‟s
mainly for brand purposes”
INVESTMENT IN TV CONTENT – PAY CHANNELSInvestment in
TV content
Industry participants also expect original content investments by internet businesses to
grow – but from a small base
ORIGINAL PRODUCTION SPEND – INTERNET BUSINESSES
PSBs Sky and multi-channels Internet businesses
Half of respondents believe that by 2020 YouTube will spend more than £100m on commissioning original video in the UK
“To become a really significant
commissioner of content in the UK, you
need critical mass. Sky has reached it in the
UK, Netflix, Hulu and YouTube have it in the
USA. How many more companies are going
to achieve that kind of scale in the UK?”
“Hulu, Netflix and YouTube will all
throw money at original
production… You have to go in big
to have any prospect of success”
“A lot of the video inventory on new
platforms will be very low value –
there‟s just not that much compelling
content around, so the big businesses
are having to do deals with
broadcasters and rights holders – as
well as investing in their own content”
“The big opportunities are in niche
content – cycling, chess, angling –
that can be monetised, aggregating
lots of small audiences across
multiple territories”
INVESTMENT IN TV CONTENT – INTERNET BUSINESSESInvestment in
TV content
At top end of the market, industry participants expect intense competition to lead to an
increase in the prices of premium content rights
SPEND ON PREMIUM CONTENT RIGHTS
• Major device manufacturers and global internet competitors
(focused on international film content)
− “For premium rights holders, it‟s all good news. New
platforms and aggregators will bid up the costs of rights –
they‟ve got no legacy platforms or customer bases, so
they need the eyeballs to drive viewing and subscription –
and they will pay top dollar for rights. It will increase the
costs for incumbent providers – and creating price
pressures”
• Major international media companies (with greater
propensity to acquire local rights)
Source: (1) MTM survey of 138 senior executives in media and technology companies, February 2012.
• “There‟s a huge bubble, driven by pay-TV and OTT providers.
Studios are selling content at extortionate rates.”
• “There are always new sources of money coming into the
media market – Al Jazeera, Setanta, Netflix. It‟s almost
always unsustainable, from an economic perspective. The
big pay-TV platforms lose rights to a non-economic bidder, a
small number of subscribers churn, but most don‟t. The new
acquirer struggles to make a return, they give up the rights
or don‟t renew, the world goes on.”
Potential for well-funded new entrants to bid for rights… …but is this investment sustainable?
57% of respondents believe that a major internet or technology company (e.g. Google, Apple, Samsung) will successfully acquire the rights to at least one package of live Premier League football games 1
72% of respondents believe that competition for premium film, TV and sports content will intensify dramatically, with a greater number of companies seeking to acquire rights
INVESTMENT IN TV CONTENTInvestment in
TV content
The industry is positive about the prospects for UK programming overseas, with
anticipations of strong growth
INTERNATIONAL SALES OF UK PROGRAMMING
Source: (1) Survey response to question: Over the next decade, which regions do you think will be the most important export
markets for UK television formats and content?
Most important markets for exports (1)
59%41%
21%
49%*
30%
10%
17%
31%
27% 44%26%
*Total Europe
West (36%), North (29%),
Central / East (18%),
Southern (7%)
19%
“The trend is away from fully funding programming, especially in some genres. I can‟t think of any big dramas that have been fully funded recently – and that means they‟re going to be made by big international production businesses that can afford to take risks and can sell internationally”
55% of respondents believe that by 2020 revenues from the international sale of UK television programmes and associated activities (estimated by Pact at £1,418m in 2010) will exceed £2.5 billion
INVESTMENT IN TV CONTENTInvestment in
TV content
However, industry participants expressed uncertainty over possible value destruction in
the transition to digital, and over future rights windows
CONTENT – UNCERTAINTIES
• “Total discretionary spend on video entertainment isn‟t going
to grow much, overall. More people will pay for content and
they may buy more units, but per unit prices are going to
come down. In some industries – music, publishing – digital
has been deflationary. Games are different – digital has
driven lots of new business models. Which way will film and
TV content go?”
• “There are going to be big adjustments in the price of film and
TV rights. The major studios are still adapting their models
and windowing strategies – they‟re not always that joined up,
so it takes time”
• “There‟s not much potential to play around with the
windowing structures for TV because you start at the free end
– unlike film. However, TV audiences are fragmenting – there
may be opportunities to charge for things like the freedom to
watch whenever, wherever. Free catch up windows are going
to come under pressure though!”
Will the transition to digital destroy value in film and TV?How will content producers structure and price rights
windows?
?
INVESTMENT IN TV CONTENTInvestment in
TV content
Depth
interview
findings
Quant
survey
findingsKey:
The last
10 yearsAds Pay BBC
Areas of uncertainty
SummaryEvolution of industry revenues
Investment in
TV content
Challenges
and
opportunities
4. OPPORTUNITIES, CHALLENGES & IMPLICATIONS
Over the next 10 years, industry participants expect the competitive dynamics of the
broadcasting industry to change significantly – competition will increase
IN SUMMARY …
• “The big shows will get bigger, but everything else is going to get much smaller –
look at Youtube: it‟s a lot of long tail content and it‟ll be on your TV”Fragmentation of audiences
• “Barriers to entry are falling across the value chain – it‟s going to make
everything more competitive – and change will happen more quickly”Decreasing barriers to entry
• “It‟s hard to create great content, so lots of companies will look to buy it”Increasing premium rights
costs
• “Scale will be much more important – you need to invest at scale and to have some
sort of negotiating leverage – and not many UK companies have real scale”Increasing importance of
scale
• “The big international internet players and technology businesses have got funding
from other markets and lines of business – and will be looking for growth
opportunities”
Major international
competitors
Challenges
and
opportunitiesOPPORTUNITIES, CHALLENGES & IMPLICATIONS
Many industry participants believe that the growing power of new digital gatekeepers
will be their most important challenge
HIERARCHY OF CHALLENGES FACING THE INDUSTRY THROUGH TO 2020
17%
34%
36%
43%
45%
49%
50%
55%
55%
64%
Growing threat of piracy
Competition from new entrants
Increased costs of content rights and talent
Growing revenues in a competitive market
Poor outlook for the UK economy
Fragmentation of digital services
Rights management across platforms
Disruption by new media technologies
Changes to consumer behaviour
Growing power of new digital gatekeepers
Note: % of respondents saying the following are important challenges facing their company
“The big internet and
technology businesses are
going to get more
powerful in the UK
market. What will Apple
do? How big will Facebook
and Google get?”
Challenges
and
opportunitiesOPPORTUNITIES, CHALLENGES & IMPLICATIONS
However, the industry is also excited about new opportunities – to exploit new
platforms and develop new revenue streams
AREAS OF OPPORTUNITY INCLUDE:
“The industry is going to be a lot more diverse – it‟ll be a very creative time, with lots
of new models and products and opportunities”
“There are going to be lots of
exciting opportunities to distribute
content and develop really strong
programme brands – going direct to
consumer in a way that wasn‟t
possible before”
“Product innovation will become
much more important and exciting
– with twin-screening, apps – all of
the new technologies – we‟ll be able
to do a lot more around
broadcasting”
“I see lots of new transactional
opportunities – and opportunities to
sell our content to platforms. The
bubble will burst, but it will grow”
“Creative partnerships – all of the
non-traditional ad models – will
grow. It‟s a really exciting
opportunity for creative companies
and brands”
Challenges
and
opportunitiesOPPORTUNITIES, CHALLENGES & IMPLICATIONS
Going forwards, industry participants believe that the priorities for different categories
of industry participant vary significantly
PRIORITIES INCLUDE:
• Build revenues around key brands in pay-TV windows, while optimising
the pay-free balance in portfoliosMultichannel
broadcasters
• Maintain large-scale investments in quality content, leveraged across
multiple platformsPSBs
• Develop cross-platform services to retain existing subscribers, attract
new customers and maintain/grow ARPUPay-TV operators
• Build international presence and diversify revenues: AFP, direct-to-
consumer, transactional, merchandising and licensingUK producers
Challenges
and
opportunitiesOPPORTUNITIES, CHALLENGES & IMPLICATIONS
However, four factors stand out – for successful companies, during the remainder of the
decade
KEY SUCCESS FACTORS
Create or acquire great
content …
• “Big hits will capture a growing share of returns – you need great, cut-through content, strong
brands that can grown and develop over time – you‟ve either got to make it or buy it”
… efficiently …
• “Everyone‟s going to have be much more efficient. There will be real pressure to re-evaluate
anything that doesn‟t directly add value – and technology will drive a lot of change”
… distribute it …
• “Multi-platform distribution will be the norm – by 2020, there won‟t be single platform
experiences – you‟ve got to follow the audience and adapt the experience”
… and monetise it
effectively
• “We‟ll need to be much more flexible about how we make money – look at the music industry or
the games industry: we won‟t be able to rely so strongly on one business model or revenue
stream”
“The best companies will do really well – but everyone else needs to worry …”
Challenges
and
opportunitiesOPPORTUNITIES, CHALLENGES & IMPLICATIONS
CONTACT INFORMATION
For more information on Tomorrow Calling, please contact:
Stella Medlicott, email: [email protected]
Matthew Neale, email: [email protected]
Red Bee Media
Broadcast Centre
201 Wood Lane
London
W12 7TP
Tel: +44 (0)20 8495 5000
Fax: +44 (0)20 8495 5015
www.redbeemedia.com