The production of broadcasts and remuneration ofrights: a business perspective

A presentation by Godfrey McFall, Senior Associate, Oliver & Ohlbaum Associates WIPO Headquarters, May 25th 2009

An assessment of broadcasting’s contribution to copyright

An assessment of broadcasting’s contribution to copyright Who we are

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The leading independent adviser and expert on the opportunities and challenges facing the global media, entertainment and sports sectors in the 21st century.

Have advised over 200 corporations, investors and regulators from the UK, Europe, the Americas and emerging markets.

We advise clients from the following industries: TV and radio broadcasting Entertainment and content creation Sport Print and publishing Advertising and transaction based media Online and broadband (media and

distribution)

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Contents

Flow of funds in the European broadcasting market

The contribution of the five largest European markets

A UK case study

Summary points

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Contents

Flow of funds in the European broadcasting market

The contribution of the five largest European markets

A UK case study

Summary points

Flow of funds in the European broadcasting market Schematic flow of funds – direct and indirect copyright contribution

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RIGHTS SALES

OTHER ANCILLARY REVENUES

ADVERTISERS

CONSUMER PAYMENTS

SOURCES OF FUNDING

CONTENT CREATION

ADVERTISING SPEND

OTHER REVENUES

SUBSCRIPTIONFEES

LICENCE FEE

RADIO & TV BROADCASTING

BROADCAST INDUSTRY REVENUE

PROGRAMMING SPEND

BROADCAST INDUSTRY

EXPENDITURE

• Creation of original IP • Talent investment• Music creation and rights • Arts/photography• Acquisitions • Live events • Others (toys and games)

FLOW TO COPYRIGHT HOLDERS

TECHNOLOGICAL INVESTMENT

• Telecommunications • Platforms and distribution• Digital software • Consumer electronics

Flow of funds in the European broadcasting market Sizing the European content industry and flows to copyright industry

6Source: O&O Trends

Total industry worth over €86bn

€37.6bn (44%) of total revenues invested into content creation in 06/07

Content spend creates original IP and flows into copyright sectors identified on previous slide

LICENCE FEE

ADVERTISING

OTHER

PAY TV

BROADCASTER COSTS & PROFITS

TV SPEND

RADIO SPEND

86.3

European broadcasting flow of funds, 06/07

Flow of funds in the European broadcasting market Programming spend and constituent flows to copyright

7Source: O&O Trends

Total European content creation, 06/07

IN HOUSE

EXTERNAL

NEWS

FILM AND TV ACQUISITIONS

SPORTS RIGHTS

RADIO SPEND

DIRECT IP CREATION FLOWS TO COPYRIGHT

• PODCASTS• EXCLUSIVE ONLINE

CONTENT• COMEDY/DRAMA • CULTURAL DIVERSITY

• COLLECTION AGENCIES • TALENT • NEWS AGENCIES

• TRADEMARKS • MERCHANDISE

• CONTRIBUTES TO PRODUCTION FINANCE (PRE-SALE OF RIGHTS)

• TALENT (WRITERS, DIRECTORS)• COLLECTION AGENCIES • NON-DOMESTIC RADIO/TV• MOTION PICTURE

• ORIGINAL JOURNALISM • DOCUMENTARIES • CULTURAL DIVERSITY

• TALENT (WRITERS, CONTRIBUTORS)

• WIDER PRESS/NEWS AGENCIES

• PROGRAMME IDEA CREATION (BOTH INDEPENDENT AND IN HOUSE)

• CULTURALLY DIVERSE RANGE OF PROGRAMMING TOPICS

• NEW FOOTAGE/FILMING• ORIGINAL MUSIC SCORES

• COLLECTION AGENCIES • TALENT• ANCILLARY ACTIVITIES • ARCHIVE FOOTAGE

Flow of funds in the European broadcasting market Non-subscription funded broadcaster’s contribution to programming spend

8Source: O&O Trends

In all but two EU territories, non-subscription markets account for greater than 50% of all programming spend

In largest markets, non-subscription funded broadcasters represent between 65% and 87% of all content spend

Non-subscription funded broadcasters proportion of overall programming spend, 06/07

AVERAGE – 72%

Flow of funds in the European broadcasting market Non-subscription funded broadcaster’s contribution to original content creation

9Source: O&O Trends

Non-subscription funded broadcaster’s account for over 75% of all original content investment in all markets

In the majority of European countries, publicly funded broadcasters tend to invest more heavily in original content than their commercial counterparts

Non-subscription funded broadcasters proportion of overall origination spend, 06/07

COMMERCIALLY FUNDED

PUBLICLY FUNDED

HIGH RELATIVE PUBLIC INVESTMENT

HIGH RELATIVE COMNERCIAL INVESTMENT

AVERAGE – 91%

Flow of funds in the European broadcasting market Audiovisual sector’s contribution to EU economy

10*Audiovisual industry includes radio, TV, film and video; **Study includes national data from 15 European Union member states **2008 – indicative values Source: European Commission, Oliver & Ohlbaum Trends

Audiovisual sector still remains a critical contributor to the EU economy

Indicative values of growth suggest audiovisual sector holding up better than other industries faced with digitisation of media consumption

Gross Value Add (GVA) by EU copyright industry sectors as a % of total GDP, 2000 & 2008 estimate**

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Contents

Flow of funds in the European broadcasting market

The contribution of the five largest European markets

A UK case study

Summary points

The contribution of the five largest European markets In terms of revenue

12Source: O&O Trends

Total broadcasting revenue (radio and TV) by country size, 06/07

RADIO

NON-PAY TV

PAY TV

• Big Five – 72% of revenues

• Non-pay – 2/3 of big five revenues

The contribution of the five largest European markets In terms of investment in content

13Source: O&O Trends

Total programming spend by market and broadcaster type, 06/07

PUBLICLYFUNDED

COMMERCIALLYFUNDED

PAY TV

RADIO

% PROG SPEND OF NON-SUB FUNDED BROADCASTERS 70% 87% 65% 74% 67%

• Big Five – ¾ of all programming spend

• Non-pay – 87% of spend in Germany

The contribution of the five largest European markets In terms of investment in original IP

14*Radio excluded Source: O&O Trends

Total originations spend by country and broadcaster type*, 06/07

PUBLICLYFUNDED

COMMERCIALLYFUNDED

PAY TV

% PROG SPEND OF NON-SUB FUNDED BROADCASTERS

98% 92% 78% 92% 90%

• Big five - >€14bn investment in original IP

• Non-pay accounts for over 90% of this investment

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Contents

Flow of funds in the European broadcasting market

The contribution of the five largest European markets

A UK case study

Summary points

A UK case study Total TV and radio market revenues 2002-2007

16Note: CPI CAGR of 3.2%; GDP CAGR of 5.4% Source: O&O Trends, Ofcom, RAB, Zenith, BBC Annual reports

Market growth just below GDP growth driven by subscription revenues

Burgeoning pay TV market – 55% of homes in 2008

Decline in advertising in ‘real terms’

Licence fee revenue has grown at around GDP

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TV & Radio industry revenues (nominal), 2002-2007

SUBSCRIPTION REVENUE

ADVERTISING REVENUE

REVENUE FROM PUBLIC FUNDS

Compound Annual Growth Rate (CAGR)

02-07 %

5.2

8.4

2.6

5.1

A UK case study Broadcasting contribution to copyright collection agencies increasing

17*Note: excluding online revenue Source: PRS for Music, O&O Analysis

Growth in the UK broadcasting market has translated into a rise in the total value of collections made by the PRS for music from 2002 to 2008

Broadcasting and online contribution copyright agency grown at CAGR of 10%

Broadcasting now single biggest contributor to revenues

Performing Rights Society (PRS) for Music revenues by sector, 2003-2008

BROADCASTING & ONLINE

MECHANICAL

BROADCASTING CONTRIBUTION*

24% 24% 24% 24% 25% 26%

INTERNATIONAL

PUBLIC PERFORMANCE

A UK case study Programming investment in the face of advertising declines

18*Includes spin off channels; values Source: O&O Trends, Ofcom

Despite pressure on commercial terrestrial players, investment in programming has remained steady

Real advertising decline of 1.3% while programming spend grew at CAGR of 1.7%

Competitive dynamics in UK market have ensured a sustained level of investment in programming

Commercial terrestrial programming spend versus revenues (real), 02-07CAGR 02-07

%

(1.3)

1.7

ADVERTISING

PROGRAMMING SPEND

A UK case study Critical role of terrestrial broadcasters in original content creation

19*Excludes regional spend; includes terrestrial spin off spend Source: O&O Trends

Terrestrial broadcasters play a critical role in investment in original intellectual property and cultural diversity

Account for 95% of total spend

Thematic programming spend dominated by acquisitions and sports rights so contribution to original content creation relatively small

Total originations spend by broadcaster type, 2004 – 2007*

PUBLICLYFUNDED

COMMERCIALLYFUNDED

THEMATIC PAY CHANNELS

% PROG SPEND OF TERRESTRIAL BROADCASTERS

96% 96% 95% 95%

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Contents

Flow of funds in the European broadcasting market

The contribution of the five largest European markets

A UK case study

Summary points

An assessment of broadcasting’s contribution to copyright Summary

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EU broadcasting contribution to core copyright of over €30bn

Public and commercial broadcasters invest significantly more in original radio & TV IP and related copyright sectors than subscription funded counterparts

Additional investment in partial and interdependent copyright industries

Big five markets account for disproportionately high share of original IP generation in EU

Smaller markets remain crucial for cultural diversity and it is the non-pay broadcasters driving creativity in these markets