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Viewing report
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Broadcast Media Market Assessment
Key Note Publications Ltd, Jan 1999
The 1990s have witnessed dramatic changes in the broadcast media landscape. No sector of the industry remained unaffected by these changes. The pace of change is quickening, since 1997 the market has seen the advent of Channel 5, the launch of new satellite and cable channels and the rollout of the cable operator's fibre-optic communications networks. The launch of new television and radio services will ensure that the pace does not slacken.
The value of the total commercial broadcasting market has grown steadily since 1994, by almost 73% by 1998. However, the total figure conceals a wide disparity of fortunes between commercial broadcasters operating in different sectors. Between 1994 and 1998 commercial television revenues grew by a very uninspiring 27%. The share of total market value held by the commercial terrestrial sector fell from 67.6% in 1994 to less than 50% in 1998 (estimated).
In contrast, the cable and satellite sector has experienced extraordinary growth in revenues during the 1990s. Between 1994-98 total revenues grew from £689m to £2,050m (estimated). Total growth over the review period amounted to 197.5%, the highest of any sector in commercial broadcasting.
Commercial radio revenues had experienced a long period of stagnation until the early 1990s, when strong growth occurred in 1994-95, with a 23% increase in revenues that year. Thereafter the growth of this sector has not been maintained and the increases dropped to 14% in 1996 and 1997, and the estimation for 1998 is 8.7%. The rate of increase has declined significantly. As the number of radio licences and therefore services has been growing rapidly, the total size of the audience has remained fairly static. Rather than new services bringing in new listeners, they have tended to poach listeners from other stations and advertising revenues have simply followed the audiences. With the network rollout of the cable operators nearing completion, competition for local advertising from this and other media has increased.
While the BBC is not in direct competition for revenues with the commercial broadcasters, it does compete directly for audience share. The resources they have available in the form of compulsory licence fee receipts at over £2bn in 1997, represents a serious on-going challenge. The commercial activities of the BBC are causing increasing concern among their commercial competitors. The corporation's commercial arm: BBC Worldwide made £408m in turnover in 1997 and a profit of £14m. Concerns centre over the extent to which the BBC uses its statutory license fee income to subside its commercial activities.
The Corporation's capacity to invest in new technology puts it at the forefront of broadcasting in the UK. The BBC spent £96m on digital projects in fiscal 1997-98 and this sum will double.
Digital broadcasting will do more to shape the industry into the next millennium than any other factor. Analogue television use of the spectrum is very wasteful, digital transmission presents an opportunity to open up large areas of spectrum for other users, including personal communications.
The Broadcasting Act 1996 initiated the creation of six terrestrial Multiplexes, bundles of frequencies, which can be split into at least three channels each for services that need little capacity. Five of the channels derived from the six multiplexes will be set aside for the use of the five existing terrestrial analogue services. The key difficulty facing digital broadcasters, is the need to tempt viewers to buy the set-top box needed to receive digital broadcasts on their analogue television sets.
The main digital terrestrial competitor and rival to BSkyB is ONdigital. Jointly owned by Carlton and Granada, it uses BBC and Flextech for content and launched its own digital terrestrial service on 1 November 1998. A number of cable companies are also intending to launch digital services, among them, for instance, Cable and Wireless which plans to launch digital services by the end of 1999. With only ONdigital and BSkyB's digital services currently operating the final shape of digital television in the UK is not yet finalised and may yet be subject alteration. However, by the end of 1999 there will be three digital platforms offering commercial digital services. Terrestrial, satellite and cable television operators will be offering viewers a broad range of services.
DAB is the name given to a digital radio transmission system. DAB allows sound, text and data to be transmitted digitally through either terrestrial radio frequencies or via satellite. DAB could prove to be the most significant issue to face the commercial radio sector since its inception. There are serious problems still to be addressed. However, some companies are ready to support the advent of digital radio.
In October 1998 three new national digital radio stations were allocated, after the UK's sole national commercial digital radio multiplex was handed to the Digital One consortium. Digital One expects to be broadcasting 10 digital commercial radio services from 1 October 1999, including the three existing national commercial stations, Classic FM, Virgin and Talk, and seven new channels. Related text data services will also be tested to support programmes and advertising.
The advent of digital television and radio services will offer operators the opportunity to open up new revenue streams such as pay-per-view (PPV). This has already brought significant financial benefits to the non-terrestrial. So far, PPV via
pay-TV has mainly been used for one-off sporting or major entertainment events that are prohibitively expensive to either produce or buy the programme rights to. Sport has been and continues to be where PPV's strength lies. Increasingly it is used for film premiers and first-rate programming and is seen as one of the ways of promoting genuine consumer choice.
Television and radio companies have the advantage that they are able to avail themselves of free advertising, including the use of trailers and idents on their own and sister stations. This therefore is the main way in which the TV companies promote their programming. However, considerable sums are still spent in main media advertising. The total spend for the whole industry to year ending September 1998 was over £102m.
The radio industry as a whole spent over £14.5m to the year ending September 1998 on main media advertising ie through TV and national press. The largest spender during this period was the BBC, whose advertising costs reached over £3.5m. Within the commercial sector, Capitol Radio in conjunction with its other station Capital Gold spent almost as much, with expenditure amounting to over £3.4m.
The ITC was established by the Broadcasting Act 1990 to regulate and supervise the activities and operations of commercial television broadcasters. The ITC has prime responsibility for all aspects of commercial TV. Its main role is that of a licensing and regulatory body. The role of the ITC is becoming increasingly political as competition in broadcasting increases. The decision of the ITC in November 1998 to allow ITV to `move' News at Ten reflects this new attitude to a fast changing broadcasting environment. The Radio Authority has been the lead regulatory and licensing body for the commercial radio. Over recent months there have been widespread allegations of impropriety and misconduct at the authority.
In order to assess consumer reactions to the advent of digital radio and television services, Market Assessment commissioned original research into consumer attitudes. In October 1998 NOP carried out a survey among a quota sample of 1,001 adults aged over 15. Digital terrestrial attracted a higher level of interest amongst respondents to this survey than either digital satellite, or digital cable. This probably reflects the fact that in the UK most of the population is still totally dependent on terrestrial analogue television for viewing.
The relatively poor performance of digital satellite may be surprising. The cable operators have not really started their own advertising campaign to win digital subscribers as yet they do not even have a firm launch date for a digital cable service. Furthermore, their limited geographical coverage would limit the size of their natural market. After the huge marketing campaign launched by BSkyB, to be so far behind ONdigital in terms of consumer interest and so little ahead of the cable sector suggests that BSkyB's continued domination of the pay-television market in the UK is by no means certain.
Sky still has significant advantage in the form of first rate subscriber management infrastructure, attractive programming, a high profile brand and an analogue business that will continue to generate a huge turnover for the near future. Market Assessment believes that Sky is and will remain, for the time being at least, an important force in UK broadcasting, if not the dominant force that it has been since the mid 1990s.
With 39% of the survey agreeing with the statement: `I will not be subscribing to any of the digital services', it is apparent that there is a large proportion of the population who are very resistant to universal pay-TV or radio, either through subscription or pay-per-view. A generation that grew up with free-to-air viewing/listening is yet to be convinced of the benefits of digital transmission and the need to pay for it directly.
With the whole television industry in a state of flux, it is impossible to be certain of the final outcome of current trends. However, Market Assessment anticipates that between 1999 and 2003 the value of the total market will grow by over 40% to £7,443m. Certainly Market Assessment expects that such revenue growth which does occur will be unevenly spread across different market segments.
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