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THE UK TELEVISION MARKET: AN OVERVIEW

THE UK TELEVISION MARKET: AN OVERVIEW. September 2003. Contents. Industry revenues and expenditure Multichannel platforms and digital TV Broadcasters and channels Programming and audiences. £82 million. 1%. Sponsorship. 60%. £248 million. 3%. Sale of goods. 50%. £319 million. 4%.

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THE UK TELEVISION MARKET: AN OVERVIEW

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  1. THE UK TELEVISION MARKET:AN OVERVIEW September 2003

  2. Contents • Industry revenues and expenditure • Multichannel platforms and digital TV • Broadcasters and channels • Programming and audiences

  3. £82 million 1% Sponsorship 60% £248 million 3% Sale of goods 50% £319 million 4% Other NAR 40% £1.8 billion 26% BBC licence fee spent on TV BBC licence fee spent on TV 30% Subscription 20% £1.5 billion 21% SubscriptionRevenue* Other 10% Sale of goods Sponsorship 0% £3.1 billion 44% Net Advertising Revenue 1997 1998 1999 2000 2001 2002 Sources of revenue to UK broadcasters Components of television revenue in 2002(12 months to end September) Trend in share of main components,1997-2002 * defined as subscription revenue to pay-TV channels, not platform revenue Source: ITC

  4. Channel NAR 2002 ITV1 £1,727m 80% 70% Channel 4 £623m 60% Five £221m Channel 3incl GMTV 50% Cabsat and Other £575m 40% 30% Channel 4 incl S4C 20% Cable and Satellite and other 10% Five 0% 1997 1998 1999 2000 2001 2002 UK TV Net Advertising Revenue by channel over time Source: ITC, figures for 12 months to September of relevant year

  5. 500 450 Cash Bids 400 £ million, nominal prices 350 PQR 300 250 200 150 100 50 0 1997 1998 1999 2000 2001 2002 Tender payments by Channel 3, Five and Additional Services licensees,1997-2002 The Broadcasting Acts 1990 and 1996 require that certain kinds of licence are awarded by the ITC after a process of competitive tender. Licences awarded in this way are required to make additional payments to the Treasury (via the ITC). Additional payments are in two parts. The first is a percentage, set by the ITC, of qualifying revenue (PQR). The second part is the cash bid, which on renewal is set by the ITC. This is index-linked and payable annually. Note: The drop in total tender payment in 1999 reflects the renewal of some Channel 3 licences. The increase in PQR in this year reflects the policy decision that more emphasis be given to the PQR component of tender payments. Source: ITC, calendar year figures

  6. 1,200 1,000 800 600 400 2001 2002 2003 200 0 BBC1 (Network) BBC2 ITV1(Network) C4 Five Programme budgets for the terrestrial channels, 2001-2003 Source: Company reports, press reports and ITC estimates (for the BBC in 2003)

  7. BBC Granada Carlton SMG FremantleMedia Other independents Endemol TVCorporation The UK programme supply market At the Secretary of State’s request, the ITC conducted a comprehensive review of the programme supply market in autumn 2002. Size composition of UK production market by share of turnover 2001 The ITC made a series of recommendations which were accepted and incorporated into the Communications Bill. Among the actions proposed by the ITC were measures to strengthen the growth potential of the independent production sector, including the requirement that public service broadcasters develop Codes of Practice to provide a clear framework for their dealings with independent producers. Source: ITC

  8. 1,200 £m 1,000 800 600 400 Others North America 200 Other Europe European Union 0 1999 2000 2001 1999 2000 2001 Exports Imports International trade by UK TV companies International transactions of TV companies,1999-2001 Source: ONS (2002 figures available in late 2003)

  9. Contents • Industry revenues and expenditure • Multichannel platforms and digital TV • Broadcasters and channels • Programming and audiences

  10. Range of available digital basic pay-TV packages (Satellite & Cable) Sky Cost: £12.50 £15.50 £18.50 Channels included: 102 channels incl. some 90 free to air 4 ‘themed’ packs (Popular, Knowledge, Kids/music, Lifestyle), each offering some 113 channels (incl. FTA) 187 channels (incl. FTA) Telewest Cost: £13.50 £25.50 Channels included: More than 30 channels,incl. some 20 ‘free to air’ More than 100 channels(incl. ‘free to air’) NTL Cost: £18.00 £28.00 Channels included: More than 30 channels,incl. some 25 ‘free to air’ Some 100 channels(incl. ‘free to air’) • Please note: prices for NTL and Telewest packages include phone line rental;installation charges are applicable for all three platforms Source: Company literature, 30 September 2003

  11. UK Digital TV Penetration, Quarter 2, 2003 UK multichannel TV growth, 2000 - 2003 Platform Households (‘000s) % of UK TV households Pay Digital Satellite 6,559 26.4% 14 Millions of subscribers 12 FTA DigitalSatellite* 739 3.0% 10 Digital Cable 2,188 8.8% 8 6 Digital Terrestrial* 1,790 7.2% 4 ADSL 11 0.0% 2 2000 2001 2002 2003 0 Total 11,287 45.5% Analogue satellite Pay digital satellite FTA satellite Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Analogue cable Digital cable Digital terrestrial * ITC estimates Multichannel TV take-up by platform Source: ITC Multichannel Quarterly. (Please note that these figures do not currently take into consideration platform overlap, therefore all households are considered to be discrete multichannel units. However, the ITC is currently working on a methodology to report more accurately on multi-platform households.)

  12. FTA DTT Adaptors 797,000 (32%) iDTV Following the launch of Freeview the number of set-top boxes in use (from manufacturers such as Pace) is increasing rapidly 393,000 (16%) The number of iDTV sets is beginning to show significant growth Ex-ITV Digital 600,000 (24%) Sky FTA We estimate that 600,000 of ITV Digital’s ex-subscribers now use the set-top box to receive Freeview services 738,900 (29%) Sky’s FTA set-top box offer has been re-introduced at £120, although it is not actively marketed. This figure also includes estimates of ex-Sky subscribers who continue to use their set-top box for FTA services How people are watching free-to-air digital television, Q2 2003 Source: ITC estimates

  13. ADSL0% Digital Terrestrial TV14% Cable 26% Satellite59% Share of multichannel homes in the UK Share of multichannel television homes by platform, Q2 2003 Source: ITC

  14. Atlantic Telecom BT Cable & Telecoms Cable & Wireless CableTel Comcast Europe ComTel Convergence Group Diamond Cable Eurobell General Cable Telecential Telewest Bruncor; Coastal/Leonard; Diamond Cable; IVS; N-Com; Scotcable; United Artists/US West; Yorcan; BT; Comcast; English Cable; Jones Intercable; Nynex; Starstream; US Cable Corp; Cable Corporation; CUC; General Cable; Leicester/Fundy; PacTel; Southwestern Bell; Vento/Wash Post; Cable London; Devanha Group; Insight; Maclean Hunter; Alan Robinson; Telecable; Videotron; (NW England and SW Scotland) (Isle of Wight) The cable industry has seen significant consolidation in the last decade Major Cable Operators 1992 1997 Today 29 companies (19 from the US or Canada) 13 companies controlling 155 regional franchises 2 major operators There are also twosmaller operators: Source: Cable Yearbook and ITC

  15. 2,152,000 2.2 2.0 1,760,000 1.8 Households (million) 1.6 1,334,000 1.4 1.2 1,047,000 1.0 748,000 0.8 0.6 479,000 330,000 0.4 222,000 147,000 0.2 - Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 2001 2002 2003 Growth in broadband internet subscribers 2001-2003 BT Openworld and BT Broadband accounted for 51% of all ADSL connections in Q2 2003 ADSL NTL Telewest Note: most broadband internet connections do not currently support TV broadcast services Source: Company data

  16. 80 VCR1980-1989 70 60 Colour TV Sets1969-1978 Digital TV1998-Q2 2003 50 40 Penetration (% of households) PC1984-1993 30 20 Satellite1987-1996 10 0 0 1 2 3 4 5 6 7 8 9 Year after launch Take-up of digital television compared with other home technologies Digital TV’s strong initial growth is, in part, a result of the move to switch existing subscribers from analogue todigital packages - by 1998 analogue multichannel TV had already achieved penetration of some 25% of households Source: ITC

  17. Forecast take-up of digital TV Digital television take-up, 1998-2007 30 25 78% 20 UK households (millions) 15 58% 10 Total UK households 95% of households Upper scenario 5 Average of City analysts Lower scenario 0 98 99 00 01 02 03 04 05 06 07 Year-end In 2002, the Secretary of State asked the ITC and BBC jointly to examine what the future growth of digital penetration might be in the UK. Given the particular difficulty of generating projections at that time, we considered two possible scenarios for the market’s development. The “upper” scenario is generated by a generally favourable set of market conditions for the three main digital platforms (satellite, cable and DTT). The “lower” scenario arises if conditions prove more negative and / or operators adopt more limited strategies. In the upper scenario, digital penetration roughly doubles over the next five years, from 10 million households at the end of 2002 to around 20 million by the end of 2007, a 78% penetration rate. Growth is more modest in the lower scenario, with take-up rising to just under 15 million (58% penetration) by the end of 2007. Source: ITC / BBC

  18. Contents • Industry revenues and expenditure • Multichannel platforms and digital TV • Broadcasters and channels • Programming and audiences

  19. Key milestones in the history of commercial television in the UK 1955: ITV launches - regulated by the Independent Television Authority (ITA) 1972: ITA becomes the Independent Broadcasting Authority (IBA) 1981: First subscription service, Starview, begins 1969: ITV goes colour 1989: Sky television launches a four-channel service on satellite 1982: Channel 4 and S4C launch 1984: First cable service is licensed 1990: BSB launches on satellite - Sky and BSB merge to form BSkyB 2002: ITV Digital goes into administration; Freeview launches in November; number of channels available in the UK now exceeds 200 1991: Independent Television Commission (ITC) is successor to IBA; the first competitive tender is held for Channel 3 licences 1997: Channel 5 (now Five) launches 1998: Digital TV launches Source: ITC

  20. Performance of the terrestrial channels and their subsidiaries Channel Logo Owner Share* ‘Subsidiary’ channels (share*) BBC1 BBC 24.5% BBC3 (0.7%); BBC4 (0.2%); CBBC (0.6%); CBeebies (1.2%); BBC News 24 (0.6%); BBC Parliament (n.a.) ITV1 See nextslide 22.9% ITV2 (1.8%); ITV News (0.2%) BBC2 BBC 11.5% See BBC1 Channel 4 Channel 4 9.7% E4 (0.7%); FilmFour (0.1%) Five RTL (65%);UBM (35%) 6.3% n.a. * Share figures for terrestrial channels are for all homes in August 2003; figures for the subsidiary channels are for multichannel homes in August 2003 and are only available for those channels with 0.1% share and above. Source: ITC and BARB

  21. The ITV licensees - ownership structure ITV Granada Group Carlton Group Scottish Media Group Anglia Carlton Grampian Border Central Scottish Granada HTV Ulster LWT Westcountry Meridian Channel Tyne Tees GMTV* Yorkshire * Owned jointly by Carlton, Granada, SMG and Disney

  22. ITC Licence Requirement for original programmes and actual performance, 2002 100 90 % 81% ITV 80 ITV 65% 70 Channel 4 60 Five 67% 50 Channel 4 60% 40 Achieved in 2002 30 20 ITC LicenceRequirement 58% Five 10 55% 0 1997 1998 1999 2000 2001 2002 Terrestrial licensees must meet targets for original programming... ITV, Channel 4 and Five all have requirements in their licences to produce a set amount of original programming each year. Original programmes as a percentage of total output, 1997-2002 Note: Channel 4’s original programming target was only introduced as a licence requirement in 1998;prior to this the figures were reported in Channel 4’s Annual Report. Source: ITC; Channel 4 Annual Report

  23. 30% ITV 100 25% Achieved in 2002 90 80 ITC LicenceRequirement 66% 70 Channel 4 60 25% 50 40 86% 30 Five 25% 20 10 0 1997 1998 1999 2000 2001 2002 …for qualifying hours commissioned from independent producers... ITV, GMTV, Channel 4 and Five all have requirements in their licences to commission a set amount of programming from independent producers each year. ITC Licence Requirement for independently produced programmes and actual performance, 2002 Qualifying independents as a percentage of total qualifying output, 1997-2002 % Five Channel 4 ITV Source: ITC

  24. 56.0% 50.3% 2001 2002 30.0% 29.0% 12.8% 11.2% ITV1 Channel 4 Five …and for programme production outside London ITV1, Channel 4 and Five are required to spend a proportion of their programming budget on production outside London. The requirements for 2002 for each channel are listed below. ITV1 = 50% Channel 4 = 30% Five = 10% Source: ITC Annual Report 2002

  25. Sky One BSkyB 2.8% UK Gold UKTV † 2.5% Sky Sports 2 Sky Sports 1 BSkyB BSkyB 1.0% 2.1% ITV2 Carlton (44%); Granada (56%) 1.8% CBeebies BBC 1.2% UK Style UKTV † 1.2% Sky Premier 1 Sky 0.9% Hallmark Crown Entertainment Ltd 0.9% Nickelodeon BSkyB (50%); Viacom (50%) 1.0% UK multichannel television: most popular channels Channel Logo Owner Share* * Share figures are for multichannel homes in August 2003 † UKTV is a 50:50 joint venture between Flextech‡ and BBC Worldwide ‡ Flextech is owned by Telewest Source: ITC Source: ITC and BARB

  26. Contents • Industry revenues and expenditure • Multichannel platforms and digital TV • Broadcasters and channels • Programming and audiences

  27. 35 % (CAGR*) 30 BBC1 (-1.4%) 25 Other (13.5%) ITV1 (-7.4%) 20 15 BBC2 (-0.8%) 10 C4 (-2.7%) Five (2.8%) 5 * CAGR = Compound Annual Growth Rate 0 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 2000 2001 2002 2003 Audience share in all homes by channel, 2000-2003 Source: BARB

  28. Other (2.7%) ITV1 (-6.0%) BBC1 (-0.6%) BBC2 (1.4%) C4 (0.1%) Five (3.9%) Audience share in multichannel homes by channel, 2000-2003 50 (CAGR) % 45 40 35 30 % 25 20 15 10 5 * CAGR = Compound Annual Growth Rate 0 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 2000 2001 2002 2003 Source: BARB

  29. 40 % 35 BBC1 30 ITV 25 20 BBC2 15 CH4 10 Five 5 0 Q22001 Q3 Q4 Q12002 Q2 Q3 Q4 Q12003 Q2 Audience share in analogue terrestrial homes by channel, 2001-2003 Source: BARB

  30. 100 % 90 BBC1 ITV 80 BBC2 CH4 70 60 Five 50 40 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 2000 2001 2002 2003 Average weekly audience reach (3 minutes consecutive) by channel, all homes, 2000-2003 Source: BARB

  31. 11% 22% Allhomes Allhomes 41% 31% 35% 59% 13% Multi-channelhomes 45% 27% Multi-channelhomes 55% 37% 23% Analogueterrestrialhomes 38% 6% 62% 17% Analogueterrestrialhomes 25% 52% Children 35-54 ABC1 C2DE 16-34 55+ Viewer profiles by type of television received Profile of viewers by type of service and social class, Q2 2003 Profile of viewers by type of service and age, Q2 2003 Source: BARB

  32. 5 4 All homes 3 Multichannelhomes 2 1 0 All ABC1 C2DE Children 16-34 35-54 55+ Individuals Hours viewed per household per day by age, social class and platform, Q2 2003 No of hours Source: BARB

  33. % 35 30 25 20 ITV1 BBC1 15 10 5 0 West Ulster Wales Border London Scotland Midlands Yorkshire North East South East North West South West East of England Audience share by region, ITV1 compared with BBC1, Q2 2003 Source: BARB

  34. 45 % 40 35 30 25 ITV1 BBC1 20 15 10 5 0 West Ulster Wales Border London Scotland Midlands Yorkshire North East South East North West South West East of England Audience share for regional news programmes by region, ITV1 compared with BBC1, Q2 2003 Source: BARB

  35. Number of days watchingtelevision in an average week Number of television sets in the home No. of days Total (%) Number of TV sets Total (%) 7 85 One 19 6 4 Two 36 5 4 Three 27 3 or 4 4 Four 12 1 or 2 2 Five + 6 Less than once a week < 0.5% The number of television sets per household and the number of days spent watching television in an average week Note that the figures presented are for individuals, not households e.g 19% of individuals live in a household with only one TV set Source: The Public’s View 2002

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