INSIGHTanalysis: Broadcasting Chiefs Look To The Future
While Carlton and Granada go to greater and greater lengths to push through their long-awaited merger, analysts have warned that the second half of 2003 is likely to bring only ‘minimal’ growth for UK TV advertising. Further down the line, there are fears that PVRs could lead to greater fragmentation in the TV industry.
There seems to be a general consensus that the concept of a merged ITV company (with two sales houses) is a good one. Mark Jarvis, Head of Broadcast Communications at media buying agency Carat, stated that a single ITV would mean a stronger ITV and therefore a stronger UK TV market.
However, ITV’s rival broadcasters have reservations, particularly with regard to competition matters. The main sticking point appears to be ITV’s share of revenue and Andy Barnes, Commercial Director of Channel 4, argued that a single station with more than 55% of the UK television advertising market was unacceptable.
BSkyB’s Mark Chippendale brought up the issue of programme standards, claiming that a single ITV would have no competitive reason to produce good quality programming to sell to the ITV Network centre.
State of play When questioned on the general condition of the market, the panellists offered little in the way of encouragement. The current month is proving to be especially difficult but it needs to be acknowledged that the comparables are tough because of last year’s World Cup.
Nonetheless, Morgan Stanley points out that ITV Net Advertising Revenue (NAR) continues to fall year on year with June down 18% and July projected to be down 8.5%. Channel 4 attributes some of this to the decline of the music industry which has hit advertising revenues across the board. Station bosses anticipate no recovery until September with growth of 3-4% estimated for Q4 2003.
Chippendale, the Sales Director at BSkyB foresees a 2-3% increase in adspend in the final quarter but is more upbeat about the multichannel sector with double-digit growth on the cards. He claims that “money continues to follow audience” with multichannel taking audience and advertising away from the terrestrial stations.
The seminar also revealed the different ways in which airtime is sold across each network. The general premise is that terrestrial players have ad slots and sponsorship selling options, while multichannel players utilise the interactive, online and joint marketing offered by ‘total communications solutions’.
Given the advance of multichannel, ITV faces an uphill task to maintain its share of the market. However, ITV is still the only place advertisers can go for a mass audience and the channel provides ‘fast cover build’ of brands. According to Morgan Stanley, Channel 4 follows a similar line, but in ‘bite-size chunks’ while Five specialises in selling ‘spots and slots’.
BSkyB makes greater use of the aforementioned ‘total communications solutions’ and has even gone as far as to abandon the use of ITV prices as the benchmark.
However, despite the innovations and niche audiences available to marketers who embrace multichannel, there is still considerable value in terrestrial advertising. The free to air channels have the widest reach and no high profile campaign can afford to steer clear of the mainstream.
Graham Pooley, Head of Investors Relations for Ford Europe, told the his fellow panellists that terrestrial airtime remained a key portal for the company, despite the fact that a significant proportion of the advertising budget now went on digital television and radio.
Radio issues Much has already been made of the proposals in the forthcoming Communications Bill that will allow newspaper groups and foreign investors to own UK broadcasting assets. Comparatively little has been said about liberalisation in the radio market. Again the bill allows unprecedented consolidation and gives non-EU companies the green light to acquire domestic media businesses.
However, according to Tim Schoonmaker, CEO of Emap Performance, there is unlikely to be a major upheavel in the radio market. The recent blocking of the proposed merger between the Vibe and Galaxy stations showed that any deals are subject to normal competition law regardless of the new regulations. In addition, the value of analogue licences is likely to fall once digital radio gets a hold.
Fears of a foreign invasion are also likely to prove unfounded. UK radio companies are not particularly attractive to US investors who are, in any event, reluctant to face up to European regulators.
Radio remains committed to increasing its share of the advertising market from its current level of 5-6% to 10% and consolidation could help this become a reality. Fewer players would make radio an easier medium to buy and any cost savings could be directed into scheduling and content, making it more compelling for audiences and advertisers alike.
Impact of Freeview Freeview, the free-to-air digital television platform launched in the wake of ITV Digital’s demise, is making great waves in the multichannel arena with 800,000 boxes sold to date. The success of the joint BBC/BSkyB venture has come as a timely boost for both the industry and the government, which remains committed to the 2006-2010 analogue switch-off deadline.
In a presentation at the seminar, the BBC said that Freeview was attracting a different kind of customer to pay TV, from an older demographic with a male skew. Encouragement can be gleaned from the fact that 75% of buyers are completely new to digital/pay TV and the lack of a binding contract appears to be a major pulling point.
The panellists agreed in unison that 2010 remains the earliest viable date for the analogue switch-off. Carat commented that it would happen ‘later rather than sooner’ and the BBC called on the government to put clear steps in place to achieve its target. Channel 4 believes that the authorities should take a page out of Italy’s book. The government there has announced a 2008 switch-off date although there is general acknowledgement that any analogue switch-off is unlikely.
Role of the Beeb The present-day influence of the BBC remains a contentious issue and with a review of the Corporation’s charter due to begin in 2004, range of opinions were expressed at last week’s meeting.
Barnes stated Channel 4’s line which is that the current system of the licence fee being linked to RPI +3 needs looking at as it could be construed as a privilege. It is also felt that the regulation of the BBC should be under the remit of Ofcom and Mark Howe of Interactive Digital Sales proffered that the radio division was in need of more review than BBC TV.
There is widespread unease at the supposed increase in commercial activity at the BBC although Carat believes that the licence fee system shows no sign of disappearing. In the BBC’s defence, Morgan Stanley points out that some of the ‘commerciality’ stems from the large programming budgets assigned to BBC channels and this has been made possible by cost cutting throughout the Corporation.
The threat of ad-skipping Personal video recorders (PVRs) are another concern for commercial broadcasters in that they come complete with ad-skipping technology. The PVR is still a niche product but this will not remain the case for long and the panellists agreed that marketers will have to brace themselves for a bumpy ride.
Carat believe that PVRs have the potential to make a substantial impact within 5 years. The job of the media buyer will undoubtedly get harder and with 20% of Sky Digiboxes likely to be SkyPlus boxes (PVR enhanced) by 2006, the onus is on industry players to introduce better targeted advertising and product marketing, to ensure people do not skip programme breaks.