Sharon White, Chief Executive at the UK communications regulator Ofcom, threw down the gauntlet to British broadcasters this week, telling them they must do more to tackle the threat of online competition. In a highly public intervention, she told ITV News: “I’m worried about the future of public broadcasting. You only have to look at the High Street to see the impact of Amazon and other online retailers.”
A number of well-known national UK retailers have closed their doors in the last two years, so the inference is clear: broadcasters must adapt to avoid a similar fate. The big question is ‘how?’, and there are well-placed reports that the BBC, ITV and Channel 4 are looking to build a combined online service. According to the Guardian newspaper, there have been early-stage talks that also involve NBC Universal.
White spoke out on the day that Ofcom released its debut ‘Media Nations’ document, an annual report on trends in TV, radio and the wider audiovisual sectors. This shows that the total number of UK subscriptions to the three most popular online streaming services (Netflix, Amazon Prime and Sky’s NOW TV) – reached 15.4 million during Q1 2018, overtaking, for the first time, the number of classic Pay TV subscriptions, which stand at 15.1 million.
It is worth pointing out that NOW TV is still part of the TV ‘establishment’, and is less disruptive to the production and distribution ecosystem as it aggregates subscription broadcast channels, but within a lower-cost, lower-commitment bundle. Nevertheless, the figures represent a significant landmark. Classic Pay TV revenue (from all UK providers) declined 2.7% last year (to £6.4bn) after a period of sustained growth, while TV advertising income fell by 7%, Ofcom says, hitting £3.9bn.
The narrative is clear – the disruption caused by online viewing is accelerating. Media Nations 2018 shows that 39% of UK households now take at least one subscription on-demand service, and one-third of all SVOD programme viewing is to SVOD original productions. Most worryingly for the established broadcast sector, the report reveals a record-low investment in original content by public service broadcasters (including the non-PSB channels from the BBC), at £2.5 billion a year.
The Ofcom report provides plenty of clues about where broadcasters could double-down on existing strengths, or change tactics, in their battle against online providers. It lists the top 20 SVOD programmes in the UK during Q1 2018, for example, revealing that while three of the top five are online originals, only eight of the top 20 are (the data is taken from GfK).
There is a long list of content acquisitions that feed the SVOD habit, from ‘Friends’ (at No.1 on this chart, despite its age) to ‘Peaky Blinders’, ‘The Big Bang Theory’ and ‘Peppa Pig’. If broadcasters can secure the perpetual digital rights to content they originally air (or if they produce more via their own studios), this would reduce the attraction of the international SVOD giants, at least to a broader demographic. Disney is famously pulling content out of Netflix to concentrate on its forthcoming direct-to-consumer expansion.
The report notes that Netflix plans to spend £5 billion on content globally in 2018 and Amazon Prime Video is aiming for £3bn, compared to a 2017 spend by the UK public service broadcasters of £2.8bn. The figure for all channels broadcasting in the UK, in key genres, is a much larger £7.5bn, the report acknowledges.
‘Media Nations’ also observes: “Only a small proportion of SVOD spend is on programmes made in the UK. In March 2018, Netflix had 753 originals, of which 35 were UK-made, with the most notable production being ‘The Crown’, whereas Amazon only had five UK-made originals out of 174 original titles. Consequently, about 9% of Netflix’s total catalogue hours were UK-produced original content, compared to 8% for Amazon.”
Localisation is a known broadcaster strategy across Europe in the battle against international SVOD. The national broadcasters currently dominate this part of the market, which is theirs to lose. But aggregate programme spending across all the channels broadcasting in the UK was down in 2017 for every category apart from sport (which was inflated by increased rights costs), this report states.
Among the public service broadcasters (PSBs), the investment picture for first-run UK-originated programming varies, but is pulled down by the biggest spenders. Channel 5 has ramped up UK originated first-run spend by 27% since Viacom bought it in 2014, while Channel 4 increased spend by 6% in real terms compared to 2015. But the BBC and ITV together are spending 8% less on first-run UK-originated content since 2015.
The report does point out that lower programming investment by some broadcasters is being mitigated by co-productions and other third-party funding contributions. With these investments included in the figures, spend on first-run originated content on BBC, Channel 4 and Channel 5 (covering three of the largest terrestrial broadcast groups) is down only marginally in total (0.9%) since 2015 (which is the nearest comparable year that was not skewed by giant non-annual sporting events). But compare that to the increases at Netflix and Amazon!
Spending (by the BBC, ITV, STV and UTV – the latter two covering Scotland and Ulster, respectively) on PSB programming made specifically for the nations and regions of the UK is down.
Where the PSBs are investing less themselves in first-run UK originated content, the genres most affected are children’s, then comedy and drama. The table of top 20 SVOD programmes in the UK during Q1 2018 that Ofcom helpfully compiled lists the content genres for each entry. This is how the top 20 reads, in order: comedy, entertainment, drama, drama, drama, drama, comedy, comedy, comedy, drama, drama, drama, drama, drama, drama, drama, drama, animation (for kids), drama, animation (for kids).
According to Media Nations 2018, money invested by the UK PSBs (in aggregate) in first-run UK originated content is down 5% on comedy since 2016 (in real-terms) and down 7% on drama. Again, co-productions and other funding may boost the total figure that the UK broadcast industry is spending on the genres but maybe broadcasters need to dig deeper themselves.
And if they cannot afford to spend more of their own budget on key competitive genres (and the license fee freeze and lower ad revenues must be hurting the BBC and ITV respectively) then it is no wonder Sharon White felt the need to warn about a potential decline in what amounts to the ‘television High Street’.
On the same day ‘Media Nations’ was released, IHS Markit revealed how Netflix and Amazon are increasing their own investment in original content for individual markets (albeit with a strategy of producing ‘local’ shows that will be popular internationally). The analyst firm says Netflix launched 1,257 hours of original first-run content in 2017, with 32% of it originated outside the U.S. International content accounted for 40% of Amazon’s total original first run output (of 285 hours) last year.
“Netflix and Amazon have cast a wide net, in terms of programme genres,” says Tim Westcott, Director of Research and Analysis, Channels and Programming, at IHS Markit. “They are commissioning dramas and comedies, children’s TV, live action and animation, documentaries and rights to theatrical movies. Both companies have also dabbled in reality TV, and they are expected to move further into this area in the future.”
There is no evidence in Ofcom’s ‘Media Nations’ report that UK viewers no longer need drama or comedy from the public service broadcasters. Drawing on data from its 2017 PSB tracker survey, where Ofcom records the responses to statements that it makes, the Media Nations report reveals attitudes in 2015 and 2017. Showing high-quality soaps and dramas made in the UK is important to 67% of people, the same as two years ago. Showing high-quality comedy made in the UK is important to 72% of people, up from 71%.
There are some more clues to where broadcasters might look to improve themselves. The Media Nations report showed that 75% of regular or occasional PSB viewers were satisfied with public service broadcasting in 2017. More specifically, 22% were very satisfied and 53% quite satisfied, with 7% very or quite dissatisfied. That suggests room for improvement.
Seventy-one per cent of men were satisfied compared with 78% of women. Eighty per cent of Londoners are satisfied compared to 71% in Scotland, 69% in the North West of England and 69% in Northern Ireland. Significantly, satisfaction among 16-34s who watch PSB channels has remained constant since 2016 at 76%, following an increase in 2015 from 69%. There were no significant differences in satisfaction according to age, socio-economic group or ethnicity.
It is also important for PSBs to deliver trustworthy news and help people understand what is happening in the world, according to the 2017 PSB tracker. It is important for them to provide good regional news, portray the regions where people live, and show different cultures and different parts of the UK. These are currently unique differentiators for public broadcasters and are likely to remain so.
Ofcom’s Media Nations takes a look across the premium video landscape and provides detail on where it is being consumed. You can see the report here.
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