Thursday, 10 October 2013

The future of TV in the UK

A number of people have asked for a transcript of my speech from this year's RTS Cambridge on the future of TV. Here's the edited highlights (because the visual gags just don't work in text ;) )

---START---

What television is today is little changed from a decade ago; and, at the same time, TV is profoundly different:
  •  A decade ago, the majority of TV sets sold were 25 inches or smaller.[i]
  •  16 million homes received analogue TV signal.[ii]
  •  Sixty per cent of the country only had five channels.[iii]
  •  High Definition TV was yet to launch.
  • Netflix was a US based company that used the post to distribute DVDs to its 1.5 million customers.[iv]
  •  YouTube had not been founded.
  •  Google – who’d buy Youtube for $1.65 billion in 2006 - had just broken the $1 billion revenue barrier, for the first time.[v]
  • There were two million broadband households[vi]
  •  … but broadband speeds started at 128 Kbit/s, that’s one eighth of a megabit. [vii] That’s about 120 times slower than today
  •  The smartphone was still arguably a work in progress
  • A tablet was medicinal…
  •  …and occasionally recreational
  •  Mark Zuckerberg was still living in a dorm in Harvard. 

Yet, despite all this change, TV consumption patterns in the UK have changed remarkably little. Ten years ago we spent about four hours a day watching television, with viewing peaking in the evening, as we do now.[viii]

Television is still the basis of many of our conversations, be they by the water cooler, on a social network or in your own hallowed corridors. A decade back 88 per cent of viewing was on the living room TV. Today’s it’s 87 percent.[ix]
We watch 90 per cent of our television live today, only eight percentage points less than in 2003. That’s despite PVRs being in 60 percent of UK homes today.

The main PSB channels had 59 per cent audience share in multichannel homes in 2003;[x] in 2012 that had fallen seven percentage points, or less than a point per year.[xi] 

In 2003, television was a principal news outlet, with three quarters of the population regarding it as the main source of world news.[xii] Today 74 per cent regard TV as the best way of staying in touch with what’s going in the world.[xiii]

Television has evolved into a poly-faceted offer that reflects a diverse customer base, each of which wants a different flavour of TV. Ten years ago three out of five households had only five channels; now the UK public is able to create its customised variant of what it wants TV. The UK consumer now has:
  • a palette of television content options to choose from,
  • a range of distribution mechanisms,
  • control over when and where to consume the content, and
  • a wide spectrum of ways to pay, from ad funded content to subscription VOD

And although these changes have been regarded by some as a threat to the traditional television model, the truth is that they have further strengthened television’s appeal. Television’s ability to be consistently entertaining and constantly reinvigorated has ensured its resilience in a turbulent decade that has seen the birth of many now mainstream cultural services, and been the graveyard for multiple icons of popular culture.

Our analysis shows in 2012 the UK television sector generated about £17.5 billion in revenues. This is just over 1 per cent of UK GDP. Television’s nominal value has grown over the last decade and maintained a constant share of GDP, in stark contrast to what has happened in some other media sectors.

Despite the troubled economy, TV advertising a maintained constant share of all revenues over the period, at 23 per cent in 2007 (£3.7 billion) and 22 per cent in 2011 (£3.9 billion) and 2012 (£3.9 billion).

Pay television gained the most market share and enjoyed the highest increase in nominal revenues over the period. Subscriptions represented 24 per cent of all revenue in 2007 and 31 per cent in 2012.

The fastest growing component of pay TV between 2011 and 2012 – and one of the most talked about (thanks Kevin) - were subscription funded digital platforms, which grew 148 per cent, but from a very low base of £25 million.
SVOD revenues should reach about £160 million this year, a £100 million increase on 2012, with some households swapping spend out of physical DVDs, or physical DVD rental services into SVOD.[xiv] 
Our algorithm tells us that 96.3% of you will be surprised by that statistic.

In reality, that type of technology platform is a small part of the ecosystem. More conventional technology like TVs, tablets and so on experienced the heaviest decline in share, falling 10 percentage points to 17 per cent over the period.

It seems that people want bigger screens for smaller money: declining spend on consumer technology was due mostly to a consistent fall in spend on TV sets over the period, which was down to lower unit sales and falling average selling prices.

Things were better for producers. Spend on domestic first run programming jumped in 2012, from about £2.8 billion in 2011 to over £3.1 billion, although whether that translates into new yachts for the owners of Indies remains to be seen.

Exports of TV content experienced strong growth: international content spend increased from four per cent in 2007 to nine per cent in 2012, with nominal value increasing almost £1 billion over the period to £1.6 billion in 2012.

But that success may be coming at a cost. Fees paid to writers have steadily increased throughout the period suggesting that some areas of our industry may be facing supply constraints.

We’re advisors and we don’t like to take sides in the interesting debates that surround the sector. Our observation is that TV’s role in society is built on solid foundations. The average UK consumer spends about a quarter of their waking time watching the small screen and yet the industry as a whole ‘costs’ us only one percent of GDP.

Television was an industry; it is now an industry of industries. Television was a service, it is now a set of services. Television had an archetypal viewer, now and the viewer had to fit the mould; now the viewer creates his or her own version of TV.

When I asked our brand police – sorry, “”Marketing Department”” – what image I should use for the future, they suggested this road, or these clouds.
Brings on my vertigo.

Or – weirdly - this honey, which I actually rather like, both because I like honey and because it does sort of represent the degree of choice that’s open to the audience in 2013. We, as consumers, have never had it so good! Ten years ago there would have been 5 pots. Now there are almost too many to ever get through. Local and international. Quality and quantity. Sweet and serious. Any need is catered for.

But there are paradoxes within the industry’s value chain. Pay TV has thus far enabled quality and breadth to grow, but investment from this source cannot grow forever. Our research has shown that PSB represents a significant part of the production investment in the UK; however without growth in advertising or the license fee, current models will not support growth in content investment either.

Without investment there must be a trade-off between quality and breadth, which brings with it philosophical questions about the future of the UK’s creative industry.
  • In a resource-constrained PSB market, who is responsible for risk taking?
  • How can we retain the Britishness of our TV but remain compelling to export markets?
  • Should the scale of our ambition be to the world’s TV laboratory? Is our role just to pilot ideas for the rest of the world to monetise?

What the answers are and who from the broadcaster, producer and platform community benefits the most is open for debate, but hopefully our data and our perspective has been useful.

---END---




[i] Source : The Communications Market 2012, Figure 2.12., Ofcom, 2012. See: http://stakeholders.ofcom.org.uk/binaries/research/cmr/cmr12/UK_2.pdf
[ii] Source: The Communications Market 2004 – Television, Section 4.4, Ofcom, August 2004. See:http://stakeholders.ofcom.org.uk/binaries/research/cmr/tele.pdf (Number of households as of the start of 2003. By the end of Q1 2004, three million further households had gone digital.)
[iii] Source: New report shows good progress towards digital switchover, UK Authority, 7 April 2003. See:http://www.ukauthority.com/tabid/64/Default.aspx?id=758
[v] Source: Google Annual Report, 2004, Google, 2004. See: http://investor.google.com/pdf/2004_google_annual_report.pdf
[vi] Source: The Communications Market 2004 – Telecommunications, Figures 26 and 27, Ofcom, August 2004. See:http://stakeholders.ofcom.org.uk/binaries/research/cmr/telecoms.pdf
[vii] Source: The Communications Market 2004 – Telecommunications, Figures 26 and 27, Ofcom, August 2004. See:http://stakeholders.ofcom.org.uk/binaries/research/cmr/telecoms.pdf
[viii] Total viewing per day for individuals aged 4+ was 224 minutes in 2003, about a quarter of an hour less than in 2013. Source: The ITV merger ten years on, Figure 9, Enders Analysis, 9 April 2013. See: http://www.endersanalysis.com/content/publication/itv-merger-ten-years (requires subscription to read the full article)
[ix] Source: The Communications Market 2013, Figure 2.60, Ofcom, 2013. See :http://stakeholders.ofcom.org.uk/binaries/research/cmr/cmr13/UK_2.pdf
[x] Source: The Communications Market 2004– Television, Figure 94, Ofcom, 2004. See :http://stakeholders.ofcom.org.uk/binaries/research/cmr/tele.pdf
[xi] Source: The Communications Market - 2013, Figure 2.63, Ofcom, 2013. See :http://stakeholders.ofcom.org.uk/binaries/research/cmr/cmr13/UK_2.pdf
[xii] Source: The Communications Market 2004 – Figures 105 and 106, Ofcom, August 2004. See: http://stakeholders.ofcom.org.uk/binaries/research/cmr/tele.pdf  (Television 73 per cent regarded TV as the main source of national news; 78 per cent regarded it as the main source of world news.)
[xiii] Source: Deloitte/Gfk, June 2013. Respondents were asked to state their view on a range of statements about television, including “TV is the best way of keeping in touch with what’s going on in the world”. Of those stating an opinion (1,762 respondents), 74.2 per cent agreed strongly or slightly with the statement.
[xiv] Between 2011 and 2012, sales of TV DVDs fell by £44.75 million. In the same period, subscription VOD services grew by £37 million. Source of TV DVD sales data: British Video Association, 2013. Source of SVOD data: IHS Screen Digest.




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