An English Affair

October 17, 2011 World Screen

 

This article originally appeared in the MIPCOM 2011 issue of TV Europe.
 
Radical restructuring, abandoned takeovers and management overhauls are dramatically shifting the British media market.
 
The U.K. may be one of the most mature television markets in the world, but it is certainly not acting its age.
 
The landscape of the British TV industry has shifted significantly over the past 12 months with both successful and abandoned takeovers as well as some literal pie-slinging—and there have yet to be any clear signs of stability.
 
In free-to-air television, the public broadcaster, the BBC, is undergoing one of the most radical restructurings in its 89-year history, the commercial outfit ITV is looking online and internationally to keep the cash rolling in, and both Channel 4 and Channel 5 are making sweeping changes under new management.
 
While the terrestrials are adapting to a changing market, the number of their digital spin-offs is growing exponentially. Each broadcaster operates at least two channels in this arena. But the dominant pay-TV juggernaut Sky can still throw its weight around, increasing investment in original content and snapping up acquired programming whenever necessary—even if it means poaching from rivals—while new on-demand platforms are beginning to find their feet.
 
Overall, it’s a healthy market. According to the British media regulator Ofcom, TV viewing has held up despite the growth of Internet and smartphone use. Last year, each person in the U.K. aged 4 and above watched an average of four hours of television per day, up from 3.8 hours in 2009.
 
LICENSE TO CUT
The Ofcom figures also revealed that British TV-industry revenue grew by 6 percent in 2010 to £11.7 billion (€13.6 billion). That includes £3.5 billion (€4.1 billion) for the license fee, generated by each TV home paying £145.50 (€169) annually. This is the principal source of funding for the BBC, which still does not take advertising. Last year, a hastily agreed-on settlement with the government secured the short-term future of the license fee, following calls for it to be scrapped. But severe cuts are looming, including at least 1,000 lay-offs.
 
The BBC is undergoing a wholesale review of the corporation to identify 20 percent in savings over four years, aimed at saving £600 million (€692 million) a year by 2014. This review is titled Delivering Quality First; proposals were presented to the BBC Trust, the broadcaster’s governing body, in September, with a final decision on efficiency savings expected in October.
 
One suggestion, since ruled out, was the privatization of BBC Worldwide, the hugely profitable commercial operation that remains the largest sales-and-distribution house outside the Hollywood majors. In July, BBC Worldwide reported its “most successful year in taking British content to the world” and made record profits, up more than 10 percent to over £160 million (€186 million).
 
But signs of cost-cutting are becoming ever more visible, with strike action from BBC News journalists in recent months and the sharing of Formula 1 racing rights with Sky, saving the corporation a reported tens of millions of pounds.
 
While the BBC wrestles with its restructuring, commercial leader ITV is making good progress with its five-year transformation plan, put in place following the arrival of chief executive Adam Crozier at the start of 2010. Its external income grew to more than £1 billion (€1.2 billion) in the six months to June 30, 2011, and its portfolio of channels in­creased its share of viewing from 22.7 percent last year to 23.2 percent in the first half of 2011.
 
But ITV will be monitoring an Ofcom review of the £3.5 billion (€4 billion) TV advertising market, which is due to conclude this autumn, investigating concerns about the allocation of ad revenues across broadcasters, market innovation and pricing.
 
In the meantime, ITV is looking to diversity in a bid to remain profitable. It will launch a micro-payment system for online content in January 2012, with the long-running soap Coronation Street and the reality series The Only Way Is Essex lined up for trials. Box sets of archive programming, such as Inspector Morse and Prime Suspect, are also expected to be made available for small payments, although the price has yet to be established.
 
ITV will also pour resources into its U.S. production companies after winning nearly 30 international commissions in the first half of the year.
 
Crozier has not put a figure on how much cash will be injected into ITV Studios America, but it is likely to come out of the £12 million (€14 million) freed up in March to plough into new talent and pilots. Domestically, the program budget for the flagship channel, ITV1, will be maintained at £800 million (€928 million).
 
Overall, soaps continue to be the most-watched scripted programs, with ITV1’s Coronation Street claiming six of the top ten most-watched shows in the first half of 2011. An installment in February drew 11.78 million viewers. BBC One’s soap EastEnders is not far behind, with its most-watched episode, in January, securing 11.42 million.
 
However, the two channels continue to fight hardest on Saturday nights—a long-time battleground for ratings dominance. The highest ratings for both broadcasters over the past 12 months have been 15.1 million for the ITV1 singing contest The X Factor on December 11, 2010, and 14.3 million for BBC One the following Saturday with the celebrity competition Strictly Come Dancing. The importance of winning the night saw a furious spate of bidding over the new singing format The Voice, which was a breakout hit for the U.S. network NBC earlier this year. BBC One secured the rights to the Talpa Distribution format, not just translating into a potential ratings winner but also helping to keep the channel relevant to a younger audience.
 
BIG BROTHER’S COMEBACK
As both Channel 4 and Channel 5 begin to show the results of changes at the top, it is the reality show Big Brother that, perhaps surprisingly, marks the end of an era for one and the beginning of a new phase for another. Channel 4 dropped the Endemol-produced show last year after a decade on air, freeing up around £50 million (€58 million) of its annual programming budget.
 
Joining the broadcaster at a time of creative renewal, Jay Hunt, the new chief creative officer, received instructions from chief executive David Abraham to increase experimental programming without fear of controversy. It takes Channel 4 back to its “mischief-making” roots.
But this has already caused problems. While the channel is aiming to improve diversity in its lineup—commissioning programming around next year’s Paralympic Games and pledging to help improve the portrayal of transgender people—the comedian Frankie Boyle sparked outrage with a joke about a celebrity’s handicapped son. In April, Ofcom ruled that Abraham had made “an erroneous decision on a matter of editorial judgment,” but no sanctions were made against the broadcaster.
 
What is clear is that Channel 4 has some way to go before it strikes the right balance.
 
Channel 5, on the other hand, is finally achieving some identity in the market, following its takeover by newspaper tycoon Richard Desmond. After more than ten years struggling to gain a foothold in the already packed terrestrial space, Desmond acquired the broadcaster from RTL Group for £103.5 million (€120 million) and has set about a total overhaul. Out went the management at the top, including channel controller Richard Woolfe, chief executive Dawn Airey and managing director Mark White. The Channel 5 stalwart Jeff Ford, now director of programs, who had secured the most successful content for the channel over the years, was retained to run the broadcaster with a promise from Desmond of £300 million (€346 million) of annual investment in programming over the next five years.
 
The first major statement of intent came in August with the relaunch of Big Brother on the channel. It signals the beginning of more celebrity-focused shows that can be cross-promoted by Desmond’s publications, such as the Daily Express and Daily Star newspapers and glossy OK! magazine.
 
While the terrestrials attempt to secure their future, the pay-TV broadcaster BSkyB has had to weather a media storm.
 
In the first half of the year, Rupert Murdoch’s News Corporation was bidding to acquire the 61 percent of BSkyB that it did not already own and looked set to have the deal waved through. And then all hell broke loose.
 
SCANDAL STRIKES
It was revealed that Murdoch’s Sunday tabloid The News of the World had hacked into the phones of celebrities, politicians and murder victims to secure stories. Within a week, Murdoch announced that he would shut the 168-year-old newspaper. He then abandoned his bid for Sky and appeared before the British Parliament’s culture, media and sport committee with his son James, the chairman of both News International and BSkyB. It was at that hearing that Murdoch senior was hit by a shaving-cream pie, slung by a comedian who branded him a “greedy billionaire.”
 
Sky is now attempting to put the debacle behind it, but saw the number of new subscribers fall to 40,000 in the last quarter against 90,000 a year ago. However, its chief executive, Jeremy Darroch, has pointed out that Sky did gain a further 30,000 customers who took broadband only, and the board gave unanimous backing to James Murdoch as the company posted an operating profit of more than £1 billion (€1.2 billion) for the first time.
 
Sky now has 10.3 million subscribers paying an average of £539 (€625) annually, up from £508 (€589) the previous year.
The satellite broadcaster has been accelerating growth over the past year, which began with the £160 million (€186 million) acquisition of Virgin Media’s portfolio of channels, including the female-skewing station Living. It then struck a deal with HBO to screen all its programming in the U.K.
 
The agreement, understood to be worth around £150 million (€174 million), led to the launch of Sky Atlantic in February. The channel now airs new HBO series such as Boardwalk Empire and Game of Thrones, as well as more established titles, including Curb Your Enthusiasm and Entourage.
 
Sky is also making a £600 million (€696 million) push into original comedy and drama over the next few years. The first fruits of this strategy have included the thriller Mad Dogs and the supermarket sitcom Trollied, both of which are proven successes, breaking ratings records for the company’s flagship channel, Sky1.
 
DIGITAL SURGE
While Sky forges ahead in the multichannel space, each of the public-service broadcasters (PSBs)—BBC, ITV, Channel 4 and Channel 5—has a portfolio of digital channels that are eating into the share of non-terrestrial stations, according to Ofcom.
 
In 2010, the PSBs’ core channels and spin-offs accounted for a 71.4-percent share in digital homes, up from 64.9 percent in 2004 and 66.9 percent in 2005. These include the youth channels BBC Three, ITV2, E4 and 5*, the highbrow stations BBC Four and More4, and others, including ITV3, ITV4 and 5USA. All are available on Freeview, a DTT platform that launched in 2002 and offers dozens of channels for no charge following the purchase of a set-top box that can cost as little as £15 (€17).
 
Non-PSBs’ share has been broadly flat for the past three years, at between 28.1 percent and 28.6 percent, suggesting that the surge of interest by early digital adopters has been balanced out by mainstream viewers switching to digital. Nearly half of all homes in the U.K. (46 percent) have a digital video recorder, while a third have high-definition TV.
 
 “It is clear that the market share of PSBs is now stabilizing for the first time,” says James Thickett, Ofcom’s director of research and market intelligence. “There has been a historical fall in share as digital grew, but now we have reached nearly full digital penetration, [and] that is leveling out.”
 
An important piece of the U.K. broadcasters’ future plans is on-demand services. The BBC pioneered this with iPlayer, an online catch-up service available through computers, mobile devices, game consoles and connected TVs. The service offers BBC programs for free seven days after initial broadcast and also offers the opportunity to catch up on BBC series currently on air. In June, iPlayer generated 3.2 million views daily by 1.2 million people. On average, viewers requested four programs a week, streaming more than an hour of content.
 
Rival broadcasters ITV, Channel 4, Channel 5 and BSkyB all offer similar services—ITV Player, 4oD, Demand 5 and Sky Go, respectively—with varying pay models.
 
But attempts to take things a step further—into TV 3.0—have hit various stumbling blocks.
 
The launch of YouView, formerly known as Project Canvas, the BBC-backed venture that aims to bring VOD services to Freeview, has been pushed back by a further six months to 2012. YouView is also backed by BT, TalkTalk, ITV, Channel 4 and Channel 5. It is understood that the delay is due to technical issues. BSkyB and Virgin Media oppose YouView and will welcome the prospect of delays to its launch. Both companies have rival services. In late 2010, BSkyB launched Sky Anytime+, which is used by 800,000 Sky Broadband homes, while Virgin Media has developed an upgraded service based on TiVo technology that has 50,000 subscribers.
 
Meanwhile, the online TV service SeeSaw narrowly escaped closure after being saved in July by a consortium of investors led by the U.S. private equity firm Criterion Capital Partners. It currently features programming just from the BBC, after its deals with Channel 4 and Channel 5 were not renewed, raising questions about its future.
 
What is clear is that British TV is a market in transition, as it grapples with the opportunities and challenges of digital—and the winners have yet to be decided.