Ampere: Pay TV, Advertising Face Impact from EU Referendum

LONDON: British policy makers must work hard to restore confidence in the country’s financial markets following the results of the EU referendum, Ampere Analysis has said as it warns of potentially “stark consequences for U.K. media.”

Britain’s decision to leave the EU immediately caused the value of the pound to plummet, with stock prices taking a hit both locally and abroad.

Ampere says that British businesses “reliant on discretionary consumer and business spend” will be particularly vulnerable to the effects of a downturn. “In the last recession, physical media sales (sales of books and videos, for instance) and the advertising market were areas particularly badly hit. Advertising is especially vulnerable to loss of confidence in growth as it represents not only a discretionary business spend and an easy cost to cut, but also suffers from the fact that consumer cutbacks on spending impact conversion rates—consumers are less likely to purchase products after seeing a commercial, affecting advertising’s effectiveness.”

In the last recession, British ad spend dropped by 12 percent, Ampere says. “Of the traditional media companies, broadcasters were some of the more resilient groups, but even so, TV broadcasting adverting revenue dropped by over 10 percent. Legacy ad-funded businesses such as newspapers and radio, already vulnerable due to declining circulation and audiences, saw a 20-percent drop year-on-year.”

Ampere also points to a possible impact on the pay-TV sector. “Traditionally the impact of economic downturn has had a delayed impact on the pay-TV business in the U.K. While homes tend not to completely desert either communications services like broadband and telephony or pay TV, there is a noticeable impact on pay TV growth with a roughly one-year time lag post an economic downturn. The lag is in part a consequence of long-term (12-month) contracts in the pay-TV and broadband business.”

The analyst firm says that the Brexit fallout extends beyond the financial impact. “Many international media businesses base their European operations in the U.K. to take advantage of the EU’s freedom of trade rules, as well as some of the U.K.’s more relaxed broadcasting regulations—broadcasting out of the U.K. to other EU markets. The future for these companies’ ability to base themselves in the U.K. is now likely to depend on the trade agreements the U.K. is able to put in place with the European Union upon exit. Additionally, given that the U.K. will now sit outside the European single market, there are also implications for rights costs. Proposed changes under the EU’s Digital Single Market initiative will likely now not apply to the U.K., meaning U.K. customers may not gain the benefits of content portability or access to more open trade online. The U.K. may now stand alone in Europe in maintaining strong geographic licensing arrangements in pay TV, potentially benefiting the large U.S. studios and sports rights owners, but with likely cost implications for customers.”

Ampere concludes, “Policy-makers in the U.K. will now have to work hard to mitigate the loss of confidence which financial markets and businesses have already suffered, convincing them that the U.K. will remain a stable economy over the next few uncertain years. Retaining this market confidence will be the crucial short-term factor for U.K. media businesses over the next few months.”