London Calling

As the industry comes to grips with the Brexit fallout, Steve Clarke delivers an in-depth look at the shifts already under way in the British media business.

Few shows encapsulate the changes sweeping through the U.K. TV market as the recent BBC spy thriller The Night Manager. This glamorous adaptation of the John le Carré novel of the same name, which aired in Britain last winter, picked up 12 Emmy Award nominations (winning two). One local TV critic described The Night Manager as “the BBC’s glossiest, smartest, most indecently entertaining Sunday-night drama in ages.” But that is only half of the story.

Increasingly, high-end British drama is being funded in tandem with American partners. The Night Manager was no exception: it was backed by AMC, famous for Breaking Bad and Mad Men. To further substantiate The Night Manager’s international credibility, the show was directed by the Danish Academy Award-winning filmmaker Susanne Bier.

It would be hard to see the cash-strapped BBC greenlighting an expensive project like The Night Manager were it not for the success of Netflix in the U.K. The platform has been making plenty of noise in the market with its own content efforts, commissioning the ambitious (and expensive) The Crown from Left Bank Pictures.

According to the Broadcasters’ Audience Research Board (BARB), the U.K. body that measures TV audiences, almost a quarter of all U.K. homes subscribe to Netflix. BARB reported that in 2015 Netflix had more than 5 million British customers. “Netflix is by some margin the market leader, and its growth continues to easily outpace the other services,” said a BARB report published in March.

STICKING WITH TRADITION
One of the many paradoxes of the British TV market— regarded as one of the world’s most dynamic—is that while viewers are embracing online content wholeheartedly, the popularity of linear TV remains robust.

“So far traditional network TV is holding up well in the U.K.,” says Stephen Price, ex-ITV scheduler turned broadcast advisor and consultant. “Audiences recognize the inherent quality of a lot of British TV. What happens when most of the nation has smart TVs connected to broadband and can access VOD services on their main TV set remains to be seen, but for now, the terrestrial channels continue to dominate viewing habits.”

In 2015, Brits watched an average of three hours and 36 minutes of TV per day, this was less than the Americans but more than the Swedes, according to regulator Ofcom. In 2014 the figure was three hours and 40 minutes.

Last year, Ofcom calculated that Britain was ahead of the U.S., Japan, Australia and the rest of Europe when it comes to watching free-to-air catch-up services such as the BBC iPlayer. Ofcom predicted that over Christmas 70 percent of U.K. adults (31 million) would use these internet-driven services.

The Brits’ willingness to pay for online TV, provided the price is right, is clear. The popularity of Netflix reflects this. Significantly, Disney decided that the U.K. would be the first place—ahead of even the U.S.—to launch its streaming service, DisneyLife. At £9.99 a month, DisneyLife is more expensive than Netflix, which was recently subject to a price hike in Britain, from £5.99 to £7.49 a month.

All the evidence suggests that Netflix subscribers are likely to be heavy TV watchers who are also likely to pay for satellite or cable TV. This explains why pay TV is proving to be durable in the face of competition from OTT operators.

POWER OF PAY
Pay TV has long been big business in the U.K. And Sky remains the market leader. For the year ended June 30, 2016, Sky’s group revenues rose 7 percent to £12 billion, with £8.4 billion from the U.K. and Ireland, also up 7 percent. In the U.K. 11.3 million homes subscribe to Sky, Ofcom says. About 65 percent of U.K. homes have a pay-TV subscription.

“Sky has done a lot to improve its health by developing extra revenue streams from things like NOW TV (an online service) and the Sky Store (a buy-to-keep service),” says Toby Syfret, the director of TV research at Enders Analysis. In terms of “cord cutting and shaving, the U.K. doesn’t have the same issues and urgency that the U.S. has.”

Yet the beating heart of the British TV ecosystem remains the BBC. The “Beeb” may be bruised, battered and constantly having to tighten its belt, but across the board, the pubcaster’s programs are popular and highly appreciated by audiences.

“People are loyal to the BBC and trust the BBC,” says analyst Price. “That trust bleeds into the rest of U.K. terrestrial TV. Viewers are proud of the BBC. The value of its service to British audiences cannot be underestimated.”

In May the license fee-funded broadcaster was given a set of guarantees by the British government that appeared to secure its future until 2027. Under the terms of its new Royal Charter, due to start next year, the BBC’s license fee (currently £145.50) looks safe for 11 years.

The fee had previously been frozen. Under the new plan, it will increase in line with inflation. Additionally, the loophole that enabled U.K. viewers to watch the BBC online without paying the fee—levied on homes that own a TV set—was closed in September.

Tony Hall, the director-general of the BBC, hailed these measures as a victory for the corporation. “At the end, we have an 11-year Charter, a license fee guaranteed for 11 years, and an endorsement of the scale and scope of what the BBC does today,” Hall said.

But the new Charter, expected to be up for review in five years, presents another set of challenges for the BBC.

LICENSE TO VIEW
Crucially, beginning in 2018, the BBC has to start paying for the cost of free license fees for Britain’s growing army of people aged 75 and over; this was previously paid for by the state. This highly controversial move infuriated BBC supporters. Alongside other measures, the upshot is that until 2022, the BBC needs to save in the region of £800 million a year. For the year ended March 31, 2016, license-fee income was £3.7 billion.

This comes after an earlier financial squeeze that led to the axing of youth-focused channel BBC Three in February; BBC Three is now online only.

There are worries that the imminent reform of BBC Studios, which is set to be reborn as a stand-alone commercial entity, could have a negative impact on Auntie’s public-service ethos.

Says Enders’ Syfret: “At the moment, when the BBC works on, say, a David Attenborough program, an experienced team will know instinctively what is expected of them and what the vision for the project is. They are not thinking primarily of where the program could be sold to, or how it will be marketed, but have objectives consistent with the classic Reithian [a reference to the BBC’s founder, Lord John Reith] ones to inform and educate as well as to entertain. My concern is that a commercially-driven BBC Studios could be disruptive and have an impact on the BBC’s unique production ethos.”

RATINGS WAR
Despite the uncertainties, the BBC’s flagship channel, BBC One, is the U.K.’s most popular TV network. BBC One and the U.K.’s main commercial free-to-air channel, ITV, are broadly neck and neck during peak time. Dig deeper into the numbers and the BBC emerges significantly ahead: for the first seven months of 2016, BBC One’s total viewing share was 21.77 percent while ITV’s was 15.72 percent.

On these main two U.K. terrestrial channels, prime-time viewing is dominated by long-running, blue-collar soaps. These include ITV’s Coronation Street (a sixth weekly episode was ordered recently) and Emmerdale, and BBC One’s EastEnders.

“Despite their audience decline due to massively increased competition, soaps remain popular,” says Price. “Day in, day out, homegrown soaps still have value in volume.”

Other staples of Britain’s two most popular networks include BBC One’s MasterChef and entertainment big hitters Britain’s Got Talent (ITV), I’m A Celebrity… Get Me Out of Here! (ITV), Strictly Come Dancing (BBC One) and The X Factor (ITV).

One of the main tasks for Kevin Lygo, the new director of television at ITV, is to find a fresh entertainment hit. There are high hopes for The Voice UK, which completed its final run on BBC One earlier this year and debuts on ITV in 2017.

BBC One’s biggest show, The Great British Bake Off, is an example of the U.K.’s talent for devising quirky formats that over time gradually build a loyal and sizeable fan base. The consolidated peak viewing figure for last year’s Bake Off finale was 14.5 million. Only soccer tournaments played by the under-performing England team can rival Bake Off’s popularity in the U.K. The show made headlines again this September, when Channel 4 outbid the BBC for the rights to the next season.

Other examples of the left-field shows that capture mainstream audiences are BBC One’s Countryfile, a popular factual series reporting rural and environmental issues, and Channel 4’s Gogglebox, in which British families are filmed reacting to the week’s TV shows.

BRIT SCRIPTS
Drama defines BBC One’s and ITV’s schedules. The popularity of The Night Manager is part of a sustained period of success for BBC scripted shows. These programs are underpinned by long-running series such as hospital sagas Holby City and Casualty. Gritty crime pieces Happy Valley and Line of Duty also compete for viewers’ attention alongside period drama such as War & Peace (a co-production with The Weinstein Company). Sherlock and Doctor Who are two other mainstays of BBC One’s lineup.

ITV has struggled to match the BBC’s spectacular run of drama. It needs to find a successor to Downton Abbey. Lygo has poached the BBC’s head of drama, Polly Hill, to help him. The aim is to commission more shows like The Durrells, a strong performer for ITV this spring, and fewer flops such as Jekyll and Hyde and Beowulf: Return to the Shieldlands.

ITV recently premiered the costume piece Victoria and the revival of relationship drama Cold Feet. Returning ITV scripted crime shows that keep the advertising pounds coming in include Midsomer Murders, Endeavour and Scott & Bailey.

ITV, Channel 4 and Channel 5 are all funded by advertising. “Since 2013, TV advertising in the U.K. has been extremely buoyant due to the economic recovery,” says Jonathan Barnard, head of forecasting at ZenithOptimedia. “The main beneficiary of this is ITV, although Channel 4, Channel 5, UKTV and Sky have all benefited.”

He adds, “ITV has done well despite audiences falling overall. While it’s impossible to reach the huge mass audiences of 10 to 15 years ago due to the switch from analog to digital, ITV remains the benchmark for the overall U.K. TV market. It is the U.K.’s only commercial mass audience channel. When ITV does well, it lifts the whole market. Unlike U.S. network TV, which is in decline, in the U.K. we are still expecting growth in revenues across the market.”

Barnard says the online viewing revolution is, if anything, helping TV’s case for attracting advertising money. “As an advertising medium, U.K. TV is actually cheap and effective. Increasingly, advertisers are using TV and online video together. Online is not only a competitor to TV, in many ways it’s complementary.”

In June, the U.K. voted to leave the European Union. How Brexit will affect the TV advertising market is as yet unclear. Speaking at ITV’s financial results in July, CEO Adam Crozier suggested that at the moment the key problem was uncertainty. As a result, the company is seeking modest savings to the tune of £25 million. “I don’t think the result of the vote changed anything,” he said. “That’s partly because it is too early to say, and partly because nothing much is going to happen very soon. It’s going to be a two- to five-year process.”

Brexit is also putting the spotlight on the independent production sector. Encouraged by the fact that independents are allowed to retain potentially valuable rights to their shows, U.S. studios and broadcasters have invested heavily in British indies. Many commentators believe that these content-rich firms are the key to the future prosperity of Britain’s TV sector. The BBC is the world’s most prolific producer of new content by a wide margin; according to Eurodata TV, it was responsible for more than 300 new titles in 2015. But many of Britain’s most successful shows domestically and abroad are produced by indies.

CREATIVE HUB
Downton Abbey was made by Carnival Films, which is owned by NBCUniversal. Kevin MacLellan, the chairman of global distribution and international at NBCUniversal, pinpointed the U.K.’s importance as a global creative hub when speaking at the Royal Television Society recently.

“A big part of why we’re in London, and one of the advantages of having our own office here, is mining the talent that exists in the U.K. so we can move that product over to the U.S. That’s the home run for us.”

Britain’s exit from the EU may threaten the U.K.’s enviable position as a place where talent from outside its borders want to work. John McVay, the chief executive of producers’ lobby group Pact, says, “We don’t want to end up as a backwater because premium talent no longer wants to work here. The U.K. needs to have the ability to continue to attract the best talent wherever it comes from. Brexit potentially puts that at risk.”

When Brits voted by 52 percent to 48 percent to leave Europe, they didn’t realize one of the unintended consequences could be that, once Brexit becomes a reality, genuinely ambitious and expensive homegrown shows like The Night Manager might become even less common than they are today. Under those circumstances, global players like Netflix are likely to celebrate, but Britain’s buoyant TV market could lose some of its luster.

Pictured: Celebrity Big Brother on Channel 5.