The U.K.’s Road to Recovery

The COVID-19 shutdown has accelerated a paradigm shift in the British media sector and could leave a lasting impact on the industry, according to a webinar panel convened by the Royal Television Society (RTS) last week that featured Enders Analysis’ Claire Enders, Thinkbox’s Lindsey Clay, MP Damian Green and Oliver & Ohlbaum’s Sean McGuire.

The panelists, in conversation with media commentator Kate Bulkley, weighed in on how the industry can begin to recover post shutdown.

Enders, the founder of the research firm Enders Analysis, pointed to the “extraordinary renewal in the BBC’s position as the U.K.’s authority for news,” amid the pandemic. Across the board, the U.K.’s public-service broadcasters (PSBs) have seen news consumption increase during the shutdown, Enders added. Commercial viewing has also been healthy, Enders said. But, TV advertising “will face its largest quarterly decline ever…. It’s nothing short of catastrophic. The market could be down by 50 percent this year if things don’t improve soon.”

Meanwhile, the full impact of the high unemployment and furlough rates in the U.K., plus Brexit, are still to be felt, Enders said.

McGuire, the managing director at strategy advisory firm Oliver & Ohlbaum, noted, “We’ve never seen a downturn this sharp or this deep. [In 2021] there’s going to be a huge lag on employment, a huge lag on consumer spending and on corporate profitability. That’s what drives the media market in terms of pay subscriptions or TV advertising. So it’s going to take us a long time to get out of that. On top of the cyclical effects, [the pandemic] could catalyze some fairly profound structural change in that not all the TV advertising will come back—it might go somewhere else, it might not come back at all.”

Subscriptions to sports packs could be significantly impacted now that consumers are learning to live without live coverage, McGuire said. “At the same time, we’re running an experiment in real-time where people are taking up more SVOD and OTT subscriptions. By early April there were 4.6 million new SVOD subscriptions in the U.K. That move from linear to on-demand is definitely being accelerated. So it’s not all catastrophic. There are some wins out of this. But the next two years will see some very profound impact.”

“This is truly a paradigm shift in our economy,” Enders added. “We do expect PSB viewing, BBC viewing, to continue to remain very strong. And Disney+ and YouTube; we’ve seen an extraordinarily positive impact on SVOD subscriptions.”

As for the road to recovery, Enders stressed, “We’re not going to be in recovery well into the middle of 2021…. It can get a lot worse than it already is and that will happen when the furlough scheme ends in October… a hard Brexit if that is the government’s will, we’ll have all the disruption to the NHS, things are going to get an awful lot worse before we can start using that word [recovery]. If we’re looking at a 25 percent drop in GDP in a single quarter, then what are we going to be seeing in the further quarters of this year?”

If the U.K. slips into a “great depression,” Enders said, “advertising income will not recover [to 2020 levels] until 2025.”

Green is a member of the Department for Digital, Culture, Media and Sport’s (DCMS) select committee, which is exploring the future of public-service broadcasting in the U.K. “Every government minister is now facing the entire country wanting bailouts. The TV industry is not high on the list of those who tug the heartstrings. Within the DCMS sector, the tourism industry is flat on its back, theaters, a lot of these are small institutions that will disappear. We know the BBC is not going to disappear—it has the license-fee income. ITV is big enough to look after itself. Channel 4 is more vulnerable but even Channel 4 is not like the South Bank or any of the provincial theaters. I think the support from advertising will continue because there’s a budget for that. But I don’t think there will be another pot of money put into broadcasters of any kind.”

Clay, the CEO of Thinkbox, which represents the interests of the U.K.’s commercial broadcasters, said that there’s much to be positive about. “TV advertising will get more than its fair share of its advertising money available. There are all sorts of reasons not to be a catastrophist on that front. Nothing else does what TV advertising does. It is irreplaceable. You can’t get the reach of that number of eyeballs. It’s fundamental to businesses’ success. It drives 71 percent of the profit of all advertising generated.”

As viewing skews more toward on-demand, “advertising is being transformed as well,” Clay said. “Broadcasters are investing very heavily in Broadcaster Video on Demand (BVOD), Sky’s AdSmart. Interestingly, if you look at the decline in TV [ad] revenue, the decline in BVOD revenue is much less steep. Even over the last couple of months, advertisers have sustained their investment in BVOD more than they have in linear TV. That is a really important part of the future.”

On the road ahead, McGuire noted that by late summer or early autumn, broadcasters will be running short on content. “People are using what they have. At some point we’re going to be living on a diet of repeats and reruns. That is one of the problems that the sector will have to overcome.”

Vertically integrated media companies will have an easier time getting productions back up and running, Enders said. “ITV, BBC will be quicker off the ground. Netflix has a stranglehold on premium facilities. Sky has been building its own facilities. Whether it’s in the U.S. or here, vertical integration and scale will come to the fore.”

She continued, “This paradigm shift lays bare what has always been true: public-service broadcasting cannot exist anywhere in the world without the specific intervention of a license fee and a system that is regulated for public goals, including culture. This whole experience is one in which I’m afraid the big will only get bigger.”