Introduction
This is Ofcom’s sixth annual Communications Market Report, offering industry, stakeholders
and consumers a reference tool to track the development of the UK communications sector.
The report also provides an important context for the work that Ofcom undertakes in
furthering the interests of consumers and citizens in the markets we regulate.
As well as providing data and analysis on the UK television, radio and telecoms markets, this
report also focuses on relevant trends and developments in adjacent industries such as
music and gaming. These sectors are increasingly important to our understanding of
changing communications markets; consumers are dividing their time among a growing
range of media types, platforms and devices. At the same time, companies are identifying
ways in which new platforms and media can help bolster established revenue streams.
The UK communications industry continued to grow in 2008, albeit at a slower rate, driven
by telecoms and television subscription revenue. It generated £51.8bn in 2008, up 0.2% year
on year. Free-to-air advertiser-funded services such as television and radio saw their
revenues fall as they felt the impact of an economic downturn. Early indicators suggest that
advertising revenue has dropped further in 2009.
This year, we have commissioned our own research into how consumers’ attitudes towards
communications services have been affected by the downturn. Amid this economic
uncertainty, the Government’s Digital Britain report, published in June 2009, aimed to ensure
the UK communications industry emerges from the recession as strong and internationally
competitive. The European Commission has followed with its Digital Europe initiative.
But the progress of the communications industry has been substantial. At the end of March
2009, nine in ten homes had digital television; two-thirds of the nation had broadband; nearly
a third had access to a DAB digital radio set; one in five radio listener hours in 2008 was
through a digital platform and nearly a quarter of mobile subscriptions, or 17.9 million, were
to 3G services. More than a quarter of homes had digital video recorders and in the report
we provide a detailed analysis on consumer habits and usage of these devices.
And there is still evidence of an appetite for further innovation around products and pricing.
Mobile phone operators have responded to the downturn with sub £10-per-month deals,
while new content distribution models emerged in 2008/09 such as ‘free’ music services,
online catch-up TV and micro blogging. Meanwhile, telecoms operators are rolling out super-
fast broadband and greater numbers of consumers are buying communications services in
‘bundles’ from single suppliers. We explore these developments in detail in the report.
For the first time this year, we have also provided in this report insights into communications
trends across the UK’s nations, comparing and contrasting consumption patterns, device
adoption and content production in England, Northern Ireland, Scotland and Wales.
We publish this report to support Ofcom’s regulatory goal to research markets constantly
and to remain at the forefront of technological understanding; it also fulfils the requirements
on Ofcom under section 358 of the Communications Act 2003 to publish an annual factual
and statistical report. It also addresses the requirement to undertake and make public our
consumer research (as set out in Sections 14 and 15 of the same Act). We appreciate your
feedback on all Communications Market reports. Please email your comments to Ofcom’s
Market Intelligence team on market.intelligence@ofcom.org.uk
1

The information set out in this report does not represent any proposal or conclusion by
Ofcom in respect of the current or future definition of markets and/or the assessment of
licence applications or significant market power or dominant market position or in respect of
any other regulatory process for the purposes of the Communications Act 2003, the Wireless
Telegraphy Act 2006, the Broadcasting Acts 1990 and 1996, the Competition Act 1998 or
other relevant legislation.
2

Contents
Introduction 1
Key Points 4
1 The market in context 11
1.1 Introduction and structure 13
1.2 Key market trends 14
1.3 Communications markets and the recession 23
1.4 Consumers embrace DVRs 39
1.5 The nations’ communications markets 54
2 Television 65
2.1 Key market developments in television 67
2.2 The television industry 81
2.3 The television viewer 119
3 Radio 147
3.1 Key market developments in radio 149
3.2 The radio industry 159
3.3 The radio listener 181
4 Telecoms 195
4.1 Key market developments in telecoms 197
4.2 The telecoms industry 221
4.3 The telecoms user 241
5 Converging Markets 261
5.1 Converging communications markets 263
5.2 Content 265
5.3 Distribution and devices 299
6 Annexes 315
Glossary 317
Table of Figures 326
3

Key Points
Key points: the market in context
Key market trends
 Availability of key communications services remained largely unchanged in 2008. Of
the key communications services that are tracked by Ofcom, only the availability of
local loop unbundling (LLU) services increased in the year (by four percentage
points, to 84% of households) (page 15).
 Communications industry revenue (based on elements monitored by Ofcom)
increased by 0.2% to £51.8bn in 2008, with television (in particular pay-TV
subscriptions) the main driver of growth. Telecoms revenue remained flat, while radio
revenues fell in 2008 (page 17).
 Household spend on communications services fell again in 2008. In real terms, UK
households’ average spend on communications was £93.69 a month, down £4.39 on
2007. Spend on communications services accounted for 4.63% of total monthly
household outgoings, down from 4.8% a year earlier (page 17).
 Consumer satisfaction with communications services increased in the year to Q1
2009, up to 89% compared to 86% in Q1 2008. Mobile telephony again scored
highest out of the five communications services included in our research, with 94% of
consumers either ‘satisfied’ or ‘very satisfied’ with their mobile service (page 19).
 Ofcom research shows that at the end of Q1 2009, 46% of UK homes bought
communications services in ‘bundles’, up by seven percentage points since Q1 2008.
The majority of these bundles were either fixed voice and broadband ‘double play’
(44%) or fixed voice, broadband and multichannel TV ‘triple play’ (34%) (page 20).
Communications markets and the recession
 Communications spend appears relatively robust when compared to alternative
claims on disposable income. Meals/nights out and holidays are the expenditure
categories most likely to be cut from consumers’ disposable income; only spend on
toiletries and groceries appears more secure than that on communications products
(page 26).
 However, consumers seem to see opportunities to save on their communications
spending – for example, by bundling services or by deferring mobile handset
purchases. Some consumers are also more likely now to shop around for
communications services (page 26).
 Advertising expenditure is generally cyclical, and this is borne out in the latest
revenue data from broadcasters. Radio industry revenue contracted year on year,
and while overall television revenue rose, the commercial PSBs attracted less
advertising revenue this year than last (page 35).
 While it is less clear that the telecoms industries have been affected by the economic
downturn, mobile and broadband operators are affected by the competitive pressures
of markets approaching saturation, and the increasing use of mobile phones rather
than fixed-line phones is putting pressure on fixed-line operators (page 37).
4

Consumers’ use of digital video recorders (DVR)
 More than a quarter of consumers (27%) claimed to use a DVR at the end of Q1
2009, equivalent to 7 million homes, according to Ofcom research. This rose to
nearly a third of consumers (31%) in multichannel television homes. These figures
are a little lower than those from operator and sales data, which suggest that nearly 9
million DVRs had been sold in the UK at the end of Q1 2009 (page 41).
 Fifteen per cent of viewing across the five main PSB channels in 2008 was for
recorded programmes, according to data from BARB, the television industry’s
audience measurement organisation. In Sky+ homes this rose to 19%. Adults aged
16-34 are the group most likely to watch programmes recorded on a DVR; 19% of
viewing among this age group was on a recorded basis in 2008, which compared to
the lowest figure of 11%, for viewers aged 55 and over (page 42).
 Forty-two per cent of consumers said that they watched a greater variety of
programmes since owning a DVR, although a third (33%) disagreed with this. Eighty
per cent of consumers believe that they watch more programmes that they enjoy
because of their DVR (page 51).
 DVRs are becoming increasingly advanced, offering viewers search functionality and
‘push’ video-on-demand, where programmes are downloaded to the hard disk drive,
for example. Hard drives are also increasing in size. Some offer up to 250 hours of
recording, up markedly from the 40 hours available on early generations of devices
(page 53).
The nations’ communications markets
 Personal use of mobiles was more prevalent than use of fixed lines in every UK
nation for the first time in 2009. Broadband was the fastest growing communications
platform, with double digit take-up increases in England, Wales and Northern Ireland
(page 57).
 UK consumers showed a renewed interest in ‘bundling’ services during 2008/09.
Forty-six per cent of homes took two or more services from the same supplier.
People in England were most likely to take a bundle, but growth was fastest in Wales
and Northern Ireland (page 59).
 During 2008, spend per head on networked television production was highest in
England during 2008 at £35.51; investment on TV hours for a nation was highest in
Northern Ireland (£16.05), while expenditure on non-English language output was
greatest in Wales at £24.38 (page 60).
 People in Scotland watched more TV than anywhere else in 2008 (4.2
hours/day/head versus UK average of 3.8). PSB TV output was most popular with
viewers in Wales (62% share of viewing) and least popular in London (57%). Levels
of radio listening across the four nations were similar at around 3.2 hours per listener
per day. The popularity of the BBC’s radio services varied by nation – from 46% of
listener hours in Scotland to 63% in Wales (page 61).
5

Key points: television
 Total television industry revenue grew by 1.3% to reach £11.2bn in 2008. This was
largely driven by subscription revenue, which increased by 5.7% in 2008 to reach
£4.32bn. Pay-TV providers increased subscriber numbers while products like
multiroom and high-definition television also gained in popularity (pages 69 and 82).
 Total TV net advertising revenue was £3.47bn in 2008, down 3% year on year, as the
gains in multichannel revenue, up 9.3% to nearly £1.3bn, helped to offset the
reductions on the mainstream channels (page 69).
 Net advertising revenue for ITV1, GMTV1, Channel 4 and Five decreased 8% year
on year to £2.1bn. The four main commercial PSBs undertook several cost-cutting
measures as they felt the impact of the recession and the wider structural challenges
facing free-to-air broadcasting (page 84).
 Broadcasters’ total spend on television output passed the £5bn mark, fuelled mostly
by increased investment in Sport and Film channels (driven by higher costs for rights
acquisitions) and BBC One (page 88).
 The five main PSB channels broadcast 33,165 hours of first-run originated
programming in 2008, down by 3% on 2007 and by 5.6% (1,845 hours) since 2003.
The five PSB channels also invested less in first-run originations. In 2008 prices, they
spent £2.6bn in 2008, down by 2.9% year on year (page 90).
 UK television channels broadcast nearly 2.5 million hours of programming in 2008.
Of these, almost 1.5 million hours were broadcast by the PSB channels and key
multichannel genres, of which 9% (133k hours) were first-run originations (page 89).
 The five main PSB channels (BBC One, BBC Two, ITV1, Channel 4 and Five)
attracted a viewing share of 60.8% in all homes during 2008, down by 2.7 percentage
points year on year (page 130).
 Digital television penetration in the UK reached 89.2% at the end of Q1 2009, an
increase of 2.1 percentage points year on year. This meant that around 22.8 million
homes received digital television on their main set at the end of March 2009 (pages
73 and 121).
 Digital switchover is now well under way and Exeter in the West Country became the
UK’s first ‘digital city’ in May 2009. Analogue switchover in the first region of the
Scottish Borders was completed in November 2008 (page 74).
 High-definition television gained traction over the past 12 months, as new HD
channels launched and more platforms developed their HD propositions. By the end
of the first quarter of 2009, 2.3 million homes (9%) had reception equipment capable
of accessing linear or on-demand HD content. Thirty-three per cent of UK homes
claimed to have HD-ready television sets at the end of 2008, according to our
research (page 76).
 A total of 77 television channel licences were issued by Ofcom in 2008, significantly
down from the 143 issued during 2007. Overseas licences formed an increasingly
large proportion of the new licences (page 79). There were 495 channels
broadcasting in the UK at the end of 2008, up from 470 a year earlier.
6

Key points: radio
 Total UK radio industry funding stood at £1.15bn in 2008, down by 2.3% on 2007.
This followed a fall in commercial revenues of 3.3% to £505m and we estimate that
the BBC reduced its radio spend by 1.5% to £643m (accounting for a 56% share of
all radio income/spend) (page 160).
 By Q1 2009, digital radio platforms attracted just over a fifth of all radio listening
hours (20.1%), up from 17.8% in Q1 2008, according to RAJAR figures. The majority
(63%) of digital listening came via DAB, which accounted for 12.7% of all radio
listening. Digital television delivered a further 3.4% and the internet 2.2% (page 150).
 Radio audience reach was down by one percentage point in 2008 on five years
previously, at 89.5% of adults. Time spent listening to the radio was also down, by
5% in five years, and by 1.7% year on year. Total listening hours to all BBC Radio
stations were down by 0.5% during 2008 but still up modestly (0.2%) since 2003. By
contrast, all commercial radio listener hours were down both by 3.2% in the year and
11.4% over five years (page 181).
 Within this overall pattern of reductions, listening to national radio stations has risen,
while local radio listening hours have contracted. BBC network radio listening hours
have risen by 6.4% in five years and national commercial hours are up 16.9%,
although down on the past year. By comparison, local BBC station hours fell by
19.1% and local commercial by 18.3% (page 183).
 The decline in radio listening has been most notable among younger listeners, with
hours falling by 21% among 4-15 year olds between 2003 and 2008. The reduction in
hours grew progressively lower as the age of the audience increased. Among
younger adults (15-24), hours were down 12.0%; among 25-34s they were down
11.1%. Listening among older age groups was more stable; down by 1.7% among
listeners aged 55+, while hours were flat among 45-54 year olds (page 183).
 Cumulative sales of DAB digital radio sets passed 9 million by Q1 2009 (up from
almost 7 million in Q1 2008), following sales of around 2 million in the previous 12
months. RAJAR estimates that almost a third (32%) of UK adults owned a DAB set
by the end of Q1 2009, up by five percentage points on the previous year (page
151).
 A third of adults (33%) had listened to the radio online, according to the RAJAR
internet and audio services survey carried out in May 2009. This was up from 29% a
year previously and from 24% six months before that (page 151).
 In June 2009, the Government’s Digital Britain report was published, recommending
the digital migration of the majority of radio services in the UK, with a proposed target
of 2015. It specified an interim 2013 milestone of 50% of all radio listening to be
through a digital platform, and targets for national DAB coverage to be comparable to
FM and for car manufacturers to be installing DAB sets as standard (page 155).
 Twenty-one new community radio licences were awarded in the six months to June
2009, covering a number of regions in England including the Midlands, the North
West, the East and the South East. By July 2009, Ofcom had awarded a total of 205
community radio licences, with 141 stations already on air. Licences are still to be
awarded for community stations in Greater London and areas within the M25, within
the current second round of licensing (page 172).
7

Key points: telecoms
 For the first time since Oftel started to collect market data in 1992/93, operator-reported
revenues from telecoms services did not increase in 2008. Total revenues were
unchanged at £39.5bn, with increasing retail revenues being offset by falling wholesale
revenues (page 222).
 Telecoms services accounted for 3.2% of total household expenditure in 2008, down
from 3.4% in 2007. Telecoms spend fell by 5.2% in real terms over the year, the largest
annual decline since spend on telecoms services began to fall in 2006 (page 242).
 Nearly two-thirds (65%) of UK households had a fixed-line broadband connection in Q1
2009, up from 58% a year previously (page 247).
 Mobile broadband has continued to grow, with take-up of pre-pay services contributing to
over a quarter of a million new connections in May 2009 alone. Around 12% of UK
households had a mobile broadband connection in Q1 2009; three-quarters of these also
had a fixed-line broadband connection, indicating that for many mobile broadband is a
complement to, rather than a substitute for, a fixed-line service (page 208).
 Eleven per cent of households had a mobile connection but no fixed-line connection in
Q1 2009 (unchanged from a year previously). However, 22% of households in socio-
economic group DE are mobile-only (page 248).
 Mobile use continues to grow. The number of monthly outbound minutes per mobile
connection increased by 6%, to 123 minutes, while the number of text messages
increased by 29% to an average of 99 messages per month from each mobile
connection (page 253).
 For the first time, the number of pre-pay (pay-as-you-go) mobile connections fell during
2008. This was driven by the availability of low-cost contracts, including SIM-only tariffs
which accounted for nearly a quarter of new contract sales in the first five months of
2009. Thirty-two per cent of mobile contracts sold in Q1 2009 were for tariffs of less than
£20 per month, compared to 23% in Q1 2008 and just 5% in Q1 2007 (page 233).
 24-month mobile contracts emerged during 2008, accounting for 13% of new post-pay
connections in Q1 2009, compared to 2% a year previously. At the other end of the
scale, 24% of new contracts were for just one month in Q1 2009 (driven by the take-up
of SIM-only tariffs), up from 10% in Q1 2008 and less than 1% in Q1 2007 (page 217).
 More than 8 million people in the UK (16% of adults) accessed the internet on their
mobile phone in Q1 2009, up by 42% on a year previously. This growth has in part been
driven by the increasing use of smartphones, which accounted for 16% of all handset
sales in Q1 2009, and the increasing use of mobile applications (page 209).
 BT’s share of retail fixed voice calls to UK geographic numbers fell to under 50% for the
first time in 2008. Increasing use of wholesale line rental (WLR) and local loop
unbundling (LLU) services contributed to the erosion of BT’s retail share (page 227).
 Overall satisfaction levels are high, with 90% or more of consumers satisfied with their
fixed-voice, fixed-broadband and mobile services. However, satisfaction with the speed
of fixed-line broadband connections has fallen from 90% in Q1 2006 to 81% in Q1 2009.
(page 256).
8

Key points: converging markets
 Online catch-up TV began to enter the mainstream in 2008, largely thanks to the
growing popularity of the BBC iPlayer. Twenty-three per cent of households claim to
watch programmes online, rising to 33% among 15-24s. But 10% of people aged 65+
reported that someone in their household watched catch-up TV online (page 265).
 The BBC’s iPlayer served up 275 million online video streams (750,000 streams per
day) in 2008, and a further 100 million over Virgin Media’s network. Channel 4
delivered nearly 150 million streams during the same period. All major broadcasters
now have similar offerings (page 270).
 A quarter of the population admitted to the unauthorised sharing of music online
according to data from Entertainment Media Research, and 5% admitted to doing so
regularly. However, most unauthorised sharing is done by copying physical discs –
37% have let someone else copy a CD. Younger people seem less concerned about
obtaining content for free – 66% believe it is morally acceptable to do so (page 275).
 Social networking is growing more slowly than previously. Facebook cemented its
position as the most used site, growing by 73% since May 2008 to reach a monthly
unique audience of 19 million, compared to 5 million for MySpace and 4 million for
Bebo. But new services are still growing fast – Twitter now has 2.6 million unique
users, up from 150,000 in May 2009 (page 289).
 Social networking is also maturing - literally. Use grew fastest among 35-54s – up by
eight percentage points since Q1 2008 to 35%. Among 25-34 year olds use grew by
six percentage points to 46% but it actually fell slightly among 15-24s – by five
percentage points to 50% (page 289).
 The free ad-supported streaming service Spotify has made its mark in online music –
the average user now spends over two hours per month browsing and searching for
music through Spotify. This is ahead of established music applications with much
larger audiences such as iTunes (just under two hours) and Windows Media Player
(just under an hour) (page 282).
 Older consumers are increasingly adopting digital platforms. Since 2008 take-up of
mobile phones, digital TV, DAB radio and the internet grew by double digits among
consumers aged 65+. Seventy-seven per cent now have digital TV, 68% have a
mobile phone, 41% have the internet and 28% a DAB digital radio set (page 305).
 Only a minority of people use advanced functions on their mobile phone handsets.
Apart from text messaging (83%) and voicemail (56%), the only other function used
by the majority of mobile phone users was taking and storing photos (52%) (page
310).
 Internet advertising spend grew to reach £3.3bn in 2008. For the first time, in 2008
the internet accounted for over one in every five pounds (20%) of UK advertising
spend. The internet’s share has grown by 17 percentage points since 2003, with
nearly half this growth at the expense of newspapers (page 295).
9

The Communications Market
2009
1
1 The market in context
11

Contents
1.1 Introduction and structure 13
1.2 Key market trends 14
1.2.1 Introduction, structure and findings 14
1.2.2 Availability: little change as many services approach near-universal
coverage 14
1.2.3 Fixed broadband take-up rose by seven percentage points to 65% of
homes in 2008 16
1.2.4 Communications industry revenue grew by just 0.2% to £51.8bn 16
1.2.5 Average household spend on communications services falls 17
1.2.6 Consumers are spending growing amounts of time on the internet 18
1.2.7 Satisfaction with communications services remains high 18
1.2.8 More consumers are buying bundles 19
1.2.9 Attitudes to media consumption 20
1.3 Communications markets and the recession 23
1.3.1 Introduction, structure and key findings 23
1.3.2 Economic trends and consumer attitudes towards the downturn 24
1.3.3 Consumers’ response to the economic downturn 25
1.3.4 The recession and communications service providers 32
1.3.5 Advertising revenues fall while broadcasters implement cost control
measures 34
1.3.6 Telecoms players look to longer contracts as pre-pay subscriptions fall 36
1.4 Consumers embrace DVRs 39
1.4.1 Introduction, structure and key findings 39
1.4.2 More than a quarter of homes have a DVR 40
1.4.3 DVR use varies by age, platform and channel 42
1.4.4 Films and HD channels prove popular for recording 45
1.4.5 Drama series attract more recorded than live viewing in Sky+ homes 48
1.4.6 Three-quarters of viewers claim to fast-forward most adverts 49
1.4.7 DVRs users watch more television that they enjoy 51
1.4.8 DVRs are adding greater functionality and storage 51
1.4.9 Hard disks: bigger and cheaper 52
1.5 The nations’ communications markets 54
1.5.1 Introduction, structure and findings 54
1.5.2 The availability of communications services across the UK 55
1.5.3 Device and service take-up across the UK’s nations 56
1.5.4 Communications service bundling 58
1.5.5 Production of broadcast-based content across the UK 59
1.5.6 Consumption of broadcast services in the UK’s nations 60
12

1.1 Introduction and structure
This section of the Communications Market Report 2009 summarises a range of
communications market developments over the last twelve months. It is organised into four
sections:
 Key market trends (page 14)
This section summarises developments in communications services availability and
take-up. It then sets out industry revenue trends and household spend on
communications services before concluding with consumer satisfaction metrics and
consumers’ propensity to bundle services together.
 Communications markets and the recession (Section 1.3, page 23)
The UK moved into recession in the final quarter of 2008, and its impact is being felt
by consumers and industry. In this context, we commissioned research to understand
the degree to which consumers’ attitudes towards communications services are
being influenced by the recession. We also explore how industry revenues have
fared over the last twelve months, and the steps that companies have taken to
control costs.
 Consumers’ use of digital video recorders (DVR) (Section 1.4 page 39)
The advent of the DVR - also known as a personal video recorder (PVR) or digital
television recorder (DTR) – has offered consumers greater convenience and control
over their television viewing than was available through analogue video cassette
recorders (VCR). Now in more than a quarter of UK homes, consumers have
embraced DVRs across a range of digital television platforms. Here we set out key
metrics on the take-up and use of DVR products and identify trends in consumer
attitudes towards DVR use.
 The nations’ communications markets (Section 1.5, page 54)
Ofcom has published four nations’ Communications Market Reports alongside this
report. As national or regional issues become more prominent in communications
policy development (for example, the future of public service broadcasting and the
Government’s proposed universal availability of 2Mbit/s broadband), so the
characteristics of service availability, take-up and consumption by nation grow in
importance. In this section we provide a short summary of the findings of CMR:
Nations reports1.
1
See http://www.ofcom.org.uk/research/cm/cmrnr09/
13

1.2 Key market trends
1.2.1 Introduction, structure and findings
Introduction
This section provides an overview of key trends in the UK communications market in the
year to the first quarter of 2009. We begin by looking at service availability and consumer
take-up. We then turn to industry revenue and consumer spending before concluding by
examining consumption of different communications services and consumers’ satisfaction
with those services.
Structure and findings
 The availability of most communications services has remained largely
unchanged year on year – but local loop unbundling is now available to 84% of
consumers, up by four percentage points year on year. Fixed broadband penetration
rose by seven percentage points year on year to 65%. Section 1.2.2 (page 14).
 Communications industry revenue grew by 0.2% £51.8bn. Television revenue
was up in 2008 by 1.3%; telecoms revenue was flat but radio contracted by 2.3%
over the year. Section 1.2.4 (page 16)
 Real household monthly spend on communications fell again in 2008, by 4.5%
to £93.69. Section 1.2.5 (page 17)
 UK consumers spent an average of 25 minutes per day using the internet in
May 2009, up from nine minutes in May 2004. Section 1.2.6 (page 18)
 Satisfaction levels rose for most communications services over 2008. For
broadband it was up by one percentage points to 90%; for fixed-line voice it rose by
four percentage points to 92% while satisfaction with mobile services satisfaction was
94% (flat year on year). Section 1.2.7 (page 18)
 The number of UK homes buying communications services as part of bundles
increased in 2008. Section 1.2.8 (page 19)
 Just over half of consumers (51%) claim that watching television is the media
activity that they would miss most. Section 1.2.9 (page 20)
1.2.2 Availability: little change as many services approach near-universal coverage
Coverage of key communications services remained largely unchanged in 2008 following
marked increases in the availability of 3G mobile and local loop unbundling (LLU) during
2007. Of the key communications services that are tracked by Ofcom (Figure 1.1), only LLU
availability rose during 2008.
For broadband, as availability reaches near-universal levels, the focus of service providers
has now shifted to the speed of the broadband connection. The industry is working on
offering consumers ‘super fast’ broadband, while the Government’s Digital Britain report
included the objective of delivering minimum broadband speeds of 2Mbit/s by 2012.
14

Key developments in availability include:
• moves to increase the speed of broadband connections. Super-fast broadband was
made available to some UK homes for the first time in 2008, as operators responded
to demand for higher-bandwidth products:
o Virgin Media deployed ‘up to’ 50Mbit/s fibre-based broadband. By July 2009,
50Mbit/s broadband was available to 12.5 million homes, up from 5 million at the
end of 2008. The company is also piloting speeds of 200Mbit/s.
o BT announced plans to make its super-fast broadband available to 40% of the
UK, around 10 million homes, by 2012, at a cost of £1.5bn2 and covering 1.5
million homes by the summer of 2010.
o Within this context, Ofcom has consulted with industry on how to promote
investment and competition in super-fast broadband.
o The Government’s Digital Britain report, published in June 2009, announced
proposals to add 50p per month to the cost of fixed telephone line rental to create
a fund for super-fast broadband. If implemented, the scheme would aim to see
super-fast broadband made available to 90% of UK homes by 2017.
• Local loop unbundling (LLU) availability increased by four percentage points to reach
84% of UK households. LLU allows competing telecoms providers to install their own
equipment in telephone exchanges, connect consumers to their own network and
then offer services such as fixed telephony, DSL broadband and IPTV to end-users.
Figure 1.1 Digital communications service availability, 2007 and 2008
UK-wide
Platform 2008 2007 Change England Scotland Wales N Ireland
Fixed line 100% 100% 0% 100% 100% 100% 100%
2G mobile 1 98% - - 99% 89% 92% 92%
3G mobile2 87% - - 91% 67% 67% 43%
DSL 3
99.6% 99.6% 0.0% - - - -
Cable broadband4 49% 49% 0% 53% 38% 24% 30%
LLU5 84% 80% 4% 87% 70% 76% 71%
IPTV6 39% 39% 0% - - - -
Digital satellite TV 98% 98% 0% - - - -
Digital terrestrial TV 7
73% 73% 0% 73% 82% 57% 58%
DAB digital radio8 90% 90% 0% n/a n/a n/a n/a
Sources: Ofcom and:
1. Proportion of population living in postal districts where at least one operator reports at least 90%
2G area coverage. Sourced from GSM Association / Europa Technologies
2. Proportion of population living in postal districts where at least one operator reports at least 90%
3G area coverage. Sourced from GSM Association / Europa Technologies
3. Proportion of premises able to receive DSL services based on data reported by BT
4. Proportion of households passed by Virgin Media’s broadband-enabled network
5. Proportion of households connected to an LLU-enabled exchange
6. IPTV availability figure calculated on the assumption that Tiscali TV is now available in a number of
areas including London, Stevenage, Birmingham, Newcastle and Edinburgh
7. Availability of services from all six digital multiplexes
2
http://www.btplc.com/news/Articles/ShowArticle.cfm?ArticleID=EFD7B1FA-52ED-45BB-B530-
734FAC577E94
15

8. DAB digital radio coverage figure based on a BBC/Digital One estimate. Both the BBC and Digital
One built new transmission masts during 2006/07
1.2.3 Fixed broadband take-up rose by seven percentage points to 65% of homes
in 2008
Broadband take-up continued to grow in 2008. Ofcom research found that 65% of UK
households had a fixed broadband connection at the end of Q1 2009, an increase of seven
percentage points year on year. The total number of UK fixed broadband connections
increased by 10.7% to 17.3 million during 2008, up by 1.7 million on 2007. The number of
LLU DSL broadband connections increased by 47.6% to reach 5.5 million at the end of
2008.
Take-up of mobile broadband also grew substantially over the year. Around 3 million homes
had a mobile broadband connection (equivalent to 12% of the population) by the end of Q1
2009 and according to point-of-sale data from GfK there were over 250,000 mobile
broadband sales in May 2009 alone (compared to 139,000 in May 2008).
By contrast, digital television penetration on main sets reached 89.2% (22.8 million
households) in Q1 2009, up by 2.1% year on year – a comparatively small rate of growth
compared to earlier years. Take-up was as high as 95% of individuals in Derby and
Swansea, but as low as 71% in Glasgow and Derry/Londonderry.
Increasing numbers of consumers are acquiring digital video recorders (DVR), which are
now installed in 27% of UK homes. Moreover, the number of homes with access to high-
definition TV channels more than doubled in the year to Q1 2009 to reach 1.9 million, up
from 829,000 a year earlier.
Figure 1.2 Digital technology adoption, Q1 2008 and Q1 2009
Fixed line Mobile
87% 89%
100 Fixed
broadband
65%
Proportion of individuals
Digital TV
75 89%
50 Mobile
DVR
(%)
broadband Games
12% 27%
console
25 Blu-ray / 47%
HDTV HD DVD Q1 2008
channels 11% DAB digital
Q1 2009
0 7% 3G radio 32%
22%
Innovators Early Early Late Late
adopters majority majority adopters
Source: Ofcom research and operator data
Notes: All figures relate to Q1 2009; all figures are measured as a proportion of individuals except for
3G, which represents the proportion of mobile subscribers and DTV, which represents the proportion
of homes with a digital television reception device on the main set.
1.2.4 Communications industry revenue grew by just 0.2% to £51.8bn
The impact of the economic downturn was felt by companies across the communications
sectors in 2008. Overall revenues climbed by just 0.2% year on year to a little under £52bn.
A 2.3% fall in radio revenue of £0.1bn to £1.1bn was offset by rising TV revenue, which grew
by 1.3% to £11.2bn over the same period. Increased television revenue was largely driven
16

by subscriptions, up 5.7% in 2008 to reach £4.3bn, while net advertising revenue decreased
by 2.9% to £3.5bn.Telecoms revenue was flat in 2008 at £39.5bn (Figure 1.3).
Figure 1.3 Communications industry revenue
60 1 year 5 year
49.9 51.7 51.8 growth CAGR
48.0 49.0 1.1
44.7 1.1 1.2
1.2 1.2
1.1 10.5 10.6 11.1 11.2 0.2% 3.0%
40 10.0 Total
Revenue (£bn)
9.2
Radio -2.3% 0.4%
20 36.8 37.4 38.2 39.5 39.5
34.4
TV 1.3% 4.1%
0 Telecoms 0.0% 2.8%
2003 2004 2005 2006 2007 2008
Source: Ofcom/operators
Note: Includes licence fee allocation for radio and TV
1.2.5 Average household spend on communications services falls
Over the year, consumers once again found their monthly household spend on
communications services falling. In real terms, UK household average spend was £93.69 a
month, down 4.7% or £4.39 on 2007, marking the largest annual fall since Ofcom began
tracking the market (Figure 1.4). All communications services saw decreases in monthly
household spend, but spend on internet subscriptions fell furthest in proportional terms,
down by 6.2% to £10.71, despite increasing take-up. Spend on fixed-line voice decreased by
5.3% to £22.263.
Monthly spend on communications accounted for 4.63% of total household spend, down
from 4.79% in 2007 but up from 4.49% in 2003.
Figure 1.4 Average monthly household spend on communications services
150 6%
Total comms
4.72% 4.75% 4.72% 4.79% 4.63%
£ per month (2008 prices)
4.49%
£101.52 Radio
As % of total spend
£95.80 £100.54 £98.85 £98.08
100 2.35 2.34 £93.69 4%
2.37 2.20 2.60 2.44
25.71 26.35 26.97 26.57 26.64 TV
26.24
7.25 9.22 10.69 11.53 11.37 10.71 Internet &
50 29.13 33.51 34.88
2% broadband
33.66 33.98 32.04
Mobile voice & text
31.34 29.11 26.64 24.90 23.49 22.26
0 0% As a %age of total
2003 2004 2005 2006 2007 2008 household spend
Source: Ofcom/operators
3
It should be noted that in order to reflect these changes in household spend in real terms they have
been inflation-adjusted, using the consumer price index (CPI) which increased 3.6% during 2008. The
number of UK households also increased by 1.2% during 2008. This explains why average spend per
household fell in 2008 even while there was a small increase in overall industry revenues.
17

1.2.6 Consumers are spending growing amounts of time on the internet
The shifting pattern of communications service consumption which we have highlighted in
previous years continued into 2008. Figure 1.5 shows the amount of time consumers spent
per day using communications services in 2003 and 2008. Radio listening experienced the
steepest decline in usage, down by 17 minutes year on year to 172 minutes in 2008; TV
television viewing levels actually rose modestly over by one minute to 225 minutes per day.
Mobile telephony and home internet use (including web and applications) both experienced
the largest increases in average daily use (15% and 22% respectively)
Figure 1.5 Average time per day spent using communications services
0.1% -1.9% 21.5% -3.4% 15.2% 5 year
250 CAGR
224 225
day
Minutes per person per da
200 189
172
150 2003
100
2008
50 25
9 15 13 6 11
0
Television Radio Internet Fixed Mobile
Source: Ofcom / BARB / RAJAR / Neilsen Netratings (home use only)
Note: Daily figures were calculated from monthly data on the assumption that there are 30.4 days in
the average month; the exception was for internet consumption where the quoted figures relate to
May 2004 and May 2009, and 31 days were used; the internet consumption figures include the use of
online applications such as streaming media and only include use at home; mobile telephony figures
are estimated assuming that the average time taken to send and receive a text message is 35
seconds.
1.2.7 Satisfaction with communications services remains high
Consumer satisfaction with communications services remained high across all five
communications services in 2008:
• Mobile telephony scored highest out of the five communications services, with 94%
of consumers either ‘satisfied’ or ‘very satisfied’ with their service.
• Digital television experienced the most marked decline in satisfaction, down by five
percentage points to 85% of consumers being either ‘satisfied’ or ‘very satisfied’.
• Mobile broadband – included in our research for the first time – attracted the lowest
satisfaction rating of all the communications services that we surveyed (83%).
18

Figure 1.6 Overall satisfaction with communications services
Source: Ofcom research, Q1 2009
Note: Shows the proportion of users with each service, includes only those who expressed an
opinion.
1.2.8 More consumers are buying bundles
A wide range of suppliers now offer consumers services in ‘bundles’, in which two or more
products are supplied by the same provider. This often offers the advantage of a price
discount and the convenience of receiving a single bill for several services. Figure 1.7 shows
the bundled services available from major suppliers in the UK.
Figure 1.7 Bundled service offers from major suppliers
Source: Pure Pricing, June 2009
Note: Highlighted box denotes that the combination of services requires the purchase of additional
services.
Ofcom research shows that the number of households taking bundled services rose by
seven percentage points in the 12 months to Q1 2009 to reach 46%. The great majority of
these bundles were either fixed voice and broadband ‘double play’ (44%) or fixed voice,
19

broadband and multichannel TV ‘triple play’ (34%). Take-up of bundles was as high as 68%
of individuals in Bristol, to 62% in Newport, 56% in Edinburgh and 46% in Belfast.
Figure 1.8 Bundled services by consumer, by type
29% 31% 29% 35% 40% 39% 46%
Source: Ofcom research, Q1 2009
Note: A bundled service is defined as two or more services taken from a single provider, with or
without a price discount.
1.2.9 Attitudes to media consumption
Just over half of consumers (51%) claim that watching television is the media activity that
they would miss most, a similar figure to 2007. The number of people citing most other
media activities has declined slightly since 2007 or stayed the same. One notable exception
was use of the internet, which rose by three percentage points to 15%, a statistically
significant change, to become the second media activity that would be missed the most.
Mobile phone use fell four percentage points, also a statistically significant change, and is
now the third most-missed media activity.
Listening to the radio, and listening to music on both traditional and digital platforms among
16-24s has declined dramatically between 2005 and 2009 as the most-missed media
activity. Listening to music on a hi-fi/CD or tape player has fallen from 18% in 2005 to 0% in
2009 (a statistically significant change). This preference change has not been substituted by
music listening on a digital device, but instead by television watching, which is now the most
missed-media activity for this demographic. Listening to music on a hi-fi/CD or tape player
has also declined as the most-missed media activity among 25-34s. This age group also
express a statistically significant increase in missing console and computer gaming the most.
20

Figure 1.9 Which media activity would consumers miss the most
100% Watch videos/DVDs
2% 1% 2% 2% 1% 3% 1% 3% 3%
1% 2% 1% 2% 2% 6% 3%
3%
5% 2% 7% 4% 3% 4%
3% 3% 1%
1% 4% 0% 6% 5%
13% 5% 4% 6% 2% Listen to a portable
0% 14% 2% 2% music device/MP3
8% 2% 0% 4% 3%
8% 18% player
80% 6% 4%
2%
24% Play
9% 7% console/computer
13% 1% 18% 14%
12% games
7% 33%
15% 14% Listen to music on a
60% 12% hi-fi/CD or tape
10%
14% player
20% 19%
8% 28% 11% Read newspapers/
magazines
40% 21%
Listen to the radio
11%
52% 51%
44% 47% Use a mobile phone
20% 39% 41% 40%
28%
22% Use the internet via
computer/laptop
0%
Watch television
2005 2007 2009 2005 2007 2009 2005 2007 2009
All adults All adults All adults 16-24 16-24 16-24 25-34 25-34 25-34
A2 – Which one of these would you miss doing the most?
Base: All adults aged 16+ (3244 in 2005, 2905 in 2007, 812 in 2009), adults aged 16-24 (530 in 2005,
413 in 2007, 106 in 2009), adults aged 25-34 (604 in 2005, 473 in 2007, 126 in 2009). Circles show
statistically significant change between 2007 and 2009.
Source: Ofcom research, fieldwork carried out by Saville Rossiter-Base in April to May 2009
Consumers’ age affects the types of activities that they use the internet for. Our research
looked at a selection of convergent activities that people can use the internet for (Figure 1.9).
It found that nearly all the activities were most popular among consumers aged 15-24,
however, listening to the radio online was only marginally more popular among 15-24s (21%)
than among those with internet at home generally (17%).
The only group in which more than half engaged in any of the mentioned activities (online
gaming, downloading content files and watching video) was 15-24 year olds. Overall, playing
games online and watching TV programmes online both rose over the past year, by an
average of three percentage points. Growth rates for both online viewing and downloading
content were more mixed, although both rose strongly among the 45-64 age group.
But some online activities became less popular in 2009. There was less reported content
downloading among younger age groups, and internet radio listening fell among all age
groups to reach an average of just 17% of all consumers, down three percentage points year
on year.
21

Figure 1.10 Proportion of households using the internet for listed activities
% of households who use the internet for the following activities
Increase in activities since Q1 2008 (percentage points)
3 3 4 2 -2 -1 -8 -5 4 0 3 4 3 3 0 -3 -3 -5 -1 -1 2 0 1 4 -4 1 9 1 2 -3
60% 53%
51% 51%
50%
42% 42%
38% 39%
40% 35%
31% 30% 31% 32% 31%
30% 25%
19% 19% 21% 19%
17% 17% 17% 18%
20% 15% 16%
13%
9% 10%
10% 7% 7% 5%
0%
Playing games Downloading music Watching TV Listening to the Watching video Uploading/ adding
online/interactively files, movies or programmes radio clips/webcasts content
video clips
All 15-24 25-44 45-64 65+
Base: All adults who have the internet at home (n= 3858)
Source: Ofcom research, Q1 2009
22

1.3 Communications markets and the recession
1.3.1 Introduction, structure and key findings
Introduction
Since the last Communications Market Report was published in August 2008, the UK
economy has moved into recession4.The effects of the economic downturn have been felt by
a range of UK’s communications industry operators – particularly in the free-to-view
broadcasting sector, as advertisers have trimmed their spend or while others have moved
resources into the internet. This is reflected in the annual operator data that Ofcom collects
from broadcasters.
This section explores the impact that the downturn is having, both on consumers and on
communications market operators.
Structure
 Section 1.3.2 (page 24) sets out the UK’s macro-economic trends during 2008/09,
including quarterly GDP growth, Bank of England base rates and levels of
unemployment. It also examines consumer attitudes towards the recession.
 Section 1.3.3 (page 25) details the findings of an omnibus survey we commissioned
into how consumers’ attitudes towards communications services are being influenced
by the economic downturn; and
 Section 1.3.4 (page 32) concludes by exploring how industry revenues have fared
over the last twelve months, and the steps that operators have taken to control costs.
Findings
The key findings of this section include:
 There is a wide spectrum of attitudes towards the recession: many people
appear to be unconcerned by its implications for them personally, but an equal
number are worried about its impact (page 25).
 Communications spend appears relatively robust when compared to alternative
claims on disposable income. Meals/nights out and holidays are the expenditure
categories most likely to be cut from consumers’ disposable income; only spend on
toiletries and groceries appears more secure than that on communications products
(page 26).
 Consumers see opportunities to save money… people seem to see opportunities
to save on their communications spending – for example, by bundling services (page
28) or by deferring mobile handset purchases (page 29). There is also evidence of
polarisation in the types of mobile contract customer – with a growing proportion
opting for month-long SIM-only contracts (page 37).
 …and some are more likely now to shop around for communications services.
Some consumers are more conscious of their communications spending now than
they were a year ago (page 30); some think that providers offer better deals now
4
http://www.statistics.gov.uk/elmr/02_09/downloads/ELMR_Feb09.pdf
23

(page 31); and the recession is motivating some to shop around more for the best
deal on communications services (page 32).
 Declining advertising revenue has had an impact on the broadcasting
industries. Advertising expenditure is known to be cyclical, and this is borne out in
the latest revenue data from broadcasters. Radio industry revenue contracted year
on year, and while overall television advertising revenue rose, the commercial PSBs
attracted less advertising revenue this year than last (page 34).
 Fixed-mobile substitution continues to have the greatest bearing on telecoms
industry revenue. While it is less clear that the telecoms industries have been
affected by the economic downturn, mobile and broadband operators are affected by
the competitive pressures of markets approaching saturation, and the increasing use
of mobile phones rather than fixed-line phones is putting pressure on fixed-line
operators (page 34).
1.3.2 Economic trends and consumer attitudes towards the downturn
In the last 12 months the UK economy has moved into recession. GDP declined in Q2 2008
and the economy has continued to contract since then. Concurrently, Bank of England base
rates have fallen, from an average of 5.4% in the first quarter of 2008 to an average of 1.1%
in Q1 2009, and to an all-time low of 0.5% on 5th March 2009. At the same time,
unemployment rose by nearly 40% from 1.6 million in Q1 2008 to 2.2 million in Q1 2009
(Figure 1.11).
Figure 1.11 UK GDP quarterly growth, Bank of England base rates and
unemployment
Quarter-on-quarter GDP growth (%)
0.8% -0.1% -0.7% -1.8% -2.4%
2.5m 5.4% 6%
5.0% 2.2m
5.0%
2.0m 5%
2m 1.8m Unemployment
1.6m 1.7m
4%
1.5m
3%
3.4%
1m
2% Quarterly average
base rates
0.5m
1%
1.1%
0m 0%
Q1 2008 Q2 2008 Q3 2008 Q4 2008 Q1 2009
Source: Office for National Statistics and The Bank of England
Our research suggests that consumer attitudes towards the downturn are evenly distributed
between those who have concerns about its impact on them personally, and those who have
few personal worries. A range of factors may explain why so many people appear
unconcerned – but historically low interest rates may have resulted in those in employment
who are also owner-occupiers discovering that they are better off now than they were a year
ago.
Thirteen per cent of people claimed that they were ‘extremely’ worried about the recession,
while a fifth claimed that they were ‘not at all’ worried. In between these extremes 40% rated
their attitude to the recession as a ‘4’ (where 5 represented ‘extremely worried’) while 42%
ranked it as a ‘2’ or ‘3’ (where 1 represented ‘not at all worried’).
24

Figure 1.12 Consumer attitudes towards the recession
On a scale of 1 to 5, where 5 is ‘extremely worried’ and 1 is ‘not at all worried’, how worried
are you about being personally affected by the recession?
3% (Don't know)
13% - extremely
20% - not at all worried worried
5 - extremely
4
3
16% (2) 2
40% (4)
1 - not at all worried
Don't know
32% (3)
Source: Ofcom-commissioned research
Base: All respondents (n=2321)
1.3.3 Consumers’ response to the economic downturn
Spending on communications services appears relatively robust in the downturn
Consumers remain attached to their communications services, even in the face of more
challenging economic circumstances. When selecting three products or services that they
would cut first from their household budget, communications services were among the least
likely to be chosen. Less than a fifth of consumers selected their mobile phone in their top
three; that proportion fell to 16% for pay-TV, 10% for broadband and 10% for home phone
calls. Only spending on groceries and toiletries/cosmetics were less popular responses.
This suggests that subscriber-based income sources, on which the mobile operators, fixed-
line operators and pay-TV platform operators rely, may, for the moment at least, be well-
placed to withstand the current downturn.
25

Figure 1.13 Items where consumers are most likely to cut back their spending
Items mentioned as first, second or third choice (%)
Night/meals out 47%
Holidays/weekends away 41%
New furniture or home improvements 41%
Health club membership or sports 32%
Music, books, DVDs 29%
Clothing or footwear 25%
Newspapers and magazines 20%
Spend on mobile phone 19%
Television subscriptions 16%
Broadband subscription 10%
Home telephone calls 10%
Household groceries 6%
Personal care, toiletries, cosmetics 3%
0% 10% 20% 30% 40% 50%
Source: Ofcom-commissioned research
Base: Those that have a landline, mobile phone, pay television and broadband (n=862)
Question: If you were forced to cut back on spending, which of the following items would you be most
likely to spend less on?
When forced to prioritise among communications services, consumers who had all four were
most likely to cut back spending on their mobile phone; 43% of people in our survey chose
their mobile, followed by spend on TV subscriptions (28%) then home phone calls (18%).
Broadband was mentioned least frequently (12%).
The identification of the mobile phone as first choice does not necessarily imply that it is the
service consumers would be most happy to do without – it may be connected with the
perception that their mobile service is the one where the scope for reduced spending is
greatest (e.g. by switching to a SIM-only or pay-as-you-go tariff).
26

Figure 1.14 The communications service where consumers would be most likely to
cut spend
Proportion of individuals selecting each communications service (%)
100%
12% 11% 12% 14%
22%
Broadband
80% 18% 18% 19% 14% subscription
19% Home telephone
60% 28% calls
28% 30% 31%
Television
25%
40% subscription
Spend on mobile
43% 43% phone
20% 38% 41%
33%
0%
UK England Scotland Wales N Ireland*
Source: Ofcom-commissioned research
Base: Those with all four communications services (n= 862 for UK, n= 632 for England, n=84 for
Scotland ; n=83 for Wales and n=63 for Northern Ireland).*Note small base size for Northern Ireland;
results should be treated as indicative only.
Question: Which ONE of the following would you be most likely to cut back spending on?
Communications service bundles looking more attractive to some consumers
Our research also examined changes in consumers’ attitudes towards three key decisions
connected with their use of communications services:
 whether to take communications services in a bundle;
 whether to keep their existing mobile handset (rather than trading up); and
 whether to keep (or subscribe to) pay-TV, as an alternative to going out.
The research findings suggest that discounted bundles might take on added significance for
some consumers in an economic downturn. Nearly half of people (47%) agreed that they
were more likely now than 12 months ago to consider purchasing communications services
in a bundle; only a quarter (26%) disagreed.
The margin between those agreeing and disagreeing was more pronounced among those
who took all four communications services; two-thirds said they would be more likely to take
discounted bundles. There was also a greater tendency to agree with this statement among
those who were worried about the recession. That said, there was also heightened interest
in discounted bundles among those who were not worried about the recession, so the
downturn might be just one of a number of factors motivating consumers to take bundles.
27

Figure 1.15 Consumers’ agreement/disagreement that they were more likely, in the
context of a recession, to take communications services in bundles
Proportion of respondents agreeing or disagreeing (%)
Agree Disagree
80%
63
60% 55
47 44
40% 30
26 24
18
20%
0%
Total sample Those with all four services Worried about the recession Not worried about the
recession
Source: Ofcom-commissioned research
Base: Total sample (n = 2321), those with all 4 services (862), worried about being
personally affected by recession (689), not worried about being personally affected by
recession (841) Question: I am now going to read out a number of statements other people
have made about how the recession has changed their spend on TV, broadband, mobile
and home phone services. For each tell me how much you agree or disagree.
Mobile handset upgrades are vulnerable to spending cuts
Seven in ten people agreed that they would be more likely now than 12 months ago to defer
upgrading their mobile handset. Those on pay-as-you-go tariffs were slightly more likely
(72%) to put off purchasing a new handset than those on pay-monthly contracts (67%).
Since the majority of mobile phone contracts are for 18 months or longer, it is possible that
some of those in the sample would have no choice but to keep their current handset.
Moreover, with most mobile users now having camera phones with internet browsing
capabilities, it is possible that consumers may see less reason to change to a new model
now than they would have done a year ago.
28

Figure 1.16 Consumers’ propensity to renew their handset now, compared to 12
months ago
Proportion of respondents agreeing/disagreeing (%)
Agree Disagree
80% 72
70 67
60%
40%
15 17
20% 14
0%
All those with a mobile Those with a monthly contract Those on a pay-as-you-go tariff
Source: Ofcom-commissioned research. Base: those with mobile (1970), those on monthly contracts
(840), those on PAYG (1360). Question: I’m more likely to put off purchasing a new mobile phone and
will continue to use my existing handset.
These findings appear to be supported by the latest evidence on mobile handset sales.
Sales in Q4 2008 and Q1 2009 were down on the corresponding quarters a year ago (9.5
versus 9.1 and 7.4 versus 7.6), although sales in these two quarters were still higher than
they were two years ago. But there are complex market dynamics at play – for example, the
handset market has been boosted by the popularity of smart phones such as the Apple
iPhone.
Figure 1.17 UK sales of mobile handsets
10
Handset sales (millions
8
6
8.8 9.5 9.1
4 8.6 7.9
6.6 6.9 7.6 7.6 7.4
6.4 6.3 6.5 6.1 6.3
2 4.4 4.2
0
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1
2005 2006 2007 2008 2009
Source: GfK Retail and Technology Ltd. Based on factual point-of-sale information and representative
of only general market statistics. All other comments, opinions and references made are not those of
GfK.
Notes: (1) England, Scotland and Wales only (excludes Northern Ireland); (2) based on GfK’s
coverage of 94% of the market - data have been extrapolated to represent the whole of the UK; (3)
only represents sales through consumer channels (i.e. most business connections are excluded).
Our research also explored consumers’ views on pay television – specifically that it may
grow in importance during the recession as an alternative to nights out. Few of those who
currently had only free TV services said that they were more inclined to take pay-TV now
than they were a year ago. Even among those with basic-tier pay-TV, there were more
people who disagreed than who agreed. But among those with premium-tier TV, a higher
proportion of people agreed that they would be more likely to maintain their subscription than
they would have been 12 months ago.
29

Figure 1.18 Increased likelihood of consumers keeping/taking out a pay-TV
subscription now versus 12 months ago
Proportion of respondents agreeing/disagreeing (%)
Agree Disagree
60%
52
50%
37 38 39
40% 36 35 34
30%
20% 15
10%
0%
Those without pay TV Total pay TV Those with pay TV - basic Those with pay TV -
channels premium channels
Source: Ofcom research
Base: Those with pay TV (1188), those with premium channels (678), those with basic channels
(547), those without pay-TV n = 1133.
Question: I’m more likely to keep or take out a pay- TV subscription because I’m
going out less often and can make better use of it
Heightened cost consciousness among some, prompting people to shop around
Despite the apparent robustness of communications spending in the economic downturn,
consumers are more attuned to the cost of their communications services now than they
were 12 months ago. Nearly four in ten (37%) agreed that they were more conscious of
mobile spend; for fixed calls this figure fell to 27%, and to 25% for pay-TV. Just 15%
believed that they were more conscious of their spending on broadband.
Figure 1.19 Proportion of consumers becoming more conscious over the last 12
months of their spending on a variety of communications services
Proportion of respondents agreeing/disagreeing (%)
40% 37
30% 27
23
20%
15
10%
0%
Mobile Home telephone calls TV subscription Broadband subscription
Source: Ofcom research
Base: Those with each service, mobile (1970), home landline (1901), Pay-TV (1188), Broadband
(1398). Question: In the last 12 months, have you become more conscious about your spend on
any of the following services?
30

There was also recognition among some consumers that some communications service
providers are offering better deals now than they were a year ago – but that view did not
extend to all services. Around a quarter of our sample agreed with this statement for both
mobile and broadband providers (26% and 24% respectively). That figure fell substantially to
just 13% for fixed telephony and to 8% for pay-TV services. A quarter of consumers did not
recognise any communications services provider as offering better deals now than a year
ago.
Figure 1.20 Proportion of consumers agreeing that providers offer better deals now
than a year ago
Proportion of respondents agreeing/disagreeing (%)
30%
26
24 25
25%
20%
15% 13
10% 8
5%
0%
Mobile providers Broadband providers Home telephone Pay TV providers None of them
providers
Source: Ofcom research
Base: Total sample 2321
Question: Which of the following providers, if any, do you think are offering better
deals than they were 12 months ago?
The combination of the downturn and consumers’ concern to secure value for money from
their communications services appears to extend most to mobile telephony products. Nearly
one-third of people (29%) said they would be more inclined to shop around for their mobile
phone services now than a year ago. They were least likely to say the same about their pay
television service (11%). But nearly four in ten people said that they are no more likely now
to shop around for any communications service product than they were 12 months ago.
Across the UK nations, consumers’ tendency to claim they would shop around was highest
in Scotland for mobile and broadband and in Northern Ireland for home telephone providers.
31

Figure 1.21 Consumers who are more likely to shop around for their
communications service now than a year ago
Proportion of respondents agreeing/disagreeing (%)
40% 38
35%
29
30%
25%
19
20%
14
15%
11
10%
5%
0%
No services Mobile phone Broadband Home telephone Pay television
Source: Ofcom research
Base: Total sample 2321
Question: Which of the following services, if any, are you more likely to shop around for than you were
12 months ago?
1.3.4 The recession and communications service providers
The media and telecoms sectors have both underperformed the FTSE 100 over the past
year, in a period where the FTSE 100 itself was on a broadly downward trend until the end of
2008, with some signs of stabilisation since then.
Over this period the FTSE fell by 20%, prompted by a range of company closures including
the demise of Lehman Brothers in September 2008.
Until December 2008, both the telecoms and media market indices fell concurrently,
although investors marked down telecoms more severely than they did the media sector.
Since then, the value of telecoms equities has continued to fall – with the index losing
around 40% of its value by the end of June 2008 (while the FTSE 100 lost 20%) But the
media index recovered ground in 2009, and was valued at 85% of its value in June 2008.
32

Figure 1.22 Media and telecoms share performance against FTSE 100
120
100
Media
FTSE 100
80
Telecoms
60
40
Jul 08 Oct 08 Jan 09 Apr 09 Jun 09
Source: Yahoo! Finance UK & Ireland
Subscriber-based revenues stable, but advertising suffers
Revenue trends across the TV, telecoms and radio sectors are illustrated in Figure 1.23.
Communications market revenue (as reported by operators to Ofcom and as estimated by
Ofcom) reached £43bn in 2008, up by 0.5% in a year but well behind the five-year
annualised average growth rate of 3.7%, and last year’s growth of 4.0%.
The extent to which income has risen year on year varied substantially by sector, and by the
components of revenue within each sector:
 TV was the fastest-growing sector by revenue in 2008, up by 1.3% (although less
than the 4.1% annualised average rate of growth).
 The telecoms sector expanded, by revenue, by 0.4% year on year, considerably
below the five-year growth rate (3.7%).
 The radio industry revenue contracted by 2.5% year on year, compared to a five-year
average growth rate of 0.4% per annum.
Figure 1.23 Revenue trends in the TV, telecoms and radio sectors
1 year 5yr CAGR
Total £36.1bn £39.1bn £40.6bn £41.5bn £43.1bn £43.3bn 0.5% 3.7%
40
£29.7bn £30.9bn £31.0bn
£28.0bn £29.0bn
30 £25.8bn 0.4% 3.7% Telecoms
20 1.3% 4.1% TV
£10.0bn £10.5bn £10.6bn £11.1bn £11.2bn
£9.2bn
10 -2.5% 0.4% Radio
£1.1bn £1.2bn £1.2bn £1.1bn £1.2bn £1.1bn
0
2003 2004 2005 2006 2007 2008
Source: Operators and Ofcom calculations
33

In the telecoms sector, the increasing use of mobile phones rather than fixed-line phones
continued to have a significant bearing on revenue trends during 2008. The 0.4% (£117m)
year-on-year increase was fuelled by substantial growth in mobile voice and data revenue
(£185m and £112m respectively), offset somewhat by ongoing reductions in fixed voice
revenue (-£266m). Mobile messaging and corporate data revenues rose by an additional
£83m.
By contrast, the TV and radio sectors in 2008 found that cyclical pressures on advertising
revenue brought to a halt the revenue growth that has characterised both industries in recent
years (although growth in the radio industry had been relatively modest).
The TV industry expanded by 1.3% (£145m) year on year, fuelled principally by growing
subscriber revenue. Advertising revenue fell by £105m, while we estimate that licence fee
income allocated to television services contracted by an additional £31m.
In radio, sector revenue actually fell by 2.5% (-£29m) in 2008. As with television, the
reduction was driven both by falling advertising revenue and by a reduction in the proportion
of the total licence fee that is spent on radio services. However, this was not offset by any
substantial alternative revenue source such as subscriptions (although sponsorship revenue
did rise).
Figure 1.24 Proportional changes in sector revenues, 2007 - 2008
Telecoms Television Radio
2008 revenue £31.0bn £11.2bn £1.1bn
Change YOY +£117m +£145 -£27m
Net change (%) 0.4% 1.3% -2.3%
3
Net change: 1.3%
Drivers of the total change in sector
0.3 Other
revenue (percentage points)
2
Net change: 0.4%
1 0.3 Other 2.2 Subscriptions
0.4 Mobile data Net change: -2.3%
0.6 Mobile voice 0.6 Sponsorship
0
-0.9 Fixed voice -1.0 Advertising
Advertising
-1 -0.3 Licence fee -2.0
-2
-0.9 Licence fee
-3
Source: Operators and Ofcom calculations
Note: Licence fee allocated to TV and radio fell between 2007 and 2008, based on figures reported in
the BBC’s Annual Reports & Account; this came alongside a nominal rise in the cost of a licence fee.
1.3.5 Advertising revenues fall while broadcasters implement cost control measures
Figure 1.25 shows how the contraction in television advertising revenue was absorbed by
the public service broadcasters (PSBs). The reduction was largest for ITV1/STV/UTV and for
Channel 4, where revenues fell by 8.2% and 8.4% respectively during 2008. Five’s
advertising revenue fell by 5.4% while GMTV’s rose by 1.3%. Multichannel revenue, by
34

contrast, rose by 6.6% over the period, reflecting the growing popularity of digital television
platforms and the greater channel choice they offer.
Figure 1.25 Net advertising revenues among television broadcasters
£3,462m £3,576m £3,471m -2.9%
3,600 £54m
£54m £287m £55m
3,200 £286m £272m
£680m 1.3% GMTV1
2,800 £667m £623m
Industry revenue (£m)
2,400 -5.4% Five
2,000 £1365m £1253m
£1419m -8.4% Channel 4
1,600
1,200 -8.2% ITV1
800
£1189m £1267m 6.6% Multi-channels
400 £1036m
0
2006 2007 2008
Source: Ofcom/Broadcasters
Note: Totals may not equal the sum of the components due to rounding.
The drivers of broadcasters’ cost control measures are complex and can include cyclical
factors such as an advertising downturn. But structural influences such as audience
fragmentation and new editorial strategies can also have a bearing.
The UK’s biggest commercial broadcasters announced a range of cost-control initiatives
during 2008/09, involving job losses, asset disposals and reductions in programming
budgets
ITV said it would cut 600 jobs in March 2009, on top of 1,000 it announced in early 2008;
Channel 4 headcount’s was reduced by more than a third to around 700, while commercial
broadcaster Five announced that up to 87 jobs would be lost from the company’s 354-strong
workforce. The BBC, while funded through the licence fee, also moved to cuts costs (see TV
section).
While the multichannel sector’s claim on advertising revenue rose year on year, it concealed
an unequal distribution of revenue growth between the PSB’s portfolio channels and other
television channels. Of the £78m additional advertising revenue generated by the
multichannels in 2008, £77m accrued to the PSBs’ portfolio services. For the commercial
PSB groups, therefore, the £183m reduction in NAR on the main channels was offset by
rising NAR on their portfolio services (Figure 1.26).
Concurrent with a relatively subdued year for the non-PSB multichannel sector, some
channel groups took steps to control costs. A number of channels closed during 2008/09,
while the major pay-TV platforms announced job cuts. The biggest casualty, in June 2009,
was the UK business of Setanta Sports, which closed its subscription sports channels.
35

Figure 1.26 Multichannel NAR
Growth (%)
1 yr 4 yr CAGR
£794m £863m £1,042m £1,188m £1,267m 6.3% 12.4%
100%
£99m
£168m
£270m
£380m £457m
80%
20% 47% PSB portfolio
channels's NAR
60%
£695m
40% £695m 0.2% 3.9% Other
£772m multichannel NAR
£808m £810m
20%
0%
2004 2005 2006 2007 2008
Source: Ofcom/Broadcasters
Despite the impact of cyclical advertising revenue on the television and radio industries, they
were more resilient than print media over the period. Newspaper advertising revenue fell by
12% year on year, while it contracted by 10% for magazines over the same period. The
internet has been the beneficiary, although even its growth fell from a five-year average of
48% down to just over 17%.
Figure 1.27 Advertising spending, by sector
Ad vertising spend (£bn) CAGR (%)
07/08 5yr
£6bn -12.0 -3.3 Newspaper
£5bn -4.9 0.5 Television
17.3 48.0 Internet
£4bn
-6.0 -3.7 Direct Mail
£3bn
-9.9 -2.9 Magazine
£2bn -3.8 3.6 Outdoor
£1bn -8.7 -2.9 Radio
-1.2 2.4 Cinema
£0bn
2 003 200 4 2005 2 006 200 7 2008
Source: Advertising Association statistics published by www.WARC.com
Note: all figures are nominal.
1.3.6 Telecoms players look to longer contracts as pre-pay subscriptions fall
While the direct impact of the economic downturn is less easy to identify in the telecoms
sector, it is nevertheless facing challenging structural changes that have had a bearing on
revenue growth in 2008.
The UK’s fixed-line telephony market is in decline as use of mobiles and other forms of
communication, such as email and instant messaging, increase. Moreover, in the mobile and
36

internet/broadband sectors, growth has slowed significantly as markets approach saturation
and competitive pressure reduces prices.
With consumers more likely to switch provider as they seek the best deal, mobile operators
have given increasing emphasis to customer retention. This has resulted in more attractive
deals offered to customers who sign up for longer-term contracts, and has produced a
marked shift away from 12-month contracts towards contracts of 18 and 24 months (Figure
1.28). At the same time, consumers are also increasingly taking advantage of low
commitment one-month contracts. These are typically SIM-only tariffs, which allow mobile
operators to reduce subscriber acquisition costs as there is no need to subsidise handsets.
Figure 1.28 Post-pay mobile sales, by length of contract
Share of contract sales (per cent)
100 1 1 1 1 1 1 1 1 4 1
3 5 7
12 12 2 13
24 27 Other
80 41
55 24 months
66 74 68
60 80 84 82 75 72 67 63 60
88 88 18 months
40 76 72
58 5 3
20 44 12 8 12 months
33 11 13
25 19 16 15 19 24 24
13 10 15
0 2 1 month
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1
2005 2006 2007 2008 2009
Source: GfK Retail and Technology Ltd, based on factual point-of-sale information
Notes: (1) England, Scotland and Wales only (excludes Northern Ireland); (2) based on GfK’s
coverage of 94% of the consumer market; (3) based on new post-pay connections; (4) excludes
contract renewals; (5) only represents sales through consumer channels (i.e. most business
connections are excluded)
Mobile operators have also sought to migrate pre-pay (pay-as-you-go) customers to post-
pay (pay monthly) contracts as part of their customer retention strategies, by introducing
cheaper tariffs. For the first time in 2008, sub-£10 a month contract tariffs were launched,
while in Q1 2009 32% of new pay-monthly tariffs were under £20 a month, up from 23% in
Q1 2008 and 5% in Q1 2007. The popularity of such offers is reflected in a fall, for the first
time, of pre-pay subscriptions in 2008, while the rate of growth in the number of contract
subscriptions increased (Figure 1.29).
Figure 1.29 Pre-pay and contract mobile subscriptions
38.9
100 34.7 36.3 40
32.7 33.7 34.4
Subscriptions (millions)
Proportion contract (%)
76.8 Contract
80 70.1 73.8
65.8 30
60.0
60 52.9 24.3 26.8 29.9 Pre-pay
22.6
20.2 20
40 17.3
43.2 45.8 47.0 46.9 10 Proportion
20 35.6 39.8
contract
(RHS)
0 0
2003 2004 2005 2006 2007 2008
Source: Ofcom / operators
Notes: Based on network operator reported figures; likely to overstate activity in reference quarter;
includes estimates where Ofcom does not receive data from the operators
37

Telecoms operators cut costs
As the economic climate puts pressure on profitability and makes bottom-line margins more
important than top-line growth, operators have focused on reducing costs:
 BT cut 15,000 jobs in 2008 and in March 2009 announced a pay freeze for its
100,000 employees5. In February 2009, mobile operator Vodafone, said that 500 UK
jobs would be cut6.
 Some mobile network providers have started to offer preferential tariffs to new
customers signing up with their own (tied) service providers directly rather than using
a third-party dealer. In this way they can reduce commission payments to dealers.
 Some mobile network providers have sought to reduce operating costs by sharing
networks to avoid duplication of infrastructure. In March 2009, Vodafone and O2
agreed to do this in several European countries, including the UK. T-Mobile and 3UK
have jointly operated a 3G network in the UK since 2007.
 In March 2009, Orange announced that it was outsourcing its mobile network
operations in the UK to cut costs7, and in June 2009 Kingston Communications
signed a similar contract to outsource the management of its network assets to BT.8
5
http://www.btplc.com/News/ResultsPDF/q409release.pdf
6
http://www.independent.co.uk/news/business/news/vodafone-cuts-500-uk-jobs-1630547.html
7
http://www.nokiasiemensnetworks.com/global/Press/Press+releases/news-
archive/Orange+to+outsource+mobile+network+operations+in+the+UK.htm
8
http://www.kcom.com/mediacentre/news/news_article.asp?ArticleID=DA_223187
38

1.4 Consumers embrace DVRs
1.4.1 Introduction, structure and key findings
Introduction
Domestic television recording hit the mainstream in the 1970s with the widespread adoption
of analogue video cassette recorders (VCRs). As innovations such as Videoplus and
barcode readers improved the ease with which programme details could be captured and
programmes recorded, VCR take-up reached a high of 91.2% of UK homes in 2001.
However, by today’s standards, functionality remained limited and the user experience felt
cumbersome. Penetration of VCRs had fallen to 57% of UK homes by 20089 as consumers
abandoned the analogue devices in favour of digital equipment such as DVD players and
recorders, and digital video recorders (DVRs).
The DVR - also known as a personal video recorder (PVR) or digital television recorder
(DTR) - offered consumers greater convenience and control over their television watching
than had been available through VCRs. DVRs removed the need for physical tapes and, for
the first time, viewers could rewind and pause live television and record one or more
programmes while watching another. DVRs contain an internal hard drive - similar to those
used in personal computers - which allows consumers to record and store programmes in
digital format.
American company TiVo was the first to offer DVRs in the UK in October 2000, with the
launch of its eponymous device that worked with satellite, terrestrial and cable television. A
year later BSkyB launched its Sky+ product. This was followed in 2003 by DVRs for the
Freeview DTT service and in 2006 by Telewest’s TVDrive, which later became V+ with the
creation of Virgin Media. Other DVR devices include Top Up TV’s Freeview+, BT Vision’s
Vision+, Tiscali +, Freeview+ (previously Freeview Playback) and Freesat+ (the ‘+’ symbol
now seems synonymous with digital television recorders in the UK).
Structure
We have chosen to focus on DVRs in this section because of the growing appetite among
consumers for recording broadcast programmes for playback later. Nearly 9 million DVRs
have been sold since 2000, helped in large part by the move to digital broadcasting. We
cover other forms of non-linear broadcasting, such as online catch-up TV and video-on-
demand, in the Converging Markets section: 5.2.2 (page 265). Here we set out key metrics
on the take-up and use of DVR products and identify trends in consumer attitudes towards
DVR use.
Key findings
Key findings in this section include:
 More than a quarter of consumers (27%) claimed to use a DVR at the end of
March 2009, equivalent to 7 million homes, according to Ofcom research. This rose
to nearly a third of consumers (31%) in multichannel television homes (page 41).
 These figures are a little lower than those for operator and sales data, which
suggest that nearly 9 million DVRs had been sold in the UK at the end of March
2009. The five million Sky+ boxes (launched in September 2001) made up the
majority of the UK DVR universe at the end of Q1 2009, followed by Freeview+ and
9
Source: BVA Yearbook 2009 (GfK, BVA, Screen Digest)
39

Freesat+ and Top Up TV devices, which together accounted for around 2.6 million
devices (page 41).
 15% of viewing across the five main PSB channels in 2008 was of programmes
recorded using a DVR, according to data from BARB, the television industry’s
audience measurement organisation. In Sky+ homes this rose to 19% (page 42).
 Adults aged 16-34 are the group most likely to watch programmes recorded on
a DVR; 19% of viewing among this age group was on a recorded basis in 2008
according to BARB, compared to 11% for viewers aged 55 and over (page 43).
 High-definition programmes are among those most viewed after their initial
broadcast in Sky+ homes, according to viewing data from the SkyView panel. A
third of viewing of Drama serials and series in Sky+ homes is recorded (pages 46
and 48).
 42% of consumers said that they watched a greater variety of programmes
since owning a DVR, although a third (33%) disagreed with this. Eighty per cent of
consumers believe that they watch more programmes that they enjoy because they
have a DVR (page 51).
 DVRs are becoming increasingly advanced, offering viewers search
functionality and ‘push’ video-on-demand, where programmes are downloaded to
the hard disk drive, for example. Hard drives are also increasing in size; some DVRs
offer up to 250 hours of recording, up markedly from the 40 hours available on early
generations of devices (page 51).
 The average retail price of DVRs for the Freeview market had fallen to £106 at
the end of March 2009, down from £172 in March 2005, according to GfK sales
data. Similarly, the costs of DVRs from the main pay-TV operators have fallen (page
52).
 Consumers are using a range of services to ‘catch up’ on television
programmes including online catch-up TV and TV-based video-on-demand. We
explore these in detail in section 5.2.2 (page 265).
1.4.2 More than a quarter of homes have a DVR
Twenty-seven per cent of consumers (equivalent to around 7 million homes) said that they
used a digital video recorder (DVR) in their home in Q1 2009, according to Ofcom research.
This represents an increase of seven percentage points from Q1 2008 (Figure 1.30). This
rose to nearly a third (31%) among those with multichannel television, up from 23% a year
earlier.
40

Figure 1.30 DVR take-up
40
31
30 27
23
20 Q1 2008
%
20
*Q1 2009
10
0
Have DVR - all Have DVR - all with multichannel tv
Source: Saville Rossiter-Base, Technology Tracker Q3 2008 (July/Aug)
QR1/2 Do you have a recorder for your TV service which allows you to pause and rewind live TV,
such as Sky Plus, V Plus or BT Vision V-Box? Do you personally use this DVR? 2009 – QR1a-e
Ownership asked among owners of each TV service. Does your service allow you to record and store
programmes, pause and rewind live TV? Base: All respondents (1581), all with multi-channel TV
(1345) * Question wording changed in Q1 2009 so data not directly comparable with Q3 2008.
While our research found that 27% of homes claimed to use a DVR, this could be an
underestimate. According to operator and retail data, nearly 9 million DVRs had been sold
(or rented to consumers) at the end of Q1 2009. The discrepancy could be accounted for by
ownership of multiple DVRs, the replacement of devices and also a lack of consumer
understanding of what device they own and its functionality.
BSkyB’s Sky+, which launched in September 2001, accounts for the largest part of the UK
DVR market – 5 million homes, or around 60% of all DVRs sold at the end of March 2009
(Figure 1.31). We estimate that Freeview+, Freesat+ and Top Up TV devices combined
accounted for about 2.6 million, followed by V+ (0.6 million) and BT Vision’s Vision+ (0.4
million).
Figure 1.31 UK DVR sales/rentals, Q1 2003 – Q1 2009
Units sold (m)
9
BT Vision
8
7
6 Freeview+,
Freesat+,
5 Top Up TV
4
V+
3
2
Sky+ and
1 Sky+ HD
0
un-03
Jun-03
Jun-04
Jun-05
Jun-06
Jun-07
Jun-08
ep-02
ec-02
ep 03
Sep-02
Dec-02
Sep-03
Dec-03
Sep-04
Dec-04
Sep-05
Dec-05
Sep-06
Dec-06
Sep-07
Dec-07
Sep-08
Dec-08
ar-03
Mar-03
Mar-04
Mar-05
Mar-06
Mar-07
Mar-08
Mar-09
Source: Operator results, GfK sales data and Ofcom estimates
Note: Figures represent sales and not homes. Freeview+and Freesat+ data based on GfK sales data.
BT Vision, V+, Sky+ and Sky+ HD based on operator data. Sky+ figures include the Republic of
Ireland. V+ boxes are rented to Virgin Media customers.
41

1.4.3 DVR use varies by age, platform and channel
There are growing signs that DVRs are increasingly influencing the way that people watch
television, but the impact they have varies by age, platform and channel.
Figure 1.32 illustrates the proportion of recorded viewing attributed to the five main PSB
channels. 10 BBC One and ITV1, the two largest networks by audience and programming
investment, attracted the highest proportion of live viewing in 2008, according to BARB data.
Recording was most prevalent among channels that typically carry more Factual or Drama
series in their schedules (particularly US acquisitions); around 20% of viewing on each of
BBC Two, Channel 4 and Five was watched via a DVR in 2008.
The time consumers choose to watch their recorded content also varies on average across
the five PSB channels; there was a roughly equal split between recorded programmes
watched on the same day as the broadcast (8%) and those watched two to six days later
(7%). But for BBC Two and Five, the two channels with the greatest amount of recorded
viewing, more programmes were watched two to six days later (as BARB measurement
covers only up to seven days after the original broadcast, the data may underestimate the
total proportion of recorded viewing).
Figure 1.32 Proportion of live and recorded viewing across five PSB channels
Proportion of viewing (%)
100%
7% 6% 10% 5% 8% 11%
8% 7% 7%
8% 9% Recorded:
10%
80% viewed 2 - 6
days after
broadcast
60%
Recorded:
viewed
85% 87% 82% 87% 82% same day as
40% 81%
broadcast
Viewed
20% initial
broadcast
0%
Main PSBs BBC One BBC Two ITV1 Channel 4 Five
Source: BARB 2008, all individuals with DVRs
Note: Totals may not equal the sum of the components due to rounding
Recorded viewing was most prevalent among DVR owners aged 16-34, where it accounted
for 19% of all programmes watched. More than half of this (11%) was done on the same day
as the broadcast, while 8% was watched within two to six days. DVR owners aged over 55
watched the lowest proportion of recorded programmes - 11% of their total viewing - of
which most was watched between two and six days after the initial broadcast.
10
The term ‘time-shifting’ is also sometimes used to describe viewing recordings of broadcast
programmes. However, in this report we simply use the term ‘recording’ in order to distinguish it from
the activity of watching programmes on ‘+1’-type channels, those that repeat a broadcast an hour
after the initial showing.
42

Figure 1.33 Proportion of live versus recorded viewing, by age, 2008
Proportion of viewing (%)
100%
7% 8% 8% 7% 6%
8% 8% 5%
8% 11% Recorded:
80% viewed 2 - 6
days after
broadcast
60%
Recorded:
viewed
85% 85% 89% same day as
40% 84% 81%
broadcast
Viewed
20% initial
broadcast
0%
All DVR inds DVR Children DVR 16-34 DVR 35-54 DVR 55+
Source: BARB 2008, all individuals with DVRs
Note: Totals may not equal the sum of the components due to rounding
When splitting the DVR user base by socio-economic group, there was little variation. DVR
users in the AB socio-economic group were representative of the national average, with 85%
of their viewing time spent watching live TV, 8% recorded and played back on the same day
as broadcast and 7% within two to six days. Those with DVRs in the socio-economic DE
group watched fractionally more live television (86%) while C1C2s watched the least (84%).
Figure 1.34 Proportion of live versus recorded viewing, by socio-economic group
Proportion of viewing (%)
100%
7% 8% 8% 7%
8% 8% 9% 7% Recorded:
80% viewed 2 - 6
days after
broadcast
60%
Recorded:
viewed
85% 84% 84% 86% same day as
40%
broadcast
Viewed
20% initial
broadcast
0%
AB inds with DVR C1 inds with DVR C2 inds with DVR DE inds with DVR
Source: BARB 2008, all individuals with DVRs
Note: Totals may not equal the sum of the components due to rounding errors
Figure 1.35 focuses on how the proportion of average recorded viewing differs by platform.
Of the main DVR services, Sky+ users watched the highest proportion of recorded content
during 2008 (just under 19%), according to BARB. As BSkyB was the first platform operator
to offer a DVR, this could be explained by the maturing Sky+ user base, increasingly at ease
with using recording functionality. V+ users watched significantly less recorded viewing from
the DVR (12%), which might be influenced by the availability of VoD in those homes, while
the figure for Freeview DVR users dropped to 9%.
43

Figure 1.35 Proportion of live versus recorded viewing, by platform, 2008
Proportion of viewing (%)
100% 4% 5%
9%
5% 7%
Recorded:
10%
viewed 2 -
80% 6 days
after
broadcast
60%
Recorded:
viewed
91% 88% same day
40% 82%
as
broadcast
Viewed
20%
initial
broadcast
0%
All inds with Sky+ All inds with Freeview DVR All inds with V+
Source: BARB 2008, all individuals with DVRs.
Note: Totals may not equal the sum of the components due to rounding errors
Both recorded and live viewing in Sky+ homes increased between January to May 2007 and
the same period in 2009, by two minutes and four minutes respectively (Figure 1.36).
Figure 1.36 Daily TV viewing in Sky+ homes, live and recorded, Jan - May
Total viewing
3.5
3 34 mins 34 mins
32 mins
2.5
Recorded
2
viewing
Hours
1.5 Live viewing
2 hrs 36 mins 2 hrs 40 mins 2 hrs 40 mins
1
0.5
0
2007 2008 2009
Source: BARB: Jan-May 2007-2009 (Base: individuals in Sky+ homes, viewing via the Sky box,
average hours all)
Among younger people, who traditionally watch less television, total viewing was up slightly
between 2007 and 2009. Among adults aged 16-34 in Sky+ homes, between January and
May, the amount of recorded viewing increased by six minutes between 2006 and 2009,
rising from 18% of the total to 22% (Figure 1.37). Live viewing among this group fell over the
same period from 2 hours 21 minutes to 2 hours 18 minutes. The SkyView panel, BSkyB’s
audience measurement panel, covers 33,000 homes, of which around 9,000 have Sky+
devices.11
11
http://www.skymedia.co.uk/_downloads/64/SkyView%20Venn.pdf
44

Figure 1.37 Daily TV viewing in Sky+ homes, live and recorded, adults 16 - 34, Jan-
May
Total viewing
3.5
3
32 mins 34 mins 38 mins
2.5
2 Recorded
viewing
Hours
1.5
2 hrs 21 mins 2 hrs 24 mins 2 hrs 18 mins Live viewing
1
0.5
0
2007 2008 2009
Source: BARB, (January – May 2007 - 2009, base: adults 16-34 in Sky+ homes. Viewing by the Sky
box, average hours, all)
These findings are broadly compatible with our consumer research, which found that the
majority of DVR owners (72%) claimed to watch ‘about the same’ amount of television since
getting the device, while 17% believed that they watched more television, and 8% thought
they watched less.
Figure 1.38 Whether DVR ownership has changed amount of TV viewing
More About the same Less Don't know
TV watched since
17 72 8 4
getting DVR
0% 20% 40% 60% 80% 100%
%
Source: Saville Rossiter-Base, Technology Tracker Q3 2008 (July/Aug). Base: Those with a DVR
(320) QR10 Since getting your DVR, do you think you watch more, less or about the same amount of
television?
1.4.4 Films and HD channels prove popular for recording
High-definition (HD) television channels accounted for three of the four channels with the
greatest proportion of recorded viewing in Sky+ DVR homes in the first half of 2009,
according to SkyView data (Figure 1.39). In particular, 59% of Sky 1 HD viewing was
recorded, substantially ahead of Channel 4 HD, with 43%, and BBC HD with 33%.
45

Figure 1.39 Most-recorded channels in Sky+ homes, Jan-May 2009
Sky 1 HD 41% 59%
Channel 4 HD 57% 43%
Five 65% 35%
BBC HD 67% 33%
Five USA 67% 33%
Fiver 68% 32%
FX 68% 32%
Live viewing
E4 68% 32% (%)
BBC 4 69% 31% Recorded
viewing (%)
Sky Movies Premiere 69% 31%
Sky 1 69% 31%
Living 70% 30%
More 4 71% 29%
Sci-Fi Channel 74% 26%
BBC 3 74% 26%
Channel 4 75% 25%
0% 20% 40% 60% 80% 100%
%
Source: SkyView Jan – May 2009 (Base: All PVR individuals)
Five and Channel 4 are the only main PSB channels to be included among the 16 channels
with the highest proportions of recorded viewing, with more than a third (35%) of all Five
viewing being recorded, compared to 25% for Channel 4. However, the portfolio channels of
the PSBs constituted half (eight) of the channels included in this analysis. The remainder
were made up by multichannels Living TV, Sci Fi Channel and FX, which often show US
Drama acquisitions, and by Sky Movies Premiere, the only dedicated film channel in this list.
These trends could be explained by a number of factors:
 Given the limited availability of HD compared to standard-definition content, it is
possible that viewers record HD programmes to get the most out of the subscription.
 Generally, the channels included in the list are those that broadcast the commonly-
recorded programme genres: Drama, Soaps, Documentaries, Art, Comedy and
Entertainment. (Film is the exception here) (Figure 1.40).
 A higher proportion of recording could also suggest that a channel offers ‘must-see’
programming (Ofcom research found that 82% of respondents said that their main
reason for recording a programme was that they were not at home).
46

Figure 1.40 Programme genres most likely to be recorded
Films 62
Drama 53
Documentaries 48
Comedy 35
Soaps 34
Live sports 34
Sports highlights and sports shows 24
Science, nature and wildlife programmes 19
Entertainment including comedy 18
0 20 40 60 80 100
%
Source: Saville Rossiter-Base, Technology Tracker Q3 2008 (July/Aug)QR8 Please indicate which, if
any, of the following types of programmes you are more likely to record and watch later using your
DVR? Base: Those with a DVR (320)
Viewing data on actual recording are broadly consistent with consumer research on claimed
behaviour for recorded viewing (Figure 1.40 and Figure 1.41).
Our research found that Film was the genre most likely to be recorded by DVR users. In
Sky+ homes, films ‘for cinema’ and films ‘made for TV’ feature in the list of genres with the
highest proportion of recording. Seventeen per cent of films that were made for cinema were
watched on a recorded basis, compared to 13% of made-for-TV films.
For some Film channels and some households, the film viewing experience is a live family
event at a scheduled time. In addition, many film channels have numerous multiplexes and
‘+1’ channels, so viewers might not need to record films as much as genres like Drama.
Figure 1.41 shows that Drama and Soaps were the most-recorded programming genres in
Sky+ homes, accounting for 33% and 29% of viewing respectively between January and
April 2008. Programme genres that lend themselves best to live viewing, such as Sports and
News, had a lower propensity for recorded viewing, according to Ofcom’s consumer
research and the SkyView data.
47

Figure 1.41 Proportion of live versus recorded viewing, Sky+ homes
Drama:Series/Serials 67% 33%
Drama:Soaps 71% 29%
Drama:Single Plays 73% 27%
Arts 84% 16%
Films: made for cinema 83% 17%
Entertainment 86% 14% Live viewing
(%)
Films: made for TV 87% 13%
Recorded
Hobbies/Leisure 87% 13% viewing (%)
Current Affairs 91% 9%
Sport 92% 8%
Children's 92% 8%
Music 94% 6%
News/Weather 97% 3%
0% 20% 40% 60% 80% 100%
%
Source: SkyView 01/01/2008-30/04/2008 (Base: All DVR individuals)
1.4.5 Drama series attract more recorded than live viewing in Sky+ homes
The ten most often-recorded programmes in Sky+ homes were all US series - none of them
with more than 35% live viewing - and nine of the ten were broadcast on channels which
carry advertising (Figure 1.42). US-produced series usually consist of around 22 episodes,
which requires a strong viewing commitment for anyone not wanting to miss a programme;
DVRs make this much easier to achieve.
48

Figure 1.42 Popular recorded shows, series average, Sky+ homes, Jan-May 2009
Dirty, Sexy Money (E4) 28% 72%
Heroes (BBC 3) 29% 71%
24 Season 7 (Sky 1) 31% 69%
Fringe (Sky 1) 31% 69%
Live viewing
Prison Break (Sky 1) 31% 69%
(%)
Recorded
Lost (Sky 1) 34% 66%
viewing (%)
Desperate Housewives
34% 66%
(Channel 4)
A Town Called Eureka (Sky
35% 65%
1)
The Mentalist (Five) 35% 65%
Lipstick Jungle (Living) 35% 65%
0% 20% 40% 60% 80% 100%
%
Source: SkyView, Jan-May 2009 (Min TVR = 1.0, Average all occurrences), all individuals with Sky+
Figure 1.43 shows that in Sky+ homes most recorded programmes are watched within a
week of the recording date. Sixty-one per cent of recorded viewing took place within a day of
broadcast, 91% within seven days, and only 9% later than this, according to SkyView data.
Figure 1.43 Time between recording and playback of programmes in Sky+ homes
% of recorded viewing
100
90
80 91% within 7 days
70
60
61% within a day
50
40
30
20
10
0
se
10
12
16
18
22
24
28
14
20
26
2
4
6
8
au
P
ve
Li
Source: SkyView six months ending March 2009 (Total TV).
1.4.6 Three-quarters of viewers claim to fast-forward most adverts
Consumer research carried out last year by Ofcom found that just over three-quarters (76%)
of respondents said that they fast-forward through adverts ‘always or almost always’ when
49

watching recorded programmes on DVRs (this compares to 78% when Ofcom conducted
similar research in July 2007). A further 9% of respondents believed that they fast-forwarded
through adverts ‘about half of the time’. Just 7% said that they ‘never or hardly ever’ skipped
through the adverts, while another 7% said that they never played back programmes from
channels containing adverts.
It should be noted that claimed behaviour in consumer research can differ from actual
behaviour. Thinkbox, the marketing body for commercial television in the UK, cited SkyView
data in its 2008 annual report, which stated that Sky+ DVR homes watched 30% of
advertising breaks at normal speed, which is more than our research would suggest (Figure
1.44). Thinkbox also reported that those with Sky+ DVRs watched 2% more adverts than
they did before they owned a DVR.12
Recent research carried out by Actual Consumer Behaviour (ACB) recorded television
viewing of couples and families in the living room and shared spaces. The research recorded
actual rather than claimed behaviour and found that 29% amount of viewing was from
programmes recorded on a DVR. It also found that participants still overstated their viewing
via DVR and when asked about their overall viewing.
Figure 1.44 Whether viewers fast-forward adverts with DVRs
Always or almost always 76
About half of the time 9
Never or hardly ever 7
Never play back
programmes from channels 7
with ads
0 20 40 60 80 100
%
Source: Saville Rossiter-Base, Technology Tracker Q3 2008 (July/Aug) QR9 When you watch
recordings you have made with your DVR, how often, if at all, do you fast forward through the
adverts? Base: Those with a DVR (320)
However, the emergence of DVRs has not yet had the cataclysmic effect on the UK
television sector that had been predicted by some technologists and advertisers.
Broadcasters and advertisers are now adapting advertising methods to fit the DVR
environment. For example:
 Some channels are displaying programme brand ‘idents’ in advance of the
programme starting, which could help to ensure that viewers fast-forwarding through
advertisements return to the normal viewing speed earlier. This will expose them to
more adverts and trailers at normal speed.
12
http://www.thinkbox.tv/upload/pdf/Thinkbox_Annual_Review_20090319.pdf
50

 Sponsorship of television programmes is attracting greater levels of interest and
investment than five years ago. This involves advertising using brand ‘bumpers’
immediately next to a programme (after the last advert in a break). This means that
even if viewers fast-forward the adverts, they should see a sponsor’s message or
brand. Television sponsorship revenue increased from £112m in 2004 to £180m in
2008.
 Some advertisers are looking to create bigger and more static branding on adverts
where the message or product can still be identified in the fast-forward mode.
1.4.7 DVRs users watch more television that they enjoy
Many viewers with DVRs claimed that they watched more programmes that they enjoyed,
and also saw a greater variety of programming, since getting their device. Our research
found that 80% of respondents agreed that: ‘I now watch more programmes that I enjoy
because of my DVR’. This compared to 78% of respondents enjoying programmes more
because they had access to on-demand services, and 65% enjoying programmes more
because they had access to television content online. In addition, 42% of consumers either
agreed, or strongly agreed, with the statement: ‘I watch a greater variety of programmes
since getting my DVR’, while 33% disagreed (Figure 1.45).
Figure 1.45 Agree – ‘I watch a greater variety of programmes since getting my DVR’
Strongly agree Agree Neither agree nor disagree Disagree Strongly disagree No opinion
10 32 22 24 9 3
0% 20% 40% 60% 80% 100%
Source: Saville Rossiter-Base, Technology Tracker Q3 2008 (July/August) QR11B Please tell me how
much you agree or disagree with the statement…? Base: Those with a DVR (320)
1.4.8 DVRs are adding greater functionality and storage
As penetration of DVRs has increased in recent years, so has the level of device
sophistication. However, UK manufacturers and pay-TV operators have resisted developing
some of the DVR applications around personalisation and viewer preferences, which
services like TiVo have pioneered in the USA. For example, TiVo’s ‘Wishlist’ application
allows users to record automatically any programme containing a pre-selected keyword,
actor, director or sports team. This functionality has been further advanced by the addition of
a broadband connection to the TiVo DVR, which allows viewers to access content from
online video-sharing websites such as YouTube or film services such as Netflix, and apply
their Wishlist preferences to them.
Nonetheless, services such as Top Up TV and Sky Anytime TV offer consumers some
additional viewing options. Top Up TV pioneered the so-called ‘push’ VoD approach,
whereby a portion of the hard drive is partitioned so that programmes can be downloaded to
51

the set-top box. Sky Anytime is a similar service that downloads a selection of 35 hours of
the week's television programming to around four million Sky+ and Sky+ HD boxes, helping
attract additional audiences beyond the original broadcast. The service also introduces
viewers to new channels and programming that they might not otherwise find.
Figure 1.46 details the cumulative audience for BSkyB’s one-off drama Skellig, which first
aired on Sky 1 at Easter. Viewing on Sky Anytime contributed 9.4% of total viewing of the
drama, equivalent to 69,000 extra viewers. Sky+ DVR viewing contributed another 183,000
viewers, or a quarter of the total cumulative audience. The first broadcast of the programme
was seen live on Sky 1 and Sky 1 HD by just over half (50.6%) of the total audience, or
372,000 viewers.
Figure 1.46 Share of Sky platform viewing: Skellig (one-off drama)
Performance of Skellig in all homes (%)
Sky Player, 0.4% Sky Anytime, 9.4%
Repeats (time-shift),
3.0%
Repeats Sky 1,2, HD
(live) Premiere (live)
14.1% 42.6%
8
Premiere (time-shift),
22.0%
Premiere HD 8.0%
Source: Viewing based on BARB (all individuals, Anytime based on BSkyB/TNS, SkyView)
1.4.9 Hard disks: bigger and cheaper
Manufacturers have taken advantage of lower costs to increase storage capacity in some
DVR devices. Early models typically offered 80GB - 160GB, allowing 40 - 80 hours of
recording time in standard-definition television (30 hours of high-definition programmes, with
Sky+ HD). These are still offered as standard by BSkyB and Virgin Media, although the
latest Top Up TV Freeview+ enables 180 hours of recording. But boxes with 500GB, capable
of 250 hours of storage, are now available for use on Freeview (Figure 1.47).
52

Figure 1.47 Personal recording capacity of current-generation DVRs
250
250
200
200
180
Hours
150
100
80 80 80 80
50
50 40
0
BT Vision Freesat+ Freeview+ Freeview+ Sky+ Sky+ HD Tiscali+ Top Up TV V+
(low end) (high end) Freeview+
Source: Operator websites, July 2009
Notes: Figures are indicative potential consumer recording hours of standard-definition content for
current generation devices. Freeview+ devices are typical storage levels for low and high range boxes
As storage increases, the average prices of Freeview DVRs had fallen to £106 at the end of
Q1 2009, up slightly from £105 a year earlier but down from £137 in Q1 2007. This is
considerably lower than the average price of £172 in March 2005.
The prices of DVRs available from pay-TV operators have also reduced over time. BSkyB
has offered its Sky+ box free of charge for limited periods (it is usually £99). In January 2009
the company embarked on a major marketing campaign for its Sky+ HD box and reduced
the price from £150 to £50. Virgin Media’s V+ is rented to consumers and costs £99 for
installation, down from £150. In 2004, BSkyB removed the £10 subscription charge for Sky+
while Virgin Media reduced or removed the monthly charge for V+, depending on the
customer’s television package.
53

1.5 The nations’ communications markets
1.5.1 Introduction, structure and findings
Introduction
Ofcom publishes four nations’ Communications Market Reports (CMRs) alongside this
report. The ‘nations’ dimension of communications policy development is becoming
increasingly important (e.g. the future of public service broadcasting and the universal
availability of 2Mbit/s broadband), so the need for a strong understanding of the
characteristics of service availability, take-up and consumption by nation grows. To this end,
this section provides a short summary of the findings of CMR: Nations reports13.
Structure
The section begins by summarising the availability of communications services and
consumer take-up across England, Scotland, Wales and Northern Ireland (Sections 1.5.2
and 1.5.3, pages 55 and 56). It then looks at how consumers in each nation are increasingly
choosing to take ‘bundles’ of services from a single provider (Section 1.5.4, page 58), before
examining the investments made by PSBs in television and radio content (Section 1.5.5,
page 59). We conclude by analysing the differences between the ways in which people in
the four nations consume communications services (Section 1.5.6, page 60).
Findings
The main findings of this section are:
 Availability: Fixed-line telephony and DSL broadband are available to the large
majority of the people in every nation; 2G mobile is available in most postcode
districts in England, and in around nine in ten in Scotland, Wales and Northern
Ireland. Local loop unbundling is less than universally available – to around nine in
ten homes in England but only seven in ten in Northern Ireland (but its footprint is
growing quickly). Cable infrastructure extends to around 49% of the UK population –
from 53% of homes in England to just 24% in Wales. (Section 1.5.2, page 55).
 Take-up: Personal use of mobiles was more prevalent than use of fixed lines in
every UK nation for the first time in 2009. Broadband was the fastest-growing
communications platform, with double digit take-up increases in England, Wales and
Northern Ireland. Levels of digital television take-up across the UK began to
converge, ranging from 89% in Wales and Northern Ireland to 91% in Scotland
(Section 1.5.3, page 2).
 Bundling of services: UK consumers showed a renewed interest in bundled
services during 2008/09. Forty-six per cent of homes took two or more services from
the same supplier, after two years when take-up remained stable at 40%. People in
England were most likely to take a bundle (48%), but take-up growth was fastest in
Wales and Northern Ireland – up by 10 percentage points (to 35%) and 11
percentage points (to 39%) respectively (Section 1.5.4, page 58).
 Content production: During 2008, spend per head on networked television
production was highest in England at £35.51; investment on TV hours for a nation
was highest in Northern Ireland (£16.05), while expenditure on non-English language
output was greatest in Wales at £24.38 (Section 1.5.5, page 59).
13
See http://www.ofcom.org.uk/research/cm/cmrnr09/
54

 Consumption: People in Scotland watched more TV than anywhere else in 2008
(4.2 hours/day/head versus UK average of 3.8). PSB TV output was most popular
with viewers in Wales (62% share of viewing) and least popular in London (57%).
Hours of radio listening per head across the four nations were similar at around 3.2
hours per listener per day. The popularity of the BBC’s radio services varied by
nation – from 46% of listener hours in Scotland to 63% in Wales. The predominant
means of making and receiving calls also differed; in Northern Ireland, one in every
two people rely on mobile, while in Scotland, 64% mainly use their fixed line (Section
1.5.6, page 60).
1.5.2 The availability of communications services across the UK
Patterns of communications service availability across the UK:
1. Universal (or near-universal) coverage for fixed, 2G mobile and broadband
In 2008 fixed-line telephony services were universally available across the UK. The same
was almost completely true for 2G mobile coverage, which reached 99% of homes in
England; in Scotland the figure was 89%. Broadband infrastructure availability also rose
across the UK, largely thanks to the growing availability of DSL, which was universally
available in England, Wales and Northern Ireland in 2009, dropping fractionally in Scotland
to 99.9%. But cable-based broadband infrastructure was less widely available, covering just
over one in two homes (52%) across the UK; availability was lowest in Wales, where only
one in four homes had access.
2. Lower but growing levels of availability of local loop unbundling
Eighty-four per cent of UK homes were connected to an unbundled exchange in 2009, with
coverage rising by four percentage points over the year. Availability was highest in England
(at 87% of homes) and lowest in Scotland (70%). The differential rates at which exchanges
unbundled across the four nations during 2008 narrowed the gap in LLU availability between
the UK and Wales (where the gap now stands at just eight percentage points, down from 20
a year ago) and Northern Ireland (where the gap was 16 percentage points in Q1 2009,
down from 23 percentage points). 3G coverage was lower than its 2G counterpart in every
nation; it was highest in England (at 91%) and lowest (at 43%) in Northern Ireland. Having
changed the 3G coverage measurement threshold in 2008 (raising the geographic coverage
requirement to 90% within each postcode district), time series data are not available.
3. Less than universal and stable coverage levels for cable
Cable infrastructure currently covers 49% of the UK population. It was highest in England at
53% and lowest in Wales at 24% in 2008. Nationwide coverage for the full digital terrestrial
television service stood at 73% of homes in 2009 (unchanged on 2008). Coverage was
highest in Scotland (83%) and lowest in Wales and Northern Ireland, at 57% and 58%
respectively. As digital switchover sweeps over Wales and parts of England during 2009,
take-up will rise progressively, both as DTT power levels rise and as transmitter sites switch
to DTT. By the end of 2012, DTT coverage for all six multiplexes will reach around 90% of
homes while the comparable figure for the PSB multiplexes will stand at 98.5%.
55

Figure 1.48 Availability of communications infrastructure in 2009
Proportion of homes/individuals (%)
100
80
60
99.9%
100%
100%
100%
100%
100%
100%
100%
99%
92%
92%
91%
89%
87%
82%
76%
73%
40
71%
70%
67%
67%
63%
58%
53%
43%
38%
20
30%
24%
0
Fixed line DSL 2G mobile LLU 3G mobile Digital Cable
terrestrial
England Scotland Wales Northern Ireland
Sources: Ofcom and:
1. Proportion of population living in postal districts where at least one operator reports at least 90%
2G area coverage. Sourced from GSM Association / Europa Technologies (Q1 2008). Note we have
raised this threshold from 75% in 2008; as a result we do not have time series data.
2. Proportion of population living in postal districts where at least one operator reports at least 90%
3G area coverage. Sourced from GSM Association / Europa Technologies (Q1 2008). Note we have
raised this threshold from 75% in 2008; as a result we do not have time series data.
3. Proportion of premises able to receive DSL services based on data reported by BT.
4. Proportion of households passed by Virgin Media’s broadband-enabled network.
5. Proportion of households connected to an LLU-enabled exchange.
6. IPTV availability figure calculated on the assumption that Tiscali TV is now available in London,
Stevenage, Birmingham, Newcastle and Edinburgh.
7. Availability of services from all six digital multiplexes.
8. DAB digital radio coverage figure based on a Digital One estimate. Both the BBC and Digital One
built new transmission masts during 2006/07.
1.5.3 Device and service take-up across the UK’s nations
Mobile use exceeds fixed line for the first time across all nations during 2008/09
A range of different trends emerged in device and service take-up across the UK nations
during 2008/09:
 Personal use of a mobile phone was higher than fixed-line access in every UK
nation for the first time during 2008/09. An average of 89% of people across the
UK claimed that they personally used a mobile phone in Q1 2009. In Northern Ireland
use rose by eight percentage points to 93% (widening the gap with the UK average
by three percentage points). Take-up was lowest in Wales (85%) – and the gap with
the UK average widened over the year from two to four percentage points.
 Residential broadband adoption (fixed or mobile) rose faster across the UK
than any other communications service during 2008/09, up by 11 percentage
points to 68% by Q1 2009. It was highest in England (70%, up by 12 percentage
points) and lowest in Wales (58%, up by 13 percentage points year on year).
Growing take-up across the UK resulted in a narrowing of the gap with the UK
average for every nation except Scotland.
56

 Levels of digital television take-up in 2008/09 across the UK nations began to
converge in 2009. Overall, take-up stood at 90% in Q1 2009, up by five percentage
points year on year. Differences in take-up by nation began to disappear during
2008/09 - penetration stood at 91% in Scotland (up by six percentage points) 89% in
Wales (up by five percentage points) and 89% in Northern Ireland (up 10 percentage
points). The gap between take-up in Scotland and in Northern Ireland with the UK-
wide average narrowed by one and five percentage points respectively during the
year.
 Larger differences remained in DAB set adoption across the UK’s nations
during 2008/09 – possibly reflecting different levels of service availability by nation.
Forty-three per cent of individuals across the UK claimed to have access to one or
more DAB digital radio sets in the first quarter of 2009 (up by eight percentage points
year on year). Take-up stood at 29% in Scotland, 28% in Wales and 22% in Northern
Ireland.
Figure 1.49 Technology adoption across the UK, Q1 2009
Change year-on-year
+5 +4 +6 +5 +10 0 +1 -3 +4 -1 +5 +4 +5 +3 +8 +11 +12 +7 +13 +12 - - - - -
100
s
l
a
u
d
i 80
v
i
d
n 60
i
f
o
93%
91%
90%
90%
89%
89%
89%
89%
88%
n
87%
87%
86%
85%
84%
83%
o
i 40
70%
t
68%
r
64%
60%
58%
o
p
44%
41%
o
r 20
27%
25%
P
19%
0
DTV Fixed Mobile Broadband DAB
UK England Scotland Wales N Ireland
Source: Ofcom research, Quarter 1 2009
Note: The take-up figures for DAB in this chart represent the proportion of radio listeners who claim to
have access to a DAB digital radio set in their home. It is not directly comparable to the DAB take-up
figures on page 151, which represents the proportion of all individuals.
Figure 1.50 sets out patterns of broadband and digital television take-up across the UK
nations’ largest cities, using Ofcom’s city-based consumer research. Digital television take-
up peaked at 96% in Edinburgh, but fell as low as 71% in Londonderry/Derry. Broadband
take-up was highest in London at 79%, but was just 39% in Glasgow.
57

Figure 1.50 Digital television and broadband take-up in the nations’ largest cities
Proportion of homes/individuals (%)
Digital TV Broadband
100
80
60
96%
95%
94%
94%
93%
90%
88%
87%
85%
79%
78%
73%
40
72%
72%
71%
63%
62%
62%
61%
58%
58%
39%
20
0
Edinburgh
Birmingham
Manchester
London
Swansea
Glasgow
Liverpool
Belfast
L/Derry
Aberdeen
Cardiff
England Scotland Wales N Ireland
Source: Ofcom research, Quarter 1 2009
1.5.4 Communications service bundling
Bundling most popular among people in England
In 2008/09 consumers in the UK showed a renewed interest in communications service
bundling. Nationwide, 46% took more than one service from a single provider in Q1 2009, up
by six percentage points year on year. This followed two years when the take-up of bundles
had plateaued at 40% of homes.
Bundling was most popular among people in England (where take-up stood at 48% in Q1
2009), while the fewest people claimed to have a bundle in Wales (35%). The popularity of
bundles grew in both Wales and Northern Ireland, so that the gap between the UK average
and those two nations narrowed by three and four percentage points respectively.
Consumer preferences for bundles vary substantially by nation. Two concurrent services
were popular among two-thirds of bundlers in Wales and Northern Ireland (compared to the
UK-wide average of 56%). ‘Triple-play’ was most popular in Scotland, where 45% of homes
with a bundle took three services together (compared to the UK-wide average of 35%).
58

Figure 1.51 The prevalence of and type of service bundling, by nation
Homes with bundles (%) and increase year-on-year (percentage points)
46% 48% 42% 35% 39%
7pp 7pp 4pp 10pp 11pp Number of
services
100% 4% 4% 3%
7% 7% 2% 3%
2% 2% Other
Distribution of discounted
80% 31% 26%
bundles by type (%)
35% 35% 45%
Quad
60%
40% Triple
65% 67%
56% 57%
49%
20%
Dual
0%
UK England Scotland Wales N Ireland
Source: Ofcom research, Quarter 1 2009
Base: All adults aged 15+ with a package of services regardless of whether or not these include a
discount (n = 2467 UK, 1508 England, 351 Scotland, 344 Wales, 264 Northern Ireland)
QG1. Do you receive more than one of these services as part of an overall deal or package from the
same supplier?
Note: The figures across the top of the chart represent the total number of homes with any bundle; the
chart illustrates the distribution of bundle types among those with a discounted bundle. ‘Other’
includes a small proportion bundles from the dual and triple category.
Figure 1.52 illustrates the distribution of discounted bundles across the nations’ largest
cities. Take-up rose as high as 48% in Cardiff and 44% in London. But it stood as low as
19% in Aberdeen and 20% in both Glasgow and Londonderry/Derry.
Figure 1.52 Proportion of individuals taking a discounted bundle, Q1 2009
Proportion of homes/individuals (%)
50
40
30
48%
44%
37%
37%
20
31%
31%
25%
22%
20%
20%
19%
10
0
Edinburgh
Birmingham
Manchester
London
Swansea
Liverpool
Glasgow
Belfast
L/Derry
Aberdeen
Cardiff
1.5.5 Production of broadcast-based content across the UK
Spend per head on television/radio production was highest in Wales at £57.49
Figure 1.53 illustrates spend per head on broadcast content falling into one of four
categories:
59

1. Spend on networked television content produced in each nation.
2. Spend on radio services for listeners in the nations.
3. BBC/ITV1/STV/UTV spend on English language TV content for viewers in a nation.
4. Television programmes produced in Welsh, Gaelic and the Irish language.
It shows that content spend per head across the UK in 2008 totalled £41.50:
 production of English-language television produced by the BBC/ITV1/UTV/STV and
targeted at viewers in one of the UK’s four nations accounted for £4.99;
 ‘networked’ TV programmes (broadcast to the whole of the UK) totalled a further
£31.21;
 TV output in Welsh, Gaelic and the Irish language added a further £1.45; and
 BBC Radio invested an additional £3.85 in nations-based radio services in English,
Welsh and Gaelic.
By nation, patterns of spend varied substantially:
 England attracted the highest volume of networked television spend, at £35.51 per
head;
 Northern Ireland viewers benefited from the highest level of spend per head on the
production of TV output for viewers in a nation (£16.05) – partly explained by the
typically high fixed costs of TV programme production in relation to the comparatively
small population; and
 Wales attracted the highest levels of content production per head in a language other
than English (£24.38).
Figure 1.53 Spend per head on UK-originated content by PSBs on TV and radio
70
BBC Nations/Local radio
60 £57.49
£11.08
50
£41.50 £41.95 Welsh, Irish and Gaelic
40 £2.72 television programming
£3.85
£1.45 £3.72 £31.71
£4.99 £30.50 £24.38
30 BBC/ITV1/STV/UTV spend on
£7.76 £11.16
£2.71 TV content produced in the
20 £1.13
£35.51 £11.01 nation for viewers in that nation
£31.21 £10.36
10 £16.05 BBC/ITV1/STV/UTV spend on
£9.67 £11.02 content produced in the nation
0 £3.38
for a UK-wide audience
UK England Scotland Wales N Ireland
Source: Broadcasters and Ofcom calculations
1.5.6 Consumption of broadcast services in the UK’s nations
Consumers across the UK watched an average of 3.8 hours of television per day, and
listened to 3.2 hours of radio. TV viewing was most popular in Scotland (at 4.2 hours) and
60

least so in London (3.2 hours); the latter might be explained by the capital’s younger age
profile - younger people tend to watch less television. Levels of radio listening varied very
little across the four nations.
The five PSB television channels attracted a majority (60%) of viewer hours nationwide.
Their popularity varied little among the nations – from 61% in Scotland to 58% in Wales. But
there were some substantial variations in England, ranging from 57% in London to 70% in
the South West.
There was more variability in the popularity of the BBC’s radio services. They secured a 63%
share of listening in Wales, but just 46% in Scotland.
Figure 1.54 Hours of daily television viewing and radio listening, by nation
Hours per person per day
3.8 3.2 3.2 – 4.0 3.2 4.2 3.1 3.3 3.3 3.4 3.2
100%
Variation
30%
80% 40% 39% 38% 37% 39% by english
44% 44%
Proportion of hours (%)
47% region
54%
13%*
60%
Non-PSB
40%
60% 61% 62% 63% 61%
56% 57% 56% 53%
46% PSB
20%
0%
TV Radio TV Radio TV Radio TV Radio TV Radio
UK England Scotland Wales N Ireland
Source: BARB and RAJAR
Note: PSB television viewing in all homes in Wales includes the share of both S4C and
Channel 4. *The 13% represents the margin between the region attracting the highest PSB
share (South West, with 70%) and the lowest (London, with 57%).
Viewing TV or listening to radio over the internet most popular in England
In all the UK’s nations, converging technologies are finding favour with consumers,
particularly as broadband penetration rises. As a result, a growing proportion of individuals
are using the internet to access audio-visual and audio-based services, while mobile
handsets are increasingly capable of supporting internet access.
In Q1 2009 over a third of individuals claimed that someone in their household used the
internet to watch TV, up by four percentage points year on year. Online viewing was most
popular in England, and grew fastest there over the past twelve months (35%, up by six
percentage points). Scotland emerged as the nation where internet-based television viewing
was least popular – and also in decline (down by nine percentage points year-on-year to
21%). Listening to audio over the internet remained a relatively niche pastime for most
listeners in the UK. Overall, 12% of individuals claimed that someone in their home used the
web for this purpose, ranging from 13% in England down to just 4% in Scotland.
Around a fifth of people in the UK surfed the web over a mobile handset in Q1 2009 –
unchanged since 2008. There was little variation across the UK, although, once again,
people in Scotland did this least (14%).
61

Figure 1.55 Consumers’ use of converging platforms
Change year-on-year
Proportion of people who claim someone in their
home uses the internet for the following (%)
+4 -1 0 +6 0 0 -9 -7 -1 +1 -2 +1 +3 -2 -5
40
30
20 36
34 33
20 21 21 25
10 18 18
12 13 14
4 7 7
0
Internet over mobile
Internet over mobile
Internet over mobile
Internet over mobile
Internet over mobile
TV over internet
TV over internet
Radio over internet
TV over internet
Radio over internet
TV over internet
Radio over internet
TV over internet
Radio over internet
Radio over internet
UK England Scotland Wales N Ireland
Source: Ofcom research, Quarter 1 2009
Base: All adults aged 15+ (n = 6090 UK, 3437 England, 1014 Scotland, 987 Wales, 652 Northern
Ireland)
QE12. Which, if any, of these do you or members of your household use the internet for whilst at
home?. QD28. Which, if any, of the following activities, other than making and receiving calls, do you
use your mobile for?
One in two people in Northern Ireland rely on their mobile for making/receiving calls
Across the UK, the choices that consumers make regarding their main method of calling
people vary to some extent by nation. An average of 58% of individuals used their fixed-line
telephone as the main method of making and receiving calls. A further 38% relied instead on
their mobile phone, with a further 3% citing their fixed line at work.
However, the picture differed in Northern Ireland, where the majority of respondents (52%)
mainly used their mobile phone for calls, with a minority (44%) making the same claim about
their fixed line. In Scotland, the opposite was true - less than a third cited their mobile, with
64% identifying their fixed line as their principal means of telephony.
62

Figure 1.56 Main means of making telephone calls
Proportion of individuals (%)
100% 3 3 2 4
3 Unsure
80% 38 38 32 Other
37
52
Internet voice
60% service (VoIP)
Public
payphone
40% Fixed line at
58 58 64 work
57
44 Mobile phone
20%
Fixed line at
0% home
UK England Scotland Wales N Ireland
Source: Ofcom research, Quarter 1 2009
Base: All adults aged 15+ (n = 6090 UK, 3437 England, 1014 Scotland, 987 Wales, 652 Northern
Ireland)
QC28. Which of these do you consider to be your main method of making and receiving telephone
calls?
63

The Communications Market
2008
2
2 Television
65

Contents
2.1 Key market developments in television 67
2.1.1 UK television industry metrics, 2003-2008 67
2.1.2 TV industry revenue up 1.3% to £11.2bn, but advertising revenues down 68
2.1.3 Nearly nine in ten homes had digital TV at the end of Q1 2009 72
2.1.4 Digital switchover is well under way 73
2.1.5 High-definition television (HDTV) gains traction 74
2.1.6 Channel operators continue to show interest in the Entertainment channel
genre 77
2.1.7 Channel licence awards fell in 2008 79
2.2 The television industry 81
2.2.1 Introduction 81
2.2.2 Television industry revenue 81
2.2.3 TV advertising revenues 83
2.2.4 TV shopping accounts for nearly a third of non-broadcast revenue 84
2.2.5 Sports and Entertainment channels generate most multichannel revenue 85
2.2.6 TV industry output 86
2.2.7 UK broadcasters’ content spend passed £5bn for the first time in 2008 87
2.2.8 Television output on the five main PSB channels 88
2.2.9 Multichannel output, by genre 94
2.2.10 The TV production sector 97
2.2.11 Compliance with regulatory quotas 102
2.2.12 Original productions 103
2.2.13 Nations’ and regions’ production outside London 104
2.2.14 Independent productions 108
2.2.15 News and Current Affairs 111
2.2.16 Programmes made for viewers in the nations and English regions 112
2.2.17 Repeats 114
2.2.18 European programming 115
2.2.19 Other compliance matters 116
2.3 The television viewer 119
2.3.1 Summary 119
2.3.2 Availability of multichannel broadcast platforms 119
2.3.3 Digital TV take-up 120
2.3.4 Consumption of television services across the day 124
2.3.5 Channel reach 126
2.3.6 Viewing share among the five main PSB channels 128
2.3.7 Multichannel broadcaster share 132
2.3.8 Consumer attitudes toward television 143
66

2.1 Key market developments in television
2.1.1 UK television industry metrics, 2003-2008
UK television industry 2003 2004 2005 2006 2007 2008
Total TV industry revenue (£bn) 9.2 10.0 10.5 10.6 11.1 11.2
Proportion of revenue generated by public funds 26% 24% 25% 25% 25% 24%
Proportion of revenue generated by advertising 34% 35% 35% 33% 32% 31%
Proportion of revenue generated by subscriptions 35% 34% 35% 36% 37% 39%
TV as a proportion of total advertising spend 30.2% 29.6% 29.6% 27.9% 26.9% 26.5%
Spend on originated output by 5 main networks (£bn) 3.1 3.1 3.0 2.8 2.7 2.6
DTV take-up (% of homes in Q1) 43.2% 53.0% 61.9% 69.7% 86.3% 87.1%
(Q1 2009
89.2%)
Proportion of DTV homes paying for TV (Q1) 80.2% 71.7% 64.3% 60.0% 55.0% 53.1%
Viewing per head, per day (hours) in all homes 3:44 3:42 3:39 3:36 3.38 3.45
Share of the five main networks in all homes 76.5% 73.8% 70.4% 66.7% 63.5% 60.8%
Number of channels broadcasting in the UK 294 379 416 433 470 495
This section explores developments and trends in the UK television market. Some of the key
findings are:
 Television industry revenue grew by 1.3% to reach £11.2bn in 2008. Pay-TV
subscriptions rose by 6% but total net advertising revenue fell by 3%, as
broadcasters began to feel the impact of the recession. The proportion of the BBC’s
licence fee revenue spent on television decreased by 1.2% year on year to £2.6bn
(page 68).
 Advertising growth slows for independent multichannel broadcasters. The
commercial portfolio channels of the PSBs accounted for the majority of growth in
multichannel advertising (£77m out of £79m) in 2008. Advertising revenue from the
rest of the multichannel sector rose by just £2m in 2008 to reach £810m (page 72).
 Digital television take-up reached 89.2% at the end of Q1 2009. It increased by
2.1 percentage points year on year. Nearly nine million digital video recording
devices (also known as ‘digital television recorders’ or ‘personal video recorders’)
had been sold by the end of Q1 2009 (page 72).
 Digital switchover is now well under way and Exeter in the West Country
became the UK’s first ‘digital city’ in May 2009. Digital switchover in Scottish
Borders was completed in November 2008 and 20% of homes across the UK will
have had their analogue terrestrial television signals switched off by the end of 2009
(page 73).
 High-definition (HD) television gains traction. By the end of Q1 2009, 2.3 million
homes had HD reception equipment – either a set-top box or an integrated digital
television – capable of accessing linear or on-demand HD content. Some
broadcasters are now evaluating the potential of 3DTV (page 74).
67

 Entertainment channels (excluding the five main PSBs) accounted for one in
five hours of viewing in multichannel homes in 2008. The Entertainment genre’s
aggregate viewing share (excluding the five main PSBs) grew by 1.8 percentage
points in 2008 to account for a 21.3% share in multichannel homes (page 77).
 The number of television channel licences awarded by Ofcom decreased year
on year. The appetite to launch new channels appears to be waning in the UK, with
495 channels already on-air at the end of 2008, up from 470 in 2007. Seventy-seven
licences were issued by Ofcom in 2008, down by 46%, and the lowest number issued
since 1998 when digital television launched in the UK (page 79).
We now examine these stories in more detail.
2.1.2 TV industry revenue up 1.3% to £11.2bn, but advertising revenues down
UK television industry revenue rose by 1.3% (£145m) to £11.2bn in 2008; this compared to a
7.4% increase in 2007 and the five-year annualised average of 5.9% (Figure 2.1).
Subscription revenue raised by pay TV operators continued to be the engine of growth in
2008, with income rising by 6% or £245m over the year. This was driven both by new
subscribers and by higher per-subscriber revenue prompted by new value-added services
such as Sky+ HD. ‘Other’ sources of income such as sponsorship, retail and revenue from
interactive services rose by 5% (£36m) over the same period.
A reduction in television advertising revenue driven by the deteriorating economic
environment offset these increases, falling by 2.9% (£105m) year on year, compared to a
3.3% increase in 2007 and a five-year annualised average of 2.3%. Licence fee spending on
television services also fell by 1% or £31m in 2008, to £2.6bn.
The overall £105m reduction in NAR during 2008 was driven by an 8% (£183m) reduction in
commercial PSB advertising, partly offset by increasing multichannel advertising revenue (up
£79m). The lion’s share of that increase was generated by the commercial PSBs’ portfolio
channels14, boosting their advertising revenue by 20% year on year. The remaining
multichannel broadcasters attracted just £2m in additional advertising income over 2008.
14
The PSB portfolio channels are the multichannel services owned by the main PSBs.
68

Figure 2.1 Changes in television industry revenue, 2007 - 2008
Revenue (£m)
11,400
+5%
+6% £36m £31m
11,300 -1%
£183m +20% +0.2% +1.3%
11,200
£245m £2m
£77m
11,100 -8% £11,197m
£11,052m
11,000
2007 Subscriber Other Licence fee PSB NAR PSB Other NAR 2008
revenue revenue portfolio revenue
NAR
Source: Ofcom/broadcasters
Note: Figures expressed in nominal terms. PSB NAR comprises ITV1 (including GMTV1), Channel 4,
Five and S4C. PSB portfolio NAR includes the commercial channels owned by the PSBs. ’Other NAR’
comprises the rest of the multichannel market. Platform operator revenues do not include any
installation costs, equipment sales or subsidies.
Figure 2.2 illustrates how TV advertising revenue by broadcaster has trended over the last
two years. ITV1 and Channel 4 both experienced revenue reductions of over 8% over the
year; Five’s advertising income fell by more than 5% over the same period. GMTV was the
only one of the commercial PSB licensees to benefit from advertising revenue growth during
2008 – up by 1% in twelve months.
Figure 2.2 Net advertising revenues
1-year
growth (%)
£3,576m £3, 471m -2.9%
4,000
£54m £55m 1.3% GMTV1
£287m £272m
3,000 £380m
£457m -5.4% Five
£680m
£623m 16.8% PSB portfolio channels
£m
2,000
£808m £810m
-8.2% Channel 4
1,000 Other multichannels
0.2%
£1,365m £1,253m
-8.9% ITV1
0
2007 2008
Source: Ofcom/broadcasters
Note: Totals may not equal the sum of the components due to rounding.
The UK broadcasting sector is facing a range of structural and cyclical challenges. The
mainstream commercial broadcasters in particular announced a number of cost-control
initiatives during 2008/09 including:
69

 ITV said it would cut 600 jobs in March 2009, on top of 1,000 it announced in early
2008. This followed a pre-tax loss of £2.73bn for 2008. The broadcaster also said
that investment in network programming would be reduced by £65m in 2009. ITV
announced its intention to explore the sales of its Friends Reunited website and the
DTT multiplex operator SDN. The broadcaster said that it would deliver total cost
savings of £155m in 2009, rising to £175m in 2010 and £245m in 2011. It also moved
to re-engineer its schedule to place a greater emphasis on entertainment shows.
Production beyond 2009 of drama series Heartbeat and The Royal was suspended,
although episodes had been stockpiled. In July, police drama The Bill moved to one
episode a week (down from two nights per week).
 Channel 4 headcount’s was reduced by more than a third to around 700, as part of
efforts to reduce its cost base by £125m. This saw the broadcaster lower its
programming budget by £40m to £620m. Channel 4 also withdrew from a consortium
to run the UK’s second national digital radio (DAB) multiplex. Phase 2 of Ofcom’s
review of public service broadcasting said that by 2012, Channel 4 could require
further funding of £60m to £100m a year in order to continue to deliver its existing
remit.
 In March 2009, commercial broadcaster Five announced that up to 87 jobs would be
lost from the company’s 354-strong workforce. It is investing more in its peak-time
schedule where it is aiming for programmes which can draw audiences of more than
a million viewers. Five also announced plans to drop talk show Trisha as part of a
strategy to move resources to parts of the schedule that made better commercial
returns.
Partnerships and policy aim to secure the future of public service broadcasting
In January 2009 Ofcom issued a statement about the future of public service broadcasting
and how to ensure the delivery of content that fulfils public purposes and meets the interests
of citizens and consumers throughout the UK.15 During this process, in December 2008, the
BBC announced a proposal to develop a set of partnerships to deliver commercial PSB
savings of £120m per year by 2014. Talks on these proposals were continuing at the time of
writing. These included initiatives such as:
 the creation of a public service iPlayer (also known as Marquee) open to ITV,
Channel 4 and Five;
 bringing internet services to the television through Project Canvas, an open standard
IPTV platform which is being reviewed by the BBC Trust;
 sharing regional news footage and premises where appropriate to support provision
beyond the BBC;
 options for other PSBs to collaborate with BBC Worldwide (talks have progressed
with Channel 4);
 using the bbc.co.uk website to promote broadband take-up and other PSB content on
the internet; and
 sharing research and development resources.
15
http://www.ofcom.org.uk/consult/condocs/psb2_phase2/statement/
70

In March 2009, the BBC, which is funded by the licence fee, also announced plans to save
£400m over three years and pledged to reduce the salaries of ‘top talent’.
An Ofcom-approved reduction in the number of ITV news regions (from 17 to nine) was
implemented in early 2009, releasing savings of £40m per year. The Government’s Digital
Britain report, published in June, introduced a proposal to pilot several independently-funded
local news consortia as a long-term replacement for ITV local news services (see below).
The Digital Britain report also suggested that a proposed partnership between Channel 4
and BBC Worldwide was its preferred option to help secure the future of Channel 4. The
report said that the two parties should further explore the potential partnership, to create a
second public service broadcaster of scale. An announcement by Channel 4 and BBC
Worldwide was expected imminently at the time of writing.
The Digital Britain report also focused on wider aspects of the future of public service
broadcasting, and left open the prospect of a ‘contained contestable element’ of the BBC’s
licence-fee revenue, which could be used for public service content such as local news.
Digital Britain proposes pilots for local news consortia
Consumer research conducted as part of Ofcom’s second review of public service
broadcasting found that people value regional television news, but the current system faces
a number of challenges. In Ofcom’s Second Public Service Broadcasting Review: Putting
Viewers First, we showed that viewers believe that news is the main priority for nations and
regions television. But there are cyclical and structural pressures on the commercial
providers of nations/regions news.
As we set out in the PSB Review, there is a tension between ITV plc’s desire to reduce
regulatory burdens and its ongoing ability to maintain investment in public service
programming. This tension is becoming more acute as switchover completes and digital
distribution becomes widespread. If regional/nations news is to continue beyond the BBC,
provision of additional funding may be necessary. To address these challenges, The
Government’s Digital Britain outlined its intentions to pilot independently funded news
consortia (IFNCs).
IFNCs could bring together interested parties which would provide a more ambitious cross-
media proposition and enhanced localness compared with current commercial television
regional news. However, in order to maximise audience reach and impact, they would also
broadcast in the regional news slots in the schedule of current Channel 3 licensees.
Consortia would include but not be limited to existing television news providers, newspaper
groups or other newsgathering agencies. IFNC funding would be awarded on a contestable
basis and against a set of public criteria to maximise public value.
The Digital Britain report announced three pilot IFNC projects - in Scotland, Wales and one
in England. Further details on the proposal can be found on page 156 on the report:
http://www.culture.gov.uk/images/publications/digitalbritain-finalreport-jun09.pdf. The DCMS
is currently consulting on the importance of plurality in regional news and the potential
sources of top-up funding. Details on the consultation can be found at:
http://www.culture.gov.uk/reference_library/consultations/6245.aspx.
71

Advertising growth slows for independent multichannel broadcasters
The UK’s multichannel television sector continued to grow in 2008 as revenues increased by
5.9% to reach £1,754m. The increase was largely fuelled by a rise in advertising revenue of
6.2%, to £1,267m.
However, the majority of this (£77m) was driven by the PSB portfolio channels. Just £2m of
the 2008 growth went to other multichannel broadcasters. Figure 2.3 illustrates that NAR
earned by the commercial PSB portfolio channels has been the fastest-growing component
of multichannel revenue in recent years, increasing more than four-fold between 2004 and
2008.
Figure 2.3 Multichannel revenue by source: NAR and other revenue
£1,287m £1,300m £1,477m £1,650m £1,754m
900
800
808 Commercial
772 810
700 multichannels'
695 695 NAR
600
493 487 Other
500 437 435 462
multichannel
m 400 457 revenue
£
380 PSB portfolio
300
channels's NAR
200 270
100 168
99
0
2004 2005 2006 2007 2008
Source: Ofcom/broadcasters
Concurrent with a relatively subdued year for the non-PSB multichannel sector, some
channel groups took steps to control costs. Channels including VMTV’s Trouble and Turner
Broadcasting’s Nuts TV were closed. Real Estate TV, the property-based factual
broadcaster owned by Fox International Channels, also closed, against a backdrop of a
slowing property market.
Perhaps the biggest closure among channel operators was the UK business of Setanta
Sports, the broadcaster that had acquired key sports rights such as FA Premier League and
FA Cup football. The company went into administration in June 2009, following its failure to
make payments on sports rights. The 46 Premier League games that Setanta had held for
the 2009/10 season, and the 23 games per year for three seasons from 2010, were
subsequently acquired by sports broadcaster ESPN.
Pay-TV broadcaster BSkyB also made cuts, announcing 250 job losses in August 2008. In
November 2008, Virgin Media said that 2,200 jobs, about 15% of its workforce, would be lost
by 2012.
2.1.3 Nearly nine in ten homes had digital TV at the end of Q1 2009
Digital television (DTV) take-up in the UK reached 89.2% at the end of Q1 2009, an increase
of 2.1 percentage points year on year. This means 22.8 million homes now receive DTV on
their main set.
Digital terrestrial television (DTT) remained the most widely-used service on main sets,
accounting for around 9.8 million (38.5%) homes in Q1 2009, an increase of 200,000 (0.5
72

percentage points) over the year. Freesat, the free-to-air digital-satellite television platform
owned by the BBC and ITV, had attracted 300,000 customers by the end of the first quarter
of 2009. Freesat launched in May 2008 and offers more than 140 subscription-free digital
channels as well as high-definition channels from the BBC and ITV.
While Freeview provided the bulk of digital growth between 2004 and 2007, the contributions
of the three main platforms – DTT, satellite and cable – evened out in 2008 as DTV take-up
slowed.
Figure 2.4 Multichannel television take-up
% of homes
27.2% 34.0% 41.7% 44.7% 48.0% 56.7% 64.9% 71.8% 80.3% 87.2% 89.6%
TV Households (m)
26 Analogue
24 terrestrial only
22
Digital
20 terrestrial only
18
16 Analogue
14 cable
12 Digital cable
10
8
Free-to-view
6 digital satellite
4
2 Analogue
0 satellite
Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Pay digital
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 satellite
Source: Ofcom, GfK, Sky and Virgin Media
Note: Digital terrestrial relates to DTT-only homes. Please note we have not included homes receiving
overseas satellite services as part of the multichannel total throughout the report, as these homes
may be receiving the main PSB channels via a digital platform.
Seventy-three per cent of all TV sets had converted to multichannel television by the end of
Q1 2009 (up 5.7 percentage points on a year ago and up by 0.8 percentage points quarter
on quarter). As the market for DTV on main sets begins to saturate, television platform
operators and consumer electronics manufacturers are enhancing the functionality of digital
reception devices. Nearly nine million digital video recorders (DVRs) had been sold by the
end of Q1 2009, of which five million were BSkyB’s Sky+ and Sky+ HD devices.
2.1.4 Digital switchover is well under way
Exeter in the West Country became the UK’s first ‘digital city’
Switchover in the Scottish Borders, which began when Whitehaven became the first town to
make the transition in October 2007, was completed in November 200816. Since then, Exeter
in Devon became the first UK’s first ‘digital city’, making the switch to digital-only terrestrial
broadcasting on May 20, 200917. In total, 757,000 UK households have now had their
analogue terrestrial signals switched off. By the end of 2009 around 19% of homes will have
switched over (Figure 2.5).
16
http://www.digitaluk.co.uk/__data/assets/pdf_file/0019/23275/20-11-08_switchover_completed.pdf
17
http://www.digitaluk.co.uk/__data/assets/pdf_file/0011/27929/20-05-09_stockland_hill_dso2.pdf
73

The biggest switch to come in 2009 (as measured by the number of households affected)
will be in the Granada region, covering the north-west of England including Liverpool and
Manchester. In November and December 2009, 3.04 million households receiving analogue
television signals from the Winter Hill transmitter will move fully to digital television services.
Switchover will continue in other areas through 2010 and 2011 and finish in 2012. The
Crystal Palace transmitter, which covers 4.86 million households including all those in
London and the surrounding areas, will be one of the last to switch and will be the largest
single switch in the programme.
Figure 2.5 UK households and switchover dates
Year Number of Proportion of total Areas switching
homes UK households
switching in the switched
year
2007/2008 73,000 0.3% Copeland and Scottish Borders
2009 4,811,000 18.6% West Country, Scottish Border, Wales and
Granada
2010 2,257,000 27.3% Parts of Scotland, Channel Islands and west
England
2011 10,454,000 67.3% Anglia, Central, Yorkshire and Scotland
2012 8,552,000 100% Meridian, London, Tyne Tees and Ulster
Source: Ofcom
Virgin Media will become the second television platform to turn off all analogue distribution
during 2009, releasing a third of its network capacity. This could be used for services such
as next-generation broadband and HDTV, according to the company. Virgin Media had
141,200 analogue TV customers at the end Q1 2009; BSkyB switched off its analogue
satellite services in September 2001.
2.1.5 High-definition television (HDTV) gains traction
Consumers show a growing appetite for HD as more content becomes available
High-definition (HD) television services have gained popularity with UK consumers, as new
HD channels have launched and as more platforms offer HD content to consumers. By the
end of the first quarter of 2009, nearly 1.9 million UK homes (7%) had HD-receiving
equipment capable of viewing high-definition broadcast channels, either through a set-top
box or an integrated digital television set (IDTV). Just over a million of these were Sky+ HD,
with Virgin Media’s V+ and Freesat HD boxes and IDTVs accounting for around 900,000
(Figure 2.6). Taking account of BT Vision, which offers some HD programming on-demand,
the number of homes able to access to HD television content rose to around 2.3 million (9%)
at the end of March 2009.
74

Figure 2.6 Number of broadcast HD homes: BSkyB, Virgin Media and Freesat
1,200
1,022
1,000 Sky+ HD homes
779
Homes (000's)
800
591 V+ homes
600 498
465 612
422
358 522
400 292 467
244 425 263
184 364 172 Freesat HD
200 96 262
38 73
167 190 24
79 150
0 40
Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1
2006 2006 2006 2007 2007 2007 2007 2008 2008 2008 2008 2009
Source: Operators
The broadening appeal of HD in 2008 was evidenced not only by the growing consumer
take-up of HD decoders, but also by changes in the pricing of HD propositions and by the
growing range of channels offering high-definition content.
In January, BSkyB dropped the price of its Sky+ HD box by £100 to £4918 and embarked on
a major marketing campaign to promote the product. BSkyB has the largest base of HD
customers and is the only platform to offer a bespoke subscription package of HD channels.
At the end of Q1 2009, it had just over one million subscribers to its £9.75 a month HD
package. BSkyB offers 33 HD channels, up from nine at launch in 2006, covering key genres
such as Sports, Films, Entertainment and Factual. The company has said that it plans to
launch Sky News HD in spring 2010.
Virgin Media, which has the second largest number of HD-compatible receivers in the
market, offers more on-demand content than linear in HD (just BBC HD). The cable operator
has said that four channels - Living HD, FX HD, MTVN HD and National Geographic HD –
will launch on cable, with the first being available to V+ customers from the end of July.
Freesat from the BBC and ITV offers BBC and ITV HD services. About three-quarters of
Freesat equipment sold, which includes set-top boxes and integrated digital television sets
(IDTVs), were capable of receiving high-definition television. The BBC also offers some HD
content online on its iPlayer service, which can be streamed, depending on the speed of the
internet connections, or downloaded to computers.
Looking ahead, consumers will soon be able to receive HD channels from the BBC, ITV and
Channel 4 on the Freeview platform. The first HD broadcasts on DTT will go live on 2
December 2009 from the Winter Hill transmitter serving Liverpool and Manchester. HD
signals will also be available from the Crystal Palace transmitter in London from December.
HD on Freeview will be available to 60% of the UK by Christmas 2010. Viewers who wish to
watch HD on Freeview will need reception equipment which incorporates MPEG-4
compression and DVB-T2 transmission technologies, as well as a HD-ready television set.
18
http://corporate.sky.com/file.axd?pointerid=221aa60ce8cc4089a7eb126b6c09c7e1&versionid=2835
e0f11bd840da914f7b3b230ea56c
75

Figure 2.7 Comparison of high-definition TV services
Platform Provider Launch date HD content available Number of HD
homes at Q1 2009
Satellite BSkyB April 2006 33 linear channels covering key genres. 1,022,000
Third-party channels include BBC HD, (Sky+ HD)
Channel 4 HD, Discovery HD, MTVN HD
and Eurosport HD
Satellite Freesat May 2008 BBC HD channel and ITV content 263,000
accessed via red button (Freesat HD)
Cable Virgin December 2005 BBC HD channel. 100 hours of HD on- 611,900
Media demand programmes plus 30 HD on- (V+)
demand movies are available (new
channels planned f rom July 2009)
IPTV BT Vision September Films f rom Universal, which are 423,000
2008 downloaded via IPTV to BT Vision box, (Vision +)
are available in HD
Online BBC April 2009 Major BBC programming available in HD -
to stream and download.
DTT Freeview Planned f rom Channels available at launch will include -
late 2009 in BBC, ITV and Channel 4. Five has been
selected awarded a f ourth licence subject to
regions* meeting certain conditions
Source: Ofcom, company data (correct as of July 2009)
Note: *Granada region will be the first to launch HD on Freeview on 2 December 2009. Freeview HD
will employ DVB-T2, a next-generation transmission technology, which could offer bandwidth
efficiencies of up to 50%19.
While 2.3 million homes have receivers capable of decoding HDTV, a much larger number
have now acquired the television equipment necessary. Cumulative sales of HD-ready sets
had reached 17.6 million HD-ready by Q1 2009 (Figure 2.8). Our research found that 33% of
television homes claimed to have a HD-ready television set at the end of 2008.
Figure 2.8 HD-ready TV sets: sales
HD ready sets as % of all sets sold
3,500 100%
Thousands of sets sold 90%
3,000 % of all sets sold
80%
2,500 70%
2,000 60%
50%
1,500 40%
1,000 30%
20%
500
10%
0 0%
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1
2006 2006 2006 2006 2007 2007 2007 2007 2008 2008 2008 2008 2009
Source: GfK
19
http://www.dvb.org/news_events/dvbscene_magazine/DVB-SCENE27.pdf
76

3DTV comes into focus
The resurgence of 3D feature films such as Bolt and Ice Age 3 in the cinema appears in part
to have fuelled renewed interest in 3DTV from content producers. With improvements in
technology, stereo 3D images can now be delivered in a way that is far more satisfactory to
viewers than previous attempts at conveying depth.
The original 3D films, and some recent 3D DVD releases, used red and blue colour
tints on two overlaid images intended for left and right eye. The left- and right-eyed views are
seen by the correct eye when viewed through glasses with similarly-tinted lenses. This two-
colour anaglyph technique was invented in the days of black-and-white film. But colour
reproduction is affected by this technique, and, in addition to the other alignment errors, it
resulted in many viewers experiencing headaches.
Current 3D technologies still require glasses, so are still mostly only suitable for
‘appointment-to-view’ programming. Glasses-free 3D ‘autostereoscopic’ displays are under
development but are believed to be 5-10 years away from deployment. Current techniques
rely on the use of special polarising filters, to deliver the left- and right-eye images on to a
screen, so that a viewer with matching 3D-polarising glasses will see the correct image with
each eye.
There are currently two different ways of displaying 3D on a TV screen. One interleaves the
two images on a line-by-line basis; the other alternates left and right eyed views (frames).
The latter type requires the use of electronic ‘shutter’ glasses which are quite heavy, and
cost more than the simple polarising glasses used by the line-interleaved displays. It may be
possible to view 3D using a few existing TV sets, and with some video projectors, using an
external adaptor, but most people will need a new television. 3D video can be delivered
using a variety of standards - around fourteen at the last count.
A few broadcasters, including BSkyB in the UK, are starting to experiment with 3DTV. It is
possible to deliver 3DTV using a standard HDTV channel (although the broadcasts are not
compatible with standard 2DTV sets). BSkyB has demonstrated 3D productions of
programming genres including sport, entertainment, arts and live music. The current
experiments appear to be aimed at gaining production experience, building a 3D programme
library and convincing TV equipment manufacturers that there will be a viable market for 3D
TV equipment.
2.1.6 Channel operators continue to show interest in the Entertainment channel
genre
The aggregate audience share of the multichannel Entertainment genre continued to grow
steadily in 2008, maintaining its position as the largest genre category as measured by
viewer hours. The Entertainment category includes channels – such as ITV2, Sky 1 and
Hallmark - that show a broad mix of programme genres and which are carried in the
‘Entertainment’ sections of the electronic programme guides (EPG) of Sky Digital and Virgin
Media.
The proportion of all viewer hours taken by this channel category increased by over a third
between 2003 and 2008 to 21% of all hours in 2008 (Figure 2.9). This excludes the five main
terrestrial entertainment channels – BBC One, BBC Two, ITV1, Channel 4 and Five - which
together accounted for a further 56% of viewer hours in multichannel homes. The figures
along the top of the chart (Fig. 2.12) show the aggregate viewing shares, in multichannnel
homes, of the five main PSB channels over the five-year period.
77

Figure 2.9 Channel genre analysis in multichannel homes
Audience share
Non-PSB share of viewing
42.8% 42.5% 42.3% 42.5% 43.3% 44.0%
100%
3.6% 3.8% 4.2% 4.2% 4.2% 4.0% Other genres
1.3% 1.4%
2.6% 2.7% 2.5% 1.7% 1.2%
2.1% 1.2% 1.3%
1.4% 1.4% 1.9% 1.8% 1.6% Lifestyle and
80% 2.9% 2.8% 2.3% 2.2% 1.9% Culture
2.4%
2.3% 2.4% 2.6% 3.2% News
3.4% 3.3%
3.6% 3.2% 3.4%
4.0% 3.8%
60% 3.7% Music
4.4% 4.3% 4.1% 5.9%
5.8% Documentaries
5.7%
5.9%
6.1% 6.4%
40% Movies
Sport
19.5% 21.3%
20% 18.3%
14.8% 15.2% 16.1% Childrens
Entertainment
0%
2003 2004 2005 2006 2007 2008
Source: BARB
Much of the category’s growing popularity has been driven by PSB portfolio channels (BBC
Three, ITV2, E4 and Fiver, for example). This is in part explained by their presence on
Freeview, the most widely-used digital television platform, where take-up has risen rapidly
over the last five years. The PSB portfolio channels in the Entertainment share of viewing
rose from 3.7% in 2004 to 11.4% in 2008; as such, they accounted for over half of the
genre's share in 2008. The remaining channels in the Entertainment category have broadly
maintained their share over the last five years, shedding one percentage point to 10% in
2008.
Other channel operators have sought to capitalise on the popularity of the Entertainment
genre during 2008. Two trends have emerged:
First, non-PSB multichannel operators rebranded their channel portfolios in 2008, with an
emphasis on carrying a broader spectrum of content, targeting a specific audience rather
than a genre. The best example of this approach came from UKTV. Capitalising on the
impact of Dave’s launch in 2007, UKTV re-branded other Entertainment channels in a
possible effort to replicate the increases in audience seen by Dave: UKTV Drama was
renamed Alibi and UKTV Gold was replaced by two separate services: Watch, a general
entertainment channel and G.O.L.D, focusing on British sitcoms.
Second, new Entertainment services were launched by traditionally genre-specific
broadcasters, such as Discovery and MTV. The latter launched its first channel outside the
music category: MTV R in November 2007 while Discovery launched DMax in January 2008.
Over 2008, MTV R accounted for 11% of MTV’s channel share, while DMax accounted for
12% Discovery’s overall portfolio of viewer hours.
78

Figure 2.10 Changes in genre share, multichannel homes: 2003 - 2008
Change in share (percentage point)
7%
6% -1.39%
5%
-1.34%
4%
6.49% -0.98%
3%
-0.81%
2%
-0.74%
1% -0.33%
-0.20% 0.43%
-1.13%
0%
Entertain. Lifestyle Music Sport Movies News Docu. Childrens Other PSBs
Source: BARB
2.1.7 Channel licence awards fell in 2008
Seventy-seven television channel licences were issued by Ofcom in 2008, significantly down
from 143 in 2007 (Figure 2.11). Overseas licences accounted for a greater proportion of the
new licences, making up 35 (45%) of the total in 2008, compared to just 18% twelve months
earlier. Our research found that there were 495 channels broadcasting in the UK at the end
of 2008 (excluding regional variations and pay-per-view film channels), up from 470 in 2007
and 433 in 2006.
Figure 2.11 Television channel licences issued
Number of licences issued
200
150 25 Overseas
36
26
licences
12 17
100 UK licences
134 126 143
109 114 120 109 117 35
50 93
43 50 50 42
29 33
0
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Source: Ofcom.
Note: For years prior to 2003, no distinction is made between UK licences and overseas licences
While licence awards do not equate to the number of new channels that have gone on-air,
they do offer an indication of the industry’s appetite to launch new channels. A number of
factors could have contributed towards the reduction in UK licences issued:
 BSkyB ceased to accept applications for places in the launch queue for the digital
satellite platform in October 2007, owing to potential memory constraints in older-
79

generation set-top boxes. However, channels already in the launch queue, and
broadcasters prepared to buy slots on the EPG from other companies, were able to
gain access to the platform. In early 2009, BSkyB opened a consultation on allowing
additional high-definition channels to launch, as HD receivers do not have such
memory limitations.
 The market may be reaching a point of maturity, or even saturation, which makes it
less economic for new services to launch (there were around 495 television channels
broadcasting at the end of 2008, double the number of channels in 2001).
Multichannel advertising revenues, excluding those of the PSB portfolio channels,
rose by just £2m in 2008 to £810m (and up from £695m in 2004). The economic
environment specific to 2008 could have had some bearing on operators’ willingness
to launch new channels (and thereby apply for a new licence).
 Some broadcasters have taken steps to rationalise or re-focus their channel
portfolios. Rather than launching new channels, some operators have repositioned
existing services. For example, Virgin Media Television closed its Trouble channel
and replaced it with a Living TV time-shift, while UKTV has continued to re-brand
many of its channels – a process that was started before the recession.
Figure 2.12 UK channel licence awards, by genre, 2007 - 2008
Total UK licences issued: 42 (2007: 117)
40
34
30
24
20
8 8 8 9 2007 2008
10 6 6 7 6
4 4 5 5
3 2 3 2 3 2 3
0 2 1 1 1 1 0 1 0
0
Multicultural
Adult
Entertainment
Children's
Religious
Interactive
Factual
Sport
Films
News
Music
Shopping
generated
promotion
HD
User-
Self
Source: Ofcom.
Note: Chart includes only those channels granted UK licences.
The declining numbers of licence awards were reflected in all the major channel categories
in 2008. Eight Entertainment channels were licensed in 2008, down by two-thirds in a year;
Multicultural channels, another fast-growing category in 2007, saw a drop from 34 to eight
awards. High-definition television channels, which have experienced significant growth in
recent years, accounted for two of the 42 licences, down from five out of 117 in 2007. No UK
Sports channels were licensed in 2008, compared to nine the previous year, while one Adult
channel licence was granted, a reduction on the five issued in 2007.
80

2.2 The television industry
2.2.1 Introduction
In this section we analyse the financial dynamics of the UK television industry, breaking
down revenue by the different sources in the market and highlighting key trends. We also
examine broadcasters’ hours of output, spend on programming and compliance with quotas.
Key points in this section include:
 The UK television industry recorded revenues of £11.2bn in 2008, an increase
of £145m (1.3%) on 2007. A declining advertising market, down 3% to £3.47bn, was
offset by increasing subscription revenues from pay-TV platforms, which grew by
5.7% to £4.32bn (page 82).
 Broadcasters’ spend on programming passed £5bn for the first time. Spend on
the five main PSB channels increased by £59m year on year to reach £2.8bn.
Investment in programming for Sports and Film channels (the majority of which is the
cost of acquiring rights), increased by £33m year on year to £1.2bn (page 88).
 The five main PSB channels broadcast 33,165 hours of first-run originated
programming in 2008, down by 3% on 2007 and by 5.6% (1,845 hours) since
2003. The five PSB channels also invested less in first-run originations. In 2008
prices, they spent £2,620m in 2008, compared to £2,697m in 2007 – a 2.9%
reduction (page 89).
 The independent production sector grew at a much slower rate in 2008,
generating revenue of £2.2bn, an increase of 1% year on year. TV income
contributed £1.9bn of the total (88%), of which primary TV rights continued to be the
main revenue source at £1.4bn (page 97).
 Television channels broadcast nearly 2.5 million hours of programming in 2008
of which 5% were first-run originations. Of the 42,792 hours broadcast by the five
main network PSB channels in 2008, nearly half (49%) were first-run originations
(page 85).
 Most of the obligations placed on PSBs, in terms of compliance with
programme quotas, were met in 2008. In some areas, such as quotas for original
productions and independent programmes, targets were comfortably exceeded,
although ITV1 narrowly missed the quota for the value of regional production outside
London in 2008 (page 102).
2.2.2 Television industry revenue
The UK television industry generated revenue of £11.2bn in 2008
The UK television industry generated £11.2bn of revenue in 2008, an increase of £145m
(1.3%) on 2007. The increase masked a trend of falling television advertising revenue, which
declined 3% year on year to reach £3.47bn, offset by rising subscriber revenue.
Subscription revenues across pay-TV platforms increased by 5.7% in 2008 to reach
£4.32bn, accounting for 38.5% of industry revenues, up from 36.9% in 2007. Net
advertising’s share of total television revenues fell from 32.4% to 31.0% over the same
81

period. Rising subscriber revenue and reductions in the value of television advertising sales
in 2008 led to a widening gap between the two to £849m, compared to £499m in 2007.
Platform operators continued to grow revenues, as the pay-TV subscriber base increased
and greater numbers of customers took multiple television products such as video-on-
demand, multiroom and high-definition television.
Ofcom estimates that the BBC licence-fee revenue spent on television decreased by 1.2%
year on year to just below £2.6bn in 2008. It accounted for just less than a quarter of all
television industry revenue (23.1%).
Broadcasters managed to reverse the decline in ‘other’ revenue seen in 2007. Other
revenue - from a variety of sources such as shopping, pay-per-view, sponsorship,
programme sales and S4C’s grant from the DCMS - increased by £36m (4.2%) year on year.
Other revenue stood at £816m, accounting for 7.3% of the industry total in 2008, up
marginally from 7.1% in 2007.
Figure 2.13 Total TV industry revenue, by source
Growth
Revenue (£m) 1 year 5yr CAGR
£9,177 £9,955 £10,471 £10,619 £11,052 £11,197 1.3% 4.1%
5,000
4,320
4,075
3,795 6.0% 6.9% Subscriptions
4,000 3,699
3,410
3,242
3,615 3,576
3,462 3,471 -2.9% 1.4% Net advertising
3,000 3,099 3,481 revenue
2,525 2,622 2,591
2,433 -1.2% 2.4% Licence fee
2,000 2,302 2,319
allocated to TV
4.6% 8.9% Other
1,000
746 724 837 780 816
534
0
2003 2004 2005 2006 2007 2008
Source: Ofcom/broadcasters
Note: Figures expressed in nominal terms and replace previous Ofcom revenue data for TV industry,
owning to restatements and improvements in methodologies. ‘Subscriptions’ includes Ofcom’s
estimates of BSkyB, Virgin Media, BT Vision, Setanta Sports and Top Up TV television subscriber
revenue in the UK (Republic of Ireland revenue is excluded). It also excludes revenue generated by
broadband and telephony. ‘Other’ includes TV shopping, sponsorship, interactive (including premium-
rate telephony services), programme sales and S4C’s grant from the DCMS. The licence fee figure for
2006 has been re-stated owing to a change in the way the BBC reported its figures, which allocates a
greater proportion of overheads to specific services. Totals may not equal the sum of the components
due to rounding.
Pay TV operators generated revenues of £4.3bn in 2008, an increase of 6% on 2007.
Commercial analogue channels, which include the commercial PSBs, generated revenue of
£2.4bn in 2008, a 7% fall from 2007. Revenue for the commercial multichannel broadcasters
increased 6% year on year to nearly £1.8bn, driven in large part by increased advertising
revenues from the PSB portfolio channels. The revenue for publicly-funded channels, which
includes the part of the BBC licence fee that is dedicated to television and S4C’s grant from
the DCMS, fell 0.9% year on year to £2.7bn.
82

Figure 2.14 Total TV industry revenue, by sector
Growth
Revenue (£m)
£9,177 £9,995 £10,471 £10,619 £11, 052 £11, 197 1.3% 4.1%
12,000
6.0% 6.9% Platform operators
10,000
3,795 4,075 4,320
3,410 3,699
8,000 3,099 6.3% 11.8% Commercial
multichannels
6,000 1,287 1,300 1,477 1,650 1,754
1,005
4,000 2,906 2,725 2,603 -7.0% -2.0% Commercial analogue
2,677 2,844 2,420
channels
2,000
2,396 2,414 2,566 2,622 2,725 2,702 -0.8% 2.4% Publicly-funded
0 channels
2003 2004 2005 2006 2007 2008
Source: Ofcom/broadcasters
Note: Figures expressed in nominal terms. Commercial analogue channels comprise ITV1, Channel
4, Five and S4C. Commercial multichannels comprise all commercial channels other than ITV1,
Channel 4 and Five. Publicly-funded channels comprise BBC One, BBC Two, the BBC’s portfolio of
digital-only television channels and S4C. S4C is listed under publicly-funded and commercial
analogue channels because it has a mixed advertising and public funding model. The publicly-funded
channels figures for 2006 and 2007 have been restated due to a change in the way the BBC reported
on the deployment of licence fee income. Totals may not equal the sum of the components due to
rounding.
2.2.3 TV advertising revenues
The television sector experienced a fall in net advertising revenues (NAR) in 2008, as rising
commercial multichannel advertising failed to offset reductions in NAR across the four
commercial PSBs: ITV1, GMTV1, Channel 4/S4C and Five.
NAR totalled £3.47bn in 2008, down by 3% in twelve months. The four commercial PSB
channels saw advertising revenues fall by 8.3% to £2.2bn. Commercial multichannel
broadcasters generated net advertising revenues of £1.3bn in 2008, up from £1.2bn in 2007.
The majority of this growth was driven by the portfolio channels of the PSBs, which
generated £457m of NAR in 2008, up 16.9% or £77m on 2007. This offset losses on the
parent services to some extent, taking their total NAR to £2.66bn in 2008, down nearly 4%
on £2.77bn in 2007.
The UK’s other multichannel broadcasters saw advertising revenue rise slightly in 2008, by
£2m to £810m. This represents the smallest growth rate among multichannel broadcasters
(excluding PSB portfolio channels) since 2005.
83

Figure 2.15 Net advertising revenue, by sector
Growth
1 year 5yr CAGR
£3,242m £3,481m £3,615m £3,462m £3,576m £3,471m -2.9% 1.4%
100%
£676m £695m £695m 0.2% 3.7% Commercial
£772m £808m £810m
multichannels
80% £99m £168m
£270m £380m £457m Commercial PSB
20.3% n/a
£m
60% portfolio channels
-7.7% -3.0% Commercial
40% £2566m £2686m £2686m analogue channels
£2427m £2387m £2204m
20%
0%
2003 2004 2005 2006 2007 2008
Source: Ofcom/broadcasters.
Note: Figures are nominal. Commercial PSB portfolio channels include ITV2, 3, 4, Men & Motors,
CiTV, E4, More 4, Film 4, 4 Music, Five US and Fiver (plus their ‘+1’ channels). Sponsorship
revenues are not included. Totals may not equal the sum of the components due to rounding.
Figure 2.16 shows that three of the commercial analogue channels (ITV1, GMTV1, Channel
4 and Five) experienced declining advertising revenue in 2008. ITV1 and Channel 4 saw the
biggest falls, down 8.9% and 9.1% respectively, while Five’s fell 5.5%. GMTV1, by contrast,
saw an increase of 1.8%. Their share of total television advertising fell by four percentage
points to 63.3% in 2008. The multichannel sector’s share rose by 4.1 percentage points year
on year to 36%, driven by gains at the PSB portfolio channels, which attracted a 13% share
of the UK television advertising market in 2008, up from 11% in 2007.
Figure 2.16 TV advertising market share, 2008
Total NAR = £2,204m (£2,387m in 2007)
1.6% 1.5%
100%
7.8% 8.1%
GMTV1
80% 17.9% 19.2%
Five
60%
36.7% 32.6%
Channel 4/S4C
40%
Other
20% 36.0% 38.5%
ITV1
0%
2008 2007
Source: Ofcom/broadcasters.
Note: Channel 4 includes S4C
2.2.4 TV shopping accounts for nearly a third of non-broadcast revenue
Figure 2.17 gives a breakdown of total non-broadcast and other revenue generated by
television channels, including PSBs and multichannel broadcasters. The operating margin
on TV shopping accounted for a third of non-broadcast revenue in 2008 (£240m). The
second largest component of non-broadcast revenue was sponsorship, which reached
84

£180m (22%). Other revenue accounted for £137m, while S4C’s grant from the DCMS
accounted for a further £98m.
Figure 2.17 Breakdown of non-broadcast and other revenue, 2008
Total non-broadcast revenue = £816m
Other revenue
£137m
Programme sales TV shopping
£24m £240m
Other funding (inc.
S4C) £107m
Interactive
services £70m
Sponsorship
£180m Pay-per-view
£57m
Source: Ofcom/broadcasters.
Note: TV shopping represents aggregate operating margin of products sold via television. Totals may
not equal the sum of the components due to rounding.
2.2.5 Sports and Entertainment channels generate most multichannel revenue
Figure 2.18 details how much revenue television services in a selection of multichannel key
genres generated in 2008. Sports accounted for nearly half (48%) of the total within the
seven genres included in this analysis. Entertainment was the second largest single source
of revenue, with £933m (33%). (This analysis excludes Multicultural, Adult, Interactive,
Gaming and Shopping channels which offer comparatively little in the way of traditional
programming).
Total revenue from the seven genres was £3,025m in 2008, up from £2,905m in 2007.
However, these figures are not directly comparable, because a greater number of channels
had made their submissions to Ofcom at the time of writing in 2008 than in 2007.
85

Figure 2.18 Multichannel broadcasters’ revenue in key channel genres, 2008
Total revenue = £3,025m across the seven genres included
Leisure Music
Factual £71m £98m
£130m
Children's
£150m Entertainment
News £993m
£120m
Sport
£1,462
Source: Ofcom/Broadcasters
Note: The figures in this chart include all sources of revenue accruing to multichannels. This includes
those set out in Figure 2.14 plus wholesale subscriber payments from platform operators.
2.2.6 TV industry output
Nearly 2.5 million hours of television broadcast in 2008
UK television channels broadcast 2,483,495 hours of programming in 2008. Of these,
1,448,574 hours were broadcast by the PSB channels and key multichannel genres
(Entertainment, Sport, Film, Factual, Children’s, News, Leisure and Music). Of this total, 9%
(132,618 hours) were first-run originations; by broadcaster and genre, although the
proportion of first-run originated hours varied substantially.
Ninety-three per cent of the 12,902 hours broadcast by PSBs in the nations and regions last
year were originations; of the 42,792 hours of network programming broadcast by the five
main PSB channels, 49% were first-run originations. Originated hours among the BBC’s
digital channels constituted 37% of their 35,583 total hours.
The key multichannel genres - Entertainment, Sport, Films, Factual, Children’s, News,
Leisure and Music – accounted for 1,357,297 (94%) of total broadcast hours from
mainstream channels in 2008. A large proportion of these hours were either acquired or
repeats – these channels broadcast the lowest proportion of first-run originations (6%).
A further 1,126,198 hours were broadcast by multichannel services in other genres, such as
Shopping, Multicultural, Adult, Interactive and Gaming. These genres are excluded from
Figure 2.19 to ease comparability.
86

Figure 2.19 Total and first-run originated hours of output among PSBs and key
multichannel genres, all day, 2008
Proportion of hours by operator (%)
Total hours = 1,448,574 First run = 132,618
100%
Other digital
80% channels
86,002
60% Programmes for
1,357,297 Nations & Regions
40%
BBC digital
12,032
channels
20% 13,451
12,902 21,133
35,583 Main five channels
0% 42,792 (network)
Total hours of output Total hours of first-run originations
Source: Ofcom/broadcasters
Note: The first-run figures include in-house productions and external commissions, not first-run
acquisitions. GMTV is included within the figures for the five main channels. ‘Other digital channels’
includes Entertainment, Sport, Films, Factual, Children’s, News, Leisure and Music genres.
2.2.7 UK broadcasters’ content spend passed £5bn for the first time in 2008
In 2008, broadcasters’ spend on television output passed the £5bn mark for the first time,
fuelled mostly by increased investment in BBC One and Sport and Film channels. Figure
2.20 illustrates that total spend on programmes in 2008 reached just over £5.0bn, up 2% on
2007.
Investment in programming for Sports and Film channels (the majority of which is the cost of
acquiring rights) increased by £43m year on year to £1.2bn.
Of the five main PSB channels, BBC One, ITV1 (including GMTV1), and Five increased
investment on their schedules in 2008; BBC Two and Channel 4 spent less. The BBC also
reduced spending on its portfolio of digital channels, by £3m or 1.3%, in 2008.
The BBC’s spend on television output of £1.5bn accounted for 29% of the total investment
across all channels in 2008, broadly in line with the comparable figures for 2006 and 2007.
Spend on the five main PSB channels increased by £59m year on year, to reach £2.8bn.
The commercial PSBs spent £220m on programming for their portfolio channels, up £1m
from 2007. Spending on programmes for the rest of the commercial multichannels
decreased again in 2008, down by 4% to £599m.
87

Figure 2.20 Spend on programmes
1 yr growth
£4,907m £4,972m £5,038m 2.7%
5,500
5,000 £205m
£191m £191m 2.6% Five
£184m £219m £220m
4,500 £225m £224m £221m
£351m £378m £361m -0.5% Other PSB portfolio channels
4,000
£510m £529m £509m
-1.3% BBC digital channels
m3,500
£ £644m £623m £599m
-4.5% BBC Two
3,000
2,500 £856m -3.8% Channel 4
£868m £840m
2,000
-3.9% Other digital channels
£802m £868m
1,500 £841m
1.9% ITV1 + GMTV1
1,000
£1093m £1166m £1199m 8.2% BBC One
500
0 2.8% Film/Sport channels
2006 2007 2008
Source: Ofcom/broadcasters.
Note: Figures expressed in nominal terms. Figures do not include spend on nations and regions
output. BBC digital channels includes BBC Three, BBC Four, BBC News Channel, BBC Parliament,
CBBC, CBeebies, and BBC HD. ‘Digital-only commercial channels’ include all genres (excluding
sports and Films). Programme spend comprises in-house commissions, commissioned produced by
independents, spend on acquired programmes, spend on rights and repeats.
2.2.8 Television output on the five main PSB channels
PSBs produced fewer hours of first-run original output in 2008
The five main PSB channels broadcast 33,165 hours of first-run originated programming in
2008, down by 3% on 2007 and by 5.6% (1845 hours) since 2003.
The principal driver of this reduction was a 7% fall in first-run originations in non-peak
network hours, to 15,536 hours, perhaps reflecting broadcasters’ renewed focus on putting
new hours of content into those parts of the schedule where audiences are largest. First-run
originations in peak-time network hours (18:00 – 22:30) and regional hours increased by 54
hours and 80 hours respectively. Ofcom’s annual report on public service broadcasting,
published in July 2009, provides further detail on this.20
20
http://www.ofcom.org.uk/tv/psb_review/annrep/psb09/psbrpt.pdf
88

Figure 2.21 Hours of first-run originated output on the five main PSB channels
Spend on programmes
Growth
1 year 5yr CAGR
Transmitted hours
35,022 33,649 32,921 33,473 34,141 33,165 -2.9% -1.1%
40,000
30,000 0.7% -1.5% Regional
13,006 13,425 11,919 11,952
12,169 12,032
20,000 -6.7% -1.0% Non-peak
network
16,321 15,733 15,142 16,021 16,646 15,536
1.0% -0.3% Peak-time
10,000
network
5,695 5,491 5,610 5,533 5,543 5,597
0
2003 2004 2005 2006 2007 2008
Source: Ofcom/Broadcasters
While first-run hours fell out of peak time in 2008, spend in daytime rose by 3.6% in real
terms. But as Figure 2.22 illustrates, overall, the five PSB channels invested less in first-run
originations. In 2008 prices, they spent £2,620m in 2008, compared to £2,697m in 2007 – a
2.9% reduction.
The fall was particularly marked in regional programming, where spend on first-run
originations dropped by 10.8% to £306m between 2007 and 2008. Spend on late-night and
peak-time originations dropped by 3.7% to £247m and by 3.6% to £1,428m respectively.
Peak time continued to attract the majority of spend, attracting 55% of investment,
comparable to that seen in 2007.
Phase One of our second review of public service broadcasting, published in April 2008,
found that the five main PSB channels and the BBC’s digital channels accounted for 90%
(£2.5bn) of investment in networked UK originated output in 2007. The non-PSB channels
accounted for 10% (£268m) when excluding Film and Sports channels as the majority of
expenditure for these channels is on rights.21
21
http://www.ofcom.org.uk/consult/condocs/psb2_1/
89

Figure 2.22 Spend on first-run originated output on the five main networks
Growth
1 year 5yr CAGR
3,500 £3,101m £3,064m £2,952m £2,848m £2,697m £2,620m -2.9% -3.3%
3,000
£423m £410m
£383m £350m
2,500 £424m £339m £306m -9.7% -6.3% Regional
£406m £374m £310m
£264m £247m
2,000 Late night
m £710m £731m £687m £668m -6.4% -10.2%
£ £616m £639m
1,500 Day time
d -3.7% -2.1%
1,000
£1,545m -3.4% -1.6% Peak time
£1,516m £1,508m £1,520m £1,479m £1,428m
500
0
2003 2004 2005 2006 2007 2008
Source: Ofcom/broadcasters.
Note: Figures are expressed in 2008 prices. Figures include GMTV.
Despite falling investment and increased hours of first-run originations, the cost per hour
(CPH) of original programming on the five main channels has not fallen for all parts of the
schedule, since the trends for hours and spend have diverged. Figure 2.23 shows that the
CPH for day-time and late-night output increased year on year between 2007 and 2008, up
by £4k (6.5%) and by £3k (7.1%) respectively, to £66k and £42k.
CPH for regional programming fell slightly in 2008, by £3k (or 10.7%) to £25k per hour, while
first-run original peak-time programming declined in CPH, down by £12k (4.7%) to £255k.
On average, peak-time originations were ten times more expensive to produce than regional
programming; the ratio in 2003 was about eight times.
Figure 2.23 Cost per hour of first-run originated content on the five main channels
Cost per hour (£’000)
300
£271 £276 £269 £275 £267
£255 Peak-time
200
Day-time
Late night
100 £83 £79 £73 £68 £62 £66
£69 £68 £39 £42 Regional
£63 £50
£31 £31 £29
0 £33 £28 £25
2003 2004 2005 2006 2007 2008
Source: Ofcom/Broadcasters.
Note: Figures are expressed in 2008 prices. Figures include GMTV.
In 2008, the five main PSB channels and the BBC’s digital channels broadcast a weekly
average of 176 hours of first-run originations in peak time (18:00 to 22:30), the highest
90

number since 2005. Across the entire day (24 hours), total weekly first-run originations were
661 hours in 2008, down from 673 hours in 2007.
Figure 2.24 shows that real CPH for first-run originated programmes on the PSB channels
and on the BBC’s digital channels continued to fall in real terms in peak time and across the
day in 2008.
Most of the five PSB channels reduced the number of first-run originated hours across their
all-day schedules. The exception was BBC Two, where hours increased from 68 to 70. The
most significant reductions were seen on ITV1 and GMTV1, where first-run originations
dropped by 13.4% (or 16 hours per week) to 103 hours per week in 2008.
On the BBC’s digital channels – BBC Three, BBC Four, BBC News Channel, BBC
Parliament, CBBC, CBeebies and BBC HD – hours of first-run originations rose by 3.9% (or
10 hours) year on year.
In peak time, hours on two of the five main PSB channels – ITV1 and Five – rose by 4% and
14% respectively. By contrast, hours in peak on BBC One, BBC Two and Channel 4 each
fell by one hour a week between 2007 and 2008. The BBC’s digital channels increased their
total peak-time original hours by 9% in 2008 to reach 70 hours per week.
Figure 2.24 First-run originated output by the PSBs, all day and peak time
All day real cost/hour (£k, 2008 prices) Peak cost/hour (£k, 2008 prices)
81.6 81.9 77.2 73.5 72.7 184.6 174.1 186.1 178.3 164.2
800 200
600 150
72 70 BBC digital
Hours per week
247 BBC digital 65 62 64
Hours per week
274 269 261 257
channels channels
Five Five
400 71 100 13 14 13 12 14 Channel 4
69 65 74 69 Channel 4
63 23 21 22 22 21
69 66 65 61 ITV1+GMTV1
ITV1+GMTV1
119 25 25 25 25 26
100 95 105 103 BBC Two
200 BBC Two 50
64 68 70 68 70 19 21 21 21 20
BBC One BBC One
104 103 99 105 101 25 26 25 26 25
0 0
2004 2005 2006 2007 2008 2004 2005 2006 2007 2008
Source: Ofcom/broadcasters.
Note: Figures are expressed in 2008 prices.
PSB hours of output, by genre
Figure 2.25 sets out the composition of peak-time schedules of all hours, not just first-run
originations, of the five main PSB channels by genre. Drama and General Factual, two of the
largest components of peak-time schedules, experienced hours reductions during 2008,
falling by 6% to 1,833 hours and by 0.2% to 2,365 hours respectively.
Hours of peak-time Drama fell by 119 hours in 2008 to 1,833 hours, down 6.5% year on year
and down 13% since 2003. Peak-time News output in 2008 reached its highest level since
2004, with 827 hours broadcast. This was driven by the reinstatement of ITV1’s News at Ten
flagship bulletin in January 2008 for four days per week, brought forward from 22:30. Peak-
91

time coverage of Current Affairs also increased year on year by nine hours to 312 hours in
2008.
Coverage of Sports in peak time increased in 2008, largely due to the summer’s European
football championships (broadcast by the BBC and ITV) and the Beijing Olympics (BBC).
There were 457 hours of Sport broadcast in peak time in 2008 on the five main PSB
channels. This represented an increase of 20% on 2007 but was still 11% down on 2006,
when the last football World Cup tournament was held, and in which England participated.
None of the home nations’ football teams qualified for the 2008 European Championships.
The hours of films broadcast in peak time increased for the second consecutive year,
reaching 630 hours in 2008, up by 2% on 2007 and 8% on 2006. Hours of light
Entertainment/Modern Music, the third-largest category of content in peak-time schedules,
rose slightly in 2008 (by five hours) to 1,282.
Figure 2.25 Genre mix on five main PSB channels in peak time, by hours
Proportion of total hours
8,178 7,933 7,936 7,929 7,923 7,978
100% 362 401 341 366
507 457
1,330 1,395 1,268 1,277 1,282 Sport
1,362
80% Light Entertainment &
937 688 618 630
757 579 Modern Music
Films
60% 1,935 1,952 1,833 Drama
2,070 1,863 1,954
Education
40% General Factual
2,105 2,253 2,149 2,370 2,365 Religious
2,015
Children's
20%
284 296 318 318 303 312 Arts & Classical Music
917 835 785 788 792 827 Current Affairs
0%
News
2003 2004 2005 2006 2007 2008
Source: Ofcom/broadcasters.
Note: Figures do not include spend on nations and regions output.
Figure 2.26 illustrates the genre mix for the five main PSB channels in their daytime
schedules (06:00 – 18:00). Hours dedicated to General Factual programming continued to
increase in 2008, up by 6% on 2007 and an increase of 19% on 2006.
General Factual, which includes programmes around property and leisure, for example, is
the largest single component of daytime schedules across the five channels, a trend that
emerged in 2007. Children’s, the largest part of daytime schedules prior to 2007, fell by 5%
to 4,074 hours. Light Entertainment/Modern Music increased its presence in daytime, up by
3% year on year.
92

Figure 2.26 Genre mix on five main PSB channels in daytime
Proportions of total hours
100% Sport
1,832 1,958 1,837 1,753 1,687 1,796
2,665 2,713 2,491 2,370 2,435 Light Entertainment &
2,810
80% Modern Music
1,811 1,716 1,593 Films
2,069 2,080 2,464
2,759 2,817 Drama
2,031 2,056 1,797 2,654
60% 694 738 821 816 810 733 Education
3,165 3,150 General Factual
3,512 3,744 4,368 4,637
40% Religious
5,055 4,906 4,575 Children's
4,333 4,275 4,074
20% Arts & Classical Music
830 379 384 460 451 459
3,299 3,191 3,041 3,068 Current Affairs
2,939 2,901
0% News
2003 2004 2005 2006 2007 2008
Source: Ofcom/broadcasters.
Note: Includes five main channels plus GMTV1. Figures do not include spend on nations and regions
output Genre mixes cover all hours and not only first-run originations.
The analysis of the BBC’s portfolio of digital channels reveals rising output in 2008, due to
the inclusion of the BBC HD channel, which launched in December 2007 (Figure 2.27). The
channel portfolio benefitted from an extra £38m investment in 2008 (in 2008 prices).
The largest single component of the portfolio by hours continued to be the News genre,
largely due to BBC News Channel. In 2008, 47% (16,593 hours) of the BBC digital channels’
hours were dedicated to News programming, which is down from 55% (17,890 hours) in
2004.
Hours of Light Entertainment/Modern Music rose by 16% year on year to 2,082, while
General Factual, which comprised 2,655 hours of the BBC’s digital channels’ output in 2008,
was up 12% on 2007. In 2008, ‘Other’ genres, which include genres outside of the main six
included, and miscellaneous programming, accounted for a growing number of hours in
2008, up by 30% to reach 2,841 hours. Drama, which is included in the ‘other’ section, saw
its hours increase from 666 in 2007 to 1,357 hours in 2008.
93

Figure 2.27 The BBC’s digital channels genre mix, by hours (all-day)
Output (hrs) 31,421 32,792 32,839 32,986 33,353 35,583
Investment (£m) £245m £254m £282m £235m £224m £262m
100% 1,751 1,738 1,690 1,993
Other
2,374 2,841
1,306 1,143 1,260 1,386 1,743
1,340 1,478 1,360 1,077 1,048 2,082
1,615 2,297 2,482 1,282 Light Entertainment &
80% 2,503 2,335
2,655 Modern Music
Arts & Classical Music
7,983 8,021 8,033 7,957 8,326
8,530
60% 225 340 General Factual
1,211 1,168
1,336
40% 8,837 Children's
17,890 17,674 16,661 16,740 Current Affairs
16,593
20%
8,589 News
0%
2003 2004 2005 2006 2007 2008
Source: Ofcom/broadcasters.
Note: BBC digital channels include BBC Three, BBC Four, BBC News Channel, BBC Parliament,
CBBC, CBeebies and, from 2008 only, BBC HD. Investment figures are in 2008 prices. Other
includes: Education, Drama, Film, Religion and Sport. The BBC allocated Parliamentary coverage to
the Current Affairs genre in the data for 1998 to 2003. From 2004, it has been allocated to either
News or Current Affairs.
2.2.9 Multichannel output, by genre
Entertainment and Music accounted for one in every two broadcast hours among key
genre in 2008
Figure 2.28 gives a breakdown of broadcast hours in eight key multichannel genres, split by
type of channel rather than genre. Entertainment and Music accounted for 50% of all total
broadcast hours in 2008, at 354,149 hours and 253,402 hours respectively. Sports and Film
channels represented just over a fifth (21%) of broadcast hours, with Factual, Children’s,
News and Leisure accounting for a remaining one-third of hours (33%).
Total broadcast hours across the eight genres was 1,774,325 in 2008, 75% higher than the
1,012,297 reported in 2007. A number of factors have contributed to this:
 a greater number of channels have been included in the 2008 analysis;
 at the time of writing, a greater volume of returns had been received from channel
operators; and
 Film channels, which broadcast 152,492 hours in 2008, have been added to the data
for the first time.
94

Figure 2.28 Total multichannel hours and first-run originations/acquisitions, 2008
Proportion of hours by channel genre (%)
Total = 1,774,325 Total = 171,971 (acquisitions = 95,969)
(2007 = 1,357,297) (2007 = 111,783)
100% Films
152,492 19,717
14,486 Music
80% 253,402 3,672
74,360 Leisure
51,815
60% 97,794
News
140,025
Sport
40% 183,083 47,466
101,992 Factual
4,014
20% 14,439 Children's
354,149
26,362
0% Entertainment
Total hours First-run hours and acquisitions
Source: Ofcom/broadcasters
Note: Number of total hours have increased year on year due to new channels and a greater number
included in analysis. Broadcast hours exclude Sky Box Office and barker channels, which promote TV
content. First-run hours include first-run in-house and commissioned content.
Focusing on first-run originations and acquisitions, Entertainment, News and Sports
accounted for two-thirds of broadcast hours (69%) among the eight key genres in 2008. The
majority of channel schedules for Sports and News are studio broadcasts or live coverage of
events. Music constituted nearly a quarter of total hours, while just 8% (14,486 hours) were
first-run originations and acquisitions, due to heavy reliance on often-repeated music videos.
Nearly nine in ten multichannel hours were repeats in 2008
Programme repeats account for the vast majority of multichannel hours across key genres,
making up 87% (1,175,326 hours) of total output across the eight key genres in 2008 (Figure
2.29).
First-run commissioned programmes, made by external producers, accounted for 17,422
hours, or 1% of the broadcast hours in the Entertainment, Sport, Films, Factual, Children’s,
News, Leisure and Music genres. First-run acquisitions accounted for 7% (76,403 hours) of
the total across the key genres, ahead of in-house productions which accounted for 5%
(68,429 hours).
95

Figure 2.29 Total multichannel hours by source across key genres, all-day, 2008
Total hours across key genre in 2008 = 1,357,297
First-run acquisition
7% First-run in-house
5%
First-run
commission
1%
Repeats
87%
Source: Ofcom/broadcasters.
Note: Includes Entertainment, Sport, Films, Factual, Children’s, News, Leisure and Music
Figure 2.30 shows that commercial multichannel broadcasters invested nearly £2bn in
programming during 2008. Sports accounted for 50% of the total, most of which was spent
on broadcast rights. A total of £468m was spent on Entertainment channels; Film channels
accounted for £230m while News channels spent £139m.
Figure 2.30 Content spend by commercial multichannels in key genres, 2008
£m £1,955m
2,100 £24m
£34m
1,950 £44m
1,800 £47m
£139m Music
1,650
1,500 £230m Leisure
1,350 Children's
1,200 £468m
Factual
1,050
900 News
750 Films
600
£969m Entertainment
450
300 Sport
150
0
2008
Source: Ofcom/Broadcasters.
Note: Excludes BBC digital channels and PPV channels
96

2.2.10 The TV production sector
PSB spend on independently-produced commissions maintained in 2008, but in-
house spend down
Combined spend by the BBC, ITV1, Channel 4 and Five on first-run commissions has
declined by 8% over the last two years – down from £2.64bn in 2006 to £2.44bn in 2008.
This trend was also apparent in the commissioning spend of individual channels – all fell in
real terms in 2008 compared with 2006 – the largest reductions being on ITV1 (10%) and
Five (18%).However, comparing the data from 2007, there were small increases on ITV and
Five. Within the combined total, spend on in-house productions fell by 15% in the two years
to 2008, but independent commissions proved more resilient, rising by 2% to £1.19bn in
2008. Figure 2.31 shows that all channels, apart from Channel 4 and Five, reported
increased spend on independent commissions over the period, although it should be noted
that Channel 4 and Five do not produce programmes themselves; all their commissions are
externally sourced.
Figure 2.31 Spend on first-run commissions by PSBs
Investment (£m)
800
External commissions
£178m
£296m
£194m
£226m
Internal commissions
£323m
£302m
600
400
£238m £113m
£606m
£106m
£558m
£110m
£526m
£532m
£99m
£64m
£434m
£82m
£417m
£410m
£391m
£389m
200
£229m
£198m
£116m
£96m
£107m
£91m
£71m
£69m
0
2006 2007 2008 2006 2007 2008 2006 2007 2008 2006 2007 2008 2006 2007 2008 2006 2007 2008
BBC1 BBC2 ITV1 BBC Channel 4 Five
multichannel
Source: Ofcom/broadcasters. Note: First-run network commissions including News and Sports rights.
BBC multichannels included in the chart: BBC Three, BBC Four, CBBC, CBeebies
Pact financial census 2009
Established in 1991, Pact (Producers’ Alliance for Cinema and Television) is the UK trade
association that represents the commercial interests of companies in independent television,
feature film, children's and animation, and new media production companies.
Pact has carried out a financial census of the UK television production sector since 2005,
and published the fourth edition of the census in 2009. Its purpose is to estimate the size
and performance of the independent production sector, using a representative sample of
companies. The 2009 census was carried out between March and April 2009, covering data
for the 2008 financial year, typically ending in December 2008. It surveyed Pact members,
including subsidiaries of group companies, and received responses from 76 companies,
representing 65% of total industry turnover. The figures given in this section are estimates,
based on the companies surveyed and adjusted accordingly, to provide approximations for
the total market.
97

Independent production sector revenue growth slows
Data from the Pact census indicate that the independent production sector continued to
grow, but at a much slower rate in 2008, to just 1% year on year. Pact estimated the size of
the sector at £2.16bn, with TV income contributing the lion’s share of £1.9bn (88%), but
growing more slowly (0.5%) than income from non-TV activities, such as corporate videos
and new media revenues, which totalled £256m (Figure 2.32). Within this figure, new media
revenues rose by 72% during 2008, ending the year with a total of £66m. Note that these
figures are based on estimates by Pact from their census data, and are not comparable with
data presented elsewhere in this report, which have been separately sourced on a different
basis from broadcasters’ audited accounts.
Figure 2.32 TV production sector revenue, by TV and non-TV activities
£m
2,500
£1,597m £1,952m £2,136m £2,160m
2,000 £242m £256m
£199m
1,500 £105m
Non-TV activities
1,000 £1,894m £1,904m
£1,753m Television
£1,492m
500
0
2004 2006 2007 2008
Source: Oliver & Ohlbaum analysis, Pact census
The sale of primary TV rights continues to be the main source of revenue for the
independent sector. Growth in UK primary commissions slowed to 1.1% in nominal terms to
a total of £1.4bn in 2008, with secondary and additional rights rising to £179m (Figure 2.33).
98

Figure 2.33 Independent producers’ sources of UK television revenue
£m
£1,362m
1,400 £1347m
£1191m 2005 Census
1,200 £1147m
2007 Census
2007/08 Census
1,000
2009 Census
800
600
400
£179m
200 £135m£146m
£103m
£16m £32m £43m £34m £46m £16m £21m £34m
0
Pre-Production Primary TV Rights Secondary TV and Other TV
Additional Rights
Source: Oliver & Ohlbaum analysis, Pact Census
The 2009 Pact census provides information on the distribution of independents across the
UK, based on the location of their offices. Two-thirds (67%) were based in London, with the
remainder from the nations and English regions. Figure 2.34 shows the companies’
geographic locations.
Figure 2.34 Location of independents’ bases
Northern Ireland,
Midlands, 3% 1%
Wales, 4%
North, 6%
Scotland, 5%
Outside M25
33%
South & West,
London
14% (Inside M25)
67%
Source: Oliver & Ohlbaum analysis, Pact Census
Independent commissions from public service broadcasters
Commissions from public service broadcasters underpin the independent sector. In terms of
hours broadcast in 2008, PSBs were more likely to commission in the Factual, Entertainment
and Sports genres. Factual programmes accounted for 23% of all PSB-commissioned,
independently-produced hours, with 21% in Entertainment and 18% in Sports. Factual
99

Entertainment accounted for 8%, while Hobbies and Lifestyle, Drama and Children’s each
accounted for 6% of the total independent hours shown by the PSB channels (Figure 2.35).
Figure 2.35 PSB independent commissions, by genre, 2008
Proportion of Independent hours
12% Entertainment
21%
Drama
Factual
18% Factual Entertainment
6%
Hobbies/Lifestyle
Children's
6%
23% Sport
6%
8% Other
Source: Ofcom/broadcasters
Drilling down to commissioning patterns by individual broadcasters, Figure 2.36 shows the
BBC’s commissioning from independents tends to be more evenly spread across a wider
range of programme genres, compared with other broadcasters, partly because of its
commissioning strategy and the way that the Window of Creative Competition (WOCC)
operates. This programme guarantees independent producers a minimum of 25% of all
commissions; in-house commissions are set at 50%; and the remaining 25% is available to
in-house or independent productions, or other broadcasters. In 2008 Factual represented
20% of the BBC’s independent programmes, with Sport at 17% and Entertainment at 16%.
The ITV network channel commissioned far fewer Entertainment programmes in 2008 – 32%
of all hours - compared with 55% in 2007 and 56% in 2006. Compensating for this, the
proportions of Factual commissions doubled in 12 months to 38% of all hours in 2008. This
was mainly due to changes in programme policy in the night-time schedule, with the demise
of dial-in quiz shows.
Entertainment played a growing role in Channel 4’s independent commissioning strategy
during 2008, and emerged as the largest commissioned genre by hours, accounting for 31%
of total independent hours in 2008. Factual programmes accounted for 17% and Factual
Entertainment 16%, while Drama reduced from 8% of Channel 4’s annual output to 6% in
2008. Five continued to commission more Sports than other genres, accounting for 36% of
total external commissions, albeit a lower percentage than in the previous two years (48%
and 45%).
100

Figure 2.36 PSBs’ external commissioning patterns, 2006 to 2008
Proportion of independent hours
100% 6% 6% 1% 6% 5% 6% 6%
6% 6% 7% 7% 4% 7%
4%
3% Other
18% 17% 4% 8% 20% 16%
20% 5% 5% 19%
80% 1% 1% Sport
4% 9% 36%
12% 9% 18% 19% 7% 48% 45%
18% Children's
12% 38% 16%
60% 9% 6% 7% 23% 21%
4%
2%
Hobbies/Lifestyle
11% 15% 3%
15% 3%
17% 3% Factual Entertainment
40% 11% 15% 14%
12% 16% 25%
6% 20%
19% 20% 8% 7% Factual
56% 55%
19%
20% 6% 5% Drama
32% 31% 28%
5% 25% 27% 23% 23%
15% 16% Entertainment
10%
0%
2006 2007 2008 2006 2007 2008 2006 2007 2008 2006 2007 2008
BBC ITV1 Channel 4 Five
Source: Ofcom/broadcasters
Figure 2.37 illustrates the proportion of network programmes commissioned from
independents, split by day part for each of the PSBs in 2008. For BBC One, BBC Two and
ITV1, the proportion of hours commissioned in the main part of the day (from 6am to
12.30am) was well above 25%. In the daytime schedule (from 06:00 to18:00), BBC One
commissioned 37% from independents and on BBC Two the figure was 48%, with ITV1
commissioning 34%. The peak-time (18:00 to 22:30) figure was also high for BBC Two, at
40%; BBC One delivered 26% and ITV1 30%. In the two hours immediately after peak time
(22:30 – 00:30) the proportions were 36% for BBC One, 25% for BBC Two and 27% for
ITV1. During the night-time hours (00:30 – 06:00) BBC Two and ITV1 commissioned a high
proportion, at 63% and 73% respectively, whereas BBC One commissioned a much lower
amount in percentage terms (4%). Channel 4 and Five, as already stated, commission most
of their originated output from independent producers, and this varies little across different
times of the day.
Figure 2.37 Independent network productions, by day part, 2008
Percentage of qualifying programmes by broadcaster by volume
BBC One BBC Two ITV1 Channel 4 Five
100%
75%
% % %
50% 7 % % % 9 0
% 9 % 0 5 1 9 0
3 7 9 9 9 % 1
8 8 % 3
3 7
25% % 6
% 8 % % %
7 4 4 % 0 % 6 % %
3 3 6 4 0 3 5 7
2 3 2 2 %
4
0%
Day-time (06:00-18:00) Peak-time (18:00-22:30) Post-peak (22:30-00:30) Night time (00:30-06:00)
Source: Ofcom/broadcasters
101

2.2.11 Compliance with regulatory quotas
Compliance with programme quotas
Television companies in the UK must comply with a range of obligations in the form of
programme quotas which set minimum levels of types of programmes that they must
broadcast. These obligations are laid down in the Communications Act 2003 and Ofcom has
a duty under the Act to monitor and enforce compliance with these quotas, some of which
apply to all broadcasters while others are specific to the PSBs. Ofcom has a direct
relationship with ITV1, GMTV1, Channel 4 and Five in terms of licensing and regulation,
while the BBC is regulated jointly by the BBC Trust and Ofcom. The Trust sets the majority
of the BBC’s targets and monitors compliance but must consult with Ofcom before changing
specific quotas, and must obtain Ofcom’s agreement in setting quotas for original
productions and out-of-London network productions.
European programming quotas
All television broadcasters licensed by Ofcom in the UK, including multichannel operators,
are subject to the obligations of the Audiovisual Media Services (AVMS) Directive22. This
requires that on each channel, a majority of programmes must be European (including the
UK) and at least 10% must be made by independents, of which at least 50% must have
been made within the past five years. The European Commission publishes a report on
compliance by all EU Member States every two years and the next report, covering 2007
and 2008, is due for publication towards the end of 2009.
TV access services
Quotas setting minimum levels for subtitling, signing and audio description applied to a total
of 84 channels in 2008. All PSBs are subject to access service quotas, as are other
broadcasters which achieve an average audience share throughout the year of 0.05% or
more. Obligations apply only to those channels that then pass an affordability threshold
based on their revenue. There is also an exception for those channels that face technical
difficulties which cannot be overcome, such as music and news programmes, where there is
insufficient space within the dialogue or sound-track to provide audio-description.
PSB quotas and the Communications Act 2003
The Act describes a range of programme obligations applying to public service channels,
and Ofcom is responsible for setting appropriate quotas to meet these obligations. Quotas
are fixed by Ofcom, taking into account each channel’s specific remit and other relevant
criteria. They are reviewed when necessary, and the levels may be revised up or down to
take account of changes in circumstances and the broadcasting environment. The quotas
summarised below apply to all PSB channels - the BBC’s terrestrial and digital channels,
ITV1, Channel 4, Five and S4C in Wales. They do not apply to multichannel operators or to
the commercial broadcasters’ digital services:
1. Original productions – programmes commissioned by broadcasters from in-house
production resources or independent producers.
2. Out-of-London productions – network programmes made in the UK outside the M25.
3. Independent productions – programmes made by companies which are independent of
broadcasters.
22
The AVMS Directive replaced the Television Without Frontiers (TVWF) Directive on 10 December
2007 and must be transposed into UK legislation by December 2009.
102

4. National and international News.
5. Current affairs.
6. Nations and regions programmes on ITV1/STV/UTV and the BBC – made and shown
in the nations and English regions.
2.2.12 Original productions
These quotas were comfortably met in 2008
Original productions are one of the key elements of public service broadcasting in the UK –
they are programmes that are made in the UK and commissioned from independent
producers, or a broadcaster’s own in-house production facilities. Quotas are intended to
maximise television production in the UK for the benefit of the broadcasting industry, by
maintaining investment in content, as well as contributing to the viewers’ experience. As
shown in Figure 2.38, quotas are set at different levels, depending on the broadcaster, and
apply to the full broadcasting day (usually 24 hours, except in the case of the BBC’s digital
channels). They apply separately to peak viewing times (18:00 to 22:30, except for BBC
Three and Four, where peak time runs from 19:00 to midnight).
In 2008 all channels exceeded their quotas – generally by wide margins. The majority of
programmes broadcast by PSB channels are original productions (the definition includes
repeats). In peak time the proportions achieved were generally higher than all day, at well
over 90% of programmes shown by BBC One, BBC Two, ITV1 and S4C.
Figure 2.38 Broadcasters’ performance against original production quotas
% Hours Quota Achieved 2007 Achieved 2008
100%
80%
60%
95%
100%
98%
99%
100%
97%
99%
98%
98%
97%
97%
96%
95%
95%
90%
90%
90%
90%
90%
81%
78%
85%
85%
86%
83%
81%
40%
80%
80%
80%
80%
79%
87%
79%
76%
75%
75%
82%
62%
84%
76%
70%
70%
70%
70%
70%
70%
70%
86%
65%
81%
64%
59%
63%
60%
56%
53%
49%
50%
42%
42%
20%
0%
BBC Parliament
Channel 4
Channel 4
CBBC
CBeebies
BBC Four
BBC Four
BBC One
BBC One
S4C
S4C
Five
Five
BBC Three
BBC Three
BBC Two
BBC News 24
BBC Two
ITV1
ITV1
All day Peak time
Source: Ofcom/broadcasters
Note: BBC figures include programmes made or commissioned for other BBC channels. BBC Three
and Four peak-time hours run from 19:00 to midnight.
103

2.2.13 Nations’ and regions’ production outside London
There were increases in the proportion of output, by value, made outside the M25
The four main PSBs must each broadcast minimum amounts of programmes that have been
produced outside the M25. These out-of-London production quotas have two elements –
one relating to the value, which applies to the amount of money spent on programmes
produced in the nations and regions, and the second relating to the volume of hours
broadcast. To qualify against the quota, programmes must comply with two of Ofcom’s three
Regional Production Definition criteria:
 having a substantive business and production base in the relevant nation or region;
 achieving a minimum level of expenditure in the nation or region; or
 achieving a minimum spend on production talent based in the nation or region.
The quota levels are different for each broadcaster, as shown in Figure 2.39, which
illustrates levels achieved by value and volume since 2006. The quotas for the BBC are set
at 30% by value and 25% by volume and apply to all its PSB channels. The BBC exceeded
these quotas in each of the past three years, achieving 34.9% by value and 33.5% by
volume in 2008. Looking ahead, the BBC has undertaken to increase the production and
commissioning of programmes from Scotland, Wales, Northern Ireland and the English
regions and has introduced a new commitment to produce 50% of output from outside
London. Within this, 17% must come collectively from the devolved nations. The BBC is
working towards full delivery of this requirement by 2016. In its Digital Britain report, the
Government noted the BBC’s proposals to relocate a number of long-running programme
strands to Scotland, and encouraged the BBC to improve on its targets for production in
Scotland, while adopting a similar approach for Wales and Northern Ireland. The report also
recognised the increasing pressure on the commercial PSBs’ production in the nations.
ITV regional licences currently have a higher quota level than the other PSB channels, at
50% for both value and volume, and each of the licensees (ITV Broadcasting Limited, STV,
UTV and Channel Television) have met their volume quota in each of the last three years. In
2008 the licensees narrowly missed the value target, achieving 49.9%, having also failed to
reach the required levels in 2006 and 2007 by much wider margins (delivering 46% and 44%
respectively). Ofcom imposed sanctions in respect of the 2006 and 2007 breaches and is in
discussion with ITV Network about the shortfall in 2008.
Before 2005, the quotas were set at 40% of expenditure and 33% of volume; they were
increased to 50% for both volume and spend in line with the conclusions reached in Ofcom’s
first PSB Review 23 of 2004/05. However, reflecting the need to align PSB requirements on
the regional ITV licensees with the diminishing value of holding the licences, the second
PSB Review24 decided that the quotas for the networked channel would be reduced to 35%,
on a par with the 2004 levels, with effect from 2009 onwards.
Ofcom’s second PSB Review3 also increased the spend and volume quotas for Channel 4
from 30% to 35%, with effect from 2010. As Figure 2.39 shows, Channel 4 has consistently
exceeded its quota levels and these increased quotas effectively ‘lock-in’ the current
delivery. In 2008 Channel 4 achieved 31.7% of its output by value and 40.7% by volume
against a quota of 30%.
23
Ofcom’s Review of Public Service Television Broadcasting (2004)
http://www.ofcom.org.uk/consult/condocs/psb/
24
Ofcom’s Second Public Service Broadcasting Review (2009)
104

Alongside the 2010 quota revision came the introduction of a new minimum devolved
nations quota of 3% of programmes that must be produced outside England. This is a more
stretching requirement than Channel 4’s own suggestion, that would have taken effect from
2012, and Ofcom has suggested that, subject to funding, this figure should grow
substantially in future years. It will consider whether to revise the figure upwards in the
future.
Five has a much lower quota commitment, at just 10%, but has exceeded its obligations by
large margins over recent years, reaching 34.5% by value and 17.4% by volume in 2008,
albeit based on much lower total origination expenditure and volume of hours than the other
broadcasters. The out-of-London quota does not apply to S4C.
Figure 2.39 Performance against the out-of-London production quotas
Percentage of network production produced outside London, by value and by volume
60%
50%
Quota
40%
Achieved 2006
30%
53.1
50%
50%
50.3
50.3
49.9
45.6
44.3
42.7
Achieved 2007
40.7
39.9
20%
37.2
35.3
34.9
34.5
33.5
33.1
32.6
32.4
31.9
31.7
30%
30%
30%
30.1
25%
22.4
21.3
10%
17.4
15.4
Achieved 2008
10%
10%
0%
All BBC ITV1 Channel 4 Five All BBC ITV1 Channel 4 Five
Value Volume
Source: Ofcom/broadcasters
Figure 2.40 shows the breakdown of spend on networked originated programme productions
by nation and English region. Of the total UK spend of £1,915m, the majority of programmes
were made in London, but this proportion has reduced a little from 63.3% in 2006 to 61.1%
in 2008. The total spend in the nations and regions reached £744m in 2008, and a greater
proportion of the total UK spend was produced out of the Midlands and East and the South
of England than in 2006. The figure for the Midlands and East rose from 5.9% to 6.7%, while
in the South spend increased from 8.9% to 10.2%.
Scotland’s proportional share of programme expenditure by the PSBs reduced from 2.6% in
2006 and 2007 to 2.5% in 2008, and the level of spend on first-run original productions in
Scotland also fell from just under £50m a year in 2006 and 2007 to £48.5m in 2008.
The share of total PSB expenditure in Wales increased from 1.3% in 2007 to 1.7% in 2008,
having fallen between 2006 and 2007. The value of commissions from Wales rose to £33m
in 2008 from £25m the previous year, compared with £29m in 2006.
The value of programmes produced in Northern Ireland increased by £2m in the last two
years, from £4m in 2006 to £6m in 2008. As a proportion of total programme budgets this
represented a small increase; from 0.2% to 0.3%.
Expenditure on programmes made in Scotland, Wales and Northern Ireland is expected to
grow in future years as the BBC’s commitment to producing more programmes in the
105

devolved nations starts to take effect and as Channel 4’s new 3% quota for the nations is
implemented.
Figure 2.40 Expenditure on out-of-London production
Percentage of production by value
London Midlands & East Northern England Southern England Scotland Wales Northern Ireland
%% %
2006 63.3% 5.9% 17.6% 8.9% . 5
6 . 2
.
2 1 0
2007 63.3% 5.7% 17.3% 9.6% % % %
3
6 3 .
. . 0
2 1
2008 17.4% 10.2% % % %
61.1% 6.7% 5 7 3
. . .
2 1 0
0% 20% 40% 60% 80% 100%
Source:Ofcom/broadcasters
Of the total of 16,100 hours of first-run UK-originated network programmes broadcast by the
four main PSBs in 2008, 5,700 hours were made in the nations and English regions,
equating to 35.4% of the total, up from 34% in 2006. In the Midlands and East, the
proportion fell in 2007, from 4.8% of total hours in 2006, to 4.4%, and increased to 8.9% in
2008 with reductions in the Northern and Southern macro-regions (Figure 2.41).
The number of network hours produced in Scotland, and its share of total volume, improved
marginally from 1.6% to 1.8% between 2006 and 2008; in Wales the proportion increased to
0.9% from 0.7% the previous year, returning to the level delivered in 2006. Northern
Ireland’s share fell to 0.1% in 2008 from 0.2% in the previous two years.
Figure 2.41 Volume of out-of-London production
Percentage of production by volume
London Midlands & East Northern England Southern England Scotland Wales Northern Ireland
%% %
2006 66.0% 4.8% 14.5% 12.0% 69 2
. . .
10 0
2007 64.3% 4.4% 17.9% 10.8% %7 %
% 2
.
7
. . 0
1 0
2008 64.6% 8.9% 12.7% 11.0% %% %1
8 9 .
. . 0
1 0
0% 20% 40% 60% 80% 100%
Source: Ofcom/broadcasters
Figure 2.42 shows that all the broadcasters, with the exception of Channel 4, raised the
proportion of their expenditure on UK original productions made in the nations and regions
between 2007 and 2008. The BBC’s out-of-London spend rose from 32.4% in 2006 to 34.9%
in 2008, while on ITV1/STV/UTV the increase was from 45.6% to 49.9% over the same
period. The rise at Five was more significant, albeit from a lower base, growing from 21.3%
to 34.5%. The proportion of Channel 4’s spend on programmes produced outside London
106

fell from 37.2% in 2006 to 31.7%, partly because the overall programme budget increased.
This was also driven by the fact that there were fewer commissions from independents
based in Southern England in 2008, mainly in Hobbies and Leisure programming.
The proportion of spend by the BBC on productions in the English regions outside the M25
increased marginally, from 25% of all originated expenditure in 2006 to 27% in 2008. Most of
the increase came in the South of England, which attracted 14.2% of all spend in 2008, up
from 10.5% in 2007. ITV1/STV/UTV’s spend in England rose from 44% in 2006 to 48%, with
the Midlands and East macro-region accounting for the largest rise (from 8.4% to 13.4%).
The proportion of spend devoted by Channel 4 to productions in England reduced from 35%
to 30%, driven mainly by falls in the South (as outlined above), while Five’s rose from 21% to
31% in the past three years, across all three macro-regions.
In Scotland, the BBC’s spend on original productions as a proportion of total expenditure
rose from 3.5% in 2006 to 3.7% in 2008; the value of spend in Scotland also increased. On
ITV1/STV/UTV, while the proportion of expenditure increased in 2007 to 1.9% (from 1.7% in
2006), it fell back to 1.4% in 2008, and on Channel 4 the equivalent figure fell from 2.6% in
2006 to 1.7% in 2007 and 1.4% in 2008. On Five there has been a gradual increase, both in
the proportion of spend on programme production in Scotland and on the value of that spend
over the past three years.
In Wales, most PSB broadcasters raised their share of programme spend as a proportion of
total budgets between 2006 and 2008, albeit by small margins. The BBC’s spend in Wales
reached 3.5% of the total in 2008, compared with 3.2% in 2006. In 2008 ITV1 delivered a
share of 0.1% (having funded no programme production at all in Wales during 2006 and
2007), while Channel 4 spent 0.01% of its commissioning funds in Wales, and Five allocated
0.5% of its budget.
The proportions of programme spend in Northern Ireland remained relatively low but
increased a little, year on year, on the BBC’s channels, rising from 0.3% of total expenditure
in 2006 to 0.6% in 2008.
Figure 2.42 Original networked production expenditure, by broadcaster
Percentage of production by value
0.3% 0.4% 0.6% 0.2% 0.1% 0.0% 0.0% 0.1% 0.0% 0.0% 0.0% 0.0%
3.2% 2.6% 3.5% 0.0% 0.0% 0.1% 0.2% 0.0% 0.5% 0.5%
0.1% 0.0%
3.5% 3.3% 3.7% 1.7% 1.9% 1.4% 2.6% 1.7% 1.4% 0.5% 2.3% 2.9%
100% 5.3% Northern
4.6% 3.7% 4.0%
12.7% 12.8%
10.8% 2.7% 12.1% 8.7% Ireland
10.5% 12.0%
14.2% 12.8% 3.0% 5.1%
80% Wales
9.7% 10.2% 30.8% 29.4% 31.0% 18.4%
9.1% 19.9% 18.5% 15.4% 17.4%
5.2% 4.1% 1.0%
3.7%
2.0% 2.1% Scotland
60% 8.4% 9.2%
13.4%
Southern
England
40% 78.7%
67.6% 67.4% 65.1% 68.3% 66.9% 65.5%
62.8% 64.7% Northern
54.4% 55.7% 50.1% England
20%
Midlands &
East
0%
London
2006 2007 2008 2006 2007 2008 2006 2007 2008 2006 2007 2008
BBC ITV1 Channel 4 Five
Source: Ofcom/broadcasters
107

The volume of out-of-London production by broadcaster over the last three years is shown in
Figure 2.43.
On the BBC’s PSB channels, the proportion of hours made in the Midlands and East macro-
region has remained steady (5.6% - 5.9% of the total), while the level fell by four percentage
points in Northern England, from 9.7% to 5.7%. In the South of England there was an
increase of seven percentage points, from 10% in 2006 to 17% in 2008. In Scotland the
proportion showed a small increase, while in Wales and Northern Ireland it was unchanged
(at 1.5% and 0.3% respectively).
There were significant changes on ITV1/STV/UTV, with an increase of 17 percentage points
in the Midlands and East, from 4.2% to 21%, and decreases in Northern and Southern
England, which were mainly because of changes in programme production and output for
the night-time schedule. The percentage of hours of production in Scotland and Northern
Ireland were lower in 2008 than in 2006, but higher in Wales in 2008.
There were no changes of particular note in Channel 4’s production volumes in the English
regions, while on Five there were small increases in the Midlands and East, with reductions
in the North and South of England. The proportion of hours made in Scotland fell on Channel
4 from 1.5% in 2007 to 1.4%, returning to the 2006 level. In Wales the proportion fell from
1.5% to 0.8% in 2007, rising to 1.3% in 2008. On Five the proportion increased a little in
Scotland (to 0.6%) staying the same as the 2007 level in Wales. It should be noted that as
the number of hours produced in the devolved nations is low, changes in the proportions
broadcast year on year are not statistically significant.
Figure 2.43 Breakdown of production volume, by broadcaster
Percentage of production by volume
0.3% 0.3% 0.3% 0.2% 0.1% 0.0% 0.0% 0.1% 0.0% 0.0% 0.0% 0.0%
1.5% 1.5% 1.5% 0.0% 0.0% 0.2% 1.5% 0.8% 1.3% 0.0% 0.2% 0.2%
2.9% 3.2% 3.4% 0.6% 0.4% 0.3% 1.4% 1.5% 1.4% 0.2% 0.2% 0.6%
100%
4.3% 4.6% 3.1% Northern
6.0% 8.7%
3.3% 4.9% Ireland
10.0% 14.6% 19.3% 13.3% 16.3% 14.6%
7.3% 7.1% 8.7%
17.0%
24.3% Wales
80% 9.7% 6.2%
6.6%
5.7%
5.9% 5.8% 43.7% 22.0% 22.2%
5.6% 23.5% Scotland
26.0%
60% 21.0% 1.6% 1.2%
0.5%
4.2% Southern
2.9%
England
84.6% 82.6%
40% 77.6%
69.9% 68.1% 66.5% Northern
60.1% 57.3% 59.3% England
49.7% 46.9% 49.7%
20% Midlands &
East
London
0%
2006 2007 2008 2006 2007 2008 2006 2007 2008 2006 2007 2008
BBC ITV1 Channel 4 Five
Source: Ofcom/broadcasters
2.2.14 Independent productions
Twenty-five per cent quota exceeded by wide margins
The quota is fixed at 25% for all PSBs, and its purpose is to ensure that production
companies that are independent of broadcasters have access to mainstream channels,
108

encouraging programmes from a variety of sources to be produced and shown. The
Government’s Digital Britain acknowledged that the framework of the quota was working
well. In a major change to the criteria determining which producers can qualify as part of the
quota, Digital Britain recommended that STV and UTV should be allowed independent status
when producing for PSB networks. This would support the objective in the production sector
by encouraging greater access to network commissions by external producers.
Figure 2.44 shows that the quota has been easily exceeded by all broadcasters over the
past five years, and 2008 was no exception. The level for the BBC’s PSB channels, taken
together, has risen steadily from 31% in 2004 to 39% in 2007, with a small reduction to 38%
in 2008. BBC One achieved 31% in 2008, while BBC Two rose to its highest level (45%).
ITV1 (excluding GMTV) reached 40%, up from 35% in 2007. Channel 4, S4C in Wales and
Five source most of their originated programming from independents, as they were not set
up to produce programmes themselves. Consequently, the levels of independent output on
these channels have always been extremely high and in 2008 Channel 4 reached 87%; Five
97% and S4C 89%.
Figure 2.44 Qualifying hours commissioned from independent producers
100%
80%
2004
60% 2005
97%
96%
94% 2006
91%
89%
88%
87%
87%
87%
84%
84%
83%
83%
82%
40% 2007
59% 2008
Quota =
45%
43%
42%
40%
40%
39%
39%
39%
38%
20%
35%
35%
25%
33%
33%
33%
31%
31%
30%
30%
28%
27%
0%
All BBC BBC One BBC Two ITV1 Channel 4 Five S4C
Source: Ofcom/broadcasters
A further requirement placed on broadcasters relates to the diversity of programmes which
must be commissioned from independents. The intention is to ensure that independent
producers are active across the full range of budget levels, including prestigious high-budget
drama, as well as more mainstream output. While there is no requirement that the 25%
quota must be achieved in each programme genre, in most cases it does exceed this level.
Figure 2.45 shows how each broadcaster performed in 2008.
109

Figure 2.45 Qualifying independent commissions, by genre, 2008
% of qualifying hours
Ent Comedy Drama Sport C.Affairs Factual Factual Ent Hob/Leisure Arts Music Religion Children's
100%
80%
60%
100%
100%
100%
100%
100%
100%
100%
100%
98%
97%
98%
96%
95%
93%
91%
91%
83%
79%
80%
40%
76%
73%
74%
60%
22%
54%
54%
53%
26%
50%
49%
45%
44%
43%
42%
40%
20%
37%
38%
34%
30%
30%
29%
26%
20%
5%
7%
0%
All BBC ITV1 Channel 4 Five
Source: Ofcom/broadcasters
Figure 2.46 shows the levels achieved in peak time over the past five years – illustrating the
growth on all channels. Although there is no separate quota for peak time, it is interesting to
note that the proportions were all well above 25% in 2008, perhaps reflecting the maturity of
the independent sector and the recognition of its value in terms of viewer levels and appeal
in the peak-time schedule.
Figure 2.46 Peak-time qualifying hours commissioned from independents
Proportion of peak-time hours
100%
90%
80%
70% 2004
60% 2005
50%
92%
91%
90%
2006
87%
87%
84%
81%
40%
74%
73%
73%
30% 2007
42%
40%
20% 2008
36%
32%
31%
31%
30%
26%
25%
24%
24%
21%
20%
10%
18%
18%
0%
BBC One BBC Two ITV1 Channel 4 Five
Source: Ofcom/broadcasters. Note: excludes regional programmes
110

2.2.15 News and Current Affairs
All channels meet quotas
Quotas for News and Current Affairs apply across all PSBs and help to maintain plurality,
which the Government recognised in Digital Britain to be of benefit to UK viewers and for
citizens, adding that plurality in some genres, particularly News, cannot be provided by the
market. The following charts show that these quotas have been met consistently over the
past five years. BBC One has the highest targets for News, and broadcast a total of 1,560
hours of News programmes in 2008 (Figure 2.47). These figures include the BBC Breakfast
service, but exclude the night-time simulcasts from the BBC News Channel. ITV1’s news
output totalled 374 hours (excluding GMTV), compared with its quota of 365 hours, while
Channel 4 achieved 313 hours; Five 417 hours and S4C 238 hours.
Figure 2.47 Performance against national and international News quotas, all day
Quota Achieved 2004 Achieved 2005 Achieved 2006 Achieved 2007 Achieved 2008
1,500
1,000
1,560
1,620
1,572
1,508
1,467
1,380
500
619
417
374
478
465
459
451
444
408
388
385
365
313
319
315
312
311
230
232
248
200
238
200
208
0
BBC One ITV1 Channel 4 Five S4C
Source: Ofcom/broadcasters
Separate quota levels are set for peak time and all broadcasters exceeded the minimum
levels required, as shown in Figure 2.48.
Figure 2.48 Performance against national and international News quotas, peak time
Quota Achieved 2004 Achieved 2005 Achieved 2006 Achieved 2008 Achieved 2008
300
200
Hours per year
293
281
280
278
276
275
217
213
210
210
209
208
208
100
184
180
178
171
169
150
150
141
137
135
129
128
126
125
119
115
100
0
BBC One ITV1 Channel 4 Five S4C
Source: Ofcom/broadcasters
111

Current Affairs quotas apply across the whole day and in peak time, and all broadcasters
exceeded their commitments in 2008, as they did in the previous four years, as illustrated in
Figure 2.49 and Figure 2.50.
Figure 2.49 Performance against Current Affairs quotas, all day
Quota Achieved 2004 Achieved 2005 Achieved 2006 Achieved 2007 Achieved 2008
600
500
Hours per year
400
300
463
456
528
434
433
200
365
336
335
396
248
240
238
214
219
215
212
208
100
130
93
90
78
87
83
60
77
71
81
85
81
80
0
BBC One & Two ITV1 Channel 4 Five S4C
Source: Ofcom/broadcasters
Figure 2.50 Performance against Current Affairs quotas, peak time
Quota Achieved 2004 Achieved 2005 Achieved 2006 Achieved 2007 Achieved 2008
150
Hours per year
100
117
113
126
122
119
117
117
113
112
110
105
50
80
64
63
59
56
55
45
14
45
15
44
42
41
10
35
10
10
21
30
0
BBC One & Two ITV1 Channel 4 Five S4C
Source: Ofcom/broadcasters
2.2.16 Programmes made for viewers in the nations and English regions
All channels exceeded the quotas in 2008
Regional programmes are non-networked programmes, made in the nations and English
regions specifically for local audiences. They are mainly shown on ITV1/STV/UTV and BBC
One, with some also available on BBC Two.
The ITV quotas are standardised across most of the English regions and in 2008 were fixed
at 6 hours 50 minutes a week in total, of which News was set at 5 hours 20 minutes, Current
Affairs at 26 minutes and other regional programmes at 1 hour 4 minutes a week. Lower
quotas apply in the two smallest regions – Border and Channel. Figure 2.51 shows the
average amounts achieved per week over the past five years in all ITV English regions. In
2007 ITV1 reduced the length of its weekday regional lunchtime news and failed to deliver
against the quotas. Following Ofcom’s intervention, delivery against the quota was achieved
112

from September 2007 and for the full calendar year 2008. The apparent shortfalls of a few
minutes a week, which are shown in Figure 2.51, are the result of the lack of advertising
minutage around some regional programmes, particularly in peak time, which reduced the
amount of time allocated to regional programmes. Ofcom is satisfied that the quota
requirements were met in full when these anomalies are taken into account.
Following Ofcom’s second PSB Review, ITV1 will increasingly prioritise prime-time regional
news, and volumes during daytime will be reduced. From 2009 onwards the minimum quota
for regional non-News programmes will be cut from 30 minutes to 15 minutes on average a
week in each of the English regions. There will also be changes in the pattern for regional
News and a sharing of some material between certain neighbouring regions. As a result of
the recommendations of the Government’s Digital Britain report, proposals are being
developed for news consortia to bid for contracts to provide regional news to the Channel 3
schedule.25
Figure 2.51 England ITV1 licensees’ non-network performance
Average hours of regional programming per week
2004 2005 2006 2007 2008
12:00
8:00
8:33
8:33
8:33
8:31
8:31
8:29
8:29
8:29
8:27
4:00
7:18
7:17
7:17
7:17
7:16
7:15
7:15
7:14
7:13
6:46
6:46
6:45
6:45
6:45
6:45
6:44
6:43
6:43
6:42
6:41
6:41
6:41
6:40
6:40
6:40
6:39
6:38
6:18
6:18
6:18
6:18
6:18
6:17
6:17
6:17
6:16
6:14
6:08
6:03
6:02
5:45
5:42
5:38
5:30
5:29
0:00
Yorksh ire
Channel
Anglia
Westcountry
Border
West
London
Central
Granada
Meridian
Tyne Tees
Source: Ofcom/Broadcasters
In the devolved nations, quotas for non-network programmes are set at higher levels than
those in the ITV English regions, and are standardised at 9 hours 20 minutes a week each in
Scotland, Wales and Northern Ireland. Figure 2.52 shows the amounts broadcast in the past
five years in each of the nations.
The quota for Scotland Central and Scotland North includes separate production
requirements in each part of the region for News programmes, with joint requirements
applying to non-News output, allowing programmes to be shared by the two licensees.
Figure 2.52 shows the average number of hours broadcast, excluding any double-counting.
The introduction of a new news and general interest magazine programme on weekdays,
The Five Thirty Show, has contributed to an increase in the volume of hours produced in the
Scotland Central region in 2008.
From 2009, as a result of Ofcom’s second PSB Review, ITV1/STV/UTV will prioritise prime-
time non-network News, and consequently the volume during daytime will be reduced. The
quotas for non-News programmes in Scotland and Wales will be cut from 3 hours to 1½
hours per week, and in Northern Ireland it will reduce to 2 hours, although peak time in all
cases will remain unchanged.
25
For more details about non-network programmes, see Ofcom’s Communications Market Report:
Nations and Regions 2009.
113

Figure 2.52 Nations Channel 3 licensees’ non-network performance
Average hours of regional programming per week
12:00 2004
2005
08:00
12:32
2006
10:23
10:16
9:59
9:57
9:41
9:31
9:27
9:17
9:09
9:04
8:59
8:38
7:53
04:00
7:29
7:18
7:03
7:07
6:45
6:29 2007
2008
00:00
Scotland Scotland North Wales UTV
Central
Source: Ofcom/broadcasters
The BBC does not have separate quotas for each of the English regions and nations; the
quota set by the Trust refers to the amount of regional programming to be produced across
the UK as a whole. This totals 6,580, which was comfortably exceeded in each of the past
five years, with 7,212 hours delivered in 2008, almost 10% above the quota minimum. The
separate quotas for regional news on BBC One for the whole day and for peak time, as well
as other peak-time programmes, excluding BBC One’s peak-time News, were also
exceeded. The totals achieved over the past five years against the quota levels are shown in
Figure 2.53.
Figure 2.53 The BBC’s performance against nations and regions quotas
Quota Achieved 2004 2005 2006 2007 2008
8,000
6,000
4,000
7,226
7,212
7,073
7,048
6,815
6,580
4,799
4,769
4,656
4,622
4,400
1,060
1,148
1,145
3,920
1,084
1,030
1,069
2,000
2,355
2,290
2,245
2,217
2,156
2,010
0
All regional programming BBC One regional news BBC One regional news in Regional programming in
peak peak excl. news on BBC
One
Source: Ofcom/broadcasters
2.2.17 Repeats
Proportion of repeats edges up
Viewers have often raised concerns about the levels of repeats on screen, so while there are
no quotas limiting the number of repeats shown, it is useful to compare figures for the PSB
channels. Figure 2.54 illustrates the position for the past three years. Across the whole day,
levels of repeats on BBC One have increased by one percentage point, from 25% in 2007 to
26% in 2008, while decreasing on BBC Two from 42% to 41% over the same period.
114

Repeats on the commercial PSB channels show a more consistent upward trend. On
Channel 4, the proportion increased from 44% in 2006 to 50% in 2008, on Five from 43% to
49%, while on ITV1 (excluding GMTV) the level jumped to 31% in 2008 from 23% in the
previous two years, mostly because of higher volumes of repeats in the late-night schedule.
Repeat levels on S4C reduced in 2008 from 56% overall in 2007 to 49%. On the BBC’s
digital channels rather higher levels of repeats are screened, particularly on the children’s
channels, where programmes are designed to be repeated often. The repeat rate reach was
over 90% on CBBC and CBeebies.
In peak time the percentages of repeats are much lower, particularly on BBC One and
ITV1/STV/UTV, and are generally in single figures. BBC One reported 8% in 2008, up a little
from 7% in 2007 while the level for ITV dropped to 7% in 2008, down from 9% and 10% in
the previous two years respectively. The proportion of repeats shown by Channel 4 edged
up from 21% in 2007 to 22%, while Five’s figure jumped to 41%, compared with 29% in 2006
and 33% in 2007. There was a reduction on S4C from 33% in 2007 to 30% in 2008.
Figure 2.54 Proportion of repeats, 2006 to 2008
All day Peak time
2006 2007 2008 2006 2007 2008
100
75
s
t
a
e
p 50 1 2 5 5 6
e
r 2 0 5 9 9 9 9 9 41
8 8 8 6 6 1 6
8 7 33 34 33
% 7 7
26 29 30
4 6 23 22 22
25 6 2 1 0 5 4 5
4 6 5 3 4 9 5 9 4 19 21
4 4 4 4 4 4
8 5 6 1 9 7 8 9 10 7
2 2 2 3 3 3
2 2
0
Source: Ofcom/broadcasters. Note: Excluding programmes first shown on another PSB channel
*Excluding schools programmes
2.2.18 European programming
All PSB channels exceeded quotas
The requirements to broadcast minimum amounts of European programmes are standard for
all broadcasters across Europe, and apply to all operators, including PSBs and
multichannels. They derive from the European Commission’s Audio-visual Media Services
(AVMS) Directive and require that, where practicable, a majority of programmes (more than
50%) are European; that at least 10% are made by European independents; and that at
least 50% of these have been made within the past five years.
Figures for all channels are published by the European Commission and results for the UK
PSBs are shown in Figure 2.55. All PSB channels exceeded the minimum quota levels,
usually by wide margins.
115

Figure 2.55 Performance against European programming requirements, 2008
Proportion of transmitted programmes (%)
European programmes European independents Recent works
100%
80%
60% % % %
0 0 % % % % % % % 0 % %%
% 0 % % % 0 3 5 8 5 8 5 9 0 % % % 2 8 9
40% 4 1 2 0 6
9 8 1 9 9 8 9 8 9 9 1 9
8
1
9 % 6 9 9 8 %
8 8 8 2
0 % %% 7
%% 7 6 2 6
0 0 % 5 6 5
20% 5 1% % % 5 % % %
0 2 2 4 % 4 4 % 1
5 3 3 5 3 3 4 3
2 1
0%
Source: Ofcom/broadcasters
2.2.19 Other compliance matters
Listed events
A number of key sporting and other events, considered to be of major national interest, are
designated by the Secretary for Culture Media and Sport as ‘listed events’. The purpose of
these arrangements is to ensure that they are made available on free-to-air channels so that
all viewers have access, particularly those who cannot afford subscription television. In
March 2008, Five was added to the list of Category A broadcasters (those which must be
given a genuine opportunity to acquire the rights to broadcast listed events).26 Broadcasters
are prevented from acquiring exclusive rights and from transmitting coverage of such events
on a live and exclusive basis without Ofcom’s prior consent. In 2008 there were no instances
of any broadcaster failing to comply with the Code on Listed Events.
Ofcom Broadcasting Code on Fairness and Privacy
The fairness and privacy sections of the Ofcom Broadcasting Code set out how
broadcasters should treat individuals or organisations that are directly affected by a
particular programme. This applies to people who have either appeared in, or been
mentioned in, a programme, or who have a specific interest in the subject matter of a
programme, rather than the generally-accepted standards which apply to programmes in
order to avoid causing harm and offence to the general public.
Ofcom concluded 213 Fairness and Privacy complaints in 2008. Of these, 71 were
adjudicated upon by Ofcom, with five Upheld, 19 Partly Upheld and 47 Not Upheld. Most of
the remaining 142 complaints were not entertained (i.e. could not be considered by Ofcom
either because they did not fall within its remit for Fairness and Privacy or because Ofcom
was prevented from considering them under the applicable statutory criteria). However, in a
small number of cases, complainants accepted an offer of Appropriate Resolution which had
been volunteered, on a without prejudice basis, by the broadcaster concerned.
26
Further information can be found at: http://www.ofcom.org.uk/tv/ifi/channel5/
116

TV access services
In 2008, 84 channels were required to provide subtitling, signing and audio description
(‘television access services’) in accordance with Ofcom’s Code on Television Access
Services, compared with 91 channels in 2007. These 84 channels included all the public
service channels, as well as digital channels featuring general Entertainment, Film, Sports,
Documentaries, Children’s programmes, and Popular Music. The quotas apply to all PSB
channels and all other television services which achieved an average audience share over a
12-month period of 0.05% or more, subject to passing an affordability threshold and not
facing technical difficulties that cannot be overcome, such as the audio-description of Music
and News programmes, where there is little space within the dialogue or sound-track to
provide audio-description. A full list of channels that provided television access services
during 2008 can be found at:
http://www.ofcom.org.uk/tv/ifi/guidance/tv_access_serv/tv_access_statement08/
Almost all broadcasters met their obligations in full in 2008; the three that did not (GMTV2,
National Geographic and Cartoon Network) are required to make up the shortfall during
2009. These amounts were added to the 2009 targets and are shown in the access service
reports. A report showing the performance of television channels against the targets
applying in 2008 and 2009 can be found at
http://www.ofcom.org.uk/tv/ifi/guidance/tv_access_serv/tvaccessrep/
Intellectual property
The Communications Act 2003 requires Ofcom to report on any issues relating to intellectual
property in programmes that have arisen, or been of significance. In 2008 no such issues
were brought to Ofcom’s attention.
Training
Ofcom’s co-regulator, the Broadcast Training & Skills Regulator (BTSR), is responsible for
the regulation of training in television and radio. The BTSR brings together training and
development expertise from within and outside the sector, working with broadcasters, trade
associations and Skillset (the Sector Skills Council for the Audio Visual Industries). Its aim is
to help the industry to continue to improve and to provide relevant, inclusive and cost-
effective training and career development opportunities for employees and freelancers.
Training and development is important, not only because it affects the quality of programmes
for audiences, but also because it affects the long-term success of UK broadcasting.
However, we note that as a result of the economic downturn, some broadcasters may be
reconsidering their support for funding of external training bodies. The BTSR continued to
develop its self-evaluation assessment system in 2008, against which broadcasters rate their
own performance according to guidelines developed in consultation with the industry. As in
previous years, this was complemented by visits to selected radio and television
broadcasters, to independently validate the self-evaluation reports. Details of the validation
process and the results can be found on the BTSR’s website (www.btsr.org.uk).
Equal opportunities
Ofcom is required to ensure that all but the smallest broadcasters make arrangements for
promoting equal opportunities in employment, regardless of gender, race and disability. This
is done through an annual reporting process and by providing guidance to broadcasters on
policies and procedures. In 2008, Ofcom published a summary report of information
provided by broadcasters regarding their equal opportunities arrangements during 2007.
117

Following extensive public consultation, and further discussions with the broadcasting
industry, it was decided that the BTSR would undertake the task of co-regulation of equal
opportunities arrangements. This started on 1 April 2009, with an industry-led planning group
working in partnership with the BTSR to develop the co-regulatory approach. The group will
be supported by an advisory group, comprising stakeholders representing women, disabled
people and people from ethnic minorities. In the meantime, Ofcom has collected information
from broadcasters in respect of their equal opportunities arrangements for 2008, for analysis
by the BTSR which will publish a report on the outcomes later in 2009. In future, the BTSR
will collect information directly from broadcasters. More information is available at:
http://www.btsr.org.uk/EqualOpps.
118

2.3 The television viewer
2.3.1 Summary
In this section we examine the main trends among television viewers during 2008 by
analysing the availability and take-up of digital television platforms, the patterns of
consumption among television viewers, channel shares and audience demographics, and
consumer attitudes towards content.
The key points in this section include:
 By the end of Q1 2009, take-up of multichannel television on main sets had
increased by 2.4 percentage points year on year to stand at 89.6% (page 121).
 In multichannel homes, the five main PSB channels shed 1.2% (0.7 percentage
points) of their audience share during 2008, but their portfolio channels all
continued to grow. As a result, the combined share of the five PSB channels and
their portfolio channels rose by 1.6 percentage points to reach 71.9% in 2008 (page
133).
 The aggregate audience share of channels in the Entertainment genre is
continuing to grow. The genre’s multichannel share totalled 21% in 2008, up by
seven percentage points since 2003 (page 140).
 Just 35% of analogue-only viewers are now aged 44 or under, compared to
53% of the UK population (down by four percentage points on 2007). It is possible
that the analogue television viewing universe is growing older, because younger
viewers are migrating to digital television platforms more rapidly (page 142).
 The proportion of viewers who believed that TV content had ‘got worse’ over
2008 increased with age, with viewers in the 65+ category being twice as likely to
hold this view (46%) as 15-24 year olds (19%) (page 144).
2.3.2 Availability of multichannel broadcast platforms
UK viewers have a choice of five main platforms for receiving television – analogue
terrestrial, digital terrestrial, cable, satellite and IPTV. The availability of the platforms differs
considerably (Figure 2.56). Analogue terrestrial television is available to almost all of the UK
population. Among digital television platforms, digital satellite reaches 98% and digital
terrestrial television (DTT) 73%.
Cable television is currently available to just under half the population (49%). However, in
May 2009, Virgin Media announced that it had identified 500,000 homes that would be linked
to its cable network, of which 50,000 are to be added in 2009.
When larger regions begin digital switchover from later this year the availability of DTT will
start to increase and should match analogue coverage once full switchover is complete in
2012. Tiscali TV, available to 10 million (39%) of the population is the only operator to deliver
live television channels over its IPTV network. It offers a range of television subscription
119

services to consumers in a number of cities. BT Vision’s live television channels are
delivered using DTT27 while on-demand content is delivered over the broadband connection.
Figure 2.56 Availability of television platforms
Proportion of population covered (%)
100%
80%
60%
99% 98%
40% 73%
49%
20% 39%
0%
Analogue terrestrial Digital satellite Digital terrestrial Digital cable IPTV
television television television television
Source: Ofcom research/operators
Each of the three main digital platforms offers a free-to-view service. Freeview is available
via terrestrial TV, while satellite now offers two main non-subscription options including:
Freesat from ITV/BBC and Freesat from Sky.
Cable customers can also receive a free TV service as part of a combined package, but still
have to pay a monthly line rental charge to access this service. Consumers can subscribe to
additional channels if they choose via Top Up TV on DTT, Sky on digital satellite and Virgin
Media and other small cable operators.
2.3.3 Digital TV take-up
Take-up on main television sets slowed in 2008
By the end of Q1 2009, take-up of multichannel television on main sets in UK households
had increased by 2.4 percentage points year on year, to stand at 89.6% (Figure 2.57). DTT
and pay digital satellite continued to be the two most common ways of receiving television
on main sets28, followed by digital cable and then free-to-view digital satellite.
27
BT Vision is not classed as an IPTV service in our figures because its live scheduled services are
broadcast through DTT rather than by broadband. BT Vision homes are therefore included in DTT
homes.
28
There are around 60.2 million television sets in the UK, of which around 25.4 million are ‘main’ sets
(which broadly equates to the most-watched set in each TV household), and approximately 34.9
million are ‘secondary’ sets (in bedrooms, kitchens, etc).
120

Figure 2.57 Take-up of multichannel television on main sets
% of homes
27.2% 34.0% 41.7% 44.7% 48.0% 56.7% 64.9% 71.8% 80.3% 87.2% 89.6%
TV Households (m)
26 Data f rom Q1 2007 is based
24 on consumer research
Digital terrestrial
22 only
20
Analogue cable
18
16
14 Digital cable
12
10 Free-to-view
8 digital satellite
6
Analogue satellite
4
2
0 Pay digital
satellite
Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Source: GfK research from Q1 2007 onwards; previous quarters use platform operator data, research
and Ofcom estimates. Note: Digital terrestrial relates to DTT-only homes
Figure 2.58 sets out the net additions of main television sets to DTT, satellite and cable over
the twelve months to Q1 2009. The number of main sets connected to DTT rose by just
200,000 during the year, compared to an increase of 1.3 million the year before.
Pay platform subscriber additions rose at a higher rate, with BSkyB adding 358,000 net
subscribers and Virgin Media attracting a further 137,000 over the year (both up slightly on
the previous year’s additions of 332,000 and 125,000 respectively). According to our survey
results, free satellite platforms grew by 311,000 additions over the period.
Figure 2.58 DTT, satellite and cable net additions, year to Q1 2009
Subscribers/Households added (thousands)
400
300
200
358 311
100 200
137
0
DTT-only additions Pay-satellite additions Free-to-air satellite Cable additions
additions
Source: Cable additions relate to Virgin Media reported results, pay-satellite additions are Ofcom
estimates based on BSkyB results. Free satellite additions based on BBC/ITV Freesat sales figures.
DTT additions taken from GfK consumer research. Note: ‘DTT-only additions’ are first-time DTT
acquirers who have no other multichannel platform in the home.
121

All television sets
Around 73%, or 44 million, of the 60 million television sets in the UK (both main and
secondary), had been converted to multichannel by Q1 2009, up by 5.7 percentage points in
a year.
Figure 2.59 illustrates that analogue terrestrial television accounted for just over a quarter of
the total set universe (27%) in Q1 2009, equivalent to around 16.2 million television sets
(around 2.7 million main and 13.5 million secondary sets). This was down by around five
percentage points from 32% twelve months earlier.
The number of sets receiving a signal through a digital terrestrial decoder rose by around 2.7
million over the year to 26.1 million, equivalent to a 43% share of all sets (up by four
percentage points year on year). Survey results indicated that over a fifth (22%) of all
television sets are now connected to a pay-satellite service, up by one percentage point year
on year, and there were around 3.7 million sets (6.1%) connected to cable by Q1 2009,
broadly in line with the figure a year earlier.
Figure 2.59 Platform share among all TV sets for Q1 2009
Total TV sets = approximately 60 million
Analogue terrestrial, Pay satellite, 21.5%
27.1%
Free-to-view satellite,
0.8%
Cable, 6.1%
ADSL, 0.2%
Digital terrestrial,
43.4%
Source: GfK research for Q1 2009.
Note: Figures may not add up to 100% owing to rounding
The share of sets that different digital television platforms attract varies by set number, as
illustrated by Figure 2.60. In Q1 2009 satellite (free and pay) and DTT had a similar share of
main sets, at 37% and 38% respectively. However, on second and third sets, DTT was the
most widely-used platform, with take-up of 48% in each case; this was 12 and eight
percentage points higher than the next most commonly used platform, analogue terrestrial.
(Note: sets are classified as ‘main, 2, 3 or 4’ purely according to the way consumers
describe their sets. The classification does not refer to any particular framework for
prioritisation; for example location in a particular room or spend on set).
122

Figure 2.60 Platform shares by platform, TV sets 1 - 4
Main TV Set TV Set 2 TV Set 3 TV Set 4
100%
12 11
19 15 13
26 24
37 36 Analogue
80% 40
45 49 44 51
44 46 terrestrial
60 54 58
33 37 38
37 38
70 64 68 63 67 62
60% 27 29 76 77 71
DTT
40% 12 12 12 11 11 11 11
47 48 48
40
30 39 45 39
45 43
19 25 30 28
20% 13 19 25 17 22
35 36 36 37 37 37 37 3 3 3 3 3 3 3 12 12 Cable
2 2 2 2 3 2 3 1 2 2 2 1 2 2
14 14 13 13 12 12 13 10 11 10 10 9 9 9 10 10 9 9 9 9 8
0%
Q1 2006
Q3 2006
Q1 2007
Q3 2007
Q1 2008
Q3 2008
Q1 2009
Q1 2006
Q3 2006
Q1 2007
Q3 2007
Q1 2008
Q3 2008
Q1 2009
Q1 2006
Q3 2006
Q1 2007
Q3 2007
Q1 2008
Q3 2008
Q1 2009
Q1 2006
Q3 2006
Q1 2007
Q3 2007
Q1 2008
Q3 2008
Q1 2009
Satellite
Source: GfK research
DTT device sales
The number of DTT devices used on secondary sets overtook the number used on primary
sets during 2008. By the end of Q1 2009 there were 26.1 million DTT-enabled sets, of which
9.8 million were primary and almost 16.3 million were secondary sets, resulting in 62% of all
DTT devices now being connected to secondary sets (Figure 2.61).
Figure 2.61 DTT on primary and secondary sets
DTT on primary and secondary sets (millions)
18
16
14
12 DTT primary
set
10
8 16.3
13.7
6 DTT
9.6 9.8 secondary
4 8.4 8.3 set
6.4
5.0 4.9
2
1.7
0
Q1 2005 Q1 2006 Q1 2007 Q1 2008 Q1 2009
Source: GfK research
Over the past year around 12.7 million DTT units have been sold, compared to around 11.7
million in the previous year, an increase of 8.5%. In Q1 2009 alone, DTT-enabled equipment
sales reached almost 3.4 million units, up by 7% on the Q1 2008 figure. Integrated digital
television sets (IDTVs) accounted for almost 73% of these sales (2.5 million units - around
93% of TV sets sold now include a digital tuner). Freeview set-top boxes made up the
remaining 27% (900,000 units), although sales were down 28% year on year, as integrated
TVs have become increasingly popular.
123

Figure 2.62 DTT quarterly and cumulative sales since launch of Freeview
Quarterly sales (m) Cumulative DTT Sales (m)
3.5 50
Set-top boxes
45
3.0 IDTV sales
40
Cumulative sales
2.5 35
30
2.0
25
1.5
20
1.0 15
10
0.5
5
0.0 0
Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1
2005 2005 2006 2006 2006 2006 2007 2007 2007 2007 2008 2008 2008 2008 2009
Source: Sales figures from GfK, as adjusted by Freeview
2.3.4 Consumption of television services across the day
Average TV audiences at weekends are generally larger than on weekdays
The average weekday TV audience peaked at just over 24 million viewers at 21:15 – 21:30
in the evening during 2008; at weekends, the peak came earlier (at 20:45 – 21:00) and was
higher at 25 million (Figure 2.63).
The weekend average audience was typically higher at all times of the day than on
weekdays. The exception was 05:15 – 08:30 where a weekday audience peak of 5.4 million
at 08:00 – 08:30 was driven by children (see the following analysis). Weekday audiences
peaked at just over 7 million viewers over lunchtime but remained lower than the weekend
equivalent throughout the period.
124

Figure 2.63 Average 2008 audiences, weekdays/weekends: by day part, all homes
Average audience (millions)
24
20
16
Weekend
12 Weekday
8
4
0
6am 9am 12pm 3pm 6pm 9pm 12am 3am 6am
Source: BARB
Patterns of viewing, by time of day and age
The average weekday audience by day part and age is illustrated in Figure 2.64. Four trends
stand out:
 there were more TV viewers over 65 than in any other age group at most times of the
day. Among this age group, there was a small broad breakfast peak at 08:45 – 09:15,
a lunchtime peak at 13:15 – 13:45 and a broad evening peak from 18:00 – 22:00
(defined here as the interval where the audience exceeds 5 million);
 the 16-24 audience was the least likely of any adult age group to watch TV at any
time of the day and was the only audience in 2008 where the peak time average
failed to reach 2 million viewers;
 third, there was a substantial increase in the size of the peak-time viewing audience
aged 25-34 when compared to 16-24s, possibly reflecting the changing life
circumstances of people in the older age band; and
 the children’s audience was unique in exhibiting a sharp well-defined peak at
breakfast and in watching television in large numbers for a comparatively sustained
period of time between 18:00 and 20:30. Unsurprisingly, the children’s audience peak
was earlier than average.
125

Figure 2.64 Average 2008 weekday audiences, by day part and age, all homes
Average audience (millions)
6
5 Children
16-24
4
25-34
3 35-44
45-54
2
55-64
1 65+
0
6am 12pm 6pm 12pm 6am
Source: BARB
Many of the trends in weekday viewing were reproduced at weekends (Figure 2.65). For
example, there was still a morning peak for children in 2008, while people over 65 still
watched TV in larger numbers than any other adult age group for much of the day. But the
viewing peaks for both audience groups tended to be higher at the weekends (6 million for
people over 65 and 2.4 million for children) while they were broadly similar in size for other
audiences.
Figure 2.65 Average 2008 weekend audiences, by day part and age, all homes
Average audience (millions)
6
5 Children
16-24
4
25-34
3 35-44
45-54
2
55-64
1 65+
0
6am 12pm 6pm 12am 6am
Source: BARB
2.3.5 Channel reach
Figure 2.66 illustrates how the collective reach of multichannel services rose by 29
percentage points (or 67%) to 74% between 2003 and 2008. In this section reach is defined
126

as the proportion of viewers who watch a particular channel for at least fifteen consecutive
minutes over a period of a week (fifteen-minute weekly reach).
This growth meant that the combined reach of multichannel services exceeded that of any
one individual PSB channel except BBC One, and surpassed ITV1 for the first time in 2008.
Concurrently, the reach of all PSB services fell over the same period, with BBC Two and
ITV1 experiencing the greatest absolute reductions – ten percentage points each – to stand
at 58% and 69% respectively in 2008. The reach of Channel 4, BBC One and Five fell by six,
six and two percentage points each respectively over the same period. Year on year,
however, BBC Two’s fortunes appeared more positive; for the first time since 2003, its reach
exceeded that of Channel 4/S4C.
Figure 2.66 Average weekly TV reach in all homes, by channel
15-minute consecutive weekly reach – full weeks
90% 84% 82%
80% 79% 78% 78% BBC One
80% 79% 77% 74% 71% 74%
70% 69%
70% 68% 63% 64% BBC Two
63% 69%
61% 59% 58%
60% 63% 62% 60%
50% 57% 57% 58% 57% ITV1
50% 45%
40% 43% 44% 44% 42% C4 + S4C
40% 41%
30%
Five
20%
10% Multichannels
0%
2003 2004 2005 2006 2007 2008
Source: BARB
Figure 2.67 breaks down TV reach by age. Viewing among people in the older age groups,
where reach is highest, has remained relatively stable over the past few years. By contrast,
TV reach among younger audiences (which was already lower than average) has been in
decline since at least 2003, falling by four percentage points among 16-24 year olds and by
two percentage points among 25-34 year olds, to 82% and 91% respectively in 2008. The
younger adult age group may be spending less time watching TV as they divide their time
between an expanding range of media consumption opportunities (for example, social
networking sites, downloading and listening to music or watching video clips and TV online).
127

Figure 2.67 Average weekly TV reach in all homes, by age
15-minute consecutive weekly reach – full weeks
97% 96% 96% 96% 96% 96%
100%
Children
90% 92% 91% 90% 89% 91% 90%
80%86% 85% 84% 83% 83% 16-24
82%
70%
25-34
60%
50% 35-44
40%
45-54
30%
20% 55-64
10%
0% 65+
2003 2004 2005 2006 2007 2008
Source: BARB
2.3.6 Viewing share among the five main PSB channels
Multichannel viewing share in all homes, all day, continued to climb during 2008, reaching
39% thanks to the growing popularity of digital television platforms and multichannel services
(Figure 2.68). Year on year, multichannel share expanded by 6%, and since 2003 it has
risen by 64%. As a result, the five main PSB channels (BBC One, BBC Two, ITV1, Channel
4/S4C and Five) have all, to a greater or lesser degree, experienced reductions in viewing
share over the same period.
The television broadcasting landscape has been transformed by the widening availability of
digital television platforms. This can be seen by comparing 2008 channel shares with those
from 1982 – the year when Channel 4 launched. At that point, ITV attracted a 50% share of
viewing in all homes, while BBC One was the nation’s second favourite channel with a 38%
share; BBC Two accounted for the remaining 12% of viewing. BBC Two’s share over this 26-
year period has fallen by a third and stood at 8% in 2008; moreover, BBC One has been
more effective than ITV1 at maintaining its share – although both experienced substantial
reductions over the period, of 43% and 63% respectively.
128

Figure 2.68 Channel shares in all homes, 1982 to 2008
Audience share
70%
BBC One
60%
BBC Two
50%
ITV 1
40%
30% Channel 4
+ S4C
20% Five
10%
Others
0%
1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008
Source: BARB, TAM JICTAR and Ofcom estimates
PSB channels’ share decline continues in all homes
The five main networks attracted a share of 60.8% in all homes during 2008, down by 2.7
percentage points, or 4.3%, year on year, although there are signs that the rate of decline is
slowing (the networks experienced a 4.8% reduction in share between 2006 and 2007).
Since 2003, their share has fallen by one-fifth, in the face of growing competition from
multichannel services (Figure 2.69).
Since 2007, Channel4/S4C has lost proportionally the most share, shedding 0.8 percentage
points, or 9% of its total, during 2008. BBC Two viewing share contracted by 8% over the
same period, while ITV1 and Five’s share each fell by 4%. BBC One was the most
successful of all the main PSB channels at maintaining share during 2008, losing just 0.2
percentage points over the period.
Over a five-year period, BBC Two lost the largest proportion of its share, down by nearly
one-third (29%). ITV1, Channel4/S4C and Five each shed around one-fifth of their shares
over the same period (22%, 19% and 23% respectively). Once again, BBC One proved most
successful at maintaining its audience in the face of multichannel competition, with its share
falling by just 15% over the same period.
129

Figure 2.69 Five main networks’ audience share, all homes
Audience share
76.5% 73.8% 70.4% 66.7% 63.5% 60.8%
80%
6.5%
70% 6.6%
6.4%
9.6% 5.7% Five
9.8% 5.2%
60% 9.7% 5.0%
9.8%
8.6%
7.8% Channel 4 +
50% 23.7%
22.8% S4C
21.5%
40% 19.7% 19.2% 18.4%
ITV1
30% 11.0% 10.0% 9.4% 8.8% 8.6% 7.8%
20% BBC Two
25.6% 24.7% 23.3% 22.8% 22.0% 21.8%
10% BBC One
0%
2003 2004 2005 2006 2007 2008
Source: BARB
While the five main PSB channels attracted a 61% share of all viewer hours in all television
homes during 2008, this varied significantly by platform (Figure 2.70). The channels
commanded a monopoly over viewing in homes that receive television services through an
analogue tuner, but compete to varying degrees for audiences’ attention in digital terrestrial
(DTT), cable and satellite homes.
By March 2009, the share of the five PSB channels in DTT homes had reached 62%
(compared to 59% in all homes), and over the last nine months it seems that the share
reductions of the previous six years were tailing off. Share was down by 12 percentage
points since March 2006, but by just one percentage point in the twelve months to March
2009.
The picture in cable and satellite homes was different. The five channels attracted
substantially less share when compared to DTT homes – 47% in March 2009 compared to
62%. Nevertheless, their position in cable/satellite homes was in some senses better-
established in 2008, because share had remained relatively stable over a period of time –
down by just three percentage points since March 2006.
130

Figure 2.70 Five main networks’ share, by platform
Audience share
100%
100%
Terrestrial
homes
80% 77% 74%
68%
63%
72% 62%
60% 68% 62% Digital
65% 60% Terrestrial
59% homes
52% 47% 47%
40% 50% 49%
All homes
20%
Cable and
0% satellite
homes
Jun-05
Jun-06
Jun-07
Jun-08
Sep-05
Dec-05
Sep-06
Dec-06
Sep-07
Dec-07
Sep-08
Dec-08
Mar-05
Mar-06
Mar-07
Mar-08
Mar-09
Source: BARB, all day, all viewers, various platforms
The five main PSB channels’ success at holding their audiences varied by platform during
2008 (Figure 2.71). In analogue homes, BBC One and ITV1 attracted a higher viewing
share, while Channel 4/S4C lost 7% of its share. This might be explained by the changing
demography of the analogue television viewing universe, which has an over-representation
of older people.
In DTT homes, BBC One broadly maintained its share (falling by 1% over the period); ITV1’s
share fell by 5% but BBC Two and Channel 4/S4C experienced the largest reductions, of 9%
and 14% respectively. Channel 4/S4C also incurred substantial losses in share in cable and
satellite homes, where share fell by 11% and 13% respectively. By contrast, in cable and
satellite homes the share reductions for BBC Two and ITV1 were less dramatic, and BBC
One’s share actually rose by 2% in cable homes and 1% in satellite homes.
Five’s performance by platform was perhaps the most varied among the five main PSB
channels. Like other PSBs, it lost substantial share in DTT homes (7%); in cable homes its
share fell by 3%, while among satellite viewers it managed to increase its share by 7%.
The impact on multichannel services similarly varied by platform. In cable and satellite
homes there was a redistribution of share among the PSB channels, while the multichannels
picked up just 1% of additional share year on year. By contrast, the multichannel operators
were the main beneficiaries of falling PSB share in Freeview homes, with their claim on all
viewer hours rising by 7% during 2008.
131

Figure 2.71 Channel share by platform, 2008
Analogue terrestrial Digital terrestrial Digital cable Digital satellite
% change in channel share by platform 2007-2008
BBC One BBC Two ITV1 Channel 4 + S4C Five Other
3% -1% 2% 1% -3% -9% -4% -4% 2% -5% -2% -2% -7% -14% -11% -13% -4% -7% -3% 7% 7% 1% 1%
%
60% 7
% .
7 2
.
9 5
4
% %
5 7
.
. 5
40% 4
3 % 3
2
.
% 8
1
. 2 %
3 % % % 8
. %
2 . 4
1 . 9 8 1
. % %
7 7 . 1 7 0
. 3
20% 1 1 5 1 5 .
1 % 1 3
2 % % 1 % % % % %
. 3 6 8
. 7 4 5 % %
.
8 5 .
. 7 . . 7 . 2 .
5
5 5 5 5 5 .
4 3
0%
BBC One BBC Two ITV1 C4 + S4C Five Other
Source: BARB
2.3.7 Multichannel broadcaster share
The PSBs’ portfolio channels increase their audience share
In multichannel homes, the five main PSB channels shed 1.2% of their audience share
during 2008 (Figure 2.72). But their portfolio channels (BBC Three, BBC Four, CBeebies,
CBBC, BBC News, BBC Parliament, ITV2, ITV3, ITV4, CiTV, Men & Motors,GMTV2, E4,
More4, Film4, 4Music, Fiver, Five USA) all continued to attract a growing share of viewing.
As a result, the combined share of the five PSB channels and their portfolio channels rose
by 1.6 percentage points, or 2.3%, to reach 71.9% in 2008. Over the five-year period, the
share of the five main PSB channels has fallen by 2.0%, while their portfolio channels have
more than doubled their share, from 7.3% to 15.9% over the same period. The portfolio
share figure has experienced several substantial ‘jumps’ over the past five years, most
notably when Channel 4 moved E4’s business model from a subscription to an advertising
model in 2005 and then did the same with Film4 in 2006.
132

Figure 2.72 PSB and portfolio channel shares in multichannel homes
Audience share
100%
33.1% 31.2% 29.7% 28.1%
80% 35.6% 35.1%
Other digital
channels
7.3% 9.2% 11.3% 13.6% 15.9%
60% 7.4%
PSB portfolio
channels
40%
57.2% 57.5% 57.7% 57.6% 56.7% 56.0% PSB Channels
20%
0%
2003 2004 2005 2006 2007 2008
Source: BARB
Year on year, Five’s channel portfolio experienced the largest increase in audience share,
rising by 5.5%, followed by Channel 4 with 4.8% and the BBC with 1.8%; ITV1’s share
remained more stable over the period, growing by just 1.2% (Figure 2.73). Over the five-year
period, Channel 4’s proportional increase in portfolio share was higher than for any other
PSB operator. It has risen by nearly 43% since 2003, while Five’s has grown by 26%; the
BBC’s share increased by 8% while ITV’s grew by just 1.9% over the same period.
The success of the PSB portfolio channels in attracting viewer hours has put pressure on the
share of the remaining multichannel operators. Among the larger operators of channel
portfolios, beyond the PSBs, BSkyB bore the brunt of the reductions in viewing share. Its
collective share of viewing fell by 11% year on year, and by 42% since 2003. Viacom’s share
(which includes the MTV, VH1 and Nickelodeon networks) has contracted by 2% since 2007
and by 25% since 2003, while UKTV managed to hold on to a greater proportion of its
portfolio share, experiencing reductions of just 1.3% in twelve months and 6.3% over the
past five years.
133

Figure 2.73 Broadcaster portfolio shares in multichannel homes
Audience share
CAGR (%)
100% 1 year 5 year
13.7% 14.3% 14.0% 12.9% 12.8% 12.3%
-4.4% -2.1% Other
2.6% 2.8% 2.6% 2.7% 2.6%
2.8% 2.7% 2.6%
3.5% 3.4% 3.1% 2.9%
80% 4.0% 3.9% 3.9% -5.2% -0.1% Virgin
4.1% 4.2% 4.0%
8.7% 7.6% 6.8% Media
11.7% 10.4% 9.3%
5.6% 5.9% -1.9% -5.6% Viacom
5.1%
4.7% 5.1% 5.3%
60% 11.2% 11.2% 11.7% -0.8% -1.3% UKTV
8.2% 8.6% 9.6%
-11.4% -10.4% BSkyB
22.0% 22.3% 22.6%
40% 22.1% 21.7% 22.1%
5.5% 4.7% Five
4.8% 7.4% Channel 4
20%
29.4% 29.5% 29.8% 30.6% 31.2% 31.8% 1.2% 0.4% ITV
1.8% 1.6% BBC
0%
2003 2004 2005 2006 2007 2008
Source: BARB
Within the BBC’s channel portfolio, its two main channels have managed to maintain their
share of viewing in multichannel homes over the past five years (Figure 2.74). Together they
attracted 27.4% of all viewer hours in 2008, up from 27.0% in 2007 and by 1.1 percentage
points, from 26.3%, since 2003.
The BBC’s digital-only channels contributed a further 4.4 percentage points of share in 2008,
up from 4.2% in 2007 and from 3.1% in 2003; their principal growth driver has been BBC
Three, whose share has doubled from 0.6% five years ago to 1.2% in 2008. Over the same
period, CBeebies has made a consistent and substantial contribution to the BBC’s digital
channels’ share, having rapidly established itself in the children television category soon
after its launch in 2002.
134

Figure 2.74 BBC portfolio share in multichannel homes
Audience share
29.4% 29.5% 29.8% 30.6% 31.2% 31.8%
30% 0.5% 1.3% 0.6% 1.3% 0.6%
1.3% 0.6% 1.2% 0.6% 0.8% 0.8%
1.2% 1.3% 0.5%
0.7% 0.6%
0.6% 1.0% 0.4% 1.1% 0.4% 1.2% 0.5%
0.7% 0.9% 0.3%
0.2% 0.2% Other
25%
6.9% 7.1% 7.0%
7.0% 6.7% 6.9% CBeebies
20% CBBC
BBC News 24
15%
BBC Four
10% 19.3% 19.5% 19.3% 20.0% 19.9% 20.4% BBC Three
BBC Two
5%
BBC One
0%
2003 2004 2005 2006 2007 2008
Source: BARB.
Note: ‘Other’ includes BBC Parliament, BBC Choice and BBC Knowledge
Figure 2.75 illustrates ITV has also managed to build its viewing share in multichannel
homes over the past five years – and the digital channels have played an important role in
offsetting ITV1’s falling share. In 2008, the main channel attracted a 17.2% share of viewer
hours in multichannel homes, down by 0.4 percentage points since 2007 and by 2.1
percentage points since 2003. Over the same period the digital-only channels’ collective
share rose from 2.9% in 2003 to 5.3% in 2008. The net result was a 0.5 percentage point
increase in ITV’s portfolio share, to 22.6%.
Figure 2.75 ITV portfolio share in multichannel homes
Audience share
22.1% 21.7% 22.1% 22.0% 22.3% 22.6%
25%
0.3% 0.3%
1.3% 1.0% 0.5%
1.2% 0.7% 0.9% Other
1.6% 1.4% 1.4% 1.6%
20% 1.7% 2.0%
2.0% 2.2% 2.4%
CITV
15%
ITV4
10% 19.3% 18.9% 18.4% 17.5% 17.6% 17.2% ITV3
5% ITV2
ITV1
0%
2003 2004 2005 2006 2007 2008
Source: BARB.
Note: ‘Other’ includes ITV Play, Men & Motors, GMTV2, Granada Breeze, Plus, ITV News. ITV2 and
ITV3 include their +1 services
135

The substantial growth in Channel 4’s portfolio share over the past five years can be
explained by the expanding range of free-to-view digital-only channels that it offers and by
their growing popularity with viewers.
Over the past three years, Channel 4’s channel portfolio has evolved rapidly. This has
included the migration of both E4 and Film4 to free-to-view business models, the launch of
More4 and the introduction of time-shifted versions of these and the Channel 4 parent
channel. The net result has been that Channel 4’s portfolio share of viewing has risen from
3.0% in 2006 to 4.9% in 2008 (Figure 2.76). Even before its relaunch as an advertiser-
funded channel, E4 had already managed to attract a loyal base of viewers. In 2004, it
secured 1.2% of all viewer hours in multichannel homes, even when it was reach-limited as
a result of its subscriber-only status.
Channel 4 itself, however, has not fared as well as its digital-only channels. It lost 0.6
percentage points of viewing share between 2007 and 2008 and accounted for an average
of 6.8% of all viewer hours in 2008. Having benefited from a growing share of all viewer
hours between 2003 and 2006 (possibly explained by the earlier digital migration of Channel
4’s target audience), it has found its share declining in every year since. The net result is that
the main channel’s share in 2008 was broadly comparable to that in 2003 (6.8% in 2008
versus 6.9% five years earlier).
Figure 2.76 Channel 4 portfolio share in multichannel homes
Audience share
8.2% 8.6% 9.6% 11.2% 11.2% 11.7%
12%
0.2% 0.3%
0.6% 0.8%
0.5% 0.8%
10% 1.0% 4Music
0.9%
1.9% 1.0%
1.6% C4+1
8% 1.8%
1.2% 1.8%
1.3%
More4 Total
6%
Film4 Total
4% 7.9% 8.2% E4 Total
7.3% 7.4%
6.9% 6.8%
C4 + S4C
2%
0%
2003 2004 2005 2006 2007 2008
Source: BARB
To some extent, the story of Five’s share in multichannel homes has been similar to that of
Channel 4. The parent channel saw its share of viewer hours rise between 2003 and 2005,
peaking at 5.3%, but its share has fallen back since then (Figure 2.77). In 2008 it stood at
4.7%, down by 0.1 percentage points on 2007 and equal to its 2003 share. At the same time,
its two digital-only services, Fiver and Five USA (previously Five Life and Five US
respectively), have both managed to build market share since their launch in 2006. In 2008
they secured a 0.6% and 0.7% share of viewing, up by 0.2 and 0.1 percentage points
respectively year on year.
136

Figure 2.77 Five’s portfolio share in multichannel homes
Audience share
4.7% 5.1% 5.3% 5.1% 5.6% 5.9%
6%
0.7%
0.6%
5% 0.6%
0.4%
Five US/
4% Five USA
3% Five Life/
5.1% 5.3% Fiver
4.7% 4.9% 4.6% 4.7%
2%
Five
1%
0%
2003 2004 2005 2006 2007 2008
Source: BARB.
Note Fiver and Five USA include their +1 service shares
BSkyB’s portfolio share of viewing in multichannel homes has fallen consistently for the last
five years, contracting by 4.9 percentage points over the period to stand at 6.8% in 2008;
year on year its portfolio share fell by 0.8 percentage points (Figure 2.78).
Much of the reduction was driven by the declining popularity of Sky’s Film channels, where
share fell by over 50% between 2003 and 2008 to stand at 1.5% in 2008. Sky’s
Entertainment channels’ (Sky1, Sky 2 and Sky 3) share of viewing also contracted by nearly
50% over the same period, to stand at 2.1% in 2008. Some of this reduction was probably
explained by the disappearance of Sky’s basic-tier channels from the Virgin Media platform
for much of 2007 and 2008. It is to be expected that they will recover some ground in 2009
following their reappearance on the platform towards the end of 2008. Sky’s Sports services
continued to attract a substantial share of viewing in 2008 (2.6%) – and they have lost a
comparatively smaller 1.1 percentage points of share since 2003.
137

Figure 2.78 BSkyB portfolio share in multichannel homes
Audience share
11.7% 10.4% 9.2% 8.7% 7.6% 6.8%
12%
1.1% 0.3%
10% Sky Arts/Real Lives
0.6% 0.3%
3.3% 0.1%
0.6% Sky Travel
8% 2.9% 0.5% 0.1%
2.4% 0.5% 0.1%
2.7% 0.5% Sky News
6% 2.2%
3.5% 3.1% 2.1%
2.5% Sky One/Two/Three
4% 2.2% 1.6%
1.5% Sky movie channels
0.0%
2% 3.7% 3.6% 3.4% 3.2% 3.2% 2.6% Sky sports channels
0%
2003 2004 2005 2006 2007 2008
Source: BARB
UKTV’s channel portfolio was again dependent on a smaller number of more popular
channels in 2008, breaking the trend between 2004 and 2006 of share fragmentation among
a larger number of services (Figure 2.79).
The main driver was Dave, which by 2008 had attracted 1.2% of all viewer hours in
multichannel homes, up by 0.5 percentage points since 2007 and treble its share in 2006
(when it was branded as UK G2). At the same time, a number of the channels in UKTV’s
portfolio saw their share remain flat or fall slightly. The net result was an overall portfolio
share of 3.9% in 2008, broadly in line with the figure twelve months earlier and just 0.2
percentage points lower than the equivalent figure five years ago.
138

Figure 2.79 UKTV portfolio share in multichannel homes
Audience share
4.1% 4.2% 4.0% 4.0% 3.9% 3.9%
Other
4% 0.2% 0.2%
0.2% 0.3% 0.3% 0.2% 0.1%
0.3% 0.2% 0.4% UKTV G2/Dave
0.2%
0.3% 0.3% 0.7%
0.2% 0.5% 1.2% UKTV Drama/Alibi
3% 0.4% 0.3% 0.2% 0.6%
0.5% 0.2% UKTV
1.1% 0.1% 0.5% Documentary/Eden
0.8% 0.2%
0.6% 0.1% UKTV Food
2% 0.7% 0.3%
0.6%
0.4% 0.4% UKTV
0.4% History/Yesterday
0.3%
1% 1.9% UKTV Style
1.9%
1.6% 1.4%
1.2% 1.1% UKTV
Gold/G.O.L.D/Watch
0%
2003 2004 2005 2006 2007 2008
Source: BARB.
Note: UKTV portfolio channels have evolved over the past twelve months. In the 2008 figures, new
channel names and shares have been matched to old channels. Trends should be interpreted with
caution
Growth in Entertainment channels continues
Figure 2.80 illustrates the growing share of channels that fall into the Entertainment genre
(as defined by Sky’s electronic programme guide, excluding the five main PSB channels). It
reached an average of 21% in 2008, compared to 15% in 2003. Over the same period, the
number of channels in the Entertainment category rose by nearly two-thirds, to 39 channels
in 2008. But the expanding range of channels in the category did not lead to fragmenting
channel shares in this genre category. The most popular channels in the category continued
to hold on to much of their share, with the top ten channels in March 2009 accounting for
63% of the genre share, although reduced from the 79% they held in March 2004.
The number of channels in all other genre categories also rose over the period, but their
shares of viewing have all been in decline. The Lifestyle and Culture category experienced
the steepest fall; 53% over five years (down from 3% in 2003 to 1% in 2008). Music also
suffered a steep decline, with share falling by 46% over the period to 2% in 2008.
139

Figure 2.80 Aggregate share of channel genres in multichannel homes
Audience share
22% No. of channels
20% 2003 2008
Entertainment 24 39
18%
16% Childrens 13 20
14%
Sport 12 18
12%
Movies 14 24
10%
8% Documentaries 10 15
6%
Muisc 17 26
4%
Lifestyle and
2% 10 18
Culture
0%
March 2003 March 2004 March 2005 March 2006 March 2007 March 2008 March 2009
Source: BARB. Note: Number of channels doesn’t include +1 services
PSB portfolio channels remain popular with viewers
Figure 2.81 sets out the ten channels in multichannel homes which gained the most share in
percentage point terms in 2008, along with the ten channels which lost the most share. Half
of the top ten gainers were part of a PSB portfolio, including BBC One, which gained the
second-highest absolute share in 2008 (0.5 percentage points), just slightly lower than
UKTV’s Dave which accumulated a further 0.6 percentage points in 2008.
Of the channels which lost share in 2008, ITV1 shed the highest absolute amount. This
channel, along with BBC Two (which ranked sixth) were the only PSB services among the
top ten losers; they included Sky Sports 1, and the UKTV Channels G.O.L.D. and Yesterday.
Figure 2.81 Multichannel audience winners and losers, 2007 to 2008
Dave, 0.55
BBC1, 0.47
Virgin1, 0.34
ITV4, 0.26
ITV3, 0.25
More4, 0.22
Playhouse Disney, 0.19
DMAX , 0.16
Fiver, 0.15
Setanta Sports 1, 0.14
Trouble, -0.1
Boomerang, -0.12
Sky 1, -0.12
Living, -0.13
QVC, -0.14
BBC2, -0.16
Yesterday, -0.17
G.O.L.D., -0.26
Sky Sports 1, -0.33
ITV1, -0.34
-0.6% -0.5% -0.4% -0.3% -0.2% -0.1% 0.0% 0.1% 0.2% 0.3% 0.4% 0.5% 0.6%
Source: BARB. Note: includes channels’ +1 services and shows percentage point change in channel’s
share of multichannel audience between 2007 and 2008.
140

Perhaps the most striking feature of the top-twenty channel line-up during 2008 was the
degree to which the top ten most-watched channels remained completely unchanged year
on year. Besides the five main PSB channels, ITV2, ITV3, Sky Sports 1, CBeebies and E4
continued to occupy the top ten slots in the same positions. There was, however, movement
among those channels that ranked in the second half of the top twenty, with only BBC Three
holding the same place in 2008 as in 2007.
Reflecting its growing popularity with audiences, Dave emerged as the eleventh most
popular channel in multichannel homes in 2008, up by nine places. More4 and ITV4 also
rose, by three and four places respectively, between 2007 and 2008 to rank as the thirteenth
and seventh most popular channels. .
Figure 2.82 The top channels by share in multichannel homes – 2007 to 2008
Share Rank Share Rank
Channel 2008 2008 2007 Channel 2008 2008 2007
BBC One 20.4% 1 1 Dave 1.2% 11 20
ITV1 17.2% 2 2 BBC Three 1.2% 12 12
Channel 4 7.4% 3 3 More 4 1.0% 13 16
BBC Two 7.0% 4 4 Film 4 1.0% 14 15
Five 4.7% 5 5 Sky One 1.0% 15 13
ITV2 2.4% 6 6 G.O.L.D 0.9% 16 11
E4 1.8% 7 7 ITV4 0.9% 17 21
ITV3 1.7% 8 8 Living 0.9% 18 14
Sky Sports 1 1.4% 9 9 BBC News 0.8% 19 17
CBeebies 1.3% 10 10 Disney Channel 0.8% 20 18
Source: BARB
Note: includes channels’ +1 services. Channels are highlighted if their position has increased or
decreased by three slots or more. Direction of arrow indicates whether a channel has moved up or
down the rankings.
Platform and channel demographics
Just 35% of analogue-only adult viewers are now aged 44 or under, compared to 53% of the
UK population (down by four percentage points on 2007). It is possible that the analogue
television viewing universe is growing older because younger viewers continue to migrate to
digital television platforms more rapidly. Perhaps reflecting the popularity of Freeview among
older viewers, people over 65 accounted for an increasing proportion of those claiming
access to Freeview in 2008, up by three percentage points year on year to 25% in 2008
(compared to 19% of the population). The demographic profiles of satellite and cable
viewers remained largely stable over the same period.
In a similar vein, the socio-demographic profile of the analogue-only viewing audience
skewed progressively towards the DE demographic during 2008. This segment accounted
for 41% of the platform’s total audience (up from 36% in 2007), while making up only 27% of
the population. And Freeview’s demography also suggested that among those in the DE
category who migrated to digital, DTT was a popular choice. They accounted for 30% of the
platform’s viewers in 2008, up by three percentage points in 12 months, and compared to
just 27% of the population as a whole.
141

The modest increase in the average hours of viewing per day (from 3.5 hours/day in 2007 to
3.7 hours/day in 2008) for analogue-only homes might also be explained by the progressive
ageing of the population of analogue television viewers.
Figure 2.83 Platform demographics by age, social grade and viewing hours, 2008
% platform profile
Average Hours per day
65+ 45-64 25-44 15-24 DE C2 C1 AB
100% 5
19% 13% 12%
25% 27% 30% 24% 24% 7
. 6 7
. 7
.
3 . 3 3
80% 39% 41% 3 4
28% 32%
29% 18% 20% 18%
60% 28% 19% 3
27% 14%
30% 29% 33%
40% 44% 41% 30% 2
37% 32% 26%
19%
20% 1
25% 22% 28% 25%
16% 16% 15% 15% 15% 20%
0% 0
Source: Ofcom and BARB
Figure 2.84 plots the age and gender audience profile of the largest general Entertainment
channels in multichannel homes, calculated relative to the adult TV population average. The
majority of Entertainment channels attracted a younger-skewed audience, spread across
both female and male groups. But with the exception of Channel 4, the main PSB channels
tended to appeal more to older audiences, and all the commercial terrestrial channels were
female-skewed, while BBC One was evenly split and BBC Two attracted more men. The
only other channels which fell securely into the older-male quadrant were BBC Four, and to
a lesser extent ITV4 and BBC HD.
BSkyB’s entertainment channels all sat within the younger male quadrant, alongside
channels such as the Comedy Central channels, Virgin 1, DMax, Bravo, Dave and Men &
Motors. Channels such as Living TV, E4 and Fiver attracted a younger female audience.
142

Figure 2.84 Age and demographic profile of Entertainment channels in multichannel
homes
Male
ITV4
Men &
Bravo 2
Dave Virgin 1 Motors
BBC HD
Comedy Central 2
Sky Two Bravo BBC Four
Sky One
Comedy Sci-Fi
DMax
Central G.O.L.D BBC Two
BBC3 Sky Three
Younger Watch Five USA Older
More4
MTV R BBC One
Channel 4 Five Alibi
Challenge
Trouble E4 ITV2 ITV1 ITV3
Fiver
Living TV Living TV 2 Hallmark
Female
Source: Ofcom and BARB
Note: The profile of a channel is calculated relative to the television population in multichannel homes.
Includes channels’ +1 services
2.3.8 Consumer attitudes toward television
Older viewers more likely to believe TV content has deteriorated in quality over 2008
Ofcom research found that the majority (53%) of adults believed that TV programmes had
neither improved nor deteriorated in quality in the last year (the survey was carried out in
April and October 2008); 32% believed that they had deteriorated – or ‘got worse’ - and 13%
said that they had improved during the course of the year (Figure 2.85).
The proportion of respondents who believed that content had worsened rose with age, with
viewers in the 65+ category being more than twice as likely as those aged 15-24 to believe
that programming had deteriorated (46% versus 19%). The reverse was true for those
believing that programmes had got better, with 18% of 15-24 year olds expressing this view
versus just 7% of over-65s.
143

Figure 2.85 Consumer attitudes towards television programmes over 2008, by age
% of respondents
100% 3% 4% 3% 2% 2%
13% 11% 7%
18% 14%
Don't know
80%
44%
60% 52% Improved
53%
54%
59%
40%
Stayed the same
46%
20% 35%
32% 29%
19% Got worse
0%
Total 15-24 year 25-44 year 45-64 year 65+
olds olds olds
Source: Ofcom research, fieldwork carried out by Continental Research, April and October 2008
T50 – Do you feel that over the past year, television programmes have improved, got worse or stayed
about the same? Base: All adults aged 15+ (1987) (333 aged 15-24, 732 aged 25-44 ,597 aged 45-
64, 325 aged 65+)
Of those surveyed who believed that programmes had worsened, 62% cited the increased
number of repeats as a reason for this, with only minor variations between age groups
(Figure 2.86).
Thirty-four per cent stated that there was a lack of variety on TV, with the younger age
groups in particular highlighting this as an issue (43% of 15-24 year olds and 41% of 25-44
year olds). A higher proportion of respondents in the older age groups believed that
programmes had deteriorated due to the inclusion of more violence (20% of over-65s) and
bad language (23% of over-65s) compared to the averages across all age groups (15% and
14%).
144

Figure 2.86 Reasons why TV programme quality deteriorated in 2008
% of respondents
All adults 15-24 25-44 45-64 65+
70% 65%64%
62% 63%
59%
60%
50%
43%
41%
40% 34%
28%
30% 26%
23%
20%
17% 18%
20% 15% 14% 14% 15%
12% 13%
9% 10%
7% 8%
10% 6%
0%
More repeats Lack of variety More Violence More bad language Too many reality
programmes
Source: Ofcom research, fieldwork carried out by Continental Research, April and October 2008.
Question – In what ways do you think the television programmes have got worse over the past year?
Base: All adults 15+ saying TV has got worse over the past year (634 ) (62 aged 15-24, 210 aged 25-
44 , 212 aged 45-64, 150 aged 65+)
Figure 2.87 illustrates that of those who were able to block access to certain television
channels, 71% claimed they had never done so, with men being more likely than women to
say they had never used this functionality (77% versus 64%). A higher proportion of women
claimed that they used the device to block content every day (15%); over double the figure
for male respondents (7%).
Figure 2.87 PIN/password-protected TV, 2008
% of respondents
100%
Don't know
80%
Never used it
64%
60% 71% 77% Have tried it
before
Once a month
40%
11% Once a week
9% 4%
20% 8% 4%
4%
4% 3% Everyday
3% 15%
10% 7%
0%
Total Male Female
Source: Ofcom research, fieldwork carried out by Continental Research, April and October 2008.
Question – How often, if at all, do you use this system? Base: All adults 15+ with a feature which
enables them to block access to certain channels (760) (390 Male, 370 Female)
145

The Communications Market
2008
3
3 Radio
147

Contents
3.1 Key market developments in radio 149
3.1.1 UK radio industry key metrics 149
3.1.2 Digital radio listening 150
3.1.3 Performance of BBC and commercial radio 152
3.1.4 Listening patterns by age group 154
3.1.5 Key policy developments during 2008/09 155
3.2 The radio industry 159
3.2.1 Industry revenues and expenditure 160
3.2.2 Commercial radio groups’ performance and market shares in 2008/09 162
3.2.3 The performance of the BBC’s radio services in 2008/09 168
3.2.4 Radio licences 170
3.2.5 DAB availability and station choice 176
3.2.6 Restricted service licences 178
3.3 The radio listener 181
3.3.1 Radio reach 181
3.3.2 Listening hours 182
3.3.3 Most listened-to radio stations 184
3.3.4 Radio ownership and listening trends 188
3.3.5 The impact of the internet on radio listening 191
3.3.6 Location of listening 193
3.3.7 Satisfaction with radio services 193
148

3.1 Key market developments in radio
3.1.1 UK radio industry key metrics
UK radio industry 2003 2004 2005 2006 2007 2008
Weekly reach of radio (% of population) 90.5% 90.3% 90.0% 89.8% 89.8% 89.5%
Average weekly hours per head 22.1 21.9 21.6 21.2 20.6 20.1
BBC share of listening 52.8% 55.5% 54.5% 54.7% 55.0% 55.7%
Total industry revenue (£m) 1,128 1,158 1,156 1,126 1,175 1,148
Commercial revenue (£m) 543 551 530 512 522 505
BBC expenditure (£m) 585 607 626 614 653 643
Radio share of advertising spend 3.6% 3.5% 3.3% 3.0% 2.9% 2.8%
Number of stations (analogue and DAB) 357 364 372 389 397 389
DAB digital radio take-up (households) 2% 5% 10% 16% 22% 30%
Source: Ofcom technology tracking study, RAJAR (all individuals age 15+), BBC, WARC, radio operators 2008
This section explores developments and trends in the UK radio market. Some of the key
findings are:
 Total UK radio industry funding stood at £1.15bn in 2008, down by 2.3% on
2007. This followed a fall in commercial revenues of 3.3% to £505m and we estimate
that the BBC reduced its radio spend by 1.5% to £643m (accounting for a 56% share
of all radio income/spend) (page 160).
 In June 2009, the Government’s Digital Britain report was published,
recommending the ‘digital migration’ of the majority of radio services in the UK, with a
proposed target of 2015. It specified an interim 2013 milestone of 50% of all radio
listening to be through a digital platform and targets for national DAB coverage to be
comparable to FM and for car manufacturers to be installing DAB sets as standard
(page 155).
 By Q1 2009 digital radio platforms attracted just over a fifth (20.1%) of all radio
listening hours, up from 17.8% in Q1 2008. The majority (63%) of digital listening
was through a DAB digital radio set, and this platform alone accounted for 12.7% of
all radio listening. Digital television delivered a further 3.4% and the internet 2.2%
(page 150).
 Cumulative sales of DAB digital radio sets passed 9 million by Q1 2009 (up from
almost 7 million in Q1 2008). RAJAR estimates that almost a third (32%) of UK adults
owned a DAB set by the end of Q1 2009, up by five percentage points on the
previous year (page 151).
 A third of adults had listened to the radio online, according to the RAJAR internet
and audio services survey carried out in May 2009. This was up from 29% a year
earlier and 24% 18 months ago (page 151).
149

3.1.2 Digital radio listening
One fifth of all radio hours now through a digital platform
The increasing take-up of digital media platforms has had a significant effect on how people
listen to radio. In addition to DAB, digital radio services can also be received through digital
television decoders (where take-up had reached 89% by the end of Q1 2009), and also
using the internet (where residential penetration reached 70% in Q1 2009, of which
broadband accounted for the majority (65%)).
The result has been that 20.1% of all listener hours in Q1 2009 were delivered through a
digital platform, up by 2.3 percentage points in the year. DAB digital radio accounted for
most of this digital growth, up by 1.9 percentage points on Q1 2008 to 12.7%. Digital
television was the second most commonly-used digital platform, making up a further 3.4% of
all listener hours. Listening online took a further 2.2% share of all radio hours, with a small
element of “non-defined” digital listening making up the remainder (Figure 3.1).
Figure 3.1 Digital radio’s share of total radio audience, Q1 2009
25
20
15
12.7%
10 20.1%
5 3.4%
7.4
2.2%
4
1.8 1.8%
0
All digital DAB DTV Internet Digital unspecified
Source: RAJAR (adult listeners 15+), Q1 2009
One-third of adults now have access to DAB radio at home
Cumulative sales of DAB digital radio sets passed the 9 million mark by Q1 2009, with
RAJAR estimating that almost a third of UK households (32%) owned a DAB radio set by
March 2009 (Figure 3.2). This grew from only 4% of homes five years ago and was up by 5
percentage points over the last year. DAB sales now account for a quarter of all radios sold,
and 62% of all portable radios sold in the year to Q1 2009. Sixteen per cent of adults said
they were likely to purchase a DAB set over the coming year according to Ofcom research
carried out in Q1 2009. Across the UK, take-up varied by city; it rose as high as 52% in
Derby and stood at 47% in Cardiff and 32% in Edinburgh. It was lower in Norwich (24%) and
Derry/Londonderry (17%).
150

Figure 3.2 Ownership of DAB set
Percentage of adults who claim to own a DAB set / have a DAB set in the home
40%
30%
20%
32%
27%
10% 20%
14%
8%
4%
0%
Q1 2004 Q1 2005 Q1 2006 Q1 2007 Q1 2008 Q1 2009
Source: RAJAR / Ipsos MORI / RSMB Q1 2009
A third of adults have listened to radio via the internet
RAJAR carried out a survey of internet-delivered audio services in May 2009. It revealed that
nearly a third (33%) of respondents (adults 15+) now claim to have listened to radio via the
internet, (either live or listen-again services). This was up by around four percentage points
from a year previously, and up 9 percentage points over the 18 months since October 2007
(Figure 3.3).
Of the 16.9 million people listening online in May 2009, 15.9 million (31% of adults) said they
were listening to live radio, with 13.8 million (27%) using listen-again services (i.e. listening
to stored archived radio programmes or seven day catch-up content). Seven in ten users of
listen-again services said that this was additional to live listening, and half said they now
listened to radio programmes which they did not listen to previously.
In addition, 3.9 million people (8%) claimed to have used personalised online radio (POR)
services such as Last.fm, with 2.4 million (5%) using these services every week. Around a
million adults (2%) in May 2009 claimed to have a WiFi radio set (a stand-alone radio set
which connects wirelessly to the internet to provide access to any internet radio service),
with just over seven million (14%) claiming to have heard of WiFi radio.
Figure 3.3 Listening to radio via the internet
Per cent of adults
24% 29% 32% 33%
Internet users (millions)
20
16.1 16.9
14.5
15 12.0
10
5
0
Oct 2007 May 2008 Oct 2008 May 2009
Source: RAJAR / Ipsos MORI, ‘Measurement of Internet Delivered Audio Services (MIDAS 4)’, conducted during
May 2009, and previously October 2008, May 2008, and October 2007
151

Podcasting also increased; almost 8 million users by May 2009
RAJAR has also found that listening to podcasts was also becoming more widespread, with
7.8 million internet users (equivalent to 15% of adults) having downloaded a podcast by May
2009, up from 6.0 million (12% adults) twelve months earlier. Podcasting was a weekly
activity for 4.2 million (8% adults) internet users, up from 3.7 million (7% adults) a year
previously (Figure 3.4).
Figure 3.4 Listening to podcasts
Per cent of adults
8% 4% 12% 7% 14% 8% 15% 8%
Have downloaded a podcast Podcast every week
7.8
8 7.2
Internet users (millions)
6.0
6
4.3 4.1 4.2
3.7
4
1.9
2
0
Oct 2007 May 2008 Oct 2008 May 2009
Source: RAJAR / Ipsos MORI, ‘Measurement of Internet Delivered Audio Services (MIDAS 4)’, conducted during
May 2009, and previously October 2008, May 2008, and October 2007
The survey also found that, on average, listeners subscribed to 5.2 podcasts per week, up
from 3.6 a year previously, with comedy and music the most-downloaded genres. Three-
quarters of respondents claimed that listening to podcasts had not reduced their listening to
live radio stations, and over a third (36%) said that they now listened to more radio
programmes as a result of podcasting. Around 4.5% of users said that they had paid for a
podcast at some time, while a third of respondents said they would consider paying for a
podcast that was advert-free.
iTunes was the most widely-used podcasting software, used by 70% of users, while 16%
said they downloaded directly from a website via their browser. Around three-quarters (76%)
had listened via their home PC and 64% using a portable audio/MP3 player.
3.1.3 Performance of BBC and commercial radio
BBC Radio’s share of listening rose again in 2008 to 55.7%
The BBC’s share of total radio listening increased again in 2008, up by 0.7 percentage
points (pp) to 55.7%, while commercial radio accounted for 42.2%, with ‘other’ listening
(community radio, unmetered listening) making up the remainder. The BBC’s share of hours
has risen consistently over the past three years, and was up by 2.9pp from 52.8% in 2003.
Over the same period, commercial radio’s listening share fell by 3.0pp to 42.2%, and was
down by 0.6 pp on the year (Figure 3.5).
Commensurate with falling listening share, commercial radio revenues were down by around
3.4% to £505m during 2008. The latest operator data suggest that this trend has continued
into 2009, as advertisers cut budgets against the backdrop of the wider economic downturn;
by Q1 2009 commercial radio revenues had fallen by 11% year on year. The BBC’s
152

expenditure on radio was also down; we estimate spend of £643m in 2008, down by £10m
(1.5%) on the previous year.
As falls in the commercial sector were marginally greater than the drop in licence fee spend,
the BBC’s share of industry funding rose by 0.4pp to 56.0%, just above its audience share
(55.7%). The commercial sector’s share of funding stood at 44.0% in 2008, also ahead of
listening share (42.2%).
Figure 3.5 BBC and commercial radio share of listening and funding
Share of listening hours / share of radio funding
80%
56.0% BBC radio
60% 52.8% 53.5% 54.5% 54.5% 55.6% share of funding
53.0%
52.6% 51.9% 52.4% 54.2% 54.7% 55.0% 55.7% BBC radio
share of hours
40% 47.0% 48.1% 47.6%
45.8% 45.5% 44.4% 44.0%
45.5% 45.2% 44.6% 43.5% 43.1% Commercial radio share
42.8% 42.2% of funding
20% Commercial radio
share of hours
1.9% 2.0% 1.9% 2.0% 2.2% 2.2% 2.1% Other radio hours
0%
2002 2003 2004 2005 2006 2007 2008
Source: Listening data based on RAJAR (Adults 15+). Funding share data based on commercial radio revenues
and estimated BBC expenditure on radio for 2008
Note: ‘Other’ radio hours includes including independent stations, local community and RSL services
Radio listening down in 2008; commercial hours fell furthest
Total radio listening fell by 1.7% in 2008, with BBC stations losing 0.5% of hours and
commercial radio down 3.2%. Across the industry, only the BBC’s network (nation-wide)
stations experienced an increase in listener hours, up by 0.8% year on year, benefitting from
the availability of all 11 of its national stations across all digital platforms. By contrast,
listening to BBC local radio was down by 6.2%, the largest proportional fall within the radio
sector in 2008. Local commercial radio hours also fell over the year (by 2.8%) while the
national commercial stations saw their hours fall for the first time in 2008, by 4.5%. This was
partly due to share reductions at Absolute Radio’s (formerly Virgin’s) national station, but
also because fewer commercial stations are available on the national DAB multiplex (only
four were present for most of the year).
153

Figure 3.6 Change in listening hours 2007-2008, by sector
Share of all radio hours: 100% 55.7% 42.2% 46.2% 9.5% 10.9% 31.3%
10%
All Radio All BBC All Commercial BBC network radio BBC local / national National commercial Local commercial
Percentage change in listening hours
5%
0.8%
0%
-0.5%
-1.7%
-5% -3.2% -2.8%
-4.5%
-6.2%
-10%
Source: RAJAR, (all listeners aged 15+). Data based on calendar year 2008 versus 2007
3.1.4 Listening patterns by age group
People aged under twenty-five led the fall in listening hours during 2008
During 2008, the amount of time people spent listening to radio continued to fall across most
age groups, with all adult listening down 1.7% to 20.1 hours/week in 2008. According to
RAJAR, average listening for all adults aged 15+ stood at 20.1 hours a week over 2008,
down by two hours from 22.1 hours five years ago, and down by around half an hour on
2007. By comparison, television viewing was up during 2008, with average viewing at 24.2
hours per week, up from 23.7 the previous year and similar to 24.1 hours five years
previously.
The reduction in radio listening hours was more pronounced among younger people, with
15-24s and children’s hours falling by 4% during 2008. Among 25-44 year-olds listening fell
by 3%, while over 55s’ hours contracted by 1%. The only age group where hours grew (by
1%) was among listeners aged 45-54.
Figure 3.7 Changes in listening hours, 2008 versus 2007, by age group
Share of all radio hours: 93.4% 6.6% 11.8% 12.7% 17.2% 16.5% 35.1%
All adults 15+ Children 4-14 15-24 25-34 35-44 45-54 55+
Percentage change in listening hours
2%
1.1%
0%
-2% -1.3%
-1.7%
-2.8% -2.9%
-4%
-4.1% -4.0%
-6%
Source: RAJAR, data based on calendar years 2007 – 2008
154

3.1.5 Key policy developments during 2008/09
In 2008/09 a number of major initiatives for the future of radio were set out with the aim of
creating a unified approach to future radio strategies and technologies and preparing radio
for the new digital environment.
The Government’s Digital Britain report proposed digital migration by 2015
This Government report, published in June 2009, set out policy for digital media and
communications services in the UK, and contained a number of proposals of relevance to
the radio industry:
 The upgrade of all national and large local radio services to digital-only formats (DAB
radio), with a proposed date of 2015. Analogue frequencies to be maintained for the
provision of local community and other small local commercial services.
 A recommendation that car manufacturers should aim to install DAB radio sets as
standard, with a proposed target date of 2013.
 The report set out two main criteria to be fulfilled to initiate digital migration;
1) when 50% of radio listening is via digital platforms; and
2) when national DAB coverage is comparable to FM coverage, and when local
DAB reaches 90% of the population and all major roads.
 The Government proposed that these criteria should be met by the end of 2013.
The Government also recommended new legislation to help increase DAB coverage by
allowing existing local multiplexes to extend their coverage into areas currently un-served,
while also allowing for multiplexes to merge where appropriate, with the possibility of the
regional multiplexes consolidating and extending to form a second national multiplex.
Alongside the digital migration proposals, the Digital Britain report also included
recommendations to help secure the provision of local content in radio while taking account
of the economic factors facing local operators. It asked Ofcom to consider a relaxation in
areas of local ownership and location rules, as well as considering a reduction in the ratio of
local hours produced in exchange for an enhanced commitment to regular and updated local
news bulletins. Many of these changes require new legislation.
The Radio Council formed in April 2009, incorporating public and private sectors
Established in April 2009, The Radio Council comprises industry leaders from the BBC and
commercial radio groups (including Global Radio, Bauer Media and GMG), in association
with the industry body The Radio Centre. The group was set up to coordinate radio activities
and technologies and to develop a unified approach to new services across the public and
commercial sectors. The Council outlined three initial cross-sector digital projects including:
 develop an online live radio player – an open platform that streams all live UK radio
in one place;
 develop a common user interface and electronic programme guide (EPG) for
listeners across all devices – DAB, DTV, online and mobile phones; and
 develop a calendar of exclusive digital-only content for listeners on DAB.
155

Another project is to develop a standardised industry-wide radio recording / catch-up service
- Radio Plus, which would operate in a similar way to digital video recorders (DVRs) such as
Sky + and Virgin’s V+ services. This would allow users to record radio programmes in
advance, using a programme schedule, and listen to them at a later time, with pause and
rewind functionality, as well as the ability to store programmes. The chairmanship of The
Radio Council is expected to rotate annually between the BBC and its commercial
counterparts.
Ofcom consultations on radio:
Ofcom currently has three consultation documents with particular relevance for radio. These
are:
1. Broadcasting Code Review (published 15 June 2009) – This consultation, which
includes both television and radio, includes proposals for reforming the Broadcasting Code,
to reflect changes in society and in the broadcasting and regulatory environment. In
particular, it considers replacing Code Section Nine (Sponsorship) and Code Section Ten
(Commercial References) with a new Section Nine on Commercial References in Television
Programming and a new Section Ten on Commercial References in Radio Programming.
The new Section Ten would include three new sets of rules regarding:
 Content-related promotions - proposals to allow a brief offer of further information, or
offer for sale, of a product or service that is directly associated with specific content
and funded by a third party.
 Venue-sponsored outside broadcasts - proposals to allow the sponsorship of outside
broadcasts by the venue or venue owner.
 Sponsored listener competition features - proposals to allow sponsor references to
form part of listener competition features.
2. Media Ownership Rules Review (published Friday 31 July) – This consultation forms
part of our statutory review of the media ownership rules for the Secretary of State for
Culture, Media and Sport. It proposes to recommend, subject to consultation:
 To remove the local radio service ownership rules and the local and national radio
multiplex ownership rules. Removal would reduce regulation on an industry facing
difficult market conditions and may allow stations opportunities to be more viable.
New research also shows a majority of consumers are not concerned about single
ownership within local commercial radio.
 To liberalise the local cross media ownership rules so that the only restriction is on
one organisation owning all three of: a local newspaper (with 50%+ share), a local
radio station and Channel 3 licence. This liberalisation will increase the flexibility of
local media to respond to market pressures. Consumers still rely on television, radio
and press for news, so going further to complete removal of the rules could reduce
protections for plurality.
3. Radio – the implication of Digital Britain for localness regulation (published 31 July
2009) – This consultation follows on from the publication of the Government’s Digital Britain
final report and consults on how some of the changes it recommends would be implemented
if Parliament decides to adopt Digital Britain’s recommendations within a Digital Economy
Bill. The proposals being consulted on (many of which require new legislation) include:
156

 Allowing regional stations to share all of their programming in return for offering a
version of that service on a national DAB multiplex. Also allowing regional DAB
multiplexes to merge and expand to form a new national DAB multiplex (subject to
spectrum being available). This would facilitate the creation of new national
commercial radio stations.
 Allowing stations to co-locate within new defined areas. Stations may also request to
share all of their programming within these defined areas and local multiplex
operators may request to share all programming across those areas. These
proposals are aimed at helping to secure a tier of local stations across the UK,
balancing local interests against the need for scale to help viability.
 Preparing for a new tier of ultra-local services, building on the success of community
radio but also including small-scale commercial stations.
Community radio continues to develop across the UK
By July 2009, 205 community radio licences had been awarded, with 141 of these already
broadcasting at the time of going to press. Ofcom estimates that around 6.5 million adults (or
8.1 million people including children) are now able to receive a community radio station
relevant to them, in terms of being either a general audience service for the locality or a
more targeted service for a particular interest group. This is equivalent to around 15% of
adults being served by each community station. In March 2009 Ofcom published its annual
report on the community radio sector, providing insight into the operations of the sector and
an overview of revenue streams for community stations. The report found that the largest
single source of income was from grants (45%), chiefly from public bodies and local
authorities, followed by advertising and sponsorship (20%), while donations added 12% and
service level agreements with other organisations a further 11%.
157

3.2 The radio industry
This section examines the UK radio industry, focusing on its financial performance (including
commercial revenue and BBC expenditure) and the audience shares of the main players by
sector. It includes a review of the main market developments during 2008/09 and a round-up
of the licences awarded by Ofcom during 2008/09.
Key points in this section include:
 Total UK radio industry funding stood at £1.15bn in 2008, down by 2.3% on
2007, driven by falling commercial revenues and also by reduced spend by the BBC
on radio. We estimate that BBC radio expenditure accounted for around £643m in
2008, down by £10m in 2007, accounting for 56% of all radio income/spend in 2008
(page 160).
 Total commercial radio revenue was down by 3.4% (£17m) at £505m in 2008; it
was also down by 7% on the £543m generated in 2003. By Q1 2009 the year-on-
year reduction had risen to 11% (page 160).
 Expenditure on radio advertising was down by 13% in 2008, according to the
WARC. Radio’s share of display advertising fell to 2.8% down by 0.1 percentage
points (pp) since 2007, and down by 0.7pp since 2003. By comparison, TV
advertising expenditure was down by 0.3pp to 23.2% in 2008, while internet spend
was up on the year, by 3.9 pp to 20.3% of all display advertising (page 161).
 The commercial radio industry experienced ongoing consolidation during the
past year with a number of sales and acquisitions among radio groups. UKRD
assumed control of The Local Radio Company (TLRC) in March 2009. The Laser
Broadcasting group went into administration in Autumn 2008 and its licences were
transferred to new owners. CN Group also sold its five Midlands licences to Quidem
Midlands Ltd in the year. The largest commercial group, Global Radio, re-branded
thirty local stations as Heart as the group outlined plans to focus on developing its
main brands (page 163).
 The commercial radio stations’ share of all radio listening stood at 41.6% by Q1
2009, (41.1% Q1 2008), of which local commercial licensees accounted for 31.3%
and national commercial stations for 10.2%. The enlarged Global Radio group,
(incorporating the former GCap and Chrysalis stations), attracted a share of 16.9% of
all radio hours by Q1 2009 (17.0% in Q1 2008), while Bauer Radio group’s market
share stood at 10.6% (10.3% Q1 2008). The shares of other leading groups included
GMG (4.7%), UTV (2.9%), Absolute (1.2%), and TLRC (0.5%) (page 164).
 Twenty-one new community radio licences were awarded in the six months to
June 2009, covering a number of regions in England including the Midlands, the
North West, the East and the South East. By July 2009, Ofcom had awarded a total
of 205 community radio licences, with 141 stations already on air. Licences are still to
be awarded for community stations in Greater London and areas within the M25,
within the current second round of licensing (page 172).
159

3.2.1 Industry revenues and expenditure
Radio funding down 2.3% to £1,148m in 2008
Ofcom estimates that total radio revenue in 2008 was around £1.15bn, down by 2.3%
(£27m) on last year. This compares to £11.2bn of revenue in the TV industry for 2008, up
1.3% in the year. The radio revenue figure comprises all reported commercial radio revenue,
together with our estimate of the BBC’s expenditure on its radio services.
BBC spend on radio of £643m in 2008 was down by £10m (1.5%) year on year, although up
by £58m (9.9%) on 2003. By comparison, BBC expenditure on TV also dropped, by 1.2% to
around £2.6bn in 2008, equivalent to 23% of the total TV industry revenue. BBC expenditure
continues to form the largest single source of funding for the radio industry.
Total commercial radio revenues were down in 2008, with income of £505m, falling by £17m
(-3.4%) on 2007. Revenues in 2008 were also lower than five years ago; down 7% from
£543m in 2003. By Q1 2009 the annual fall in commercial revenue had risen to 11%, as the
economic environment continued to exert an influence over advertising budgets.
Of the £505m generated in 2008, national advertising sales accounted for £254m, down by
£17m (-6.3%) in the year. Local commercial sales reached £147m, down by £9m (-5.8%) on
2007. Sponsorship bucked this trend, with revenue up by £7m (7.3%) to £103m in 2008.
Sponsorship has become a growing component of commercial revenues in recent years,
aided by newer digital revenues from websites and other areas such as competition
sponsorship (Figure 3.8).
Figure 3.8 UK commercial radio revenue and BBC radio spending
£ million
1156 1175
1,200 1128 1158 1126 1148 Total
1,000 BBC expenditure
(estimated)
800 653 Total commercial
585 607 626 614 643
600 National
543 551 530 commercial
400 512 522 505
306 286 274 268 271 254 Local commercial
200 163 177 169 156 147
153
Commercial
88 87 91 96 103 sponsorship
0 75
2003 2004 2005 2006 2007 2008
Source: Ofcom / operator data / BBC
Notes: BBC expenditure figures are estimated by Ofcom based on figures in the BBC’s annual report; figures in
the chart are rounded
Chart-led and Adult Mainstream stations account for two-thirds share of commercial
revenue
The largest share of revenue by station format is held by the Chart-led and Adult Mainstream
(RAJAR classification) genres, which together accounted for 63% of commercial analogue
net broadcasting revenue in 2008. This collective share was similar to 2003 (64%), but
Chart-led stations have taken an increasing share within that total. Specialist stations
experienced an increase in their share of revenue over the same period, up by three
percentage points to account for 20% of revenues (Figure 3.9).
160

Figure 3.9 Commercial net broadcasting: revenue share
100% 1% 3%
6% 6% 1% Ethnic
6%
11% Specialist Music - Other
80% 8%
8% 7%
Specialist News/Speech
8% 9%
60% 8% 6% Specialist Music - Youth Orientated
16% 35+/Gold
40% 31% Unknown
Adult mainstream and Chat
20% 42%
Chart led mainstream
24%
Adult mainstream
0%
2008 2003
Source: Ofcom
Radio’s share of advertising expenditure down in 2008
Expenditure on radio advertising was down by 13% in 2008, according to the World
Advertising Research Council (WARC), and radio’s share of display advertising fell to 2.8%,
down by 0.1 percentage points since 2007 and by 0.7 percentage points since 2003. By
comparison, TV advertising expenditure was down by 0.3 percentage points to 23.2% in
2008, while internet spend was up on the year, by 3.9%, to 20.3% of all display advertising.
Looking forward, WARC forecasts that radio advertising spend will fall by 7.7% in 2009,
slightly better than the forecast for the wider display sector, with an 8.5% drop forecast for
2009. Expenditure on radio in 2010 was expected to be similar to levels in 2009.
Figure 3.10 UK radio advertising spend and share of display advertising, 2002 - 2008
Revenue £m Share of all advertising
£600m 3.5% 4%
3.4% 3.4%
3.2% 3.5%
£500m 3% 2.9% Radio advertising
2.8% expenditure
3%
£400m
2.5%
£300m 2%
£480m £506m £518m £485m
£437m £442m 1.5% Radio share of all
£200m £391m
display
1%
advertising
£100m
0.5%
£0m 0%
2002 2003 2004 2005 2006 2007 2008
Source: The Advertising Forecast, WARC
Note: Chart uses year 2000 prices
Commercial radio revenue per listener fell by 3.4% in 2008
By dividing the total revenue generated by the commercial radio sector by the average
weekly listener reach, it is possible to derive estimates of revenue per listener. This stood at
£16.24 in 2008, down by £0.57 (3.4%) on last year’s figure (£16.81), and down by £0.91
(5.3%) on five years ago – driven by the reductions in advertising expenditure.
161

Figure 3.11 Commercial radio revenue per listener
£ per listener
20
£17.15 £17.60 £17.13 £16.59 £16.81 £16.24
15
10
5
0
2003 2004 2005 2006 2007 2008
Source: Operator data and RAJAR
3.2.2 Commercial radio groups’ performance and market shares in 2008/09
Commercial radio groups consolidated during 2008/09
The commercial radio industry saw ongoing consolidation during the past year with a
number of sales and acquisitions.
 The Laser Broadcasting group went into administration in autumn 2008 with the
licences that it previously controlled were either transferred or undergoing a change
of control.
 CN Group sold its five Midlands licences to Quidem Midlands Ltd in the year.
 UKRD assumed control of The Local Radio Company (TLRC) in March 2009. The
deal was worth £1.24m, with UKRD having previously owned a 13.5% stake in the
group. Both UKRD and TLRC had disposed of a number of stations earlier in the
financial year, leaving the new, combined group with 21 stations.
 The largest commercial group, Global Radio, re-branded thirty local stations as Heart
as the group outlined plans to focus on developing its main brands. This therefore
creates a synchronised Heart network across the UK, with many programmes being
shared across the stations but also with localised breakfast and drive-time
programming.
Four commercial groups own almost half of commercial licences
Over the past two years there have been significant changes in the commercial radio
ownership landscape, with three of the top six radio groups changing hands and the two
largest commercial groups, Global and Bauer, both now in private hands. Global Radio
completed its acquisition of GCap in June 2008, while Bauer bought the Emap radio stations
in January 2008. National commercial station Virgin (and its portfolio digital radio stations)
was sold by Scottish Media Group (SMG) to the Times of India Group (TIML) in May 2008, it
was subsequently re-branded as Absolute Radio.
162

With the acquisition of GCap and the Chrysalis group, Global Radio is the largest group by
licences, owning 67 analogue licences (a 22% share). It is followed by the Bauer Radio
group with 41 analogue licences (14%). The UKRD Group owns a number of smaller
stations and holds 8% of all licences (including TLRC licences), while UTV has a 5% share.
Together these four radio groups account for around half (49%) of all UK commercial radio
licences (Figure 3.12).
Figure 3.12 Number of commercial analogue stations owned, by group
Percentage share of analogue licences (and percentage point change on a year previously)
Guardian Media
UTV 4% 6-10 stations in 6-10 stations in group
5% (no change)
group
(- 1%) 18% 2-5 stations in group
UKRD / TLRC
(+ 3%)
8% Independent
(- 3%)
Global Radio
2-5 stations in group
Bauer Radio 11% Bauer Radio
14% ( + 4%)
(no change) UKRD / TLRC
UTV
Global Radio Independent Guardian Media
22% 18%
(+ 4%)
(- 3%)
Source: Ofcom, July 2009
Commercial listening hours: mixed fortunes for radio groups
Within the commercial radio sector, three of the top five groups saw their market share (as
measured by share of listener hours) decline during 2008. The result was that the smaller
groups (combined under ‘Other’ in the chart below) share rose by 1.6 percentage points (pp)
to 12.8% in 2008.
The largest commercial group, by listening share is Global Radio. In 2008 its commercial
listening share continued to fall, down by 2.1pp to 40.0% and by 9.2pp from 49.2% of hours
five years previously. This was partly due to some station disposals during the year, and
Global remains the largest radio group by share within the commercial sector. Absolute
Radio’s share of hours fell by 0.6pp to 3.2%, which coincided with its re-branding from Virgin
Radio. The UTV radio group’s hours also fell in 2008, down 0.4pp to 6.8%.
Among the other larger radio groups, market shares rose. Bauer Radio stations accounted
for over a quarter of commercial listening (25.8%) in 2008, up by 1.2pp year-on-year; GMG’s
listening share was also up, by 0.3pp to 11.4%.
163

Figure 3.13 Distribution of listening share among commercial radio licensees
Percentage share of commercial listening hours
50% 49.2% 46.9% 45.7% Global Radio (former
43.3% 42.1% GCap / Chrysalis)
40.0%
40% Bauer (former Emap)
30% 24.5% 25.1% 23.7% 24.6% Other
23.3% 25.8%
20% 13.7% 11.2% 12.8% GMG
13.0% 14.0% 8.6%
11.5% 11.1% 11.4%
6.6% 7.4%
10% 4.6% 6.6% 4.8% 5.8% 6.9% 7.2% 6.8% UTV
0% 3.6% 3.6% 3.7% 3.8% 3.8% 3.2% Absolute Radio
2003 2004 2005 2006 2007 2008 (former Virgin Radio)
Source: RAJAR, (adults 15+) Note: The portfolio of stations for the major radio groups has changed over the past
five years following a combination of mergers, new licence awards and station sales – these figures should
therefore be treated as indicative. In particular, the historical figures for Global Radio contain the previous
listening hours for GCap (formerly GWR and Capital), as well as the share of Chrysalis stations prior to the take
over and merger into Global Radio in June 2008. Bauer Radio formerly Emap as at January 2008, and Absolute
Radio formerly Virgin / SMG as at May 2008
The combined commercial radio stations’ share of all radio listening stood at 41.6% by Q1
2009, (41.1% Q1 2008), of which local commercial licensees accounted for 31.3% and
national commercial stations a further 10.2%. The enlarged Global Radio group,
(incorporating the former GCap and Chrysalis stations) took 16.9% of all hours by Q1 2009
(17.0% in Q1 2008), while Bauer Radio group’s share stood at 10.6% (10.3% Q1 2008). The
shares of other leading groups included GMG (4.7%), UTV (2.9%), Absolute (1.2%), and
TLRC (0.5%).
However, more than half of all listening in 2008 was to BBC Radio services. Its share
reached 56.3% by Q1 2009, (56.8% Q1 2008), of which BBC network radio accounted for
47.0% with BBC local/nations radio generating the remaining 9.4%.
Figure 3.14 Share of all radio listening hours, Q1 2009
Percentage of listening hours
TLRC, 0.5% Other, 6.8%
Absolute, 1.3%
UTV, 2.9% BBC network
GMG, 4.7% BBC network, 47.0% BBC local / nations
Global Radio
Bauer Radio, 10.6% Bauer Radio
GMG
UTV
Absolute
TLRC
Global Radio, 16.9% Other
BBC local / nations,
9.4%
Source: RAJAR, (adults 15+), Q1 2009
164

Commercial groups’ weekly audience reach
The collective reach of the commercial radio groups is substantial. The largest player, Global
Radio, attracted a weekly audience of over 18.5 million adults to its network of UK radio
stations, equivalent to almost 37% of the UK adult population. However, this figure was
lower than in 2007, partly as a result of the GCap and Chrysalis audience coming together
under a single organisational umbrella, removing overlap, but also as a result of station
disposals over the year.
The next largest group, Bauer Radio, attracted a weekly audience of around 12.4 million
adults during Q1 2009, almost a quarter of the UK adult population (24.4%, up 0.8
percentage points year on year). Of the other commercial groups, GMG’s stations drew an
audience of over 5 million a week, with UTV approaching 3.7 million and Absolute Radio
(formerly Virgin Radio) almost 1.9 million, while The Local Radio Company’s network of
stations secured around 700,000 adult listeners a week in Q1 2009.
Figure 3.15 Commercial radio: weekly audience reach, Q1 2009
Weekly UK
audience reach 36.5% 24.4% 10.1% 7.2% 3.7% 1.3%
Annual change
- 5.1% + 0.8% + 0.6% - 0.2% - 1.7% - 0.5%
in reach
Weekly reach Q1 2009 (thousands)
15,000 40%
35%
30%
10,000
18,529 25%
20%
12,397 15%
5,000
10%
5,149 680
3,660 5%
1,878
0 0%
Global Bauer GMG UTV Absolute TLRC
Source: RAJAR Q1 2009, (adults 15+)
Note: GCap now Global Radio, as at June 2008, data may not be comparable year on year
The three nationwide commercial stations, available on FM or AM, each saw their audiences
fall in the twelve months to Q1 2009.
Classic FM attracted the largest audience in Q1 2009, with over 5.4 million adult listeners
per week, equivalent to 10.7% of UK adults, but down from 11.2% a year previously. The
station held a 3.7% share of all radio listening in Q1 2009, stable on a year ago. TalkSPORT
attracted 2.4 million listeners each week, almost one in twenty UK adults (4.8%), down only
slightly from 4.9% in Q1 2008. Its share of listening hours was down by 0.1 percentage
points, to 1.8%.
Absolute Radio’s reach fell furthest during 2008 - losing 1.6 percentage points to reach 3.3%
of UK adults by Q1 2009. The station also lost 0.2 percentage points of listening share over
the year, down to 1.2% in Q1 2008.
165

Figure 3.16 National commercial stations: reach and share, Q1 2009
Weekly UK
audience reach 10.7% 4.8% 3.3%
Annual change
- 0.5pp - 0.1pp - 1.6pp
in weekly reach
Weekly reach Q1 2009 (thousands)
6000 3.7% share of hours
4000
5,414 1.8% share of hours 1.2% share of hours
2000
2,416
1,693
0
Classic FM talkSPORT Absolute Radio
Source: RAJAR Q1 2009, (all listeners 15+)
166

The commercial radio groups
The map below illustrates the location of the UK’s local commercial analogue stations.
Figure 3.17 Analogue commercial radio stations, with population served
Absolute R
Station size
Classic FM
National
TalkSport Regional
SIBC
Local FM >250,000 pop.
Local FM <250,000 pop.
Isles
AM
Lochbroom
Station owners
Two Lochs Waves Global Radio
Bauer Radio
Moray Firth NECR
Cuillin Guardian Media Group
Northsound 1 UKRD
Northsound 2
Original Lincs FM
UTV
Nevis Heartland
RNA Orion Media
Tay FM, Wave 102 Murfin Media
Perth FM Tay AM Kent Messenger Group
Oban Central Scotland CN Group
Central Kingdom
Galaxy Tindle Radio
Smooth, Clyde 1 Real
Your
Your
Clyde 2
South West Radio
Rock Litt Radio
Forth 1,Forth 2 Quidem
L107
Borders
MNA
Argyll West FM Town & Country Broadcasting
West Sound
Metro
North East
Stockvale
Magic
Real TIML
South West Sound Galaxy Media Sound Holdings
Sun Smooth
CFM Other
Q97.2 Durham
TFM,Magic
Q102.9 Seven FM Alpha
CFM
Single licence with two stations
Downtown Lakeland
Q101.2 Cool Minster Northallerton
City Beat Fresh Yorkshire Coast
Six FM The Bay
U105 Yorkshire Coast
Stray
Pulse,Gold, Minster Yorkshire
North West Wave Central 2BR Sunrise
Five FM Aire Galaxy
Real Rock,Magic Bee
Rev’n Magic Real
Smooth Tower Pennine Ridings Viking,KCFM, Magic
Dune
RCity,CityTalk Asian Sd. Trax Compass E Midlands
Dearne Rother
Manchester Juice,Magic Wish Manchester
Hallam, Magic
N & Mid Wales Heart
Key 103 Heart High Peak Trax
Galaxy
Heart Imagine Lincs Smooth
Real Wire Silk Peak
Xfm Dee Silk
Heart Mansfield
Rock Radio Heart Signal1 North Norfolk
Magic Ram Trent
Gold Signal2 Gold
Gold Beacon, KLFM
Oak The Beach
Severn Gold,Wolf Rutland Lite
Birmingham W Midlands Touch Leicester Sd Heart
BRMB Maldwyn Severn Sabras Gold Heart, Gold
Smooth B’ham Oak Connect
Gold Telford Norwich
Heart Ceredigion Heart Star
Galaxy Wyre Touch Rugby
Kerrang Sunshine Gold Heart
Radio XL Wyvern Mercia, Gold Town
Heart
Sunshine Heart Gold
Touch Touch Heart Heart
Gold Gold Heart
Carmarthenshire Heart Banbury Sound Mix96 Ten 17
Sunshine HertBeat
Pembrokeshire Star Heart,Jack Dream
Scarlet Chelmsford East
Note: stations may cover different sized 107.9 Mercury LGR Southend
areas, even though based in the same South Wales Heart LTR Kiss
The Wave Red Dragon Star Heart
town. As a result, stations based in the
Swansea Sound Gold,Brunel Choice
same town may have different Real Heart Time Gold
Swansea Bay Reading, Heart Time
proposed localness requirements. Nation Gold Jackie Heart, Gold
BridgeGold Gold KMFM
Original County Sound KMFM
Star Kick Eagle Mercury KMFM KMFM
Severn Estuary Quay Bath
Kestrel
Quay Andover Heart Delta Gold KMFM KMFM KMFM
Kiss 3TR Spire Play
Heart Heart MidWest Galaxy Bright Arrow
Splash
MidWest Heart Gold Sovereign
Heart Play
Exeter FM Gold Quay Spirit Heart,Gold
Fire Isle of Wight Juice
Heart Wessex
Palm
Pirate Gold
Heart
Solent London-wide Stations
Atlantic R Plymouth
Wave Absolute R Smooth Sunrise
The Coast Capital 95.8 Kiss 100 Kismat
Channel Heart 106.2 Magic 105.4 Club Asia
Islands LBC 97.3 LBC News 1152 Spectrum
XFM Gold Premier
Source: Ofcom, July 2009
Note: Stations may cover differently sized areas, even when based in the same town. Please note, at time of
going to press, the sale of eight Global stations to Orion and the Sunshine sale had not formally completed.
167

3.2.3 The performance of the BBC’s radio services in 2008/09
Around 10 million people listened to BBC radio services via digital platforms on a weekly
basis in 2008/09. The number of BBC podcasts downloaded averaged 7.6 million per month
in 2008/09, while its radio services were integrated into the BBC’s iPlayer.
BBC network radio share increases with Radio 4 leading the growth
The BBC national radio services available on analogue and digital platforms throughout the
UK attracted a 46.2% share of all radio listening hours over 2008, an increase of 1.2
percentage points on 2007 and up 4.4 percentage points in five years. BBC Radio 2
remained the leading radio station, with a 15.8% share over 2008, up 0.1 percentage points;
Radio 1 fell by 0.2 percentage points to 10.1%, while Radio 4 gained the most share, up by
0.6 percentage points to 12.4%. However, the listening share of the BBC’s local and nations’
stations fell, down 0.7 percentage points to 9.3%, and down 1.6 percentage points on five
years ago (Figure 3.18). Listening to the six BBC digital stations available nationally on the
BBC’s DAB network has increased over the past year, with these stations accounting for a
2.3% share of all hours by Q1 2009.
Figure 3.18 BBC radio audience share, 2003-2008
Listening hours (%)
20%
16.0% 16.4%
16.0% 15.8% 15.7% 15.8%
BBC Radio 2
15% 11.5% 11.8% 11.1% 11.8% BBC Radio 4
11.5% 12.4%
10.9% 11.0% 11.1% 10.4% 10.3% BBC Local /
10.1% Nations
10% 8.2% 9.2%
7.7% 9.7% 10.0% BBC Radio 1
9.3%
4.5% 4.6% 4.8%
5% 4.4% 4.3% 4.2% BBC Radio
5 Live
1.4% 1.3% 1.2% 1.4% 1.2% 1.3%
BBC Radio 3
0%
2003 2004 2005 2006 2007 2008
Source: RAJAR, (adults 15+)
Over two-thirds (67%) of adults listen to the BBC every week
In Q1 2009, BBC radio reached 33.8 million or 67% of UK adults a week (down from 68% in
Q1 2008). By comparison, BBC television reaches around 85% of the population (48 million
people) on a weekly basis. As with most radio audiences, BBC radio’s average reach peaks
at breakfast time and falls steadily during the course of the day; around 8.3 million listeners
tune in to a BBC station during the breakfast peak, falling to 5.8 million by mid-morning, 4.7
million during the drive-time slot and 1.4 million overnight.
168

Figure 3.19 All BBC radio listening across the day (weekday)
Change yr on yr - 0.1 -0.3 -0.3 -0.2 +0.1 0.0
10
Listening audience (millions)
8.3
8
5.8
6
4.6 4.7
4
2.0
2 1.4
0
Breakfast Mid Afternoon PM drive Evening Overnight
peak morning
Source: RAJAR Q1 2009, (all listeners 4+)
Weekly percentage reach of BBC stations: Radio 2 has largest audience
BBC Radio 2 still enjoys the highest reach of any UK radio station, with over a quarter (27%)
of adult listeners (13.5 million) tuning in every week in Q1 2009. This was followed by Radio
1 which reached 11 million or just over a fifth (22%) of adults. The Chris Moyles breakfast
show on Radio 1 reached 7.7 million listeners a week in Q1 2009, closing on Terry Wogan’s
morning show on Radio 2 which averaged 7.8 million listeners. Radio 4 recorded its highest
weekly reach for six years with one in five adults (20%) or 10.0 million weekly, with 6.7
million listeners tuning into the breakfast time Today programme. The BBC local/nations’
stations had a similar reach, at almost one in five (19%), with 9.6 million weekly listeners).
Figure 3.20 Weekly reach of BBC stations, Q1 2009
Average weekly listening audience (% UK adults)
BBC Radio 2 27%
BBC Radio 1 22%
BBC Radio 4 20%
BBC Local/Nat 19%
BBC Radio 5 Live 12%
BBC Radio 3 4%
BBC World Service 3%
BBC 7 2%
5 Live Sports Extra 1%
1Xtra from the BBC 1%
BBC Asian 1%
BBC 6 Music 1%
Source: RAJAR Q1 2009, adults 15+
Music makes up half of all BBC network hours
Music accounted for over half (51.6%) of all hours broadcast by BBC network radio in
2008/09; this ratio was stable on last year. The next largest content category was News and
Weather, which accounted for 15.4% of broadcast hours. Entertainment had an 8.2% share,
up from 5.3% the previous year, followed by Drama (5.8%), Sport (5.6%), and Current
Affairs (3.5%). Just over 12% of BBC eligible radio hours were independently produced in
2008/09, ahead of its 10% target.
169

Figure 3.21 BBC network radio broadcast hours, by genre: 2008/09
Share of output (%)
60%
51.6%
40%
20% 15.4%
8.2% 5.8% 5.6%
3.2% 2.7% 1.9% 1.4% 1.1% 3.1%
0%
Music News / Entertainment Drama Sport Current Factual Children's Religion Arts Other
weather affairs
Source: BBC Annual Report and Accounts 2008/2009
BBC expenditure by station: BBC Asian Network had highest cost per listener hour in
2008/09
The 2008/09 BBC financial statements show that 17% of the licence fee was spent on radio
services. Expenditure of £588m was directly attributable to radio services. Within this figure,
£463m was spent on content, £41m on distribution and £85m on infrastructure. In addition to
these, a further £10.3m was attributed to DAB digital radio. Analysing services on a cost-per-
listener-hour basis shows that national stations, along with specialist music and ethnic
stations often cost more owing to their comparatively smaller target audiences. In 2008/09
the national stations in Scotland and Wales incurred the highest cost per listener hour. BBC
Radio nan Gàidheal costing around 18 pence per listener hour in 2008/09, with BBC radio
Cymru costing 11.5 pence per listener hour.
Figure 3.22 BBC radio stations: cost per listener hour of programmes, 2008/09
Cost (pence) per listener hour
BBC Radio nan Gàidheal 18.2
BBC Radio Cymru 11.5
BBC Radio Scotland 7.1
BBC Radio Asian Network 6.9
BBC Radio 3 6.3
BBC Radio Wales 5.0
BBC 1 Xtra 4.5
BBC Radio Uslter / Foyle 4.4
BBC Radio 6 Music 3.4
BBC English Local Radio 2.9
BBC Radio 5 Live Sports 2.6
BBC Radio 5 Live 2.3
BBC Radio 7 2.0
BBC Radio 4 1.3
BBC Radio 1 0.6
BBC Radio 2 0.5
Source: BBC Annual Report and Accounts 2008/2009
3.2.4 Radio licences
By July 2009 just under 400 radio stations were broadcasting in the UK on AM, FM or digital
audio broadcasting (DAB) platforms (including local, regional and national services, but
excluding community radio). The station line-up changed during the year with some
previously-awarded licences going live during the year and a number of stations ceasing to
broadcast. Several new digital stations also launched during 2009, including three national
commercial digital stations (BFBS, Amazing Radio, and Fun Kids).
170

Figure 3.23 UK radio stations broadcasting on analogue and DAB digital radio
(excluding community radio), July 2009
Type of station AM FM Total DAB Analogue or
analogue 1 DAB
stations 2
Local commercial 56 241 297 166 325
UK-wide commercial 2 1 3 7* 7
BBC UK-wide networks 1 4 5 11 11
BBC local and nations 36 46 46 32 46
TOTAL 95 292 351 216 389
1
In total there are 351individual analogue services as 36 simulcast over both AM/FM wavebands.
2
Of the 351 analogue stations and 220 DAB stations, there are 389 unique stations, as 38 stations are digital-only
brands
*The existing Digital One national DAB radio multiplex does not offer coverage of Northern Ireland, where Bauer
operate the local multiplex
In addition to services on AM, FM and DAB, over 85 stations were broadcasting on digital
satellite in July 2009, 24 were available on Freeview and 35 on cable. Many of these are
simulcasts of AM/FM/DAB services.
Two local commercial FM licence awards in 2008
Ofcom awarded 36 local commercial FM licences across the UK over the three-year period
2004-2007. Two further licences were awarded in 2008:
 a new local commercial FM licence for Plymouth was awarded in July 2008 to Radio
Plymouth Ltd.
 a new FM local commercial licence for North and Mid Wales was awarded to Real
Radio, owned by GMG. The station will cover up to 600,000 people and will also link
some programming with the Real Radio service in South Wales, thereby creating a
pan-Wales service.
171

Figure 3.24 Number of analogue radio station licences awarded
Number of operators
400 369 371 BBC local /
364
342 46 nations
315 322 326
296 302 309 5
300 280 BBC national
259 3
226 231
200 National
310 315 317 commercial
261 268 272 288
226 242 248 255
100 172 177 205
Local and
regional
commercial
0
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Source: Ofcom
Note: Chart does not include community radio stations
Community stations serving more local communities, with 141 now on air
Community radio licences are awarded to small-scale operators working on a not-for-profit
basis to serve local areas or particular communities.
By July 2009, 205 community radio licences had been awarded across the UK, with 141 of
the stations already broadcasting at the time of writing. Ofcom estimates that around 6.5
million adults, or 15% of the total population, can now receive a community radio station
Financial information provided by a cross-section of community stations reveals that their
main source of income in 2007/08 came from grants, accounting for 45% of all funds. These
included awards from the community radio fund (administered by Ofcom on behalf of the
DCMS) and from other central Government bodies such as the Arts Council or the Ministry
of Defence (in the case of some military-based stations). Local authorities were also an
important source of funding, as were the funding bodies supported from the National Lottery.
Revenue from advertising and sponsorship made up 20% of income, donations an additional
12% and service level agreements (SLAs) a further 11%. SLAs involve the stations
broadcasting output of social benefit on behalf of other organisations in return for funding
(Figure 3.25). Many community stations rely on volunteer staff to reduce the costs of
providing services.
172

Figure 3.25 Community radio income, by source
Community radio stations’ income 2007/08
Fundraising and events Other
2% 7%
Education and training
3%
Service contracts / SLAs
11% Grants
45%
Donations
12%
Advertising and
sponsorship
20%
Source: Ofcom, community radio station revenues 2007/08
Of the 205 licences awarded by July 2009, 161 were in England, 20 in Scotland, 14 in
Northern Ireland and 10 in Wales. One hundred and forty-one stations were on air, serving a
wide cross-section of local communities across the UK. Figure 3.26 shows that the majority
of community stations are concentrated in highly-populated areas; a key attribute of these
stations is their ability to provide tailored services for a particular ethnic or cultural group.
173

Figure 3.26 Location of the UK’s community radio stations
The Superstation
Ness FM
Licensing Round
1 2
Speysound
shmuFM FM on-air
FM not yet on-air
Mearns FM
AM on-air
AM not yet on-air
Celtic Music AM Jubilee 1
Dunoon CR Sunny Govan
Insight R
Not yet considered
Leith FM
Awaz Revival R Edinburgh Garrison
FM Black Diamond
Bute FM Pulse FM
3TFM
Brick FM
Lionheart R
Spice FM
Alive R NE1 FM
Spark FM
Bishop FM
Drive 105 R Hartlepool
R Teesdale Cross Rhythms
Aldergrove & Antrim FM Drystone R Community Voice
Holywood FM
R Failte Catterick Garrison FM
Feile FM XLFM
Blast FM Diversity
BFBS Lisburn Indigo FM
Vibe FM Lisburn City R Oldham CR
Down FM Pendle CR
Shine FM
Ballykinler FM Vixen
JCom Seaside R
Iur BCB Tempo
Preston FM
Asian Fever West Hull CR Leicester
Crescent
Chorley Phoenix Takeover Radio
Branch FM Demon FM
FM
Greater Manchester & N Cheshire KCC Live EAVA FM
All FM – South central & East Manchester Penistone TMCR
7 Waves Redroad FM Kohinoor FM
Bolton FM Tudno FM Burngreave CR R Lindum
North Manchester FM Sheffield Live
Takeover Siren FM
Oldham CR Point FM Halton FM
Peace FM – Hulme
Flame CCR
Cheshire FM Moorlands Amber Sd Boundary Sd
Canalside Erewash Sd R Dawn
Pure R – Stockport R Faza Gravity FM
Calon FM
Rossendale Radio R Ikhlas Kemet R Tulip R
Cross Rhythms
Salford CR
Hermitage FM
Tameside CR
Wayland
Wythenshawe FM The Eye Future R
TCR
Gaydio – Manchester
Unity Radio – central Manchester The Hillz Huntingdon CR Zeta Blyth Valley
Corby R
R W Suffolk
The ‘Bridge Cross Rhythms HFM
Biggles FM
Inspiration FM
Youthcomm R Into Beats 209 Radio Ipswich CR
Diverse FM
R LaB CAM Felixstowe
Birmingham & Black Country Forest of Dean CR
Gloucester FM Inspire R
Ambur Radio – Walsall Colchester Garrison
BRFM Brill Oldies R Verulam Leisure FM
Big City R - Aston Stroud FM
OX4 FM Flame Saint FM
New Style R - Birmingham
Afan FM GTFM Swindon 105.5 Awaz
Raaj FM – Sandwell Marlowe FM 1 Phoenix FM
SACDA Radio – Sandwell Asian 2
R Tircoed R Cardiff Bristol C FM The Vibe 6 Greater London
Switch Radio – Sandwell Star
Unity FM - Birmingham Bro R
Ummah 3 7 BRFM
WCR - Wolverhampton
UJIMA R Somer Valley FM 4 8 Academy FM
BGWS SFM
Glastonbury FM 5 Redstone Suzy CSR
Castledown R Aldershot AHBS
Meridian Academy FM
Salisbury Plain Voice Cube FM
The Garrison
10Radio Garrison FM Skyline CR Uckfield FM
Unity 101 WVCR Rye FM
Express FM
Forest FM CCR
R Reverb Greater London
Aspire FM The Park Angel R
Phonic FM Havant Seahaven FM Desi R– Southall
The Bay Hope FM
Hayes FM - Hayes
Angel R IOW On FM – Hammersmith
Soundart R Bang – Stonebridge & Harlesden
Cross Rhythms Plymouth Link FM – Havering
R St Austell Bay London surrounds NuSound R – Newham
The Source 1 Panjabi Awaz 5 Kane FM Resonance FM – C London
Insanity R Gateway FM R Umma – Newham
Radio Scilly 2 6 Voice of Africa - Newham
Channel 3 R Wey 7 Safe R Westside CR – Southall
Islands 4 WCR 8 R Sunlight
Source: Ofcom, June 2009
174

Eighteen community radio stations awarded in 2009
In 2009, a further 18 community radio licences were awarded for services in England. The
most recent round of awards, in June 2009, was for stations in East and South East
England. The closing date for applications for licences in Greater London and other areas
within the M25 is set for 15 September 2009. These will be the final awards of the current
round. Over the past year, new stations have been licensed to serve communities in areas
including Coventry, Northampton, Manchester, Bury St Edmunds, Felixstowe, Norwich,
Cambridge, Essex, Biggleswade, Luton, Huntingdon, Ashford, Ramsgate, Gillingham and
Folkestone (Figure 3.27).
Figure 3.27 Community radio licence awards in 2008/09
Community station Location Award
date
Hermitage FM Coalville, Ibstock and Ashby-de-la-Zouch July 2008
Cross Rhythms Coventry July 2008
The Hillz Radio Coventry July 2008
Inspiration FM Northampton July 2008
Corby Radio Corby, Northamptonshire Sept 2008
Gaydio Manchester Nov 2008
Unity Radio Manchester Nov 2008
Blyth Valley Radio Southwold Feb 2009
Radio West Suffolk Bury St Edmunds Feb 2009
Felixstowe Radio Felixstowe Feb 2009
Zeta 105.3 Forest Heath Feb 2009
Future Radio Norwich March 2009
CAM Cambridge March 2009
Wayland Radio Swaffham and Watton, Norfolk March 2009
Leisure FM East Braintree, Essex March 2009
Biggles FM Biggleswade, Sandy and Potton April 2009
Radio LaB Luton April 2009
Inspire FM Luton April 2009
HCR FM Huntingdon May 2009
Intobeats Bedford May 2009
AHBS Community Radio Ashford, Kent May 2009
Academy FM Thanet Ramsgate, Thanet June 2009
Academy FM Folkestone Folkestone June 2009
Radio Sunlight Gillingham June 2009
Rye FM Rye, East Sussex June 2009
Source: Ofcom
175

Towards the end of 2009, Ofcom will consider whether to conduct a third round of
community radio licensing, and if so, how and when to do this. This process could be largely
influenced by the availability (or lack) of suitable FM frequencies in many parts of the UK,
notably in and around major conurbations.
3.2.5 DAB availability and station choice
Digital radio availability increasing
The majority of UK households are now covered by one or more digital platforms that carry
radio services. Broadband internet is available to over 99% of UK homes; digital television is
also widely available – satellite covers approximately 98% of homes while DTT extends to
73%; digital cable is available to 49% of homes. The DAB digital radio footprint has
expanded in recent years, following the installation of further multiplexes and transmitters.
By summer 2008, approximately 90% of the UK population was covered by at least one DAB
multiplex, with most areas covered by three or more.
BBC DAB coverage developments
The BBC is still expanding its national DAB digital radio network. New transmitters installed
in England over 2009 were located at Berkshire, Suffolk, Leeds, Norfolk (two sites) and Kent.
In Wales BBC DAB services are broadcast from eight sites, with coverage reaching an
estimated 68% of households. The BBC is planning to roll out 14 additional transmitter sites
in Wales by January 2010, with a further 11 transmitters scheduled for roll-out during
2010/11.
In Scotland a further transmitter was installed by the BBC and Digital One at Braid Hills in
Edinburgh in March 2009. Over the coming year there are plans for additional transmitters at
a number of sites in Scotland, but a new transmitter for Dumfries & Galloway has been
delayed.
In Northern Ireland, the BBC national multiplex was extended in April 2009, with a new
transmitter installed at Armagh, adding coverage for an estimated 80,000 people, improving
reception for around 200,000 more in the area. The other four transmitter sites in Northern
Ireland are at Divis, Brougher Mountain, Limavady and Sheriff’s Mountain in
Londonderry/Derry. DAB coverage in Northern Ireland is estimated at around 87% of the
population.
Commercial DAB coverage developments
Digital One DAB digital radio network
The Digital One national multiplex is now fully owned by Arqiva, after it agreed to purchase
Global Radio’s 63% share in April 2009. As part of the deal Arqiva also took ownership of
some of Global’s shareholdings in local radio multiplex operating companies.
Digital One was awarded the first national commercial multiplex licence for DAB digital radio
in 1998 and began broadcasting in November 1999 under a 12-year licence, for which it is
entitled to apply for a 12-year renewal.
The national commercial network operated by Digital One covers over 90% of the UK
population with a network of over 130 transmitters. Coverage expanded with a new
transmitter in Taunton in April 2009, bringing new or improved coverage to over 148,000
176

people in the surrounding area. In Wales, the Digital One multiplex, currently covers around
67% of households, and is broadcast from nine sites across the country.
DAB stations availability
Seven DAB stations are currently available on Digital One’s national commercial multiplex:
Classic FM, Virgin Radio, talkSPORT, Planet Rock, BFBS (British Forces Broadcasting
Service), Amazing Radio, and Fun Kids; the last 3 stations were added over the past year.
A further 11 national DAB stations are available on the BBC’s multiplex; the five UK-wide
BBC stations, (BBC Radio 1,2,3,4 and 5 Live) plus six digital-only stations (1Xtra, 6 Music,
BBC7, Five Live Extra, World Service and the Asian Network). Figure 3.28 illustrates the
availability national DAB services by nation/region, along with the typical number of local
stations.
 Listeners in Northern Ireland can access up to 23 DAB stations, including the 11
national BBC stations plus BBC Radio Ulster / Foyle, four national commercial
stations (Classic FM, talkSPORT, BFBS and Amazing Radio), and six local
commercial stations.
 In Scotland, listeners in Glasgow and Edinburgh have the greatest DAB choice, 35
and 34 respectively - including the 18 national BBC and commercial services, plus
BBC Radio Scotland, BBC nan Gaidheal, and 15-16 commercial stations available
through local or regional multiplexes. Listeners in Ayrshire have access to around 25
DAB stations, while Aberdeen has 26, Dundee and Perth 24, and Inverness 23.
 In Wales, people living in the larger conurbations of Cardiff, Swansea, and Newport
can access up to 34 DAB stations including the 18 national services, along with BBC
Radio Wales / BBC Radio Cymru, and an additional 19 services available through the
local and regional multiplexes. People in the North, Mid and West areas currently
have access to the 18 UK services.
 In England, the choice of DAB stations ranges from 59 in London to 25 in areas such
as Plymouth and Cornwall. Larger cities including Birmingham, Liverpool and
Manchester have access to around 39 or 40 DAB services, including the 18 national
stations. Medium-sized cities such as Leicester, Nottingham, and Stoke have access
to between 26-27 DAB stations.
177

Figure 3.28 Availability of DAB stations, by area
60
12
50
12 12
7 13
40 12
7 7
7 12 13 12 12
30 7 12
7 12
20 7 7 7 12
40 7
33 31 7 13
28 27
10 20 19 19 7
18 16 4
12 8 6
0
London West YorkshireScotland North Central Wales North West East East South Northern
Midlands West Southern East England England Midlands West Ireland
England
Source: Ofcom
Note: This chart shows the maximum number of stations available in each area; local variations along
with reception issues mean that listeners may not be able to access all of these.
3.2.6 Restricted service licences
Short–term restricted service licences (RSLs)
Short-term restricted service licences (S-RSLs) are issued for temporary local radio stations
which usually serve a very localised coverage area, such as an education campus, a sports
event, or a music or religious festival site. These licences are also used for temporary trials
of community stations, sometimes to gauge interest before applying for a five-year
community licence. The popularity of S-RSLs is high, with the number of licences issued
each year typically ranging from 400 to 500. Ofcom received 504 applications for S-RSLs in
2008 and issued 438 licences. This was up on last year’s total of 432, but down on the
number licences issued annually between 2002 and 2006 (Figure 3.29).
Figure 3.29 Number of short-term RSLs
Number of licences issued
500
400
300
464 493 489 498 475
423 450 432 438
200 393
343
100
0
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Source: Ofcom
A wide variety of events and services use RSLs
The most common reason for running a short-term restricted service in 2008 was to trial a
potential community radio station; 114 S-RSLs were issued for this purpose. Educational
178

stations for colleges and schools accounted for around a quarter of services (105), while
religious events received 92 licences, often being issued for key dates in the Christian,
Muslim, Sikh and Hindu calendars; a third of these licences are used for the observance of
Ramadan.
Festivals received 54 licences, for events such as the Flower Festival in Lincolnshire,
Glastonbury festival and the Royal International Air Tattoo at RAF Fairford in
Gloucestershire. In 2008 sports events received 48 temporary licences, including motor
rallies, Wimbledon 2008, yachting, regattas, and golf tournaments. Other services which use
RSLs include drive-in movies, charity fundraisers, dog agility shows and trials for commercial
stations.
Figure 3.30 Reasons for running a short-term RSL: 2008
Share of licences
30%
25%
20%
15%
26% 24%
10% 21%
5% 12% 11%
6%
0%
Community trial Student and Religious Festival Sports events Other
educational
Source: Ofcom
Long-term RSLs (L-RSLs)
L-RSLs are a means of providing a service for the non-resident population within a defined
establishment such as hospital patients and staff, students on a campus, or army personnel
and their families within barracks. They are available on demand, provided they meet the
licensing criteria and that a suitable frequency is available. Licences are renewable after the
initial five-year term, and are usually not subject to competition from other applicants.
L-RSLs use broadcasting spectrum that is either unsuitable for other broadcast uses, or is in
areas of low demand from other users. Most services are licensed on AM because of the
scarcity of FM frequencies.
With four new licences awarded in 2008, there are currently 98 long-term RSLs in operation.
Of the 98 L-RSLS, 49% are used to provide services in educational establishments, 38% in
hospitals and 13% for the armed forces (Figure 3.31).
Of the four new services, two are for technology colleges (one in Cumbria and one in
Cornwall); one is Traffic Radio, which provides travel and traffic information for visitors to the
Birmingham NEC; and one is a BFBS Gurkha service at Beacon Barracks in South Wales.
179

Figure 3.31 Reasons for running a long- term RSL: 2008
Share of licences
60%
49%
50%
38%
40%
30%
20%
13%
10%
1% 1%
0%
Educational Hospitals HM Forces Tourist Traffic and
establishments information Travel
Source: Ofcom
Audio distribution systems restricted service licences (ADS-RSLs) in 2008
A new type of RSL was introduced in 2007, in the form of audio distribution systems
restricted service licences (ADS-RSLs). These licences are issued for broadcast services
using spectrum outside the 'traditional' broadcast bands (i.e. FM and AM). The launch of the
licence was preceded by a trial in which eight companies operated services at a range of
different venues, including major sports stadia.
The services licensed as ADS-RSLs typically offer commentary and other information for
attendees within a stadium or venue on specially-designed radio receivers for sale at the
event (as they do not use standard broadcast frequencies).
Ofcom had awarded six ADS-RSLs by summer 2009, including to Arsenal Football Club (for
The Emirates Stadium), the O2 Arena, Barnsley Football Club, Warwickshire County Cricket
Club, Crescent Comms Ltd, (which operates services at a variety of rugby matches), and
Sound Decisions, which operates ADS services at various locations.
180

3.3 The radio listener
The following section looks at changing patterns of radio listening in the UK over the past
five years, using audience data to analyse listening by sector and by age group. It also
draws on consumer research which monitors changing trends, including the adoption and
use of digital radio platforms.
Key points in this section include:
 Time spent listening to radio services was down by 5% in five years, and by
1.7% year-on-year; reach was down by one percentage point since 2003 at
89.5%. BBC Radio hours were down by 0.5% during 2008 but still up modestly
(0.2%) since 2003. By contrast, all commercial radio listener hours were down; 3.2%
in the year and 11.4% over five years (page 184).
 Listening to national radio has risen, although local radio hours have
contracted. BBC network radio hours have risen by 6.4% in five years and national
commercial hours are up 16.9%, although down on the past year. By comparison,
local BBC stations fell by 19.1% and local commercial by 18.3% (page 184).
 The decline in radio hours has been most notable among younger listeners,
falling by 21% among 4-15 year-olds between 2003 and 2008. Reductions in
listening grow progressively smaller as radio audiences get older. Among younger
adults (15-24), hours were down 12.0%; among 25-34s they were down 11.1%.
Listening among older age groups was more stable; down by 1.7% among listeners
aged 55+, while hours were stable over the last five years among 45-54 year olds
(page 183).
 Many digital-only stations saw their audience increase over the past year,
helped by the growing take-up of DAB digital radio sets as well as by growth in
listening via other digital platforms. Of the top 11 digital stations in Q1 2009, five were
BBC stations, and four were owned by the Bauer Radio group (page 186).
 Listening to radio while online, using either a receiver or a website, had been tried by
around a third of adults (32%), according to Ofcom research carried out in April 2009.
This was more popular among younger age groups with almost half of people aged
15-24 having listened to the radio while online (page 192).
 Around one in eight (13%) adults claim to have used their mobile phone to
listen to the radio, up by eight percentage points in five years. This means of
accessing radio is also most popular among younger people (15-24), with almost one
third (31%) listening via their mobiles by Q1 2009 – up from 15% five years earlier
(page 189).
3.3.1 Radio reach
Weekly radio audiences relatively stable in 2008, reaching nine in ten adults
The proportion of UK adults listening to radio on a weekly basis for at least five minutes fell
by one percentage point over five years to 89.5% in 2008. Over this time the BBC’s radio
audience remained stable, attracting around two-thirds (66%) of the adult population.
Commercial radio reach fell by three percentage points over five years to 62% in 2008.
181

BBC network radio reach rose by one percentage point in 2008 to 59%, while BBC
local/nations’ station reach fell by one percentage point to 19%. Commercial radio reach also
rose by one percentage point year on year (after several years of reductions), with exactly
half of adults listening to local commercial stations weekly. Over a quarter of adults (27%)
listened to national commercial radio on a weekly basis, unchanged on 2007 (Figure 3.32).
Figure 3.32 Reach of radio, by sector
% of population
100% 90%
91% 90% 90% 90% 90% All radio
66% 66% 67% 66% 66% 66%
80% All BBC
65% 63% 63% 62%
64% 61%
All commercial
60% 58% 58%
58% 58% 58% 59% BBC network
54% 52% 51% 52% 49% 50%
40% Local commercial
26% 27% 26% 27% 27% 27%
National commercial
20%
21% 21% 21% 21% 20% 19% BBC nations / local
0% 5% 5% 6% 6% 6% 6%
Other
2003 2004 2005 2006 2007 2008
Source: RAJAR, (adult listeners 15+).
3.3.2 Listening hours
BBC network increase share of listening rose in 2008
BBC network radio share of listening rose again in 2008, up one percentage point year on
year to 46.4% and up by 2.7 percentage points in five years. National commercial radio’s
share of listening fell by 0.7 percentage points to 10.6% during 2008, this was still up by 0.6
percentage points on the 2003 figure.
Local commercial radio share was stable during 2008, at almost a third of all listener hours
(31.6%) but was down on 2003, when it stood at 35.7%. The BBC’s local and nations
stations have also lost share over five years, down by 1.7 percentage points to 9.3% (and
down by 0.7 percentage points year on year) (Figure 3.33).
Figure 3.33 Share of listening hours, by sector
% of listening hours
60% 54.0% 55.1% 55.4% 55.7%
53.0% 54.4% All BBC
42.0% 43.0% 44.0% 45.4% 46.4%
43.2% BBC Network
45.0% 44.2%
40% 42.8% 43.2% 42.4% 42.2% BBC local / nations
35.7% 34.2% 32.8%
32.7% 31.1% 31.6% All commercial
20%
11.0% 11.1% 11.3% National commercial
11.0% 10.4% 10.6%
10.0% 10.0% 10.1% 10.5% 10.0% 9.3% Local commercial
0% 2.1% 2.3% 2.2% 2.1% Other
2.0% 1.8%
2003 2004 2005 2006 2007 2008
Source: RAJAR, (adult listeners 15+).
182

Older people listen to the radio for longer
The average time spent listening to the radio was 18.7 hours per week in Q1 2009, down
from 19.0 hours in Q1 2008. It rises with age; for 15-24s it was 15.6 hours per week,
compared to over 22.5 hours for those aged 45+. On average, men listened for 2.3 hours
more than women, and people in the C2DE socio-economic group listened for 1.1 hours
more than ABC1s (Figure 3.34).
Figure 3.34 Demographic profile of overall listening
Weekly listening hours
30
Average listening
per week (all aged 4+)
18.7 hours
20
22.7 22.9 23.0
10 19.9 21.1 21.4 19.7 20.8
17.7 19.1
15.6
8.7
0
4-14 15-24 25-34 35-44 45-54 55-64 65-74 75+ Adult Adult ABC1 C2DE
Men Women Adults Adults
Source: RAJAR Q1 2009, (average weekly listening hours per head of population)
Listening among younger age groups has fallen fastest since 2003
Over the past five years, levels of radio listening have fallen among most age groups, with all
adults’ (15+) listening down by 5.0% between 2003 and 2008. The fall was more
pronounced among younger listeners; hours fell furthest among children (aged 5 to 15) down
by 21%.
For young adults aged 15-24 and 25-34, listening hours were also down (by 12% and 11%
respectively). They fell less among 35-44s and those over 55 (by 6% and 2% respectively)
and were stable among 45 to 55 year-olds.
Figure 3.35 Changes in listening hours by age, 2003 - 2008
Percentage change in listening hours
All 15+ 4-15 15-24 25-34 35-44 45-54 55+
5%
0.0%
0%
-1.7%
-5%
-5.0% -6.3%
-10%
-12.0% -11.1%
-15%
-20%
-21.0%
-25%
Source: RAJAR: data based on calendar years 2003 versus 2008.
183

The distribution of listener hours among station types varies substantially by age. Over-55s
made up a disproportionate number of BBC radio listeners. They accounted for 70% of
hours on BBC local/national radio and 41% on networked stations; even among national
commercial radio, the over-55s accounted for a third of hours. For local commercial stations,
the pattern was different, with a more even distribution of hours across age groups. (Figure
3.36).
Figure 3.36 Profile of audience by age, for different station types
Proportion of hours
100% Adults 55+
20%
80% 36% 35% 41% Adults 45-54
19%
70% Adults 35-44
60% 17% 14%
20% 17%
40% 16% Adults 25-34
17%
12% 15% 16%
13% 13% Adults 15-24
20% 16% 16% 13%
12% 9% 8%
6% 8% 10% 4%3% All Individuals 4 -
0% 4% 2% 14
All radio National Local BBC UK BBC
commercial commercial network local/national
Source: RAJAR Q1 2009
National radio stations have grown more popular with listeners since 2003
Total hours of radio listening have fallen by 5% over the past five years. While the BBC has,
overall, managed to avoid losing listener hours, the combined hours of listening to
commercial radio fell by 11.4% between 2003 and 2008. This was driven by reductions in
listening to local radio stations with BBC nations/local radio hours down by 19% and local
commercial down by 18%. But the national radio stations (BBC and commercial radio)
attracted a larger number of listener hours over the period (up by 6.4% and 16.9%
respectively).
Figure 3.37 Change in listening hours 2003-2008, by sector
Percentage change in listening hours
All Radio All BBC All Commercial BBC network radio BBC local / national National commercial Local commercial
16.9%
20%
10% 6.4%
0.2%
0%
-10% -5.0%
-20% -11.4%
-19.1% -18.3%
Source: RAJAR: data based on calendar years 2003 versus 2008.
3.3.3 Most listened-to radio stations
Six BBC stations in the top fifteen; Bauer had four and Global three
The BBC’s main five network stations (BBC Radio 1-5) and the BBC World Service ranked in
the top 15 most listened-to stations (as measured by reach). The BBC’s World Service’s
reach rose by 9.8%, possibly aided by its presence on digital platforms. BBC Radio 2 was
still the leading UK station, with a weekly audience of 14.8 million people (including children).
184

Among the BBC portfolio, Radio 3’s reach rose furthest over the year (12.7%), while Radio
4’s increased by 5.2% over the same period.
The two largest commercial groups, Bauer and Global, together accounted for nearly half of
the top fifteen stations in 2008. Bauer owned four to Global’s three. Classic FM’s (Global)
reach was highest, at 5.7 million weekly listeners, although this was down on a year ago (5.9
million). Absolute Radio (formerly Virgin Radio) experienced a significant fall in reach, of
31% year on year, following a change of ownership and a re-brand. Digital station The Hits –
the most listened-to digital-only station – also lost listeners (-23%) after being taken off a
number of local DAB multiplexes. London stations Capital and Kiss 100 possibly benefited
from Absolute’s falling reach in the capital (where it has a presence on FM), with increases
in reach of 17% and 16% respectively.
Figure 3.38 Most listened-to radio stations, Q1 2009
Weekly reach (thousands) % change year-on-year
15 - 1%
- 2% Radio group
12 BBC
+ 5%
Global
9
UTV
14.8 + 3%
6 12.8 - 5% Bauer
10.5
Absolute
3 6.8 5.7 + 2% + 2% + 4% + 16% + 17% + 13% - 31% - 23% + 10% + 0.2%
2.7 2.3 2.2 2.2 2.1 2.1 1.9 1.8 1.5
1.5
0
BBC BBC BBC BBC Classic talkSPORT Heart Magic Kiss 100 95.8 BBC Absolute The HitsBBC World Smash
Radio 2 Radio 1 Radio 4 Radio FM 106.2 FM 105.4 FM Capital Radio 3 Radio Service Hits Radio
FIVE LIVE London Radio
Source: RAJAR, Q1 2009 (all listeners 4+), figures are rounded.
Many digital-only stations’ increased audiences over the year
Listening to radio services that are available only on a digital platform continued to rise year
on year, for a number of digital stations. Growth was aided by the increasing take-up of
digital platforms, and DAB digital radio sets in particular. Of the top 11 digital stations in Q1
2009, five were BBC stations, and four were owned by the Bauer Radio group.
BBC Radio 6 Music and BBC Radio 7 both saw their reach rise by around a quarter over the
year, with BBC Radio 7 now attracting over a million listeners a week. Two new commercial
stations also made an impact; by Q1 2009 Jazz FM was attracting half a million listeners a
week and NME Radio was reaching almost a quarter of a million, with both stations being
controlled by independent operators. Another independently-owned station, Planet Rock, is
available on the national DAB multiplex, and its reach rose by 16.6% year on year to reach
an audience of nearly 800,000 per week by Q1 2009.
185

Figure 3.39 Most listened-to digital-only stations, Q1 2009
Weekly reach (thousands) % change year-on-year
2000 Radio group
- 23%
+ 10% + 0.2% Bauer
1500
+ 24% BBC
1000 1,771 + 17%+ 26% + 1% - 1%
1,499 1,456 + 6% Global
1,079 new + 11%
500 777 new + 25%- 19% - 14% Absolute
705 684 642 619 426 259 241 98
237 209 Other
0
The Hits BBC Smash BBC Planet BBC 6 1Xtra FIVE Heat Jazz FM Q NME Chill Absolu.Absolu.
World Hits Radio 7 Rock Music from the LIVE Radio Classic Xtreme
Service Radio BBC SPORTS Rock
EXTRA
Source: RAJAR, Q1 2009, (all listeners 4+), figures are rounded.
In June 2009, a new digital-only station became available on the national commercial
multiplex; Amazing Radio is a music station which broadcasts tracks by unsigned musical
artists. The station is owned by the Amazing Media Group and is based on content from the
company’s music website amazingtunes.com .The website allows unsigned music artists to
upload their tracks, with 70% of any revenues from downloads being paid to the artist. The
site was launched in 2006 and contains around 17,500 music tracks. Listeners to the
Amazing Radio station can also select which tracks they would like to hear broadcast on air
via the station website. The Amazing Radio station is initially being broadcast as a six-month
pilot on the national DAB multiplex.
Listening highest at breakfast, falling over the day
Breakfast is the peak time for radio listening and a station’s share at breakfast generally
reflects its overall market share.
BBC Radio 1 closed on BBC Radio 2’s breakfast audience share in the year to Q1 2009.
The Chris Moyles Show on Radio 1 and the Terry Wogan breakfast programme both
attracted audiences of 7.7 million, with Radio 2 ahead by around 70,000 listeners at
breakfast but down by around 300,000 year on year. By comparison, BBC Radio 4’s Today
programme attracted 6.7 million breakfast listeners, up by 300,000 on last year.
Classic FM was still the largest commercial national operator at breakfast-time, with a reach
of 2.7 million for the Simon Bates show, although this was down by 150,000 listeners on last
year. The breakfast audience for talkSPORT’s Alan Brazil show was down by 150,000 to 1.0
million, but this was enough to overtake Absolute, whose audience fell by around 400,000,
with 0.8 million listening to the Christian O’Connell breakfast show.
186

Figure 3.40 Breakfast-time reach of national stations
Breakfast reach (millions)
10
8.1
7.7 7.7 7.8
8
6.4 6.7
`
6
Q1 2008
Q1 2009
4
2.8 2.7
2.3 2.4
2
1.2 1.0 1.2
0.8 0.7 0.8
0
BBC Radio BBC Radio BBC Radio BBC Radio BBC Radio Classic FM talkSPORT Total Virgin
1 2 3 4 5 Live (AM/FM)
Source: RAJAR Q1 2009, adult listeners 15+.
Listening patterns vary across the UK nations
Analysis of listening patterns by nation reveals a degree of variation in the consumption of
radio by nation. There was a greater preference for local radio content in Scotland and
Northern Ireland, while BBC network services were more popular in Wales and England.
 In Scotland the most popular category was local commercial radio, which attracted a
41% share of all radio listening – in contrast to the UK average of 32%. The share of
BBC network listening in Scotland was nine percentage points lower than the UK
average, at 35%.
 In Northern Ireland, the BBC networks’ share of listening was the lowest in the UK,
at 30%, 16 percentage points below the UK average of 46%. However, listening to
BBC local and nations’ services (Radio Ulster and Radio Foyle), was 13 percentage
points higher than average at 23%. Overall, combined BBC share in Northern Ireland
was 53%, just below the UK average of 56%.
 Listening patterns in Wales were similar to the UK average. Listening to BBC
services for Wales (BBC Radio Wales / BBC Radio Cymru) attracted a share of 14%,
four percentage points higher than the UK average, while local commercial listening
was 6 percentage points lower than average, at 26%. Overall, BBC stations
accounted for 63% of listening in Wales, compared to 56% for the whole of the UK.
 In England, the BBC network stations were the most popular station category, with a
47% share of all listening. BBC local services attracted a 10% share, while local
commercial radio secured 31% of all listener hours.
187

Figure 3.41 Share of listening hours, by nation
% of listening hours
100% 2% Other
2% 2% 8% 2%
31% 26% 32%
80% Local
41% 32%
Commercial
9%
60% 11% 11% National
14% 8%
9% 11% 10% Commercial
40% 9% 23% BBC
Local/National
47% 49% 46%
20% 37% BBC Network
30%
0%
England
England Scotland
Scotland Wales
Wales Northern
N Ireland UK TOTAL
UK
Ireland
Average weekly
listening
22.3 hours 21.6 hours 23.2 hours 22.7 hours 22.4 hours
Reach 89.5% 87.4% 91.0% 87.1% 89.4%
Source: RAJAR / Octagon, year to Q1 2009, (all listeners 15+).
3.3.4 Radio ownership and listening trends
Ownership of digital radio enabled platforms
Access to digital radio platforms has continued to increase over the year. Almost nine in ten
homes (89%) had digital television by Q1 2009, and consequently also had access to digital
radio channels via the television. Homes with broadband internet access increased to 67%,
providing access to live digital radio, as well as listen-again and downloadable radio content.
DAB radio ownership was up to almost a third of adults (32%) by Q1 2009.
Figure 3.42 Take-up of equipment capable of receiving digital radio
Year-on-year increase (pp) +3 +2 +5
Share of households 70% 89% 32%
90%
80% Cable 13%
70% Dial-up / Mobile 5%
60%
Satellite 37%
50%
40%
Broadband
30% 65%
20% Terrestrial 38%
32%
10%
0%
Internet Digital TV DAB radio
Source: Research from: Ofcom, GfK, RAJAR, Q1 2009
188

One-third of younger listeners (15-24) using mobiles to access radio
A growing number of younger people are using their mobile to access radio content thanks
to the rising take-up of handsets equipped to receive broadcast services. Some of these
devices are able to deliver streamed radio or to store and play downloaded audio content.
Around one in eight (13%) adults claim to have used their mobile phone to listen to the radio,
up by eight percentage points in five years. This is particularly popular among younger
people (15-24), with almost one third (31%) listening via their mobiles by Q1 2009 – up by 16
percentage points, from 15% five years earlier.
Figure 3.43 Listening to the radio via mobile phone
Percentage of adults who claim to have ever listened to radio via mobile phone
All adults 15-24s 25+
40%
31%
30% 27%
20%
20% 18% 17%
15%
12% 13%
10% 6% 8% 9% 10%
5% 6% 6%
4% 4%
3%
0%
Q1 2004 Q1 2005 Q1 2006 Q1 2007 Q1 2008 Q1 2009
Source: RAJAR / Ipsos MORI / RSMB Q1 2009.
DAB sets now account for a fifth of all radio sales
DAB digital radio sales account for an increasing proportion of total radio set sales. In the
year to Q1 2009, DAB sets made up over a fifth (22%) of all radio sales by volume, with
around 2.1 million units sold in the year to Q1 2009. This was up from a 20% share the year
before. In the portable market, DAB sets accounted for 62% of sales. Total radio set sales
(analogue and digital) were down by one million to 9.4 million in the year; the majority of this
fall was seen in analogue radio sets.
Figure 3.44 Number of analogue and digital radio sets sold
Total annual sales 11.6 million 9.7 million 10.4 million 9.4 million
Share of sales 87.1% 12.9% 81.4% 18.6% 79.8% 20.2% 77.9% 22.1%
10.1
Radio set sales (millions)
10
7.9 8.3
8 7.3
Analogue sets
6 DAB sets
4
1.8 2.1 2.1
1.5
2
0
Year to Q1 2006 Year to Q1 2007 Year to Q1 2008 Year to Q1 2009
Source: GfK sales data, Q1 2009
189

The value of DAB radio set sales totalled £167m in the year to March 2009, relatively stable
on £168m the year before. This represented around 29% of all radio set sales by value, up
from a 26% share the previous year. The value of analogue radio sales fell by £49m in the
year to £404m. This meant that overall the value of all radio set sales of reached £571m in
the year to March 2009, down by over £50m on £622m the year before.
Figure 3.45 Value of analogue and digital radio set sales
Total annual sales £743m £644m £622m £571m
Share of sales 80.5% 19.5% 75.9% 24.1% 72.9% 27.1% 70.7% 29.3%
£598
£600
Value of radio sales (£ millions)
£489
£500 £453
£404
£400
Analogue sets
£300
DAB sets
£200 £145 £155 £168 £167
£100
£0
Year to Q1 2006 Year to Q1 2007 Year to Q1 2008 Year to Q1 2009
Source: GfK sales data, Q1 2009
The average price paid for a DAB digital radio set rose by £10 to £85 in Q1 2009, although
the cheapest sets start at £15. Portable sets cost £56 on average, up by £4 on last year,
while car audio sets fell by £15 to £80. In-home and DAB hi-fi prices increased by £6 on
average, to £155 in Q1 2009 (Figure 3.46).
Figure 3.46 Average price of DAB digital radio receivers
£500
£400
£300
All
£200
In-home
£100 Car audio
Portable
£0
Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1
2003 2004 2005 2006 2007 2008 2009
Source: GfK sales data Q1 2009
Around one in six people (16%) said they were likely to purchase a DAB digital radio set
over the next year, with 6% saying they ‘very likely’ or ‘certain’ to.
190

Figure 3.47 Intention to buy DAB digital radio
‘How likely is it that your household will get a DAB radio in the next 12 months?’
30% 28%
22%
20%
13%
10%
10%
4%
2%
0%
Certain to Very Likely Fairly likely Unlikely Fairly unlikely Certain not to
Source: Ofcom research, Q1 2009
Base: Those who listen to the radio but have no DAB sets at home (n=1421)
Q: How likely is it that your household will get a DAB radio in the next 12 months?
3.3.5 The impact of the internet on radio listening
Broadcast radio listening hours have fallen in recent years. One driver may have been the
amount of time people spend on the internet, although radio listening may not have been
displaced as much as other media, since users can listen to the radio while surfing the web.
Research from Q1 2009 showed that, overall, one in 20 people claimed to listen to less radio
since getting access to the internet. Listening among 25-44s had been the most affected by
consumer access to the internet, with 8% listening less; 4% of 15-24s made the same claim
and 3% of those aged 45-64.
Figure 3.48 Levels of radio listening since getting internet access
Since using the internet which activities do you undertake less? – listening to the radio
10%
8%
6%
4% 8%
5%
2% 4%
3% 3%
0%
All 15-24 25-44 45-64 65+
Source: Ofcom research Q1 2009.
Base: All who use the internet at home (n=732)
Q: Since using the internet for the first time, which if any of the following activities do you believe you undertake
less, either because you spend that time using the internet or you no longer need to because you can find the
information on the internet; Listening to the radio?
191

A third of all web users have listened to radio concurrently while online
The ability to listen to the radio while online means that the web can stimulate overall levels
of radio listening (either through an online service or through a separate radio set). Listening
to the radio while online had being tried by around a third of adults (32%), according to
Ofcom research carried out in April 2009. Of this total 7% of internet users said they did so
frequently, with 16% saying they ‘sometimes listened’.
Figure 3.49 Radio listening while online
All who use the internet at home
63%
50%
40%
30%
20% 16%
7% 9%
10%
0%
Frequently Sometimes Rarely Never
Source: Ofcom research Q1 2009.
Base: All who use the internet at home (n=728)
Q: At the same time as being on the internet, how frequently, if at all, do you also do any of the following
activities? Listen to the radio.
Almost half of people aged 15-24 listen to the radio while online
By age group, listening while online was more popular among younger people, with just
under half of 15-24s having tried it. It was less prevalent among older age groups, perhaps
suggesting that younger users are more familiar with using multiple media sources
concurrently.
Figure 3.50 Listening to the radio while online, by age group
All who use the internet at home
60%
47%
40% 34%
32%
26%
20% 17%
0%
All adults 15+ 15-24 25-44 45-64 65+
Source: Ofcom research April 2009.
Base: All who use the internet at home (n=728)
Q: At the same time as being on the internet, how frequently, if at all, do you also do any of the following
activities? Listen to the radio.
192

3.3.6 Location of listening
The location of radio listening has evolved over time, with a 16% of listening now taking
place outdoors or at work in Q1 2009, compared to 13% in 2004. This increase might have
been helped by the growth in listening to podcasts or on mobile phones while on the move,
or when commuting. In-car listening accounted for 18% of all listening in Q1 2009, up from
16% in Q1 2004. As a result, home listening share was down from 69% to 63% over the five
years.
Figure 3.51 Location of listening
Listening hours by location (and percentage point change on five years previously)
(no change
Other over 5 years)
1% Work / outdoors
Car
16%
18%
(+3% over 5 years)
(+3% over 5 years)
Home
63%
(- 6% over 5 years)
Source: RAJAR / Octagon, all listeners, year to Q1 2009
3.3.7 Satisfaction with radio services
With a growing choice of radio stations over recent years, consumer satisfaction with radio
choice is high and growing; 91% of respondents said they were ‘very’ or ‘fairly’ satisfied with
the choice and range of radio stations, up from 88% last year. The number of people who
were ‘very satisfied’ was 61%, up from 48% last year, while only 3% said they were
dissatisfied with station choice (4% a year ago).
Figure 3.52 Satisfaction with choice of radio stations
% of respondents who listen to radio
61%
60%
50%
40%
30%
30%
20%
10% 4% 2% 1%
0%
Very satisfied Fairly satisfied Neither Fairly dissatisfied Very dissatisfied
Source: Ofcom research, Q1 2009
Base: All who listen to the radio (n=2483)
Q: How satisfied are you with the choice of radio stations available in your area?
193

Satisfaction with radio content is also high, with 94% claiming to be very, or fairly, satisfied
with the overall quality of radio programming. By contrast only 1% were ‘fairly dissatisfied’
and almost none ‘very dissatisfied’.
Figure 3.53 Satisfaction with radio content
How satisfied are you with the content of what you listen to on the radio?
% of respondents who listen to radio
60%
53%
50%
41%
40%
30%
20%
10% 5%
1% 0%
0%
Very satisfied Fairly satisfied Neither Fairly dissatisfied Very dissatisfied
Source: Ofcom research, Q1 2009
Base: All who listen to the radio (n=888)
Q: How satisfied are you with the content of what you listen to on the radio?
194

The Communications Market
2008
4
4 Telecoms
195

Contents
4.1 Key market developments in telecoms 197
4.1.1 Introduction 197
4.1.2 A decade of change: the shift towards mobile and data services 198
4.1.3 How the growth of local loop unbundling is reshaping the internet service
provider (ISP) market 200
4.1.4 Super-fast broadband becomes a reality 204
4.1.5 Mobile broadband market begins to mature 206
4.1.6 Smartphones and applications drive more sophisticated use of mobile
internet 208
4.1.7 Low-price post-pay plans drive growth in contract subscriptions 213
4.1.8 A new era for MVNOs 217
4.2 The telecoms industry 221
4.2.1 Introduction 221
4.2.2 Industry overview 221
4.2.3 Fixed voice telephony 225
4.2.4 Mobile telephony 230
4.2.5 Internet services 233
4.2.6 Business markets 236
4.3 The telecoms user 241
4.3.1 Introduction 241
4.3.2 Household spend and pricing 242
4.3.3 Take-up of services 246
4.3.4 Fixed-line and mobile use 252
4.3.5 Customer satisfaction and switching 255
196

4.1 Key market developments in telecoms
4.1.1 Introduction
Figure 4.1 UK telecoms industry: key statistics
UK telecoms industry 2003 2004 2005 2006 2007 2008
Operator-reported retail revenue (£bn) 25.8 28.0 29.0 29.7 30.9 31.0
Operator-reported wholesale revenue (£bn) 8.5 8.8 8.4 8.5 8.6 8.5
Total operator-reported revenue (£bn) 34.3 36.6 37.4 38.2 39.5 39.5
Fixed voice call minutes (billions) 167.0 163.3 159.4 148.8 146.5 138.6
Mobile voice call minutes (billions) 58.9 64.2 71.4 82.5 99.9 111.0
Average monthly household telecoms spend (£) 67.72 71.84 72.21 70.09 68.84 65.01
Fixed access and call revenues (£bn) 11.2 10.6 9.9 9.4 9.3 9.0
BT share of fixed revenues (%) 62.2 59.2 57.2 54.9 54.3 52.9
Proportion of households connected to an - - 39.6 66.6 80.3 84.3
unbundled exchange (%)
Fixed lines (millions) 34.9 34.5 34.0 33.5 33.5 33.2
Mobile retail revenues (£bn) 9.7 11.9 13.1 13.8 15.0 15.4
Active mobile connections per 100 population 88.0 99.6 108.9 115.6 121.4 126.1
Active 3G mobile connections per 100 population 0.4 4.3 7.6 12.9 20.6 29.3
Internet connections per 100 population 22.4 25.5 27.0 28.9 30.7 31.5
Broadband connections per 100 population 5.2 10.2 16.5 21.7 26.0 28.8
Source: Ofcom / operators
We start this section by looking at key metrics of the UK telecoms market in terms of
revenues, connections and usage patterns. We then look at seven key themes that highlight
how developments in the industry are extending consumer choice and changing consumer
behaviour. These themes are:
 A decade of change: the shift towards mobile and data services. We assess the
transformation of the telecoms market over the last ten years as mobile phone and
internet services have become mass-market (page 198).
 How the growth of local loop unbundling is reshaping the internet service provider
market. With the cost structures associated with providing LLU-based services
determining that ‘bigger is better’, we examine how the broadband market has been
transformed since the introduction of LLU, both in terms of market size and the
subscriber shares of the larger players (page 200).
 Super-fast broadband becomes a reality. We look at the emergence of the UK’s first
super-fast broadband services, which are now being implemented after much
anticipation, and consider how these services might impact the ISP market (page 204).
 Mobile broadband matures. Around three million people in the UK now access
broadband services provided over a cellular network via USB modems (or ‘dongles’). As
the market matures we examine the relationship between mobile and fixed broadband
services (page 206).
197

• Smartphones and applications drive more sophisticated use of ‘mobile internet’. In
this section we look at the rise of the ‘mobile app’ and how advances in mobile handset
technology are affecting the way in which we use our mobile phones to access online
services (page 208).
• SIM-only contracts central to new focus on low-cost tariffs. We consider the
changes in operator strategy and consumer behaviour that have resulted in a growth in
the share of pay-monthly contracts, driven primarily by the take-up of sub-£20-a-month
tariffs (page 213).
• New MVNOs gain market share. We examine the market conditions that have seen a
raft of virtual network operators and service providers launch in the last couple of years
and win market share (page 217).
4.1.2 A decade of change: the shift towards mobile and data services
Over the past three decades the telecoms sector has seen the emergence and growth of
new technologies and services. Until the 1980s the telecoms market was primarily focused
on fixed-voice telephony services, with some additional data products aimed at business
customers. The first analogue mobile services launched in the UK in 1985, but high prices
stifled take-up and it was only with the introduction of pre-pay services in the second half of
the 1990s that mobile telephony became a mass-market phenomenon.
The late 1990s also saw the growth of the residential market for internet access, with the
emergence of narrowband internet services, and at the end of 2000 the first always-on
broadband internet services were launched. This shifting telecoms landscape is reflected in
the revenues generated by these different services over the last decade (Figure 4.2).
Fixed voice revenues have been in decline since 2000 when they reached £12.3bn, and had
fallen by 26.9% in nominal terms from this peak to £9.0bn by 2008. Growth in mobile voice
revenues, which more than tripled from £3.6bn to £11.5bn between 1998 and 2008, ensured
continued growth in total voice telephony revenues until 2008, when they declined for the
first time.
Figure 4.2 Operator-reported UK telecoms industry retail revenue
40
29.7 30.9 31.0 Mobile data
28.0 29.0 0.8 0.9
30
Retail revenue (£bn)
25.8 0.4 0.6 2.9 2.9
24.0 25.1 0.2
2.0 2.4 2.6
22.6 0.1
1.7 Mobile messaging
1.0 1.4
20.2 0.4
20 17.9 7.9 9.7 10.3 10.6 11.3 11.5
6.1 6.9 7.6 Mobile voice
4.8
3.6 2.4 2.5 2.6 2.8 2.9
2.1 2.3 1.4 3.1 3.1 3.2 3.2
1.1 1.3 1.8 1.7 2.1 2.6 3.0 Corporate data services
10 3.3 3.3 3.4
11.1 11.8 12.3 11.7 11.7 11.2 10.6 9.9 Fixed data
9.4 9.3 9.0
0 Fixed voice
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Source: Ofcom / operators
Note: The bundling of messaging and data services in with monthly rental tariffs mean that there will
be an element of mobile data revenue included in mobile voice revenues
The rapid mobile subscriber growth initiated by the introduction of pre-pay services ensured
heavy investment in mobile services, culminating in the auction of the five 3G licences in
2000 (which raised £22.5bn) and the subsequent roll-out of 3G networks. By 2008 mobile
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services generated almost half (49.6%) of total UK telecoms revenues and they look set to
overtake fixed telephony revenues in 2009 (Figure 4.3).
Figure 4.3 Mobile and data services as a proportion of total operator-reported retail
revenue
60
48.7 49.6
45.1 46.5
42.6 Proportion
36.0 37.6 mobile
40 33.0 voice and
Per cent
28.6 data
24.2 32.5 33.3 33.8
20.3 30.3
25.8 27.7 Proportion
20 23.2 fixed and
22.2
18.0 17.7 18.5 mobile
data
0
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Source: Ofcom / operators
Note: Data include narrowband internet, broadband internet and corporate data services in the fixed
market and SMS, MMS, mobile broadband and other mobile internet services in the mobile market
However, mobile voice revenue growth has slowed significantly as penetration has
plateaued and prices have fallen. (Section 4.1.7 details how the launch of SIM-only contracts
in the last two years has contributed to lower prices). Mobile voice revenue growth was just
1.6% in 2008, compared to an average of 7.7% annual growth over the previous five years.
As voice services generate nearly three-quarters of total mobile revenue, there was a similar
slowing in the growth of total mobile service revenues, to 2.2% in 2008, compared to the
annual average of 9.6% growth over the previous five years and 15.5% over the previous ten
years (Figure 4.4).
Figure 4.4 Fixed and mobile operator-reported UK telecoms industry retail revenue
40
2008 10 year
30.9 31.0 growth CAGR
29.0 29.7
30 28.0
25.1 25.8
24.0
Revenues (£bns)
22.6 Mobile 2.2% 15.5%
20.2 13.1 13.8 15.0 15.4
9.7 11.9 revenues
20 17.9 6.5 7.9 9.0
4.9
3.6
Fixed -1.4% 0.9%
10 revenues
14.3 15.3 16.1 16.0 16.1 16.1 16.1 15.9 15.9 15.8 15.6
0
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Source: Ofcom / operators
In addition to mobile voice, data revenues have also contributed strongly to operator revenue
growth since 1998. In the fixed sector this has been the result of increasing residential and
business internet penetration (firstly of dial-up narrowband services and then broadband)
and in the mobile market primarily because of growing use of SMS text messaging (Figure
4.5). In 2008 data services contributed over a third (33.8%) of total operator-reported
revenues, up from 18.0% a decade previously.
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However, like voice, the growth in data revenues has been slowing significantly, and was
just 1.9% in 2008, compared to 6.4% in 2007 and 9.9% in 2006. Revenue from residential
fixed-line data services (mainly the provision of broadband) has hardly changed since 2006,
while growth in revenues from mobile data services (including SMS) and corporate data
services has slowed considerably.
Figure 4.5 Voice and data operator-reported UK telecoms industry retail revenue
40
2008 10 year
growth CAGR
29.7 30.9 31.0
28.0 29.0
30
25.1 25.8
24.0 10.3 10.5
Revenues (£bns)
22.6 7.8 8.8 9.7 Data 1.9% 12.5%
20.2 5.3 5.8 6.7 revenues
20 17.9 4.2
3.6
3.2
Voice -0.4% 3.4%
10 18.4 18.7 19.3 19.2 20.3 20.2 20.1 20.6 20.5 revenues
14.7 16.6
0
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Source: Ofcom / operators
The growth in data services has required heavy infrastructure investment. First, fixed-line
operators upgraded the UK’s telecoms and cable networks to support higher-speed internet
connections, and then they began to roll out LLU networks. More recently, BT has upgraded
its core network and has started to deploy ADSL2+, while the implementation of super-fast
access networks (particularly cable, but also localised fibre deployments) is taking place
(see Section 4.1.4 on the roll-out of these services). Meanwhile, provision of non-SMS data
services over mobile networks was facilitated by the investment in 3G, and the subsequent
upgrade to high-speed packet access (HSPA).
The new services enabled by these investments could potentially stem the stagnation in
overall telecoms revenues. The important question facing operators in broadband and
mobile markets is how much of a premium consumers will be willing to pay for these higher-
speed services.
4.1.3 How the growth of local loop unbundling is reshaping the internet service
provider (ISP) market
At the end of 2000, the year in which BT launched its broadband services, there were four
main broadband providers in the UK: BT, Kingston Communications (the incumbent PSTN
operator in Kingston-upon-Hull) and the two major cable operators - ntl and Telewest.
Initially cable broadband was more widely available than digital subscriber line (DSL), as BT
was in the process of rolling out DSL services across its network, and cable’s share of
broadband connections grew rapidly, peaking at over 60% in 2002. However, despite growth
in the number of cable broadband connections, the more limited cable network footprint has
seen DSL become the most widely-used form of internet access.
As DSL-based connections became more popular there was rapid proliferation in the
number of broadband providers, as BT launched its IPStream and DataStream wholesale
products. These enabled ISPs to offer retail DSL broadband services with a relatively
modest initial capital outlay, and at the end of September 2005 BT had agreements to supply
resale DSL services to over 750 telecoms providers (although not all of these were
exercised). This increase in the number of active ISPs led to declining market share for most
200

providers, and increased competition between ISPs (Figure 4.6), although the reliance on
BT’s wholesale products meant that there was little differentiation between services for the
end-user.
Figure 4.6 Estimated UK broadband service provision retail connection share
100%
10.2 9.3 8.4 9.0
Share of connections (per cent)
12.8 15.9 13.5
4.8 7.3 5.8 5.4
3.2
2.7 8.9 8.1
80% 8.7 1.5 7.7 11.3 12.4
7.8 5.8
0.8 2.4 8.7 10.3 8.8 9.2
13.5 11.9 1.7 1.3
60% 0.8 12.3 16.7 24.7
16.2 15.6
11.5 0.8
10.2
40% 31.5 23.7 22.8
22.4 25.4 22.5
18.5
20%
25.6 23.6 23.3 23.8 26.5 26.9 25.9
0%
2003 2004 2005 2006 2007 2008 2009 H1 (E)
Other Orange Home BSkyB
Tiscali Pipex TalkTalk/AOL B'band/Tiscali
TalkTalk/AOL Broadband AOL TalkTalk
Virgin Media Telewest ntl
Source: Ofcom / operators
Note: 2009 H1 estimate assumes the completion of the Carphone Warehouse and Tiscali merger.
Local loop unbundling (LLU)
LLU enables operators to site their own equipment in the incumbent’s local exchange, lease
the local loop (the twisted copper pair from the exchange to the customer’s premises) and,
after connecting the local exchange to their own network, provide either DSL broadband or
DSL broadband and fixed voice services. Under partial LLU the unbundling operator and the
incumbent share the same line, with the LLU operator providing DSL broadband services
and the consumer continuing to be billed for voice services by the incumbent. With full LLU
the unbundling operator provides both DSL broadband and voice services and the
customer’s relationship with the incumbent ceases.
LLU costs mean that bigger is better
Although local loop unbundling (LLU) had been introduced several years previously, it was
only in 2005 that it became an attractive alternative to BT’s wholesale DSL products for
ISPs29, and the larger providers started to roll out their own LLU networks.
The cost structure associated with providing LLU services is characterised by relatively high
up-front costs (purchasing network equipment, installing it in the local exchange and
providing backhaul to link it to the LLU provider’s network). This is followed by low ongoing
costs; the monthly rental cost of an LLU line is currently £1.30 for DSL broadband services
and £7.20 for voice and broadband, although periodic capacity upgrades are also typically
required as the amount of traffic through each exchange grows.
29
There are three factors which we consider contributed to this: the creation of the Office of the
Telecoms Adjudicator (OTA) in 2004 to address operational issues that had previously dogged LLU,
significant cuts in monthly charges in June 2004 and December 2005 and BT’s Undertakings (which
took effect in 2005 and created expressions of interest whereby providers could make BT aware of
those exchanges which they wished to unbundle).
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This gives rise to an average cost per unit curve similar to that shown below in Figure 4.7.
For each unbundled exchange the per-unit cost declines with each additional unit, meaning
that implementing LLU requires scale in order to be cost-effective, compared to buying
wholesale products from the incumbent (which are priced to average-out fixed and ongoing
costs). This is one reason why LLU is more widely available in urban than in rural areas;
urban exchanges tend to serve more premises, bringing a higher potential customer base.
Figure 4.7 Indicative LLU and wholesale DSL: average cost curve
ISP cost per
unit saving
Average cost per unit
with LLU
Breakeven
LLU
point
Wholesale
DSL product
Number of subscribers
Source: Ofcom
The need for scale among LLU operators has contributed to a number of acquisitions and
mergers, the most significant of which are summarised below in Figure 4.8 (O2’s acquisition
of Be Unlimited in 2006 was an exception, in that it was motivated by market entry rather
than to increase scale. The most recent of these was the Carphone Warehouse acquisition
of Tiscali’s UK arm (Tiscali itself had been very active in the M&A market over the previous
few years).
Figure 4.8 Selected ISP mergers
Date Target Acquirer
June 2006 Be Unlimited O2
July 2006 Toucan Pipex
July 2006 Bulldog (retail customer base) Pipex
August 2006 Video Networks Tiscali
October 2006 AOL UK Carphone Warehouse
July 2007 Pipex Tiscali
July 2009 Tiscali Carphone Warehouse
Source: Ofcom
The effects of consolidation in the ISP market can clearly be seen in Figure 4.9 below. Prior
to the roll-out of LLU, the market share of the top five ISPs had declined from 83.1% to
73.0%. However, as the availability of LLU-based services became widespread, and ISPs
merged in order to gain scale, the connection share of the top five grew to 85.8% at the end
of 2008, and to an estimated 91.0% at the end of June 2009, following the Carphone
Warehouse / Tiscali merger.
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At the same time, growth in the use of LLU by ISPs, consolidation in the ISP market and the
availability of wholesale LLU products from Cable &Wireless led to a fall by a third in the
number of agreements with BT to provide resale DSL services, from over 750 in September
2005 to under 500 by the end of 2008.
Figure 4.9 Combined connection share of the five largest UK broadband providers
Use of wholesale
Rollout of LLU
DSL products
100 91.0
Market share (per cent)
83.1 83.8 83.4 85.8
78.3
80 73.0
60
40
20
0
2003 2004 2005 2006 2007 2008 2009 H1 (E)
Source: Ofcom / operators
Note: Step increase in 2006 is partly due to the merger of ntl and Telewest to form Virgin Media; 2009
H1 estimate assumes the completion of the Carphone Warehouse and Tiscali merger.
Although LLU has increased the concentration of the UK ISP market, it has also led to the
emergence of powerful new entrants such as BSkyB and Carphone Warehouse, which have
the scale to compete with established firms such as BT and Virgin Media.
LLU increases choice and enables innovation
LLU has added to the choices available to many UK consumers. At the end of December
2008, 84.3% of UK households were connected to an unbundled local exchange (up from
39.6% three years previously) and therefore had a choice of services beyond those provided
using BT’s wholesale products. LLU also led to the launch of the UK’s first ‘up to’ 16Mbit/s
and higher broadband services, as LLU operators installed ADSL2+ equipment in
exchanges.
The low incremental cost of supplying voice services in addition to broadband services for
LLU providers has also encouraged service innovation. For example, without the introduction
of LLU it is unlikely that bundled service offerings with innovative tariffing such as TalkTalk’s
‘free’ broadband with voice services, or BSkyB’s See, Surf, Talk triple-play product would
have emerged. We estimate that the average cost of a residential DSL broadband
connection fell by over 40% in the three years to Q4 2008, with around half of this fall being
the result of take-up of LLU-based services.
Falling broadband prices, and the introduction of ‘free’ or discounted broadband offers (when
bundling broadband with other communication services), have been pivotal in extending the
reach of fixed broadband services to a mass-market audience. From the introduction of LLU-
based ‘free’ broadband offers in 2006 until Q1 2009, the proportion of households with a
fixed broadband connection increased by 20 percentage points, to 65%, according to Ofcom
consumer research. By the end of 2008 almost a third (33%) of these connections were
provided using LLU.
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4.1.4 Super-fast broadband becomes a reality
Super-fast broadband connections offer performance that is significantly faster than those
provided using conventional copper loops. This allows consumers fast access to a wide
range of video-rich information and entertainment content and means they can run multiple
bandwidth-hungry applications simultaneously. In 2009, super-fast broadband became
available to large sections of the UK population for the first time, while proposed
deployments promise that within the next couple of years broadband speeds of at least
25Mbit/s will be available to the majority of UK households.
Virgin launches 50Mbit/s broadband service and trials 200Mbit/s
In December 2008 Virgin Media announced the launch of its XXL 50Mbit/s cable broadband
product, which is delivered over its hybrid fibre-coaxial network using the DOCSIS 3.0 cable
standard. This is the first widely-available residential broadband service in the UK to offer
downstream speeds in excess of the ‘up to’ 24Mbit/s available using ADSL2+ services.30
The service has been rolled out across Virgin Media’s cable network, and was available to
just under half of UK households in July 2009.
Virgin Media has also started to trial a DOCSIS 3.0 based 200Mbit/s service to around 100
residents in Ashford in Kent. The trial is due to last at least six months, after which Virgin
Media will evaluate the commercial viability of the service. Virgin Media, in announcing the
trial, highlighted the current lack of consumer hardware able to take advantage of such
download speeds; there are no compatible wireless routers available and only PCs with the
highest specification can handle data transferred at such high rates.
BT announces fibre-broadband investment plans
In July 2008, BT announced its plans to invest £1.5bn in a fibre-based super-fast broadband
network. BT plan to have the service available to 1million households in March 2010 and the
service should be available to around 40% of the UK’s homes and businesses by 2012. It
will be delivered using a mix of ‘fibre-to-the-cabinet’ (FTTC) and ‘fibre-to-the-home’ (FTTH)
technologies.
Fibre-to-the-home (FTTH) and fibre-to-the-cabinet (FTTC)
The two main types of fibre deployment are FTTH (also known as fibre-to-the-building or
FTTB) and FTTC. FTTH involves running fibre-optic cable from the local exchange to the
end-user’s premises and currently is able to provide downstream broadband speeds of
100Mbit/s.
FTTC involves running fibre-optic cable to the telecoms street cabinet, from where it is
connected to the end-user’s premises using the standard copper local loop; it is currently
able to provide downstream speeds of around 50Mbit/s. The cost of deploying FTTC is much
lower than FTTH, and is the preferred option for many providers who already have a copper
network.
BT Openreach launched a FTTC broadband pilot scheme in Muswell Hill in London and in
Whitchurch in South Glamorgan during summer 2009. Fibre is being deployed from BT’s
core network to street cabinets, from where the standard copper twisted pair will connect to
customer premises. The technology is expected to deliver speeds of ‘up to’ 40Mbit/s,
compared to potential speeds of around 100Mbit/s delivered by FTTH.
30
Although BT is already deploying fibre-to-the-home (FTTH) in the Ebbsfleet Valley area the
headline downstream speed of the fastest service is 10Mbit/s, although it is possible to burst the
service to 100Mbit/s when additional speed is required.
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In June 2009 BT also announced that it would roll out ADSL2+ technology to all of its
customers without any additional charge. The service (which will be advertised as ‘up to
20Mbit/s’ and is therefore not classed as being ‘super-fast’) should be available to around
55% of the UK population by 2010. ADSL2+ services have been available in the UK since
2005 when Be Unlimited (now part of Telefónica O2) launched its ‘up to’ 24Mbit/s service.
Smaller-scale fibre deployments are also being rolled out
In addition to BT and Virgin Media’s plans, a number of smaller-scale fibre trials and
deployments have recently been launched (see Figure 4.10 below). In early 2009 Fibrecity,
part of H2O Networks which deploys fibre networks using the UK’s sewerage system,
launched the UK’s first residential FTTH services in Bournemouth and Dundee, and it is
currently rolling out a fibre network in Sheffield. The company plans to deploy a further 10-
20 developments over the next decade.
In Northern Ireland, Redstone plc has been contracted to deploy and maintain a high-speed
fibre-to-the-home network in the Titanic Quarter, a development on the site of the Harland &
Wolff shipyard in Belfast. The network, which is being funded as part of a joint venture
between Titanic Quarter Ltd and the Belfast Harbour Commission, will initially support data
speeds of 100Mbit/s in both directions and will be available to communications providers on
a wholesale basis. The first commercial tenants are due to move into the main Titanic
Quarter development in August 2009, with around 100 residential apartments due for
occupation by Q4 2009. The site will eventually hold over 5,000 homes and commercial
premises.
More information on the provision of super-fast broadband services can be found in Ofcom’s
statement Delivering Super-fast Broadband in the UK31.
Figure 4.10 Selected UK super-fast broadband implementations and trials, July 2009
Company Deployment Maximum Technology Where Scale When
type download
speed
Virgin Media Commercial 50Mbit/s DOCSIS 3.0 Virgin Media 12.6m homes by Rollout started
cable cable footprint summer 2009 Q4 2008
Fibrecity Commercial 100Mbit/s FTTH Bournemouth c88,000 homes Rollout started
(H2O Networks) and Dundee on completion Q1 2009
Titanic Quarter Commercial 100Mbit/s FTTH Belfast 5,000+ premises First tenants in
(Redstone plc) on completion H2 2009
BT Commercial Burst to FTTH Ebbsfleet Valley 10,000 homes on Currently serving
100Mbit/s completion <100 homes
Virgin Media Trial 200Mbit/s DOCSIS 3.0 Ashford, Kent c100 homes May 2009 for six
cable months+
BT Pilot 40Mbit/s FTTC Muswell Hill and c.15,000 homes Deployed in July
Whitchurch 2009
Source: Ofcom
Digital Britain recommendations set to boost super-fast broadband availability
The Government’s Digital Britain report32, published in June this year, proposed the creation
of a ‘Next Generation Fund’ which would allow network providers to tender for funds to help
31
http://www.ofcom.org.uk/consult/condocs/nga_future_broadband/statement/statement.pdf
32
http://www.culture.gov.uk/what_we_do/broadcasting/6216.aspx
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them deploy super-fast broadband networks in areas that would otherwise be unable to
access such services. It is proposed that the scheme will be funded by a £6 a year annual
levy on all copper lines. If implemented, the aim is that 90% of UK homes will have access to
next-generation broadband services by 2017.
4.1.5 Mobile broadband market begins to mature
Market continues to grow and pay-as-you-go takes increasing share
At the end of 2007 mobile broadband (which enables users to connect to the internet with
their laptop, using a cellular network via a USB modem or ‘dongle’) emerged as a viable
consumer proposition, as the roll-out of HSPA networks enabled mobile operators to offer
internet access at headline speeds comparable to those available through basic fixed-line
broadband services. According to Ofcom consumer research, by the end of Q1 2009 around
3 million households had a mobile broadband connection (approximately 12% of all
households). The majority of these connections were with the three UK mobile network
operators which do not have their own fixed-line broadband network (3UK, Vodafone and T-
Mobile).33
Figure 4.11 details the rapid recent growth in mobile broadband sales through consumer
channels. In May 2009, over a quarter of a million new connections were added, and pre-pay
(pay-as-you-go) connections exceeded post-pay connections for the first time. There are
parallels with the emergence of pre-pay mobile phones in the second half of the 1990s, as
the take-up of mobile broadband indicates expansion into both lower frequency users
(people who want a connection for occasional or ‘emergency’ use) and into sections of the
population who are unwilling or unable to commit to monthly spend. The emergence of pay-
as-you-go also helps to differentiate mobile broadband from fixed-line broadband access,
which is generally available only on a contractual pay-monthly basis.
Another indicator of the maturing of the mobile broadband market is the range of tariffs
available. At the beginning of 2008, consumer mobile broadband services were available on
only three networks, and offered data allowances of 1GB or 3GB per month via a dongle for
a fixed monthly fee. By July 2009, all of the mobile network operators offered a range of
tariffs on both pre-pay and post-pay:
 T-Mobile, for example, offers daily, weekly and monthly tariffs;
 a wide range of usage limits is available: for example, 3UK’s tariffs range from 1GB
per month to 15GB per month;
 in addition to the five mobile network operators, mobile virtual network operators
(MVNOs) BT and Virgin Mobile are also offering mobile broadband;
 mobile broadband is available bundled with fixed-line broadband (by O2, BT and
Virgin Mobile);
 tariffs are available with PCs included within the monthly rental fee (and sometimes
with the SIM embedded in the PC rather than via a dongle); and
 following the trend in the mobile phone market, 3UK has even launched a SIM-only
mobile broadband tariff.
33
Mobile Today, 19 June 2009, estimated that 3UK had 40% of mobile broadband connections,
Vodafone 25%, T-Mobile 25%, Orange 13% and O2 4%
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Figure 4.11 Mobile broadband sales, February 2008 to May 2009
300
263
New connections (000's)
250 224
200
200 182 185
138
175 177 171
165
94
155
51
148 154
139 Pre-pay
45
150
39
86
68
72
30
75
43
35
Post-pay
32
96 102
100 76
150
137
130
126
126
125
113
112
108
107
105
50
99
96
91
85
70
0 Jun 2008
Jul 2008
Aug 2008
Feb 2008
Mar 2008
Feb 2009
Mar 2009
Jan 2009
May 2008
May 2009
Sep 2008
Nov 2008
Dec 2008
Apr 2008
Oct 2008
Apr 2009
Source: GfK Retail and Technology Ltd. Based on factual point-of-sale information and representative
of only general market statistics. All other comments, opinions and references made are not those of
GfK.
Notes: (1) England, Scotland and Wales only (excludes Northern Ireland); (2) based on GfK’s
coverage of 90% of the market, numbers have been extrapolated to represent the full market; (2) only
includes sales through consumer channels, therefore excludes most business connections; (4)
excludes contract renewals
Mobile broadband can be a complement to, or a substitute for, fixed-line broadband
Seventy-five per cent of those with a mobile broadband connection also have a fixed-line
connection, indicating that the two services are complementary, serving different purposes
(i.e. a fixed-line connection is used in the home, and a mobile broadband connection is used
when out and about). This is likely to be a result of constraints associated with the speed
and capacity of mobile broadband, making it less appropriate for in-home use where users
may be more inclined to use data-hungry services such as the BBC’s iPlayer.34
Figure 4.12 indicates how mobile broadband take-up varies by several key socio-
demographic factors. It is clear that not only is there considerable variation among mobile
broadband users, but there are also very different usage profiles: for some socio-
demographic groups mobile broadband is an alternative to fixed-line broadband, for others it
is used in addition to fixed-line broadband.
Mobile broadband take-up is highest among the more affluent social groups, with nearly one
in five adults in the socio-economic group AB having a connection, compared to less than
one in ten in social groups C2DE. However, the large majority of AB mobile broadband users
also have a fixed-line broadband connection. Conversely, while a lower proportion of people
in socio-economic group DE have a mobile broadband connection, they are much more
likely to use it as their only broadband connection. This is likely to be related to affordability:
a much larger proportion of mobile-only households are within lower socio-economic groups
(in Q1 2009, 23% of DE households were mobile-only, compared to 8% of ABC1
households), and mobile broadband offers consumers the opportunity to get online without
having to pay a monthly line rental, which is required for most fixed-line broadband services.
The availability of pre-pay mobile broadband may also be driving further take-up among less
34
The majority of mobile broadband tariffs include less than 3GB of data per month (although there
are exceptions, such as 3UK’s 15GB for £15 tariff), while research by Epitiro
(www.epitiro.com/news/epitiro-publishes-uk-mobile-broadband-research.html) has found that average
mobile broadband speeds are less than 1Mbit/s – compared to average fixed-line broadband speeds
of around 4.1Mbit/s (see Ofcom’s UK Broadband Speeds 2009,
www.ofcom.org.uk/research/telecoms/reports/broadband_speeds/broadband_speeds/
207

affluent consumers, as it enables users to control their spend without committing to a
monthly line rental, and does not require a credit check.
Those living in privately rented properties are much more likely than owner-occupiers to
have mobile broadband as their only broadband connection. This is likely to reflect the fact
that while fixed-line broadband is typically a household purchase, as most households have
only one telephone line and wireless routers enable multiple PCs to use the same
broadband connection, mobile broadband is more likely to be an individual purchase as it is
more suited to use by a single computer and an individual can take it with them wherever
they go. Those living in shared accommodation or in short-term lets are therefore less likely
to invest in a fixed-line broadband contract. Students and young professionals frequently live
in shared accommodation, and this, combined with the typical profile of a technical service
still in its early stages of take-up, may explain why younger people are more likely to have a
mobile broadband connection than older age groups.
Figure 4.12 Take-up of mobile broadband
% take-up Age Socio-economic group Housing
20
3 Mobile
15 6 broadband
4 only
5 8
3
10 3 3 Fixed and
1 16 mobile
2 3
12 4 broadband
5 10 11 10
9 8 9 8
6 6
3 4
0
e
e
al
ll
+
4
E
4
4
4
4
1
2
AB
at
ag
A
-6
ci
75
-2
-3
-5
-7
C
C
D
iv
so
tg
15
25
35
55
65
pr
or
t-
t-
/m
en
en
R
n
R
w
O
Source: Ofcom research, Q1 2009
Base: All adults aged 15+ (n = 6,090)
4.1.6 Smartphones and applications drive more sophisticated use of mobile internet
More than eight million people use the internet on their mobile phones
In the 2007 Communications Market report we highlighted that conditions were in place for
the take-off of the internet on mobile phones. Networks supporting 3G were widely available,
the majority of mobile handsets had internet capability, operators were launching ‘unlimited’
data tariffs and the customer experience began to approach that of the fixed-line internet as
website providers increasingly provided mobile-enhanced versions of their sites.
Two years on, it is apparent that although the use of internet services on mobile phones has
grown considerably, the ‘mobile internet’ has still not reached majority of mobile phone
users. According to data from the Nielsen Company, over 8 million people in the UK (16% of
adults) accessed the internet on their mobile phone at least once in the first quarter of 2009,
up 40% on a year previously (Figure 4.13). However, this has only in part been driven by
consumers’ desires to replicate and re-package the PC-based internet experience on a
mobile phone. More fundamentally, the evolution of ‘smartphones’ (mobile phones with
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advanced capabilities and large processing power35) has enabled the delivery of internet
services and applications specifically tailored to the needs of mobile consumers.
Figure 4.13 Growth of UK mobile internet users
9 8.1 8.1
8 7.5
Unique Audience (millions)
7
5.7 6.0
6
5
4
3
2
1
0
Q1 2008 Q2 2008 Q3 2008 Q4 2008 Q1 2009
Source: The Nielsen Company
Note: Data before Q1 2008 is not available
Increasing take-up of smartphones drives internet usage
In the four years between Q1 2005 and Q1 2009 quarterly smartphone sales rose from
173,000 to 1.23 million, peaking at 1.24 million units in Q3 2007 when Apple launched the
iPhone 3G, and Mobile Today reported initial UK sales of 50,000 units a week36. During this
period smartphone sales as a proportion of all handset sales rose from 3.7% to 15.6%. The
increase in the sales of smartphones comes in the context of falling overall handset sales: in
Q1 2009, smartphone sales increased by 3% on the previous quarter and by 26% on Q1
2008, despite overall handsets sales falling by 19% on the previous quarter and by 3% on
Q1 2008 (Figure 4.14).
35
There is no agreed definition of ‘smartphone’ since it is a constantly evolving technology, but here a
smartphone is defined as a handset running Symbian (6.1 and above), Android, Blackberry, iPhone,
Palm, Windows Mobile or Linux operating systems.
36
Mobile Today, “3G iPhone hits 50,000 sales per week”,
http://www.mobiletoday.co.uk/3G_iPhone_50000_sales_per_week.html
209

Figure 4.14 UK smartphone sales
15.6
1.6 14.8 16
Smartphone unit sales (millions)
Smartphones as % of handset
1.4 14
12.0 12.2
11.6 11.4 Smartphone
1.2 10.4 12 unit sales
1.24
1.23
1.19
1.0 9.1 10
8.6
sales
0.97
0.8 7.3 6.9 6.9 7.1 8
0.91
6.4 6.4 6.4
0.84
0.83
Smartphone
0.78
0.6 6 sales as a
0.60
0.59
3.7 proportion of
0.56
0.4 4
0.50
0.50
0.49
0.46 total handset
0.2 2 sales
0.29
.17
0.0 0
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1
2005 2006 2007 2008 2009
Source: GfK Retail and Technology Ltd, based on factual point-of-sale information
Notes: Smartphones are defined as any handset running Symbian (6.1 and above), Android,
Blackberry, iPhone, Palm, Windows Mobile or Linux operating systems; England, Scotland and Wales
only (excludes Northern Ireland); based on GfK’s coverage of 94% of the market - data have been
extrapolated to represent whole market; only represents sales through consumer channels (i.e. most
business connections are excluded.
The take-up of smartphones is an important driver of the take-up of internet services on
mobile phones. A comScore survey in January 2009 revealed that smartphone users are
more than twice as likely to access news or information via a browser on their mobile phone
than mobile phone users overall, and almost four times more likely to access news or
information via a downloaded application. However, the fact that the majority of smartphone
users do not use their phones for internet services indicates that many people are not using
the functionality available. Among iPhone users, 80% accessed browser services and more
than half used downloaded applications to access information (Figure 4.15).
Figure 4.15 Use of advanced services by iPhone and smartphone users
Proportion of users (per cent)
100
80 iPhone
80 75
Users
60 56 55 56 55
48
All
40 35 32 smartphone
30
22 26 Users
20
20 13 13 12
6 9 All mobile
users
0
Accessed Accessed e- Accessed Accessed social Accessed Used web
information mail information networking site weather search
using browser using
downloaded
application
Source: comScore Mobile, January 2009
Base: UK population aged 13+ (n=1500)
Launch of application stores heralds a new era for the ‘mobile internet’
In the past year, the growing use of applications (or ‘apps’) on mobile phones in the UK and
worldwide has changed the way in which consumers use data services on mobile handsets.
This in turn is changing the relationships between operators, handset manufacturers and
210

software providers, and has offered further differentiation between the ‘fixed-line’ and
‘mobile-enabled’ internet.
Current mobile phone applications differentiate themselves from those previously available
on mobile devices by using the higher data speeds on offer from 3G connections and by
harnessing the new capabilities of today’s smartphones, such as touch-screen,
accelerometer (sensing motion and orientation) and GPS capabilities.
What is a mobile application?
A mobile application (or app) is a computer programme which runs on a mobile handset.
Mobile ‘apps’ have existed for as long as there have been smartphones, but the complexity
of applications has been limited by the handset’s memory and processing power. In the last
five years many handsets have had the ability to run simple mobile applications, but until
recently ‘apps’ have not had a great impact on the mobile phone industry.
‘Apps’ exist across many genres, including games, entertainment, utilities, education, travel
and lifestyle. Furthermore, they vary in the degree to which they rely on the capabilities of
the handset they run on and the network they are connected to. For example, many games
can run independently of data connectivity, while other utilities and travel applications can
either take advantage of GPS built into handsets, or use location-based information provided
by the mobile network operator.
Examples of applications from Apple’s All-Time Top Free Apps37 include: Facebook – an
application which accesses the popular social networking site; Urbanspoon – a travel
application which recommends restaurants in your local area; Shazam – a music application
which identifies songs using the phone’s microphone; and Remote – an entertainment utility
which can control the iTunes media player on a remote computer from an iPhone or iPod
Touch.
It was arguably the launch of Apple’s App Store, concurrently with the iPhone 3G in July
2008, which brought ‘apps’ to mainstream attention and since then competing operating
system (OS) designers and handset manufacturers have announced, or launched, their own
application marketplaces (online shops accessible from an internet browser or through the
handset). The Open Handset Alliance and its operating system Android (initially developed
by Google) launched the Android Marketplace in October 2008, while Microsoft has
announced that it will consolidate existing third-party offerings for its Windows Mobile
platform as the Windows Marketplace for Mobile in the second half of 2009.
Handset manufacturers Samsung, Nokia, Palm, and RIM (which manufactures the
BlackBerry) all launched application marketplaces in the first half of 2009, while Sony
Ericsson has announced that it will accept submissions for applications for its existing games
and media service from July 2009 (Figure 4.16).
37
Apple, “Thanks a billion”, http://www.apple.com/itunes/billion-app-countdown/
211

Figure 4.16 Launch dates of mobile phone application stores
Launch date Organisation Applications market
July 2008 Apple App Store
October 2008 Open Handset Alliance Android Market
January 2009 Samsung Samsung Mobile Applications
April 2009 RIM BlackBerry App World
May 2009 Nokia Ovi
June 2009 Palm App Catalog
Due Q2 2009 LG TBC
Due Q3 2009 Sony Ericsson Playnow Arena
Due H2 2009 Microsoft Windows Marketplace for Mobile
Source: Ofcom, June 2009
The rapid proliferation in both the number of mobile ‘apps’ available, and the variety of
functions that they perform, provides evidence of a rapid shift in the way in which consumers
use data services on mobile phones. Handset manufacturers and mobile OS designers have
released tools and resources that allow both professional and ‘bedroom’ developers to
create and publish applications. For example, Apple’s App Store grew from 556 applications
and games in July 2008 to more than 65,000 a year later (Figure 4.17). Furthermore, the
functionality of applications available on the iPhone has been a large focus of Apple’s
advertising for the handset, with a number of television and newspaper campaigns having
highlighted ‘apps’ ahead of the handset itself.
Figure 4.17 Number of ‘apps’ available at Apple’s US App Store
60
50.7
Number of apps (000’s)
9.5
40
30.3
Games
6.0
Other Apps
20 41.2
13.5
3.0 24.2
4.7
1.1 10.5
3.6
0
Q3 Q4 Q1 2008 Q2
Source: 148apps.biz, June 2009
Note: Data for the UK App Store are unavailable. However most ‘apps’ are sold in both the UK and
the US app stores and so in terms of the number and types of application available the UK app store
is similar but not identical to the US app store. Apple announced on July 14, one year after launch,
that the App Store had more than 65,000 applications available.
Mobile operators face challenges as they look to monetise the increasing use of mobile
applications, with revenues typically split between the developer and the application store
provider, and the mobile operator playing no part in the transaction other than to carry the
data. In response to this, mobile network operators are developing their own ‘open-API’
(application programming interface) initiatives to compete with the application stores offered
by handset manufacturers. Network APIs allow developers to access intelligence from
212

mobile network operators (such as cell-ID location information or customer preferences) and
incorporate this information into mobile applications.
Two ‘open-API’ initiatives are O2’s Litmus (currently in testing beta stage of development)
and Joint Innovation Lab (a joint venture between Vodafone, Verizon Wireless, China Mobile
and Softbank Mobile). Applications from Litmus can use O2’s APIs to retrieve information
about a handset’s location, compatibility and connections status, and may soon enable users
to make purchases using SMS short codes. A key feature of the Joint Innovation Lab
platform is direct billing, which will enable developers to offer ‘in-app’ purchases, billed via
the customer’s mobile phone bill, and from which mobile network operators will be able to
take a revenue cut.
Young and upwardly-mobile
Young people are much more likely than older people to use internet services on their
mobile phones; according to the Nielsen Company, 15-24 year olds accounted for 25% of
‘mobile internet’ users (compared to 16% of PC internet users). Similarly, according to
research commissioned by mobileSQUARED earlier this year, more than half of 18-24 year-
olds are aware of what an application store is, compared to less than a quarter of the
population as a whole. With men more than twice as likely as women to be aware of mobile
applications, they have some way to go before they enter the consumer mainstream (Figure
4.18).
Figure 4.18 Application stores: public awareness
60
Proportion of individuals (%)
40
52
45
20 35
30
24
15 18
0
All Male Female Aged 18-24 Aged 25-34 Aged 35-44 Aged 45-54
Source: mobileSQUARED/Lightspeed Research, March 2009
4.1.7 Low-price post-pay plans drive growth in contract subscriptions
The number of pay-as-you-go connections falls for the first time as consumers
migrate to pay-monthly...
Although the majority of mobile connections continue to be pre-pay (pay-as-you-go), a
characteristic of the mobile market in 2008 was the growth in post-pay (pay-monthly) tariffs.
During the year, the number of post-pay subscriptions grew by over 3 million, while the
number of pre-pay subscriptions fell by 109,000 (Figure 4.19).
213

Figure 4.19 Market share of post-pay and pre-pay subscriptions
60.0 65.8 70.1 73.8 76.8 Total connections
(millions)
100%
% share of total connections
80%
66% 66% 65% 64% 61%
60% Prepay
40%
Postpay
20% 34% 34% 35% 36% 39%
0%
2004 2005 2006 2007 2008
Source: Ofcom
...driven by the availability of low-cost SIM-only deals
This shift from pre-pay to post-pay has in part been driven by the availability of low-cost
(sub-£20) 'SIM-only' tariffs, in which customers are not given a new handset when signing up
for a new contract, but are supplied only with a SIM card which they can use in a handset
they already own. Figure 4.20 below shows that in every month since September 2008 more
than a fifth of new post-pay (pay-monthly) connections have been sold on a SIM-only basis.
It should be noted that this data excludes both contract renewals (i.e. when a consumer
renews, upgrades or downgrades a contract with the same operator) and online sales
through mobile operators’ own websites, and as these channels are known to promote SIM-
only contracts, it is likely that the actual proportion of SIM-only contracts is significantly
higher.
Figure 4.20 SIM-only contracts, as a proportion of all post-pay mobile contracts
100%
Proportion of sales (per cent)
80%
77.1 74.5 75.8 76.3 73.6 75.7 77.6 78.1 78.3 Handset
60% 86.1 82.3 84.1 82.0 82.0 83.2 80.4 included
40%
SIM only
20%
22.9 25.5 24.2 23.7 26.4 24.3 22.4 21.9 21.7
13.9 17.7 15.9 18.0 18.0 16.8 19.6
0%
Feb- Mar- Apr- May- Jun- Jul- Aug- Sep- Oct- Nov- Dec- Jan- Feb- Mar- Apr- May-
08 08 08 08 08 08 08 08 08 08 08 09 09 09 09 09
Source: GfK Retail and Technology Ltd
Notes: England, Scotland and Wales only (excludes Northern Ireland); based on GfK’s coverage of
94% of the market, numbers have been extrapolated to represent the full market; only includes sales
through consumer channels, therefore excludes most business connections; excludes contract
renewals
Operators benefit from SIM-only contracts through reduced customer acquisition costs (they
pay less commission to retailers, as no handset is sold) and reduced handset subsidies. In
addition, SIM-only tariffs offer a way to migrate customers from pre-pay to post-pay contracts
by offering low-cost monthly tariffs; this decreases churn and can potentially increase
average monthly spend. For consumers, SIM-only tariffs are attractive to those seeking
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additional value in terms of price-per-minute or price-per-text, compared to pay-as-you-go
services or post-pay contracts which include a handset. Furthermore, as most people
already have mobile phones, many do not want a new handset (70% of respondents in our
recession questionnaire did not want to upgrade their handset).
O2 spearheaded the roll-out of 30-day rolling SIM-only contracts with the launch of the
Simplicity tariff in July 2007. Initially, take-up of O2’s SIM-only tariff was slow, accounting for
just 2% of O2’s mobile subscriptions in Q1 2008, but throughout 2008 the Simplicity tariffs
rapidly gained market share, and accounted for a third of O2’s total post-pay customer base
by Q1 2009.38 Other operators were quick to follow, with 3UK the last mobile network
operator to enter the market, launching its first SIM-only deal in February 2009.
Virgin Mobile offered the highest-priced SIM-only contract in July 2009 at £35 for a 30-day
contract, with 1000 anytime minutes and unlimited texts. At the other end of the scale, in
June 3UK introduced Sim Zero, the first no-cost SIM-only deal in the UK with free Skype-to-
Skype calls, instant messaging and voicemail for no monthly outlay. The comparative value
offered by SIM-only contracts is detailed in Figure 4.21, which illustrates that for a monthly
fee of £15, consumers can get 300 minutes and unlimited texts on a SIM-only contract. (As a
point of comparison, on average each mobile connection in 2008 used 123 minutes and 99
texts per month.)
Figure 4.21 Inclusive any-network, anytime allowances in 30-day £15 SIM-only and
standard contracts
Vodafone O2 T-Mobile Orange 3UK
600
Unlimited
Any-network, any-time inclusive
Unlimited
Unlimited
Unlimited
500
Unlimited
Unlimited
400 Text s
calls / texts
500
300
Minutes
200
350
300
300
300
300
100 100
125
200
100
100
100
75
0
With handset
With handset
With handset
With handset
With handset
Sim-olny
Sim-olny
Sim-olny
Sim-olny
Sim-olny
Source: Ofcom/tariff data from Pure Pricing/Operator websites
Notes: Data based on tariffs available in July 2009; standard tariff with basic handset selected which
offers highest number of anytime, any-network minutes for £15 where available on an 18-month
contract (Orange £19.68, O2 £19.58); SIM-only tariff selected with highest number of anytime minutes
at £15; this table is indicative of inclusive anytime, any network minutes only (and texts when they are
additional to the maximum number of minutes) and should not be used to compare overall pricing as
many additional factors are excluded, such as handset included, on-net calls, off-net calls, off-peak
calls, data bundles and metered pricing
Lower price contracts gain market share
Although SIM-only deals have established themselves within the tariff portfolio of every
network operator, the majority of new contracts still include a handset, and among these
38
Telecoms Europe, 26 May 2009, http://www.telecomseurope.net/content/overwhelmed-sim-only-o2-
demands-handset-innovation
215

contracts there has been a significant shift towards lower price monthly fees. Figure 4.22
below shows that in Q1 2009 32% of new pay-monthly contracts cost £20 per month or less,
compared to 23% in Q1 2008 and just 5% in Q1 2006. The proportion of new connections
with contract plans at under £30 per month has more than doubled over the two years to
March 2009, to 49%.
Including a handset within a mobile tariff increases the costs to the operator, but these can
be offset by securing a longer contract commitment, and potentially by the increased
revenue potential offered from handsets with features designed to stimulate demand for
mobile data services. It was in this context that in December 2008 3UK undercut many of the
SIM-only contracts in the market with the launch of a £9 per month tariff which included 100
minutes or texts (or any mix of the two) and a free Sony Ericsson K660i HSDPA-enabled
handset with 2.0 megapixel camera, on an 18-month contract. In February 2009 Virgin
Mobile launched an £8.50 per month 18-month contract with 100 minutes and 100 texts and
a choice of either the 3G Nokia 3120 or the Samsung G600 handset with a 5 megapixel
camera. In July 2009, the lowest cost tariff available with a handset included was Orange’s
£5/month tariff which includes a Nokia handset, 50 minutes and 50 texts – but this tariff is
also the UK’s first 36-month contract (a new handset is offered at 18 months).
At the other end of the scale, new connections with a monthly fee of £50 a month or more
accounted for less than 1% of sales in March 2009, compared to a peak of 9% in Q2 2006.
The most common price range for monthly contracts has been between £35 and £39.99
since Q2 2006. In Q1 2009 one in four (26%) of new connections were within this price
range, although this has fallen from a high of nearly half of all connections two years ago, as
lower-value tariffs have gained in popularity.
Figure 4.22 Monthly line rental for new mobile contract connections
100% 6 4 4 7 6 4 3 2 2
7 8 8 8 7 9 10
12 11
Proportion of contracts (%)
13 9 10 11 11 14
9 9 12 12 13 12 14 11
80% 2 8 £50+
10 11 26
22 35 32 30 29 £40-49.99
28 40 48 43 40
60% 44 37 46 £35- 39.99
44 14
45 39 8 11 14 11 £30-34.99
40% 29 6 17
25 18 £20-29,99
21 21 10 20 20 19
15 10 20 £15-19.99
20% 31 22 23 21 20
19 24 20 19 22 16 18 17 20 £0-14.99
17 19 12
4 5 4 5 4 5 9 6 7 6 7 7 12
0% 2 4 2 2 2 4
1 3
1 3
0 0 5
0 0
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1
2005 2006 2007 2008 2009
Source: GfK Retail and Technology Ltd, based on factual point-of-sale information
Notes: England, Scotland and Wales only (excludes Northern Ireland) based on GfK’s coverage of
94% of the market; based on new post-pay connections; excludes contract renewals; only represents
sales through consumer channels (i.e. most business connections are excluded)
The long and the short of mobile contracts
These two trends in the market – the emergence of SIM-only and low-cost contracts with
handsets included – are evident in a polarisation of contract lengths. In the middle of 2007,
virtually every contract sold was for either 12 or 18 months. However, by Q1 2009 24% of
contracts were sold on 30-day contracts (these are overwhelmingly SIM-only deals), while
13% of contracts locked in consumers for a 24-month period (Figure 4.23). Some of these
longer contracts are the product of lower-price contracts, which mean that operators need to
recover the cost of contract subsidies over a longer period of time. However, 24-month terms
216

are becoming increasingly common for higher priced contracts in order to subsidise high-end
smartphones such as the iPhone, which is sold by O2 predominantly on 24-month contracts.
Figure 4.23 Length of new mobile contract connections
100% 3 5
Proportion of sales (per cent)
12 12 7 13
24
80% 41 Others
55 24 MONTHS
66
60% 74 80 75 72 68 67 63
84 82 60 18 MONTHS
88 88 12 MONTHS
40% 76 72 1 MONTH
58 5 3
20% 44 12 8
33 11 13
25 19 15 19 24 24
16 13 10 15
0% 2
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2008 Q2 Q3 Q4 Q1
2005 2006 2007 Q1 2009
Source: GfK Retail and Technology Ltd
Notes: England, Scotland and Wales only (excludes Northern Ireland); based on GfK’s coverage of
94% of the consumer market; based on new post-pay connections; excludes contract renewals; only
represents sales through consumer channels (i.e. most business connections are excluded)
4.1.8 A new era for MVNOs
New MVNOs gain market share
By securing a wholesale agreement with one of the five mobile network operators (MNOs),
Mobile Virtual Network Operators (MVNOs) and service providers (SPs) are able to offer
telephony services without having a spectrum allocation or their own wireless network. Virgin
Mobile was the world’s first MVNO when it launched in the UK in 1999 (initially as a joint
venture between T-Mobile and the Virgin Group), and it has remained the largest UK MVNO.
However, during 2008, for the first time, the combined market share of the UK’s other
MVNOs and SPs exceeded that of Virgin Mobile, following a spate of new MVNO launches
during 2007 and 2008.
Mobile network operators (MNOs)
An MNO has its own allocation of licensed spectrum and uses this to provide mobile
telephony services over its own wireless network. There are five MNOs in the UK: 3, O2,
Orange, T-Mobile and Vodafone.
Mobile virtual network operators (MVNOs)
An MVNO provides mobile telephony services to customers but does not have its own
allocation of spectrum or its own wireless network. It does this by agreeing wholesale deals
with MNOs enabling it to use their spectrum and network. Virgin Mobile is the UK’s largest
MVNO.
Mobile service providers (SPs)
An SP is similar to an MVNO in that it does not have its own allocation of spectrum or its
own wireless network. In addition, an SP does not have its own switching infrastructure, so
uses the MNO’s own interconnect agreements (interconnection agreements are necessary
to ensure that a call from one network can be received by a consumer using a different
network).
217

At the end of 2008, the total share of connections held by alternative providers to the five
mobile network operators held steady at just under 13% (unchanged from 2007), but the
share of MVNOs and SPs other than Virgin rose from 5.9% to 6.5% (Figure 4.24).
Figure 4.24 Operator and MVNO/service provider market share of subscribers
60.0 65.8 70.1 73.8 76.8 Total connections
100% (millions)
4.3% 5.0% 5.5% 5.9% 6.5%
6.5% 6.6% 7.6% 7.0% 6.2%
80%
Share of subscriptions
60% MVNO/Service Providers
Virgin
89.3% 88.4% 86.9% 87.1% 87.3%
40%
Mobile operators
20%
0%
2004 2005 2006 2007 2008
Source: Ofcom
Different business models emerge
The decline in Virgin Mobile’s market share reflected the company’s change in focus away
from low-value pre-pay consumers and towards increasing retention and average revenue
per user by concentrating on the post-pay market and bundling its mobile services with
Virgin Media’s broadband and TV offerings.
However, the growth of other MVNOs and SPs represents a shift in the market, which comes
from MNOs increasingly looking to secure wholesale agreements in order to boost revenues,
and a range of new virtual operators responding by launching services targeting specific
customer segments.
• A significant proportion of MVNO subscription growth in 2008 originated from
providers offering low-cost international calls to customers from ethnic and immigrant
groups. For example, Lebara Mobile, operating on Vodafone’s network, claimed to
have over a million total acquired subscribers in the UK by May 2009 (note this is
total acquired and not active connections).
• Blyk, an advertising-funded MVNO operating on Orange, targeting under 24-year
olds and offering free calls in return for receiving adverts, reported 200,000
subscribers in September 2008, one year after launching in the UK. However, on 27
July 2009, Blyk announced it would accept no more customers and will end its
MVNO service in the UK on 26 August 2009. Orange, in partnership with Blyk, is
planning to launch its own ad-funded calls and text service using its own brand name
in August this year.39
• Supermarket-backed MVNOs have also performed well. Tesco Mobile (using the O2
network), is the UK’s second largest MVNO after Virgin Mobile, and achieved nearly
2 million mobile connections towards the end of 2008. In April 2009 Tesco
announced a renewed focus on its telecoms business, increasing its telecoms outlet
stores (standalone outlets within larger Tesco stores) from 41 to 100. Meanwhile,
39
New Media Age, 27 July 2009, http://www.nma.co.uk/
218

Asda Mobile (operated by the Caudwell Group) claimed in June 2009 that the
success of budget handsets, retailing at under £10, contributed to a 10% increase in
pre-pay sales over the last year.
 MVNOs are also beginning to move into mobile broadband. In May 2009 BT Retail
launched a combined mobile broadband and fixed-line broadband tariff at £15.65 per
month. The deal mirrors a similar offer launched by Virgin Media, in which users pay
£5 per month for a 1GB mobile broadband connection when they also take a fixed-
line broadband service.
219

4.2 The telecoms industry
4.2.1 Introduction
In this section of the report we look at the major trends in the UK telecommunications market
from an industry-wide and operator perspective. Sections 4.2.2 to 4.2.5 look at the industry
overall and Section 4.2.6 looks specifically at business markets.
The key findings from this section of the report are as follows:
 Overall industry growth stalls. Operator-reported retail telecoms revenues grew by
just £117m in nominal terms in 2008 to £31.0billion – representing a considerable
slowdown from the £1.2bn growth recorded in 2007. A small fall in wholesale
revenues meant that overall operator-reported revenues were unchanged in 2007
and 2008 (page 198).
 In 2008 O2 became the largest telecoms network in terms of connections.
During 2008 O2 (including Tesco Mobile) overtook BT to become the UK’s largest
provider of telecoms connections; at the end of 2008 there were 21.5 million active
O2 (and Tesco Mobile) subscriptions, compared to 20.6 million BT lines and
integrated services digital network (ISDN) channels (page 224).
 44.5% of all call minutes originated on mobile phones in 2008. If current trends
continue mobile call minutes are set to overtake fixed-line in 2010 (page 224).
 BT’s retail share of call volumes from landlines to UK geographic numbers fell
to under 50% for the first time in 2008. BT’s retail market share has suffered as a
result of increasing consumer use of wholesale line rental (WLR) and local loop
unbundling (LLU)-based telephony services (page 227).
 Falling prices hit broadband revenues. While the total number of residential
broadband connections increased by 11.4% to 15.9 million during 2008, revenues
from these services grew by just 3.8% as prices continued to decline (page 234).
 Operator-reported spend on business telecoms services grew by 2% in 2008.
Business spend on telecoms services grew to £13.9bn in 2008, as the decline in
fixed voice revenues was offset by an increase in business mobile revenues.
Revenues from business internet and corporate data services were unchanged
during the year (page 236).
4.2.2 Industry overview
The Office for National Statistics (ONS) calculated that total UK telecoms turnover was
£62.2bn40 in 2008, a 1.7% increase on the £61.1bn it reported for 2007 (Figure 4.25).
This figure is significantly greater than the £39.5bn reported by telecoms providers to Ofcom,
as the ONS includes turnover from activities in markets not regulated by Ofcom, for
example, network and hardware provision, installation and maintenance. The data which we
collect cover revenues from fixed and mobile telephony and internet services, along with the
wholesale revenues associated with the provision of these services.
40
http://www.statistics.gov.uk/STATBASE/tsdataset.asp?vlnk=4702&More=Y
221

Our own figures suggest that for the first time since former telecoms regulator Oftel started
to collect market data in 1992/93, operator-reported revenues from telecoms services did not
increase in 2008. Total operator-reported revenues were unchanged in 2008 at £39.5bn as a
result of declining wholesale revenues (which fell by 1.4% to £8.5bn due to falling fixed
interconnection revenues); retail service revenues increased by 0.4% to £31.0bn during the
year.
Figure 4.25 UK telecoms industry turnover
80
2008 5 year
61.1 62.2 growth CAGR
60 56.4 56.7
50.8 53.3
Turnover (£bn)
21.6 22.7
16.5 19.0 18.5
16.5 Other 5.0% 6.6%
40
revenue
20 36.8 37.4 38.2 39.5 39.5
34.3 Operator- -0.0% 2.8%
reported
service
0
revenues
2003 2004 2005 2006 2007 2008
Source: Ofcom / ONS / operators
Note: Includes estimates where Ofcom does not receive data from operators
Fixed voice revenues continued to decline in 2008...
The main factor behind the slowdown in retail revenue growth in 2008 was the continued
decline in revenue generated by fixed-voice telephony services (Figure 4.26). This fell by
2.9% to £9.0bn in 2008, mainly due to falling use per line, but also as a result of a reduction
in the number of fixed lines (see section 4.2.3). Over the five years to 2008 the average drop
in fixed-line revenues was 4.3%, suggesting that the decline in fixed revenues is slowing.
Figure 4.26 UK telecoms industry retail revenue
2008 5 year
30.9 31.0 growth CAGR
29.0 29.7
30 28.0 3.2 3.2
25.8 3.1 3.1
Retail revenue (£bn)
2.9 3.3 3.4 Corporate 1.5% 3.3%
2.8 2.6 3.0 3.3 data services
2.1
20
11.9 15.0 15.4 Internet & 0.1% 9.4%
9.7 13.1 13.8
broadband
10 Mobile voice 2.2% 9.6%
11.2 10.6 & data
9.9 9.4 9.3 9.0
0 Fixed calls & -2.9% -4.3%
2003 2004 2005 2006 2007 2008 access
Source: Ofcom / operators / IDC
...while mobile voice revenue growth slowed significantly
Looking at the industry as a whole, a key difference between 2008 and the previous five
years was that growth in operator-reported revenues from mobile and internet services was
barely able to offset the decline in fixed telephony revenue (Figure 4.27). Although revenues
from mobile telephony, internet and broadband and corporate data services (CDS) all
increased in 2008, they went up by just £383m (compared to an increase of £1.3bn in 2007).
Retail revenue from fixed-line voice services fell by £266m in 2008, meaning that total
222

operator-reported retail revenues increased by £117m during the year, compared to £1.2bn
in 2007.
Figure 4.27 Growth in operator-reported retail telecoms revenues in 2008
Key drivers
Increasing use of Growing use of Migration to Falling
non-messaging web-hosting and broadband & connections and
data services IP VPN services falling prices declining usage
£4m
£49m
-£266m
£331m
£117m
Mobile Corporate data Internet & Fixed voice Total
services broadband
Source: Ofcom / operators / IDC
Growth in internet and mobile continued, while the number of landlines fell
The decline in the fixed telephony market is reflected in Figure 4.28, which shows that the
total number of fixed lines fell by 0.6% (0.2m) to 33.2m in 2008, a faster rate than in 2007. At
the same time the numbers of mobile subscriptions and internet connections both increased,
mobile by 4.1% and internet by 2.8%. These figures are both higher than the respective
rates of revenue growth for each service, indicating that average spend per connection fell
during the year.
The total number of residential and SME broadband connections grew by 10.7% in 2008,
down from 19.9% in 2007 and significantly lower than the average annual growth of 40.9% in
the five years to December 2008. This slowdown comes in the context of almost two-thirds
of households in the UK having a fixed broadband connection in Q1 2009.
Figure 4.28 Total telecoms connections
76.8
) 80 70.1 73.8 2008 5 year
m
( 65.8 growth CAGR
s 60.0
n 60 52.9
o
i Mobile 4.1% 7.8%
t
p
i subscriptions
r
c
s 34.9 34.5
b 40 34.0 33.5 33.5 33.2 Fixed lines -0.6% -1.0%
u
s
/
s
n 17.5 18.7 19.2
o
i 15.3 16.3
t 20 13.5 Total internet 2.8% 7.3%
c
e 15.6 17.3 subscriptions
n 3.1 6.1 13.0
n 9.9
o
C 0 Of which 10.7% 40.9%
2003 2004 2005 2006 2007 2008 broadband
Source: Ofcom / operators
Note: Includes estimates where Ofcom does not receive data from operators; broadband excludes
corporate connections
223

O2 overtook BT to become the UK’s largest provider in terms of connections
The year to December 2008 was also the first in which a mobile operator was the largest UK
telecoms provider in terms of connections (Figure 4.29). During the year O2 overtook BT
and by the end of the year had 21.5m subscriptions (19.5% of the total) compared to BT’s
20.6m analogue lines and integrated services digital network (ISDN) channels (an 18.7%
share). At the end of 2008 mobile subscriptions accounted for 69.8% of total telecoms
connections, up from 68.8% in 2007 and 60.0% in 2003.
Figure 4.29 Share of total UK fixed and mobile telecoms connections
%age point change
One year Five years
100% 2.1 2.2 3.7
3.5 5.4 6.2 7.3
3.7
Proportion of connections (%)
15.5 3.7 4.1 Other 1.1 5.3
15.0 14.9
80% 14.8 14.6 14.9
14.9 15.4 3UK 0.4 4.1
15.3 16.3 16.1 15.2
60% 15.0 Orange 0.3 -0.6
15.6 17.0 18.4 18.7 19.5 T-Mobile -0.9 0.3
14.5 14.8
40% 15.2
5.3 5.0 14.5 15.6 O2 0.8 4.5
4.5 16.1
4.2 4.2
20% 4.2 Vodafone 0.4 1.6
32.7 29.3 25.9 22.7 20.7 18.7
Cable -0.0 -1.1
0%
2003 2004 2005 2006 2007 2008 BT -2.1 -14.0
Source: Ofcom / operators
Note: Includes estimates where Ofcom does not receive data from operators; ‘Other’ includes carrier
pre-selection and wholesale line rental in additional to fixed other licensed operators
Mobile-originated voice call volumes likely to overtake fixed in 2010
The increasing importance of mobile telephony to the overall telecoms market is also shown
in Figure 4.30, which shows the market share of total voice telephony call volumes. In 2008
the proportion of voice calls originating on mobile networks increased by 3.9 percentage
points to 44.5%, mainly at the expense of BT (whose share declined by 3.7 percentage
points to 25.7%), although other providers also saw a decline. The same pattern was evident
in the five-year period to December 2008, with mobile gaining market share at the expense
of fixed operators. If current trends continue, mobile-originated voice call volumes should
overtake those from fixed lines in 2010.
Figure 4.30 Share of total outbound voice call volumes
100%
%age point change
Proportion of connections (%)
26.1 28.2 30.9
80% 35.7 40.5 One year Five years
44.5
Mobile 3.9 18.4
60% 31.1 32.1
33.9
32.3
30.1
40% 29.8
Other fixed -0.2 -1.2
20% 42.9 39.7 35.1 32.0 29.4 25.7 BT -3.7 -17.2
0%
2003 2004 2005 2006 2007 2008
Source: Ofcom / operators
Note: Includes estimates where Ofcom does not receive data from operators
224

4.2.3 Fixed voice telephony
Decline in revenues continued in 2008
Revenues from fixed voice services continued to fall in 2008, when they generated £9.0bn,
2.9% lower than in the previous year and 19.6% lower than they had done five years
previously. Fixed telephony tariffs are increasingly aligning themselves with those of mobile
services, in that many now also include an element of inclusive calls within the monthly
rental fee. For example, BT’s most basic line rental package includes free weekend calls to
UK geographic, 0845 and 0870 numbers (and free evening calls to UK geographic numbers
for those on to a rolling 12-month contract), while Virgin Media’s M tariff (available to
customers taking bundled services) includes free weekend landline calls. This is reflected in
Figure 4.31, which shows that while total voice call revenues declined by an average of 8.1%
a year between 2003 and 2008, access revenue growth averaged 0.4% a year.
Figure 4.31 Fixed voice telecoms revenue
2008 5 year
15 growth CAGR
11.2 Total calls -6.7% -8.1%
10.6
1.4 9.9 9.4 9.3
Revenue (£bn)
10 1.4 9.0 Other voice -13.5% -10.4%
2.1 1.2 1.0 0.9
2.0 0.8 calls
0.8 1.8 1.7 1.7 1.6
0.7 Calls to mobiles -6.1% -5.7%
0.6 0.6 0.6 0.6
2.4 2.0 1.7 1.6 1.5 1.4
5 International -0.4% -5.3%
calls
4.6 4.6 4.5 4.5 4.7 4.7 UK geographic -5.5% -10.2%
calls
0
Access 1.0% 0.4%
2003 2004 2005 2006 2007 2008
Source: Ofcom / operators
Access made up the majority of average fixed voice spend in 2008 for the first time
The effect of this shift is also evident in Figure 4.32, which shows that while average monthly
spend on access (i.e. line rental and inclusive calls) increased in each of the five years to
2008, there was a downward trend in call spend in each year. Total average spend per
month fell by 71p (3.0%) to £22.79 in 2008 as a result of average rental revenue increasing
by 16p a month to £11.73 and average call revenue falling by 7.3% to £11.06. This made
2008 the first year in which access revenues made up the majority of average fixed-line
voice revenue. Average fixed-line voice spend fell by 19.9% (£5.68) in the five years from
2003 to 2008 as a result of falling use, prices and lines.
225

Figure 4.32 Average monthly voice revenue per fixed line
30 £28.47
£26.84
Revenue per month (£)
£25.11 £24.13 2008 5 year
£23.50 £22.79 growth CAGR
20 17.51 15.86 14.04 12.93 11.93 11.06 Calls -7.3% -8.8%
10
11.57 11.73 Access 1.4% 1.4%
10.96 10.98 11.06 11.20
0
2003 2004 2005 2006 2007 2008
Source: Ofcom / operators
Note: Includes spend on non-geographic voice calls
Fixed call volumes fell by 5.5% in 2008
Total fixed call volumes declined in 2008 as fixed-to-mobile substitution continued and the
migration from narrowband to broadband internet services approached completion. Total
fixed-originated call volumes fell by 10.9% to 143 billion minutes in 2008 as a result of a
5.5% reduction in voice call volumes, and a 66.7% drop in narrowband internet calls (Figure
4.33) which accounted for just 3.4% of total fixed-line calls in 2008, compared to over 50%
five years previously.
Figure 4.33 Fixed telecoms call volumes
400
335 2008 5 year
304 growth CAGR
300
Billions of minutes
242
168
141 Narrowband -66.7% -50.8%
191 internet calls
200 82 161
42 143
15 5
Voice calls -5.5% -3.7%
100
167 163 159 149 147 139
0
2003 2004 2005 2006 2007 2008
Source: Ofcom / operators
BT’s share of calls from fixed lines to UK geographic numbers fell to under 50%
BT’s share of fixed voice call volumes continued to fall in 2008, with the rate of decline
accelerating slightly compared to previous years (Figure 4.34). BT’s share of the volume of
fixed-originated calls to UK geographic numbers fell to under 50% for the first time in 2008
(48.1%), and while its share of fixed-to-mobile call volumes was 51.2% this is likely to fall
below 50% during 2009 if the current trend continues. Increasing use of wholesale line rental
(WLR) and local loop unbundling (LLU) services has contributed to the increasing erosion of
BT’s retail market share, and its share of outgoing international call minutes fell to under a
third (32.0%) for the first time during the year.
226

Figure 4.34 BT share of retail voice call volumes, by type
80 72.7 %age point change
66.2 One year Five years
61.1
Market share (per cent)
70.9 57.7
60 55.4
64.4 51.2 Calls to -4.2 -21.6
58.8 mobiles
51.7 53.7 52.2
40 47.9 48.1
44.8 43.4
37.7 UK -4.1 -22.9
32.0 geographic
20 calls
International -5.6 -19.7
0 calls
2003 2004 2005 2006 2007 2008
Source: Ofcom / operators
Number of fixed lines fell by 0.2 million in 2008
The total number of UK fixed lines fell by 0.6% (0.2m) to 33.2m in 2008 (Figure 4.35) as the
use of mobile phones and alternative forms of communication such as email, instant
messaging and Voice over Internet Protocol (VoIP) increased. The rate of decline in the
number of fixed lines was higher in the business market (1.8%) than in the residential market
(0.1%), suggesting that business users are increasingly using mobile telephony services and
/ or VoIP.
While the number of digital subscriber line (DSL) and cable broadband connections grew in
2008, by 11.5% and 7.9% respectively, the number of ISDN channels declined. The
widespread availability of cheap broadband services has made ISDN less popular as a way
of connecting to the internet, although it is still used in some industries because of the
stability of the connection, and to provide multiple voice telephony lines for larger business
users.
Figure 4.35 Fixed telecoms connections
20 40 2008 5 year
34.9 34.5 34.0 33.5 growth CAGR
33.5 33.2
Connections / channels (m)
Fixed lines (millions)
15 13.6 30 DSL 11.5% 50.8%
12.2
9.9
10 20 ISDN -2.5% -2.0%
7.2 channels
5.1 4.9 4.7 4.7 4.7 4.6
5 10 Cable 7.9% 21.9%
4.2 modem
1.7 3.7
3.1 3.4
2.7
0 1.4 1.9 0 Fixed lines -0.6% -1.0%
(RHS)
2003 2004 2005 2006 2007 2008
Source: Ofcom / operators
Note: Includes estimates where Ofcom does not receive data from operators; broadband excludes
corporate connections
Fixed-line competition driven by take-up of wholesale line rental and local loop
unbundling
The proportion of fixed lines taking a retail access service from a company other than BT
was 38.1% at the end of 2008, an increase of 4.6 percentage points on a year previously.
The availability of local loop unbundling (LLU) and wholesale line rental (WLR) have
227

promoted competition in the UK fixed access market, and BT has one of the lowest shares of
fixed-line connections of any incumbent operator in Europe.
Wholesale line rental (WLR) and local loop unbundling (LLU)
WLR
With WLR the alternative telecoms provider buys a wholesale product from the incumbent
(usually in conjunction with a wholesale call product such as CPS) and is then able to
produce a single bill for the end-user covering calls and line rental. Broadband services can
also be provided by the WLR operator (and included in a single bill) if a separate wholesale
DSL product is purchased from the incumbent, but this is optional.
Full local loop unbundling (LLU)
Full LLU involves the unbundling operator siting its own network equipment in the
incumbent’s local exchange and connecting it to its core network. It then leases the copper
wire to the end-user’s premises to the exchange from the incumbent, over which it provides
fixed access and calls along with DSL broadband services. This is distinct from partial LLU,
when the incumbent and LLU operator share the line, with the LLU operator providing DSL
broadband services and the consumer continuing to be billed for voice services of the
incumbent operator.
WLR and full LLU are therefore both ways in which alternative telecoms operators can offer
their own branded fixed line rental services to consumers without the expense of rolling out
their own local access networks. This is not the case with partial LLU as the incumbent
continues to provide line rental services to the end-user.
At the end of 2008 16.0% of fixed lines were provided using WLR, nearly as many as by
cable (13.9%) and other direct access operators (3.5%) combined, while an additional 4.8%
of lines were provided using full LLU (Figure 4.36).
It should be noted that the chart below does not include those BT retail customers who take
call services from another operator using carrier pre-selection (CPS) or other indirect access
products.
Figure 4.36 Share of fixed lines taking non-BT voice services
50 %age point change
One year Five years
Proportion of total lines (%)
40 38.1
33.5 4.8 Full LLU 1.7 4.8
29.8 3.1
30 0.8
23.9
0.3 13.5 16.0 WLR lines 2.5 16.0
19.6 12.5
20 17.8 6.9
2.4
4.5 3.5 3.6 3.5 3.3 3.5
Other direct 0.1 -1.0
10 access
13.3 13.7 13.2 13.0 13.5 13.9
0 Cable 0.3 0.5
2003 2004 2005 2006 2007 2008
Source: Ofcom / operators
Note: Includes estimates where Ofcom does not receive data from operators; excludes BT retail lines
taking call services from another operator
228

84% of premises were connected to an unbundled local exchange at the end of 2008
Over the past few years many telecoms providers have invested in LLU networks. By the
end of 2008 84.2% of UK premises were connected to an unbundled local exchange (Figure
4.37) meaning that in principle consumers had a choice of services other than those
provided via wholesale services from BT or Kingston Communications. LLU providers have
concentrated on unbundling exchanges connected to a large number of premises (due to the
high up-front costs of unbundling an exchange) and this is reflected in the fact that the high
level of LLU availability has been attained by unbundling just 34.7% of BT local exchanges.
During 2008 the proportion of fixed lines taking LLU services (for broadband or broadband
and voice) increased by 6.5 percentage points to 19.9%.
Figure 4.37 Proportion of unbundled exchanges and connected premises
%age point change
100 One year Three years
84.2
80.2
80 Proportion of premises 4.0 44.6
66.6 connected to
unbundled BT
60 exchange
Per cent
39.6 Proportion of BT 3.7 22.3
40 34.7 exchanges that have
31.0
23.3 been unbundled
19.9
2012.4 13.4
4.7 Proportion of total lines 6.5 19.2
0.7
that have been
0 unbundled
2005 2006 2007 2008
Source: Ofcom / operators
The total number of LLU lines increased by 48% during 2008
At the end of June 2009 there were a total of 6.0 million unbundled lines, 1.8 million (30.3%)
of which were providing both voice and broadband services (Figure 4.38). During the year to
June 2009 the number of unbundled lines increased by 1.2 million (25.1%) with growth in the
number of fully unbundled lines (34.2%) being greater than that of partially unbundled lines
(21.6%). This reflects the fact that LLU-based services increasingly provide both voice and
DSL broadband, sometimes in conjunction with other communications services such as
digital television.
Figure 4.38 Fully and partially unbundled lines
6.0
6 5.5 2008 3 year
Unbundled lines (millions)
growth CAGR
4 3.7
4.1 Partially 44.9% 247.6%
3.9 unbundled
2.7
2
1.3
Fully 54.5% 152.6%
1.0 1.6 1.8 unbundled
0.03 0.19 1.0
0 0.10 0.3
2004 2005 2006 2007 2008 H1 2009
Source: Ofcom / operators
229

4.2.4 Mobile telephony
Revenue growth slowed to just 1.6% in 2008
Total mobile revenues increased by 2.2% to £15.4bn in the year to December 2008,
significantly slower than the 8.9% revenue growth reported in 2007 (Figure 4.39). As
operators fought to capture market share in a market where subscriber growth has slowed
significantly, price competition contributed to limiting growth in mobile voice revenues to
1.6% (compared to 6.7% in 2007), while revenues from SMS messaging increased by just
0.3% in 2008, down from 11.3% in 2007. This slowing growth came despite increasing use –
the overall volume of outbound mobile calls increased from 99.9 billion in 2007 to 111.0
billion in 2008, and the volume of outbound text messages rose from 62.6 billion in 2007 to
84.8 billion in 2008.
The fastest growth in mobile revenues came from non-SMS data services, where revenues
increased by 15.2% in 2008 to £1.1bn, although this was also less than the previous year.
Data revenue growth was driven by the growing popularity of data bolt-ons to mobile phone
tariffs and the increasing take-up of mobile broadband services (whereby broadband access
is provided via a cellular network by connecting a USB modem, or ‘dongle’, to a PC).
According to Ofcom consumer research, 12% of UK households were using a mobile
broadband service in Q1 2009 (see Section 4.3.3).
Figure 4.39 Estimated mobile retail revenue, by service
15.0 15.4
2008 5 year
15 13.8 0.9 1.1 growth CAGR
13.1
11.9 0.7 2.8
0.4 2.8
0.2 2.5
Revenue (£bn)
2.3 Data
9.7 2.0 15.2% 57.5%
10 0.1 revenue
1.7
10.3 10.6 11.3 11.5 SMS 0.3% 11.2%
5 9.7
7.9 revenue
0 Voice 1.6% 7.7%
revenue
2003 2004 2005 2006 2007 2008
Source: Ofcom / operators
Note: Includes estimates where Ofcom does not receive data from operators
3UK had the fastest network revenue growth in 2008
O2 (including Tesco Mobile) remained the largest UK mobile network in terms of revenues in
2008, generating an estimated £4.3bn or 27.8% of the total, an increase of 0.7 percentage
points on its share in 2007 (Figure 4.40). 3UK had the strongest turnover growth in 2008,
with estimated revenues increasing by 9.1%, although it remained the smallest of the five
networks in terms of revenues, with a 7.7% share. T-Mobile (including Virgin Mobile) and
Vodafone’s estimated revenues both fell in 2008, by 2.8% and 1.4% respectively, as a result
of falling prices (and declining subscriber numbers, in the case of T-Mobile).
230

Figure 4.40 Estimated mobile retail revenue, by network operator
2008 5 year
15.4 growth CAGR
15.0
15 13.8 1.1 1.2
12.5 13.1 3UK 9.1% 104.3%
1.0
Retail revenue (£bn)
0.9 3.2 3.4
9.7 3.0 3.0
3.1 Orange 5.2% 4.2%
10 2.7 2.6
2.7 2.2 2.1 2.5
T-Mobile (including -2.8% 5.5%
2.0 3.7 4.1 4.3
5 3.6 3.3 Virgin Mobile)
2.4
O2 (including Tesco 4.9% 12.4%
3.6 3.7 3.7 4.0 4.0 Mobile)
2.6
0 Vodafone -1.4% 9.0%
2003 2004 2005 2006 2007 2008
Source: Ofcom / operators
Note: Includes estimates where Ofcom does not receive data from operators
Average monthly revenue per mobile connection fell by £0.42 in 2008
Falling prices contributed to a drop in average retail revenue per mobile subscription (of
2.4% or 42p a month) during 2008 (Figure 4.41). The majority of this was due to declining
average voice revenues, which fell by 2.9% (38p a month). SMS revenues also declined, by
4.2% (14p per month) despite increasing message volumes per subscriber. Average spend
on non-SMS data services went up by 11p a month, or 10.0% during the year, significantly
slower than the 28.2% growth in 2007.
Average revenue per contract connection in 2008 was £32,20 (down from £35.03 in 2007)
while average revenue per pre-pay connection increased from £7.74 to £7.85. Falling
average revenue from contract mobile connections comes in the context of increasing take-
up of sub-£20 contracts and an increasing proportion of mobile consumers being on contract
rather than pre-pay connections (see Section 4.1.7).
Figure 4.41 Average monthly retail revenue per mobile subscription
20
£17.62 £17.31 £16.94 £17.42 £17.01 2008 5 year
£15.81 0.35 0.59 1.06 growth CAGR
0.83 1.17
Revenue (£per month)
0.18 2.97 3.06
15 3.10 3.26
2.70 3.12
Data 10.0% 45.8%
services
10
12.93 14.30 13.66 13.02 13.11 SMS -4.2% 2.9%
12.73
5 messages
Voice calls -2.9% -0.3%
0
2003 2004 2005 2006 2007 2008
Source: Ofcom / operators
Note: Includes estimates where Ofcom does not receive data from operators
231

Mobile subscriptions: O2 saw the biggest growth in 2008
At the end of 2008 there were 76.8 million active UK mobile subscriptions, 4.1% more than
at the end of 2007 and equivalent to 1.26 connections per UK inhabitant (Figure 4.42)41. O2
(including Tesco Mobile) remained the largest network operator in 2008 with 21.5 million
subscriptions at the end of the year - a market share of 27.9%.
O2 also achieved the largest increase in subscribers in 2008, at 1.4 million it accounted for
just under half the total net increase during the year. The only network whose subscriber
numbers did not increase in 2008 was T-Mobile (including Virgin Mobile) which saw its
market share decline by 1.6 percentage points to 21.8% as its user base fell by 0.5 million,
mainly as a result of falling Virgin Mobile subscriptions.
Figure 4.42 Mobile subscriptions, by network operator
2008 5 year
growth CAGR
80 76.8
73.8
70.1 4.5
65.8 4.0 3UK 12.9% 81.3%
3.8
Subscriptions (millions)
60.0 3.5 16.4
60 15.7
52.9 15.3
14.9
14.2 Orange 4.4% 3.7%
13.6 17.3 16.8
40 15.3 16.9
14.6 T-Mobile (including -3.0% 5.1%
13.1
20.0 21.5 Virgin Mobile)
17.0 19.0
20 13.2 14.7
O2 (including Tesco 7.2% 10.3%
12.7 14.0 15.2 15.0 16.8 17.7 Mobile)
0 Vodafone 5.4% 6.8%
2003 2004 2005 2006 2007 2008
Source: Ofcom / operators
Note: Includes estimates where Ofcom does not receive data from operators
The number of pre-pay mobile subscribers fell for the first time in 2008
The proportion of contract mobile subscriptions increased by 2.7 percentage points to 38.9%
during 2008 (Figure 4.43). The introduction of cheaper tariffs and ‘SIM-only’ options are
evidence of operators’ attempts to tempt pre-pay customers onto contracts. The strategy
seems to be working: the number of pre-pay subscribers dropped for the first time in 2008,
falling by 0.1 million (0.2%) to 46.9 million, while the number of contract customers increased
by 3.1 million (11.7%) to 29.9 million.
41
This includes all connections that have been active in the previous 90-day period. The number
therefore includes a number of subscriptions which are likely to no longer be in use, or only be in very
occasional use.
232

Figure 4.43 Pre-pay and contract mobile subscriptions
38.9
100 36.3 40
33.7 34.4 34.7 2008 5 year
32.7
Proportion contract (%)
76.8 growth CAGR
Subscriptions (millions)
80 73.8
70.1 30
65.8
60.0
60 52.9 26.8 29.9 Contract 11.7% 11.6%
22.6 24.3
20.2 20
17.3
40
Pre-pay -0.2% 5.7%
43.2 45.8 47.0 46.9 10
20 35.6 39.8
Proportion contract
0 0 (RHS)
2003 2004 2005 2006 2007 2008
Source: Ofcom / operators
Notes: Based on network operator reported figures; includes estimates where Ofcom does not receive
data from the operators
Almost a quarter of mobile connections used 3G at the end of 2008
Our data suggest that by the end of 2008 the total number of UK 3G mobile connections had
risen to 17.9 million, an increase of 5.4 million (42.9%) on a year previously (Figure 4.44).
This represented almost a quarter of all UK mobile subscriptions (23.3%), a 6.3 percentage
point increase on the figure at the end of 2007. During 2008 Vodafone overtook 3UK to
become the UK’s largest network in terms of 3G subscriptions, while O2, the largest network
in terms of total subscriptions, ranked only third.
Figure 4.44 UK 3G subscriptions, by network operator
25 23.3
3UK
Subscriptions (m) / Per cent
20 17.9
17.0 Orange
15 12.5
11.2 T-Mobile (including
Virgin Mobile)
10 7.8
7.0 O2 (including Tesco
4.3 Mobile)
5 4.6
Vodafone
2.6
0 0.2
% total subs
2003 2004 2005 2006 2007 2008
Source: Ofcom / operators / Informa
Note: 3G connections defined as connections sold with 3G-capable handsets
4.2.5 Internet services
Non-corporate internet revenues grew to £3.4bn in 2008
We estimate that residential and SME internet services generated revenue of £3.4bn in
2008, 0.1% higher than in 2007 (Figure 4.45). The story in the non-corporate internet market
is one of increasing broadband take-up being offset by falling prices. Revenues from SME
internet services were unchanged in 2008 at £0.5bn, while residential broadband revenues
increased by £0.1bn (3.8%) to £2.7bn and residential narrowband revenues halved to
£0.1bn as migration to broadband continued.
233

Figure 4.45 Estimated UK internet and broadband retail revenue
4 2008 5 year
3.3 3.3 3.4 growth CAGR
3.0
3 0.6 0.5 0.5
Revenue (£billion)
2.6
0.5 SME 7.5% -3.0%
2.1 0.6
2
0.6
1.8 2.2 2.6 Residential 3.8% 36.5%
1.1 2.7
0.6 broadband
1
1.0 0.9 Residential -52.6% -34.1%
0.7 0.5 narrowband
0 0.2 0.1
2003 2004 2005 2006 2007 2008
Source: Ofcom / operators
Residential and SME connections grew by 0.5 million in 2008
We estimate that at the end of 2008 there were 19.2 million UK residential and small
business internet connections, an increase of 0.5 million (2.8%) on the previous year. During
the year the number of residential narrowband connections fell by 41.1% to 1.7 million, as
consumers switched to broadband, while the number of business narrowband connections
was unchanged at 0.2 million (Figure 4.46).
There was growth in both the number of residential and SME broadband connections. The
majority of broadband growth came from residential connections, which increased by 11.4%
to 1.6 million during the year, while SME connections increased by 2.9% to 1.4 million.
Falling residential broadband prices are highlighted by the fact that this 11.4% increase in
the number of connections resulted in only a 3.8% increase in revenues from these services,
as shown previously (see Figure 4.45).
Figure 4.46 UK residential and small business internet connections
20 18.7 19.2 2008 5 year
17.5 1.4 growth CAGR
16.3 1.3 0.2
15.3 1.3 0.2
Connections (millions)
1.1 0.2
15 13.5 0.7 0.3 0.3
0.5 0.5 SME 2.9% 22.4%
5.4 broadband
2.7 8.8
10 11.7 14.3 15.9 SME 11.2% -14.4%
narrowband
5 9.9 8.8 Residential 11.4% 43.0%
6.1 broadband
4.3 2.9 1.7
0 Residential -41.1% -29.8%
2003 2004 2005 2006 2007 2008 narrowband
Source: Ofcom / operators
Note: SME broadband includes some connections over leased lines
LLU drove broadband connection growth in 2008
The total number of UK fixed broadband connections increased by 10.7% to 17.3 million
during 2008, an increase of 1.7 million connections, and Ofcom consumer research
suggests that in Q1 2009 65% of UK households had a fixed broadband connection. The
popularity of ‘free’ broadband packages when purchased in association with other services
(which were first launched by TalkTalk and BSkyB in 2006) has made a significant
contribution to growth in the number of broadband connections provided using LLU over the
234

past few years (Figure 4.47). During 2008 the number of LLU DSL broadband connections
grew by 47.6% to 5.5 million.
The total number of non-LLU DSL broadband connections fell by 0.4 million in 2008. While
BT increased its connections by 12.2% during the year, the number of other non-LLU DSL
connections fell by 20.5% to 3.4 million as a result of more consumers taking advantage of
LLU-based services and ISPs migrating customers from BT’s wholesale DSL products onto
their own LLU networks. Virgin Media increased its cable modem connections by 300,000
during 2008, but its share of broadband connections fell by 0.9% to 22.8%.
Figure 4.47 UK residential and small business broadband connections
20 2008 5 year
17.3 growth CAGR
15.6
Connections (millions)
15 13.0 5.5 Other 2.9% 33.5%
3.7
1.3
9.9 LLU DSL 47.6% 267.3%
10 3.1 3.4 3.7
2.7
6.1 Cable modem 7.9% 21.9%
5.5 4.3 3.4
5 3.1 1.9 4.7
1.4 2.7 Other non-LLU -20.5% 29.6%
4.1 4.6
0.9 2.3 3.1 DSL
0 0.8 1.4
BT retail DSL 12.2% 42.3%
2003 2004 2005 2006 2007 2008
Source: Ofcom / operators
Note: Excludes connections made over cellular networks
Growth of LLU has contributed to ISP market consolidation
The introduction of LLU into the UK broadband market has caused consolidation. Operators
have merged in order to take advantage of the economies of scale that LLU affords them
(see Section 4.1.3) and this has led to the market share of smaller operators falling (the
share of ISPs other than the largest six operators fell by one percentage point to 8.4% during
2008).
At the end of 2008 we estimate that the combined retail connection market share of the
largest six ISPs was 91.5% (Figure 4.48), and this figure rose further in 2009, with the
acquisition of Tiscali by Carphone Warehouse (the owner of TalkTalk and AOL Broadband)
in July 2009. The new company is the UK’s second largest broadband provider, in terms of
connections, after BT. BSkyB rapidly increased its market share during 2008, gaining 3.6
percentage points as a result of the popularity of its See, Surf, Speak packages, which
bundle fixed calls and broadband with digital satellite TV services.
235

Figure 4.48 Estimated UK broadband service provision retail connection share
%age point change
100%
10.2 12.8 13.5 9.3 8.4 One year Five years
15.9 5.8
4.8 7.3
Share of connections (%)
80% 6.0 8.9 8.7 8.1 7.7 11.3 Other
-1.0 -1.8
8.6 8.1 1.5
10.3 11.5 8.8 9.2 Orange Home
12.7 -1.5 1.0
60% 13.1 16.2 16.7 15.6
BSkyB
45.0 3.6 n/a
40% 33.9 28.7 23.7 22.8 Tiscali
25.4 0.5 3.3
20% TalkTalk/AOL
-1.1 7.1
25.6 26.5 26.9 B'band
23.6 23.3 23.8
Virgin Media
-0.9 -22.2
0%
BT
2003 2004 2005 2006 2007 2008 0.4 1.3
Source: Ofcom / operators
Note: Where ISPs have merged the historic market shares show the total for the constituent providers
that made up the group at the end of 2008
4.2.6 Business markets
Operator-reported spend increased by 2% in 2008
Business spend on telecoms services increased by 2.0% to £13.9bn in 2008 (Figure 4.49).
The net increase in business revenues was £0.3bn, as a 6.9% (£0.2bn) decline in fixed voice
revenues was offset by a 6.4% (£0.4bn) increase in business mobile revenues. Revenues
from non-corporate narrowband and broadband internet connections were unchanged at
£0.5bn during the year, as were revenues from corporate data services, at £3.2bn.
Over the five years to 2008 the fastest growth in business revenues has come from mobile
services, averaging 14.0% a year. Corporate data services have also grown over the period,
increasing by an average of 3.3% annually, while both non-corporate internet and fixed voice
have fallen over the period; in the case of fixed telephony this is as a result of declining use,
and for internet services it is because prices have fallen.
Figure 4.49 UK business telecoms services revenue
15 13.6 13.9
12.5 13.0 2008 5 year
12.2
11.6 3.2 growth CAGR
3.1 3.1 3.2
2.9
Revenue (£billion)
2.8 0.5
10 0.5
0.5 0.6 Corporate 1.5% 3.3%
0.6 0.6
Data Services
3.6 4.6 5.1 5.8 6.5 6.9 Non-corporate 7.5% -3.0%
5 internet
4.6 Mobile 6.4% 14.0%
4.2 3.8 3.5 3.4 3.1
0 Fixed voice -6.9% -7.4%
2003 2004 2005 2006 2007 2008
Source: Ofcom / operators / IDC
Average monthly revenue per business fixed line fell by £1.45 in 2008…
Average monthly voice revenue per business fixed line continued to decline in 2008, falling
by 5.3% (£1.45) to £25.66 (Figure 4.50) as average call volumes per line fell (Figure 4.53).
The largest proportional falls in call revenues were for local calls (16.6%) and national calls
236

(11.5%), although there was also a significant drop in revenues from fixed-to-mobile calls
(10.8%).
Figure 4.50 Average monthly voice revenue per business fixed line
40 2008 5 year
£33.70 growth CAGR
£30.62
30 £28.75 £27.65
7.61 £27.11 Calls to -10.8% -7.5%
7.06 £25.66
6.61 mobiles
£ per month
2.54 6.37 5.78
2.33 5.15
20 4.54 2.20 2.06 2.21 International 2.0% -2.4%
3.57 2.92 2.26
3.40 2.69 2.45 2.17
2.96 2.72 2.87 2.54 2.12
National -11.5% -13.7%
10
15.60 14.70 14.28 13.67 14.13 13.96 Local -16.6% -9.1%
0
Line rental -1.2% -2.2%
2003 2004 2005 2006 2007 2008
Source: Ofcom / operators
Note: Excludes revenues from non-geographic voice calls
…while mobile voice revenues increased by 4.5%
Business mobile revenues increased by 6.4% to £6.9bn in 2008 (Figure 4.51). Revenues
from mobile data services (including SMS messaging) grew by 17.5% to £1.1bn and
represented 16.2% of all business mobile revenues, up from 14.7% in 2007 and from just
6.8% in 2003. Growth in business mobile voice revenues was lower as a result of falling
prices, rising by 4.5% to £5.8bn.
Figure 4.51 Breakdown of business mobile revenue
8 2008 5 year
6.9
6.5 growth CAGR
5.8 1.1
6 1.0
Revenue (£billion)
5.1 0.8
4.6 0.6
0.4 Data (inc. 17.5% 35.7%
4 3.6 SMS)
0.2
5.6 5.8
4.6 5.0
2 4.2 Voice calls 4.5% 11.6%
3.4
and rental
0
2003 2004 2005 2006 2007 2008
Source: Ofcom / operators
Business telecoms call volumes grew as a result of increasing mobile use
Total originating business voice call volumes increased by 2.1% in 2008 to 89.1 billion
minutes. Mobile-originated voice call volumes increased by 13.2% during the year to 53.6
billion minutes, or 60.9% of total business calls (Figure 4.52). 2008 was the second year in
which business users generated more call minutes from mobile phones than from landlines,
with the rate of fixed-mobile substitution among businesses having accelerated since 2005.
A possible explanation for this is that advances in the email capability of mobile handsets
over the last few years have made mobile phones a more practical substitute for fixed-line
telephony for business users, although it may also be an indication of increasing use of VoIP
services among business users (the nature of VoIP makes it difficult to capture these calls in
237

our figures). Fixed-originated call volumes continued to decline in 2008, and were 11.3%
lower than they had been in 2007.
Figure 4.52 Business voice call volumes
100
87.4 89.1 2008 5 year
80.5 82.4
78.3 77.2 growth CAGR
80
Call minutes (billions)
26.4 28.2
60 31.6 38.5 47.4 53.6
Mobile 13.2% 15.2%
40
54.1 50.0 Fixed -11.3% -8.6%
20 45.7 43.9 40.0 35.4
0
2003 2004 2005 2006 2007 2008
32.8% 36.2% 41.2% 47.3% 54.9% 60.9% Proportion mobile
Source: Ofcom / operators
Note: Fixed data excludes non-geographic voice call volumes
Average fixed-originated voice call volumes per line fell by over 10% in 2008
The decline in outgoing business calls from fixed lines was reflected in average outgoing
monthly call volumes per business fixed line falling by 10.3% to 293 minutes in 2008 (Figure
4.53). This figure is 8.7% higher than the average 270 monthly minutes per residential fixed
line, although if current trends continue this position will reverse within the next few years.
Call volumes per business line fell for all call types in the five years to 2008, reflecting
increasing fixed-to-mobile substitution during the period.
Figure 4.53 Average weekly outbound voice call volumes per business fixed line
500
415 2008 5 year
389 growth CAGR
400 53 362 354
Minutes per month
25 54 327
24 55 60 293 Calls to -4.7% 0.7%
300 22 57 mobiles
23 54
184 23
166 21
200 151 144 International -11.2% -3.8%
130 calls
114
100 National -12.5% -9.1%
152 144 134 127 116 104 calls
0 Local calls -10.4% -7.4%
2003 2004 2005 2006 2007 2008
Source: Ofcom / operators
Note: Excludes non-geographic voice call volumes
Numbers of business fixed lines were resilient in 2008
Although fixed business voice call volumes fell by over 10% during 2008, the number of fixed
business lines fell by only 1.8% (Figure 4.54). This suggests that although there has been a
significant shift from making fixed calls to making mobile calls among business users, many
are reluctant to give up their fixed lines, as they are considered important in order for contact
with clients, suppliers and customers.
238

ISDN
ISDN is a set of standards for digital transmission over ordinary telephone copper wire (and
other media). The key feature of the ISDN is that it integrates speech and data on the same
lines, resulting in better voice quality than a conventional analogue phone.
ISDN offers connections in increments of 64kbit/s (the equivalent of a standard analogue
line). In the UK there are two main types of ISDN: ISDN2 (which consists of two 64kbit/s
channels and a 16kbit/s signalling channel) and ISDN30 (thirty 64kbit/s channels and a
64kbit/s signalling channel). Each channel can be used independently, so an ISDN2 line can
be used as two voice lines, one voice line and a 64kbit/s data connection, or as a 128kbit/s
data connection.
Cheap broadband means that ISDN has largely been superseded as a method of internet
connection, but it is still used in some industries as an ISDN data connection is always a
fixed, reliable 64kbit/s. ISDN30 remains popular as a cost-effective way for large businesses
to obtain multiple fixed-voice lines.
The number of analogue business lines fell by 1.3% to 5.2 million in 2008, while the number
of ISDN30 channels increased by 1.1% to 3.2 million during the year, a reflection of the
importance of ISDN30 to larger businesses. The largest drop in business lines in 2008 was a
10.8% fall in the number of ISDN2 channels to 1.3 million, a reflection of the fact that these
lines are generally used for internet access, and in most cases can be replaced by a
cheaper, faster broadband connection.
Figure 4.54 Business fixed lines, by type
15
2008 5 year
Lines / channels (millions)
10.8 growth CAGR
10.5 10.1 9.9 9.7 9.6
10
3.2 3.1 ISDN30 1.1% 1.1%
3.0 3.1 3.1 3.2 channels
1.7 1.6 1.5 1.5 1.4 1.3
5 ISDN2 -10.8% -5.4%
6.0 5.8 channels
5.6 5.3 5.2 5.2
0 PSTN lines -1.3 -3.0%
2003 2004 2005 2006 2007 2008
Source: Ofcom / operators
Note: Figures may be overstated due to an element of double-counting of WLR lines
239

4.3 The telecoms user
4.3.1 Introduction
This section considers consumer trends in the use of telecoms services over the past six
years and how these relate to the wider industry trends discussed in the previous section.
We define ‘consumer’ as any user of telecoms services, separated into two main categories,
residential and business. In this section we focus on the residential sector, both in order to
provide continuity with the rest of this report (as broadcasting is focused very much on the
residential sector), and because we believe that the residential sector benefits most from this
type of analysis, as large companies’ information needs are well served by their own
IT/telecoms departments and by relevant industry bodies. An overview of business markets
is provided in Section 4.2.6 of this report, while Ofcom is also planning a research
programme focusing specifically on the experiences of business users, which we aim to
publish by Spring 2010.
The analysis that follows is based on data received from operators and our own consumer
research. Third-party research is used to supplement the primary data, where appropriate.
The key findings from this section of the report are as follows:
 Household spend on telecoms services fell by 5.6% in real terms in 2008.
Spend on fixed-line voice, mobile and broadband all fell during the year and
household spend on telecoms services (3.2%) was its lowest since 2003 (page 242).
 In Q1 2009 65% of households had a fixed-line broadband connection. This was
up from 58% a year previously and 70% of UK households now have an internet
connection (page 247).
 Twenty-two per cent households in socio-economic group DE were mobile-
only in Q1 2009. This compares to just 8% of ABC1 households (page 248).
 Mobile use continues to increase. Despite falling overall spend on mobile, average
minutes per mobile connection were up 6% in 2008 to 123 minutes a month. Use of
text messaging increased by 29% to an average of 99 per mobile connection as
users increasingly took advantage of tariffs with ‘unlimited’ inclusive text messages
(page 253).
 More than 90% of consumers are satisfied with fixed voice, fixed broadband
and mobile services. However, satisfaction with fixed-line broadband speeds was
81% in Q1 2009, down from 90% three years previously. Overall satisfaction with
mobile broadband was lower (83%) than for the other services, with only 71% of
users satisfied with speed (Section 4.3.5).
 Switching levels fell in 2008. A lower proportion of fixed voice, mobile and fixed line
broadband users claimed to have switched provider in the 12 months in Q1 2009
than a year previously. This may be due to consumers committing to longer contracts
in return for lower prices (page 259).
241

4.3.2 Household spend and pricing
Spend falls across all services
In 2008, household spend on telecoms services as a proportion of total household
expenditure fell to its lowest level (3.2%) since 2003 (see Figure 4.55). Total spend on
telecoms services fell by 5.6% in real terms over the year, the largest annual decline since
spend on telecoms services began to fall in 2006.42
Figure 4.55 Average household spend on telecom services
120 4%
3.4% 3.4% 3.3% 3.4%
3.2% 3.2%
As a % of total expenditure
£ per month (2007 prices)
100
3% Internet & broadband
80 £67.72 £71.84 £72.21 £70.09 £68.84 £65.01 Mobile voice & text
7.25 9.22 10.69 11.53 11.37
60 10.71 2%
29.13 33.51 Fixed voice
40 34.88 33.66 33.98 32.04
1% As a %age of total
20 31.34 household spend
29.11 26.64 24.90 23.49 22.26
0 0%
2003 2004 2005 2006 2007 2008
Source: Ofcom / operators / ONS
Notes: Includes estimates where Ofcom does not receive data from operators; adjusted to CPI;
includes VAT
Decline in fixed-voice spend slows
Residential fixed-line voice spend fell by 5.3% in real terms during 2008 (see Figure 4.55
above), driven by a fall in the total number of lines (by 0.5 million) and lower use per line as
consumers increasingly substitute voice services over mobile for fixed-line calls. The fall in
spend on fixed-line voice in 2008 comes despite higher line rental fees from some operators;
for example, in February 2008 BT increased the cost of line rental from £11 per month to
£11.75 (at the same time as introducing free weekend calls to UK geographic numbers for all
customers, and increasing daytime and evening call prices on its basic tariff).
Spend on mobile services fell by 5.7% in real terms during 2008, despite a 6% rise in the
average number of voice calls per mobile connection. This is due to falling line rental prices
(see Section 4.1.7), and increasing numbers of inclusive voice minutes and SMS messages
being included within pay-monthly tariffs (and SIM-only contract tariffs in particular) and
some pre-pay tariffs.
Average spend on internet and broadband services fell by 5.8% in 2008 as an increasing
proportion of consumers took advantage of discounted or even 'free' broadband bundled in
with other services such as voice (for example, TalkTalk offers broadband at a lower rate to
fixed-line voice customers in unbundled areas), television (Sky was the fastest growing
broadband provider in 2008 due to the popularity of its See, Speak, Surf bundled satellite
TV, fixed calls and broadband package) and mobile services (for example Virgin Media). In
42
In order to reflect these changes in household spend in real terms they have been inflation-
adjusted, using the consumer price index (CPI) which increased 3.6% during 2008. The number of UK
households also increased by 1.2% during 2008. This explains why average spend per household fell
in 2008 even while there was a small increase in overall industry retail revenues
242

addition, some operators including O2, BT and Virgin Media have within the last year
launched bundled mobile broadband and fixed broadband services.
The figures shown are based on operators’ own allocation of revenues and should be
treated with some caution, as the increased take-up of bundled offerings makes it difficult to
precisely apportion spending.
Overall cost of fixed-line falls but cost of calling mobiles rises
We use analysis of the cost of a basket of telecoms services as a means of comparing costs
over time. This analysis derives the 'real cost' to the consumer by calculating the average
price per minute for access and calls (and price per text message for mobile) in a year, and
then defining the basket as the average number of minutes (and messages) used in 2008.
Costs are then adjusted for changes in the consumer prices index (CPI) in order to provide a
year-on-year comparison.
Figure 4.56 shows that the real cost of a basket of residential fixed voice services fell by
£0.34 or 1.5% in 2008, slightly larger than previous falls over the past five years. While the
average cost of residential fixed access has remained fairly static over the past five years,
calls to other fixed lines (UK and international) have fallen over the same period. The
average cost of residential calls to an international number fell by £0.38 in 2008, perhaps
due to increasing take-up of international ‘add-ons’ which provide discounted call rates to
certain international destinations.
The cost of fixed calls to mobiles increased by 3.9% in 2008 as the proportion of fixed-line
calls made to mobiles continues to rise. While the cost of calling UK fixed lines has fallen
sharply, as more inclusive calls are incorporated within basic tariff packages, calls to mobiles
are generally not included (although discounts are available for a monthly fee, in add-ons
such as BT’s Friends & Family Mobile).
Figure 4.56 Real cost of a basket of residential fixed voice services
30
)
s £25.04
e £23.33 £22.34
c
i £22.18 £21.94 £21.57
r 4.33
p 3.90 3.55
7 20 2.72 3.51 3.82 3.97
0 2.31 2.11 2.11 Calls to mobiles
0 1.65 1.28
2
( 5.63 4.60 4.00 3.67 3.70 3.66 International calls
h
t
n UK geographic calls
o 10
m Fixed access
r
e 12.36 12.52 12.69 12.89 12.77 12.67
p
£
0
2003 2004 2005 2006 2007 2008
Source: Ofcom / operators
Note: Includes VAT; excludes non-geographic voice calls
Cost of mobile continues to fall
Applying the same analysis to look at a mobile basket finds that the real cost of mobile
services fell by 11% in 2008 as the cost of making calls (outside any bundled offerings) to
mobiles on the same network (on-net), to other networks (off-net) and the average cost of
messaging continued to decrease. Over a five-year period the cost of this basket of mobile
services has fallen from £31.49 to £16.71 (Figure 4.57), with an average annual fall of
11.9%. However, this must be treated with caution as there is, of course, a relationship
243

between prices and usage – average call volumes were much lower in 2003 than in 2008,
partly because prices were higher, so while applying 2008 call volumes to compare pricing
provides some insight into pricing trends, it does not represent consumer spending.
The cost of metered calls and messaging has fallen rapidly as a higher proportion of minutes
and text messages are included within monthly allowances for contract customers, and more
'bonus' minutes and credit are available on pre-pay. This has led to significantly reduced
costs per minute, which has in turn driven higher usage levels. However, at the same time
the average cost of combined line rental, bundled minutes and calls to fixed lines has
increased since 2006. This reflects an increase in the number of contract subscriptions with
inclusive minutes and messages as a proportion of the total subscription base; the
proportion of pay-monthly (rather than pay-as-you-go) mobile connections increased from
34% in 2004 to 39% in 2008.
Figure 4.57 Real cost of a basket of mobile services
40.00
£31.49 Metered
£29.27
30.00 £26.20 messaging
9.20
£ per month
8.42 £22.22 Metered voice
7.90 £18.79
20.00 6.40 £16.71
12.27 10.20 5.01 3.55 Line rental fee
7.91 and inclusive
6.24 4.09 3.27
10.00 calls and texts
10.02 10.65 10.39 9.57 9.69 9.90
0.00
2003 2004 2005 2006 2007 2008
Source: Ofcom / operators
Note: Includes VAT; excludes non-geographic voice calls
Cost of mobile calls falls as fixed rises
Average prices per minute for mobile and fixed calls continued to narrow in 2008, when the
average cost of a mobile minute was 10.4p, 41% more than the cost of an average fixed-line
call minute (Figure 4.58). It should be noted that the average cost-per-minute for mobiles is
over-stated as it includes the value of the handset subsidy which mobile operators recoup
over the duration of the contract.
Average fixed-line call charges rose to 7.4p a minute in 2008. This may seem surprising,
given that a characteristic of the market was the inclusion of more call types within standard
access tariffs. However, higher line rental prices from some operators and rises in the prices
of some types of calls, together with falling overall call volumes meant that for the second
consecutive year there was an overall increase in the average price per minute (which we
calculate simply by dividing total revenues from access and voice calls by the total number
of voice minutes).
244

Figure 4.58 Comparison of average fixed and mobile voice call charges
20.00
15.1 14.4
15.00 13.5
Pence per minute
12.9 2008 growth 5 year CAGR
11.3
10.4
10.00 Mobile -8.5% -5.1%
6.9 7.2 7.4
6.6 6.6 6.7
Fixed 3.2% 1.4%
5.00
0.00
2003 2004 2005 2006 2007 2008
Source: Ofcom / operators
The cost per minute of pre-pay calls fell more steeply (down 14.8% to 8.2p) than the cost of
calls from contract connections (down 6.3% to 11.2p) during 2008 (Figure 4.59). Note,
however, that the cost per minute for contract connections also includes the cost of the
handset, which is included ‘free’ within many contract subscriptions, with operators
recouping the cost of the handset over the duration of the contract. In addition over half of
calls made by pre-pay users are on-net (terminate on the same network), compared to just
over a quarter of contract calls, and on-net calls are generally charged at a lower rate than
off-net calls (terminate on another mobile networks) and calls to landlines.
Figure 4.59 Average mobile cost per voice minute, by customer type
20
16.6
15.9 2008 5 year
14.8 growth CAGR
15 13.0
Pence per minute
14.6 12.0
14.3 11.2
12.7 12.5 Contract -6.3% -2.5%
10
9.6
8.2
5
Pre-pay -14.8% -12.3%
0
2003 2004 2005 2006 2007 2008
Source: Ofcom / operators
Note: Includes estimates where Ofcom does not receive data from operators; contract includes rental
element; analysis of price per minute for contract calls incorporates monthly line rental which often
includes a number of inclusive SMS messages (and sometimes data allowance); figures are
calculated using actual minutes of usage; figures have been restated to reflect more accurate data
Consumers seek greater value through bundling of services
Broadband is often purchased as part of a bundle, alongside other communication services,
with some operators offering significant discounts if the services are purchased together.
Some of the leading broadband providers, such as TalkTalk, bundle unlimited calls at set
times with their fixed-line and broadband package, while BSkyB provides ‘free’ broadband if
Sky Talk, an inclusive free evenings and weekends call package, is purchased (Figure 4.60).
While some providers, such as BT, offer broadband speeds of ‘up to’ 8Mbit/s across all their
tariffs and tier pricing according to data volumes and other non-speed service aspects, other
providers have introduced tiered pricing by speed. For example, Virgin Media charges
245

different monthly rates for ‘up to’ 10Mbit/s, 20Mbit/s and 50Mbit/s speeds. And some
providers such as O2 and Orange bundle mobile broadband with fixed broadband, appealing
to those who consider the two services as complementary rather than direct substitutes for
each other.
Figure 4.60 Lowest cost broadband options from major suppliers, July 2009 (£ per
month)
Broadband, Broadband, Broadband,
Broadband fixed and fixed line and fixed, mobile,
Provider fixed mobile TV and TV
AOL Broadband £21.24 - - -
Be £24.75 - - -
BSkyB - - £26.50 -
BT £26.90 - £25.92 -
O2 £23.48 £28.38 - -
Orange Home £21.04 £29.84 - -
Plus.net £16.94 - - -
TalkTalk £17.74 - - -
Tesco £28.83 £37.80 - -
Tiscali £14.67 - £19.56 -
Virgin Media £24.47 £36.21 £24.47 £36.21
Vodafone £35.00 £35.00 - -
Source: Pure Pricing UK Broadband, Bundling and Convergence Update, July 2009
Notes: Includes £11.25 BT line rental as relevant; lowest cost option / lowest price combination is
shown; activation charges and promotional discounts are excluded; mobile options may be SIM-only;
allowances for fixed-line and mobile calls, plus availability of TV channels included within packages
may differ by operator and option.
4.3.3 Take-up of services
Nearly two-thirds of households had a fixed broadband connection in Q1 2009
Growth in household penetration of fixed broadband services continued in 2008, reaching
65% in Q1 2009 compared to 58% in Q1 200843. Lower stand-alone fixed broadband tariffs
and the increasing take-up of broadband services as part of bundled packages (see Figure
4.60) mean that in many cases broadband prices are equivalent to, or even lower than, dial-
up internet. For example, PlusNet broadband customers living in an area covered by an
exchange it has unbundled pay £5.99 per month for ‘up to’ 8Mbit/s broadband and a 10GB
allowance, which is the same price as a metered dial-up internet service with 60 hours of
monthly use from internet service provider Zaggle.
43
2008 fixed broadband data may include some mobile broadband connections although the majority
of broadband connections at the time were fixed
246

Fixed-line penetration has remained relatively stable at 87% in 2009, following a fall during
2007 (Figure 4.61). Mobile broadband had significant take-up during 2008, and by Q1 2009,
12% of households connected to the internet via a mobile ’dongle’ (although only 3% of
households used mobile broadband as their only means of connecting to the internet - the
majority of mobile broadband users have it as a complement to fixed-broadband services
rather than a direct substitute). Take-up ranged from 91% in Scotland’s Highland and
Islands, to 82% in Cardiff, 76% in Belfast and 75% in Leicester.
Figure 4.61 Household penetration of key telecoms technologies
100 93 90 90 93 93 92
90 Fixed telephony
89 90 88 87
Proportion of adults (%)
80 85
70
64 67
60 Mobile telephony
60 50 57
65
41 52 58 Internet connection
40
27
Fixed broadband
20 11 internet
12
Mobile broadband
0 internet
Q4 2003 Q4 2004 Q1 2006 Q1 2007 Q1 2008 Q1 2009
Source: Ofcom technology tracker
Base: All UK adults aged 15+
Most households continue to have both fixed and mobile
Despite the increasing take-up of mobile telephony among adults, the proportion of
households which rely exclusively on a mobile connection for all their communications needs
has remained stable since 2006 (Figure 4.62). Four in five households continue to have both
a fixed and mobile connection (unchanged since 2003), indicating that while consumers are
increasingly substituting mobile for fixed calls44, the large majority of households continue to
have a fixed line. The need for a fixed line in order to connect to the internet using DSL
broadband may have constrained further growth in mobile-only households (a fixed voice
line connection is required for all DSL broadband in the UK), and voice services are included
within most cable broadband tariffs. However, this may change as consumers increasingly
use mobile broadband to connect to the internet.
44
According to Ofcom research 38% of adults stated their mobile is their main method of telephony
(both inside and outside the home), a rise from 33% in Q1 2008 and 30% in Q2 2006.
247

Figure 4.62 Household penetration of fixed and mobile telephony
100% 1 1 1 1 1
6 9 10 11 10 13 12
None
Proportion of adults (%)
80%
Mobile only
Fixed and mobile
60%
79 80
Fixed only
80 81 82 78 80
40%
20%
14 10 9 8 7 7 7
0%
2003 2004 2005 2006 2007 2008 2009
Source: Ofcom technology tracker
Base: All UK adults aged 15+
One in five DE households are mobile-only
There were significant differences in the household penetration of communications services
by socio-economic group in Q1 2009 (Figure 4.63). Twenty two per cent of DE households
were mobile-only (largely unchanged from Q1 2008 at 23%), compared to 8% of ABC1
households. The costs associated with subscribing to a broadband connection, combined
with the cost of a PC or laptop may partly explain why less than half of DE households had a
broadband connection in Q1 2009, compared to nearly four in five ABC1 households.
ABC1 households were almost twice as likely as C2 and DE households to have a mobile
broadband connection. However, the large majority of ABC1 households with a mobile
broadband connection also had a fixed-line connection, while C2DE households were more
likely to use mobile broadband as their sole means of internet access (See Section 4.1.5 in
Telecoms: Key Market Developments).
Figure 4.63 Household telecoms connections, by socio-economic group
100 100 98
100
Proportion of adults (%)
76 79
80
64 66 ABC1
60
47 C2
43
40
DE
22
20 12 15
5 5 8 10 8 8
0
Fixed line-only Mobile-only Fixed Mobile Total Have any
broadband broadband broadband connection
Source: Ofcom technology tracker, Q1 2009
Base: All UK adults aged 15+
Note: mobile-only and fixed only relate only to phones, i.e. mobile-only and fixed-only may also have
an internet connection. Any connection refers to fixed, mobile or broadband.
248

Younger people are more likely to be mobile-only
More than one in four 15-24 year-olds live in mobile-only households, compared to just 3%
of over 65s. This is indicative of the continued importance of a fixed-line connection for older
age groups, while younger people are more likely to rely solely on a mobile connection partly
because they have grown up in a world where mobile communication is a way of life, and
partly because they are more likely to live in shared or temporary accommodation and are
therefore less likely to make a household investment in a fixed-line connection.
Figure 4.64 Mobile-only households by age, Q1 2009
Proportion of adults living in mobile-
30
26
21
only households (%)
20
12
10
10
4 3
0
Total 15-24 25-34 35-54 55-64 65+
Source: Ofcom technology tracker, Q1 2009
Base: All UK adults aged 15+
Note: mobile only and fixed only relate only to telecoms and not internet as well i.e. mobile only may
have internet and fixed only may have internet. Any connection refers to fixed, mobile or broadband.
4% of households have a PC but do not have an internet connection
Further growth in internet penetration will require increasing levels of PC ownership. Figure
4.65 indicates that the gap between household internet penetration and PC ownership
narrowed to 4% in Q1 2009. The growth in PC ownership from 72% of households in Q1
2008 to 74% of households in Q1 2009, combined with increasing take-up of fixed and
mobile broadband, suggests that the desire to get connected to the internet is likely to be the
major motivation to purchase a PC. The emergence of mobile broadband tariffs, which
include the purchase of a laptop within the monthly fee, may be driving increased PC
ownership, particularly among households that do not have a fixed-line connection.
Figure 4.65 Household PC and internet penetration
80 72 74
69 71
Proportion of adults (%)
65 67
70
67 PC penetration
60 63 64 65
57 57 58
52 Internet
40 penetration
41
Fixed broadband
penetration
20 27
Mobile broadband
12
penetration
11
0
Q4 2004 Q4 2005 Q4 2006 Q1 2007 Q1 2008 Q1 2009
Source: Ofcom technology tracker
Base: All UK adults aged 15+
249

More than a third of those without internet at home say they have no need for it
Of those without a broadband connection, nearly one-fifth (18%) of respondents said they
are likely to get the internet in the next six months (Figure 4.66). The majority of those
without the internet (37%) said their main reason for not having it was because they were not
interested or had no need for it. A smaller proportion (26%) said that the price of using a
broadband internet service, whether it is the cost of a PC or paying the monthly broadband
fee, prevented them from getting online. Specific issues identified within this group included
the internet being too expensive, not being able to justify the cost, unable to afford a
computer, not having a landline or being unwilling to commit to a 12-month contract.
Figure 4.66 Reasons for not taking up the internet
50
% of those without the internet
40
30
20 37
26
10 18
4 5
0
Likely to get in next Too expensive Don't have Not interested I don't need it at
6 months knowledge/skills home
Source: Ofcom Access and Inclusion research
Note: 10% - Not aware of the internet/give another reason as their main reason/don’t know their main
reason
Base: Adults 15+ without broadband. (add size) Intention to get internet in next 6 months; Main
reason for not having the internet at home – prompted
Take-up of internet lowest in older age groups
Older people are significantly less likely to have home internet access than those in younger
age groups: more than six in ten 65-74 year olds do not have a home internet connection,
and this rose to more than eight in ten among over-75s (Figure 4.67). The highest take-up
level was among the 35-54 age-group, while a quarter of 15-24-year-olds did not have home
internet access.
Figure 4.67 Non-ownership of home broadband, by age group
100
% without broadband internet
80
60
40 82
61
20 39
25 21 17
0
15-24 25-34 35-54 55-64 65-74 75+
Source: Ofcom technology tracker, Q1 2009
Base: All UK adults aged 15+ without broadband internet at home
250

One in four access the internet a work
It should not be assumed that all those without home internet access are not internet users,
as there are a number of other locations where people can access the internet. More than
one in ten web users accessed the internet at someone else’s home in Q1 2009, and a
similar proportion did so at a library or educational institution (Figure 4.68). There was a
small decline in the number of internet users using an internet café, shop or kiosk. This may
be the consequence of a fall in availability of such places, as increasing take-up of the
internet within the home (fixed and mobile) makes these businesses less commercially
viable.
Figure 4.68 Location of internet access
Proportion of adults 15+ (%)
0 20 40 60
67
At home 61
64
24
At work 25
27
12 74% of UK
In someone else's home 15 adults use
13
12 the internet
In library or educational institution 14
13
5
Anywhere via a portable device 5
5
4 Q1 2009
In internet café, shop or kiosk 7
6 Q1 2008
1 Q1 2007
At other locations 2
3
Source: Ofcom technology tracker, Q1 2009
Base: All UK adults aged 15+
Use and awareness of VoIP increases
There was greater awareness of Voice over Internet Protocol (VoIP) among UK adults and
indications of higher use of the service in Q1 2009 compared to last year. Twelve per cent of
adults claimed to be using VoIP in Q1 2009, an increase from 9% a year previously while
three out of five adults are now aware of the service. Seventeen per cent of adults claimed
to have access to VoIP, indicating that 70% of those with access to VoIP use it.
The majority of adults claim not to use VoIP services. This may be due to concerns over the
quality of service of calls over VoIP, a lack of understanding of how to use it, or because
competition from low-priced fixed and mobile telecoms services on calls both within the UK
and internationally make VoIP a less attractive proposition; for example, BT’s series of
‘International Add-ons’ provide discounted or inclusive international calls for a low monthly
tariff (from £1 to £4.89).
The level of take-up of VoIP services may be higher than indicated by our research, as users
of VoIP-based services such as BT’s home hub phone, or Orange’s phone service via the
Livebox (where a standard phone is connected into a wireless router) may be unaware that
they are using the technology; it is hidden behind what may be perceived by the customer as
a standard fixed-line service over the Public Switched Telephone Network (PSTN).
251

Figure 4.69 Awareness, stated access and use of VoIP
80%
Q1 2008
% of UK adults aged 15+
60%
Q1 2009
40%
61
55
20%
17
9 12
0%
Awareness of VoIP Stated access to VoIP Stated current use of VoIP
Source: Ofcom technology tracker, Q1 2009
Base: All UK adults aged 15+ (n = 6090 2009, 5812 2008)
Note: Question wording changed in 2009 so treat year-on year comparison with caution. Stated
access to VoIP not collected in 2008.
4.3.4 Fixed-line and mobile use
Overall residential fixed-line call volumes decline but international volumes rise
Average voice volumes per residential fixed line fell slightly (1.2%) in 2008 as mobile
continued to take an increasing share of call volumes. The fall was the smallest since
average residential fixed-line volumes began to decline in 2005 (see Figure 4.70). Falling
volumes of UK calls and calls to mobiles were offset by growth in international calls (up 23%)
as operators promoted international call tariffs. Such calls are less likely to be substituted by
mobile, as international call costs from a mobile are generally higher than those from a fixed
line, and are not included in call allowances within monthly mobile contracts.
Figure 4.70 Average monthly voice call volumes per residential fixed line
400
303.7 305.9 300.1
300 291.6
Minutes per month
29.4 30.4 30.3 273.1 269.7
10.2 10.5 29.2
10.1 9.6 26.7 24.2
11.2 13.8 Calls to mobiles
200 International calls
264.2 UK geographic
265.0 259.7 252.8 235.2 231.7 calls
100
0
2003 2004 2005 2006 2007 2008
Source: Ofcom / operators
Note: Excludes non-geographic voice calls
252

Call volumes per connection increased by 6% in 2008
There were 111.0 billion minutes of calls made from UK mobile phones in 2008 (up from
99.9billion in 2007). In part this was driven by an increase in the number of mobile
connections (from 73.8 million at the end of 2007 to 76.8 billion at the end of 2008).
However, most of this increase was driven by users making more calls from their phones.
On average, more than two hours of calls (123 minutes) were made every month from
mobile connections in 2008, an increase of 6% on the previous year (see Figure 4.71). Calls
between mobiles were the main driver of growth in mobile call volumes, reflecting the
increasing number of any-network minutes included in contract plans, and some pre-pay
tariffs.
Despite the total volume of calls to fixed-lines increasing during 2008, the average made per
mobile connection fell by 3.1%. This may be partially due to growth in the number of mobile
subscriptions focused on specific call types, such as low-cost international services (and
therefore not typically making any calls to UK fixed numbers), in addition to a general trend
towards consumers communicating via mobile phones rather than using fixed-line numbers.
Figure 4.71 Average monthly outbound voice minutes per mobile connection
Total UK outbound
58.9 64.2 71.4 82.5 99.9 111.0 mobile voice minutes
150 (billions)
122.8
115.7
13.9
101.2 13.1 1.9
Minutes per month
100 95.9 94.7 94.6 1.6 Other
8.3 12.3 33.3
1.3 9.3 11.6 1.3 International
1.1 1.2 31.7
16.9 19.3 25.7
21.2 Off-net
31.4 42.3 On-net
50 30.1 28.3 30.2 37.0
UK fixed
38.0 34.8 32.3 31.7 32.3 31.3
0
2003 2004 2005 2006 2007 2008
Source: Ofcom / operators
Note: ‘Other calls’ include roaming, premium rate calls, WAP calls and all other call types
Average contract call volumes per connection fall while pre-pay grows
The average monthly volume of call minutes per contract mobile connection declined during
2008, following increases in 2006 and 2007 (Figure 4.72). Operators’ focus on migrating pre-
pay users onto contract plans (See Section 4.1.7) has led to some lighter mobile users, who
were previously using pre-pay, moving to low-cost contract plans. In contrast, voice use per
pre-pay connection increased by 14% in 2008 as users took advantage of the increasing
value of top-up rewards, such as free credit or calls (for example free on-net and anytime
calls on T-Mobile Mates Rates when users credit their account with £15 or more per month).
253

Figure 4.72 Average outbound mobile minutes, by customer type
300
237 234
225 219 218
211
Minutes per month
200
Contract
100 Pre-pay
49 56
35 33 35 39
0
2003 2004 2005 2006 2007 2008
Source: Ofcom / operators
Note: Includes estimates where Ofcom does not receive data from operators
Users send 99 text messages per month
Growth in the volume of text messages sent showed no sign of slowing in 2008. In total over
85 billion text messages were sent (up from 63 billion in 2007). This represented an increase
in the number of texts sent per mobile connection of 29% to an average of 99 texts per
month (Figure 4.73). This is despite the increased availability of alternative messaging
services, such as email and instant messaging, in addition to messaging services available
on mobile versions of social networking sites.
As with voice minutes, the inclusion of more text messages, or even unlimited texts on some
tariff plans, is contributing to this growth. Unlimited text allowances are a standard feature in
the majority of £15-a-month or more SIM-only plans from 3UK, Virgin Mobile and Vodafone
(see Section 4.1.7).
In contrast to text messaging, take-up of picture messaging remains low with just 0.56
multimedia messages per month (MMS) sent per mobile connection in 2008, although this
did represent an increase from 0.39 in 2007. While there is wide availability of cameras on
new mobile phones, the limited availability of tariffs with inclusive MMS, and the high price of
MMS relative to texts (for example Vodafone’s standard price for a picture message is 36p),
means that only a small proportion of pictures taken on a mobile are sent as an MMS over a
mobile network.
254

Figure 4.73 Monthly text and picture messages per mobile connection
Total UK outbound
22.2 27.0 35.6 46.2 62.9 85.3 mobile text and
picture messages
100 (billions)
0.56
Messages per month
75 0.40
0.29
50 0.35 99 Picture messages
0.04 0.19 Text messages
72
25 56
40 47
36
0
2003 2004 2005 2006 2007 2008
Source: Ofcom / operators
Note: Includes estimates where Ofcom does not receive data from operators
4.3.5 Customer satisfaction and switching
More customers are very satisfied with their fixed-line service
Overall satisfaction with fixed-line services stood at 92% in the UK in Q1 2009, slightly
higher than a year previously, while the number of fixed-line customers who were ‘very
satisfied’ rose to 58% (Figure 4.74). The proportion of consumers who were satisfied with
the value for money of their landline service increased between Q1 2008 and Q1 2009, with
84% of consumers ‘satisfied’ and nearly half of consumers (49%) ‘very satisfied’ in Q1 2009,
compared to just under one-third who were ‘very satisfied’ in Q1 2008.
This rise may be a reflection of the inclusion of unlimited off-peak calls becoming standard
on some plans in 2008 (for example, in February 2008 BT included free weekend calls to all
UK geographic numbers on its basic line rentals – albeit increasing the price of the line rental
by 50p per month and increasing daytime and evening call prices at the same time), as well
as perceived better value from the increased take-up of dual-play (voice and broadband) and
triple-play (voice, broadband and TV) bundles.
255

Figure 4.74 Residential consumer satisfaction with fixed-line services
100 92 88 92
78 84
% of adults 15+ with service
77
80
41
60 56 58 29 32 49
Very satisfied
40
51 49 Satisfied
20 46
32 34 35
0
Q1 2006
Q1 2008
Q1 2009
Q1 2006
Q1 2008
Q1 2009
Overall Value for money
Source: Ofcom technology tracker
Base: All adults aged 15+ with fixed line
Note: Includes only those who expressed an opinion
Satisfaction with broadband speeds continues to fall
Overall satisfaction with broadband services largely mirrored that of fixed-line, with nine in
ten consumers being satisfied with the service (Figure 4.75). Satisfaction with value for
money remained stable while satisfaction with speed continued to fall, with 81% of
consumers satisfied with speed in Q1 2009, compared to 90% in Q1 2006. This was despite
increasing average headline speeds during the period and may be the result of a changing
expectations – in 2006 many consumers may have been comparing broadband services
against narrowband (dial-up) access, while in 2009 broadband has become widespread as
have online applications which require faster downstream speeds, such as the BBC iPlayer.
Figure 4.75 Residential customer satisfaction with aspects of broadband service
88
100 92 90 83 90 83
89
% of adults 15+ with service
84 84 84 81
78
80
44 38 33 43 34
55 52 26
60 50 48 49 45
Very satisfied
40
Satisfied
48 50 51 52 47 50
20 34 38 33 36 34 36
0
Q1 2006
Q1 2007
Q1 2008
Q1 2006
Q1 2007
Q1 2008
Q1 2009
Q1 2006
Q1 2007
Q1 2008
Q1 2009
*Q1 2009
Value for
Overall money Speed of service
Source: Ofcom technology tracker
Base: All UK adults aged 15+ with broadband (fixed broadband only from 2009)
256

Note: Includes only those who expressed an opinion. *Q1 2009 figures based on fixed broadband
service
Satisfaction with mobile broadband lower than with fixed broadband
For the first time in Q1 2009 we surveyed consumers on their perception of mobile
broadband services and found that eight in ten users of mobile broadband were satisfied
with the services overall, while seven in ten were satisfied with the speed of the service
(Figure 4.76). This is lower than for fixed broadband services, and is likely to be a reflection
of the wider variation in quality of service that can be delivered over a mobile network, as
well as lower average speeds. While actual broadband speeds can vary significantly on both
fixed and mobile networks, average actual speeds of mobile broadband are much slower
than fixed-line broadband.45
There is also likely to be much greater variation in mobile broadband performance than fixed
broadband performance, caused by variable factors such as the distance from the nearest
mobile base station, the type of building the user is in when accessing the service, and other
physical factors such as trees and buildings which may interfere with the signal, in addition
to the number of users of high-speed mobile services in the same cell site.
Figure 4.76 Customer satisfaction with aspects of mobile broadband service
100
83
78
% of adults 15+ with service
80 71
60 42 41 Very satisfied
35
40 Satisfied
20 40 37 35
0 0
Overall Value for money Speed of service
Source: Ofcom technology tracker, Q1 2009
Base: All UK adults aged 15+ with mobile broadband
Note: Includes only those who expressed an opinion; trend data is not available as this is the
More users satisfied with value for money of mobile services
The proportion of consumers satisfied with their overall mobile phone service was
unchanged at 94% in Q1 2009, with nearly two-thirds (62%) being ‘very satisfied’ with their
service (Figure 4.77). Satisfaction with value for money increased to 90%, perhaps driven by
many consumers benefiting from falling prices, as more inclusive or ‘free’ minutes are
included within contract and pre-pay plans, and the increasing availability of lower cost
contracts and SIM-only deals. This high level of satisfaction fits in with our consumer
research, covered in Section 1.2 - Communication markets and the Recession, which found
that one in four people agreed that mobile providers were now offering better deals than they
did a year ago.
45
Data published by Epitiro in June 2009 suggest that mobile broadband at headline speeds of ‘up to’
3.6Mbit/s or ‘up to’ 7.2Mbit/s typically deliver average actual speeds of less than 1Mbit/s
(www.epitiro.com/news/epitiro-publishes-uk-mobile-broadband-research.html); in comparison, our
research into fixed-line broadband speeds found average speeds of around 4Mbit/s in April 2009
www.ofcom.org.uk/research/telecoms/reports/broadband_speeds/broadband_speeds/
257

Figure 4.77 Residential consumer satisfaction with mobile services
100 94 94
92 90
86 86 88 88
% of adults 15+ with service
83
80
40 32
59 33
60 62 59
54 58 59
Very satisfied
40
Satisfied
52 54 50
20 35 32 32 31 30 29
0
Q1 2006
Q1 2008
Q1 2009
Q1 2006
Q1 2008
Q1 2009
Q1 2006
Q1 2008
Q1 2009
Overall Value for money Accessing the network
Source: Ofcom technology tracker
Base: All UK adults aged 15+ personally use mobile phone,
Note: Includes only those who expressed an opinion
Switching levels fall
The proportion of fixed-line, broadband and mobile users switching provider in the last 12
months decreased in 2009 (Figure 4.78). This may be due to consumers committing to
longer contract lengths in return for lower prices, for example:
• In the fixed-line market BT introduced inclusive evening calls for consumers on its
Option 1 package who were prepared to commit to a 12-month rolling contract in
April 2008.
• In the broadband market, BT’s Total Broadband packages are marketed as 18-month
contracts, while a 24-month broadband and fixed-line contract from Carphone
Warehouse includes the first six months free of charge.
• A higher proportion of mobile connections are now on pay-monthly contracts, and in
Q1 2009 nearly three-quarters of new connections were on contracts of 18 months or
longer (see Section 4.1.7)
258

Figure 4.78 Proportion of consumers who have switched provider in the last 12
months
20
% of adults 15+ with service
Q2 2006
Q2 2007
10
Q1 2008
14 15 14
12 13 12 13 Q1 2009
10 9 10
8
6
0
Fixed line Mobile Internet / Broadband*
Source: Ofcom technology tracker
Base: All UK adults aged 15+ with each respective telecoms service
*Note: 2008 and 2009 data is the proportion of broadband consumers who had changed broadband
provider in the last 12 months and is not directly comparable with 2006 and 2007 data which is the
proportion of internet consumers who had changed internet provider. 2009 data is based on fixed
broadband consumers only. Note that supplier switching when moving home is excluded from this
data.
259

The Communications Market
2008
5
5 Converging Markets
261

Contents
5.1 Converging communications markets 263
5.1.1 Introduction 263
5.2 Content 265
5.2.1 Introduction and structure 265
5.2.2 The growing popularity of online catch-up TV content 265
5.2.3 The problem of unauthorised content sharing 273
5.2.4 The market for digital audio content 278
5.2.5 The market for video content 284
5.2.6 The market for user-generated content 285
5.2.7 The market for news content 291
5.2.8 Internet advertising 294
5.2.9 Conclusion 297
5.3 Distribution and devices 299
5.3.1 Distribution 299
5.3.2 Devices 303
5.3.3 Conclusion 313
262

5.1 Converging communications markets
5.1.1 Introduction
The term ‘convergence’ in communications markets is often used to describe the growing
tendency for different content formats (audio, video, text, pictures) to reach consumers via a
range of digital networks (the internet, mobile infrastructure, satellite, cable, digital terrestrial
etc) and consumer devices (PC, TV, mobile etc.) This section looks at what these trends
mean for the supply and consumption of communications content and services in the UK.
How content gets from creator to consumer
Content can travel in many ways from creator to consumer, and between consumers, but it
follows the same general path, set out in Figure 5.1 below. In this report we use this
pathway, or ‘value chain’, as our framework for thinking about developments in convergence.
Figure 5.1 Delivering content and voice services to consumers
Content Aggregation Distribution Devices Navigation Consumption
Section 5.2 Section 5.3.1 Section 5.3.2
The commentary in this section focuses on:
 Content – including the creation and packaging of content types where converging
technologies have had a significant bearing (page 265).
 Distribution and devices – looking at the networks and devices over, and through
which, consumers access content (page 299).
Each of these two sections groups together data which tell ‘stories’ within the overall
framework of the convergence value chain.
263

5.2 Content
5.2.1 Introduction and structure
This section examines how converging technologies have reshaped the markets for a range
of content types that, directly or indirectly, have a bearing on the industries that Ofcom
regulates.
We begin by discussing the growing popularity of online catch-up TV content (Section
5.2.2, page 265). We consider the developments leading up to the more widespread
adoption of online catch-up services, and analyse how and by whom these services are
being consumed.
We then move on to consider the impact that digital networks have had on the distribution of
audio-visual content. We discuss:
 the problem of unauthorised content sharing across peer-to-peer file-sharing
networks (section 5.2.3, page 273);
 the market for digital audio content and how it has evolved since the introduction
of digital downloads, and more recently online streaming (Section 5.2.4, page 278);
and
 the market for video content and the share digital networks have of home-film
consumption (section 5.2.5, page 284).
Converging technologies have challenged existing content types and brought opportunities
to new ones. In this context, we consider:
 the market for user-generated content and the levels of engagement, creation,
and consumption of it, in particular video sharing and social networking (Section
5.2.6, page 285);
 the market for news content and the difficulties facing existing providers relying on
a declining source of revenue (section 5.2.7, page 291); and
 internet advertising and the growth of search (section 5.2.8, page 294).
5.2.2 The growing popularity of online catch-up TV content
2008: the year online catch-up TV began to go mainstream
2008 marked the first year that consumers demonstrated a clear appetite to watch long-form
television programmes using the internet. All major public service, and some multichannel,
broadcasters now offer a comprehensive selection of their channel schedules online, ranging
from seven-day catch-up programming to archive material. Consumers can access this
content through the internet (using a computer or hand-held device) or in some cases on
their TV set, through a cable television or IPTV network.46
Figure 5.2 shows a simplified timeline of launches and re-launches of online catch-up TV
services by the major broadcasters:
46
Viewers can also access catch-up TV through other means than online, notably digital video
recorders (DVRs). We consider this further in section 5.2.2.
265

Figure 5.2 Simplified timeline of major online catch-up TV launches
Sky by 4OD iPlayer iPlayer Channel 4 Five Download C4
Broadband launches launches Public Catch-up rebranded as consolidates
launches in trial beta launch streaming Demand Five 4OD and
launch catch-up
service
Q1 06 Q2 06 Q3 06 Q4 06 Q1 07 Q2 07 Q3 07 Q4 07 Q1 08 Q2 08 Q3 08 Q4 08 Q1 09 Q209
Itv.com
rebranded
Sky by as itvplayer
Itv.com Broadband
Five revamps relaunches
Download Itv.com catch-up as Sky Sky player TV
launches relaunch content Player launches
Source: Ofcom based on broadcaster press releases.
Online catch-up services remained a relatively niche proposition until 2008, when a number
of developments combined to improve consumer awareness and create a higher-quality, and
more widely available, user experience:
 Increased availability and take-up of broadband connections sufficient to stream
audio-visual content in real time. Ofcom research into broadband speeds found that
average broadband speeds in the UK in April 2009 were 4.1Mbit/s and that 70% of
broadband users receive average speeds of more than 2Mbit/s.47 The BBC
recommends a minimum speed of 500kbit/s to use its iPlayer and 3.2Mbit/s to use its
high-definition iPlayer service;
 New easy-to-use content delivery systems – initially the BBC and Channel 4 both
used peer-to-peer (P2P) applications to distribute content, which introduced a delay
in viewing while consumers downloaded programmes. But all the main broadcasters
now offer streamed catch-up services, which provide more or less instant access. In
addition, in December 2008 the BBC moved the iPlayer away from its P2P download
distribution model to an HTTP download model (i.e. downloads direct from BBC
servers rather than from other users).
 Widening access – both the iPlayer and Channel 4’s catch-up content were initially
unavailable to consumers using either Apple Macs or computers running Linux.
However, streamed iPlayer content became available for both platforms in December
2007, followed by downloaded content in December 2008. Channel 4 introduced Mac
and Linux functionality in April 2009;
 Heavy marketing and cross-promotional campaigns from many of the largest UK
broadcasters, including the BBC and ITV; and
 Distribution direct to the television set and to gaming consoles – customers of
Virgin Media, BT Vision and Tiscali TV can now access catch-up content directly
through their television set rather than through a computer. In addition, the iPlayer is
also available via the Nintendo Wii and Sony Playstation 3, while BSkyB recently
announced a deal to make its content available through the Xbox live portal from the
autumn. Some smartphones such as the iPhone can also access the iPlayer.
47
See http://www.ofcom.org.uk/research/telecoms/reports/broadband_speeds/broadband_speeds/
266

Meanwhile, innovation in catch-up TV continues. The BBC was the first broadcaster to
launch HD content via its catch-up service in April 2009, when it made the BBC HD channel
available via the iPlayer. And there have been initial steps towards limited service
aggregation – in October 2008 BSkyB announced a deal with the BBC to make iPlayer
content available through its Sky Player service. BBC programmes are listed within existing
Sky Player genres and consumers are then directed to the iPlayer website when they click
on a programme.
Adoption of online catch-up TV is also increasing internationally. A notable example is Hulu,
an American service offering free-to-view content set up by NBC Universal and News
Corporation in March 2008, which ABC Disney subsequently joined. According to comScore
data, Hulu grew from its launch in March 2008 to become the third most popular video site in
the US by April 2009. In July 2009 Johannes Larcher, Senior Vice-president International of
Hulu, announced that launching in the UK was Hulu’s number one priority.
Nearly a quarter of households use the internet to watch catch-up TV
Our consumer research (Figure 5.3) shows the growing impact of catch-up TV. Nearly one in
four people with the internet at home (23%) claim that someone in their household watches
catch-up TV online; this figure rises to one in three among 15-24 year olds. In general
younger people and men are more likely to make this claim, possibly reflecting greater
interest in, and familiarity with, the necessary technology, although among those aged 65+
the figure still stands at 10%. This may understate the true take-up of catch-up TV, as the
data include only content watched online, and not over other platforms.
Despite this, it is important to remember that only a minority of people watch online catch-up
TV. The reach of broadcast television is near-universal, while only 23% of adults with the
internet (16% of all adults) live in a household where someone uses the internet to watch
online catch-up TV. Furthermore, claimed use can differ from actual habits.
Figure 5.3 Proportion of adults with home internet who watch online catch-up TV
Proportion of households (%)
40%
33%
30%
26%
23% 24% 24%
21%
20%
14%
10%
10%
0%
Total 15-24 25-34 35-54 55-64 65+ Male Female
Source: Ofcom research Q1 2009. QE12 “Which, if any, of these do you or your household use the
internet for whilst at home?”.
Base: All adults who have the internet at home (2009, n=2116; 15-24 n=365, 25-34 n=415, 35-54
n=884, 55-64 n=262, 65+ n=189; male n=1025, female n=1091).
Most online TV viewing is being driven by the BBC’s iPlayer
Audience data from Nielsen Online show that in May 2009 the iPlayer reached nearly 15% of
active UK internet users, more than double the figure 12 months previously. This was nearly
267

five times higher than its next largest rival, the ITV Player (3.3%), while the reach of the
remaining major catch-up TV services stood at around 1% each.
The prominence and success of the iPlayer and the ITV Player may be related to the
strength of the BBC and ITV brands in the eyes of consumers, and the fact that they carry
some of the most popular programming shown in the UK. In the case of the iPlayer it may
also reflect the resources that the BBC has devoted to developing the user experience; for
instance, rolling out iPlayer content on games consoles and revamping the consumer
interface in June 2008.
Figure 5.4 Active reach of major online catch-up TV services in the UK
Active reach (%)
15%
BBC iPlayer
ITV Player
10%
demand.five.tv
5% 4oD Catch Up
Channel 4oD
0%
May- Jun- Jul- Aug- Sep- Oct- Nov- Dec- Jan- Feb- Mar- Apr- May- skyplayer.sky.com
08 08 08 08 08 08 08 08 09 09 09 09 09
Source: Nielsen Online, home and work.
Note: No figure available for 4oD catch-up in April 2009. ‘Active reach’ is the percentage of all active
unique persons aged 2+ who visited the site or used the application. ‘Active’ is defined as anyone who
used an internet-enabled computer within the time period.
35% of the unique audience for catch-up sites is typically under 35 – more for 4OD
The age profiles of users of the iPlayer, ITV player and Demand Five are similar, broadly
following the breakdown of the UK active online universe, with around 35% of the unique
audience for each site aged under 35. Within this there are some small differences; ITV
Player attracts a slightly larger share of 18-24s, and iPlayer and Demand Five a little more of
the 25-34 group.
But 4OD catch-up, Channel 4’s catch-up offering, has a very different age profile, with nearly
50% of its unique audience under 35, and 27% aged 25-34. This compares with the UK
active online universe under-35 figure of 41% and 25-34 figure of just 17%. This difference is
likely to be related to the younger age profile of Channel 4, and in particular to the presence
of popular programmes aimed at young people and younger adults such as Hollyoaks. 4OD
catch-up also has a smaller proportion of users aged 50-64 (18%). This is consistent with a
lower than average audience in this age group for Channel 4’s linear broadcast offering.
268

Figure 5.5 UK audience profiles of PSB catch-up services, May 2009
Total unique
audience 36.9m 5.24m 1.22m 0.36m 0.41m
100%
Share of unique audience (%)
7% 9% 9% 9% 9%
65+
80% 23% 25% 18%
27% 26%
50 to 64
60% 24%
29% 35 to 49
31% 27% 31%
40% 27% 25 to 34
17% 15%
16% 17%
20% 11% 13% 12% 18 to 24
10% 10%
13% 9% 9% 11% 8%
0% 2 to 17
Active iPlayer itvplayer 4OD catch- Demand
online up Five
universe
Source: Nielsen Online, home and work, month of May 2009.
Note: Use caution for the 2-17 and 65+ age groups for 4OD catch-up and Demand Five due to low
sample sizes. Active online universe = people aged 2+ who used an internet-enabled computer during
the period.
Data provided to Ofcom by the BBC show that while there have been some small changes in
the age profile of the adult iPlayer audience since its launch, the general picture has not
changed significantly. The biggest change was the five percentage point drop in share for
the 55+ age group between Q1 2008 and Q2 2009.
Figure 5.6 Age profile of PC iPlayer users over time
Share of audience (%)
100%
21% 20% 16% 16% 17% 16%
55+
80%
42% 41% 38% 43%
60% 39% 43%
35 to 54
40%
20% 38% 41% 43% 45% 41%
38%
0% 15 to 34
Q1 2008 Q2 2008 Q3 2008 Q4 2008 Q1 2009 Q2 2009
Source: BBC.
Data provided by the broadcasters indicate that people watch the different catch-up and on-
demand services in different ways. (Unlike television audience measurement, these figures
are not currently collected and published systematically, so comparisons should be made
with caution). One example of this is that the majority of iPlayer content is viewed online,
while TV is still the main vehicle for 4OD – we now examine this further.
The majority of iPlayer content is viewed online…
In the year after its launch (at the end of 2007) there were an estimated 372 million ‘requests
to view’ iPlayer programmes (excluding radio programmes), or an average of over 1 million
each day. Of these, the majority (around 275 million) were delivered over the internet and
viewed over a PC, laptop, TV or hand-held device, with the rest served via Virgin Media
(Figure 5.7).
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Further BBC catch-up content would also have been viewed on BT Vision and Tiscali TV,
but these are not included in the BBC figures below, as these platforms offer only a selection
of BBC catch-up programmes, and not the full range of iPlayer content.
Figure 5.7 Monthly requests to view BBC iPlayer programmes, 2008
Cumulative
requests Q1: 42m Q2: 120m Q3: 220m Q4: 374m
60
30/04 iPlayer
launched on
Virgin Media 41m
40 iPlayer requests
35m
online
31m
22m 21m 23m
21m 20m 20m
17m 16m 17m
20 14m 14m
11m 11m 12m 12m 12m iPlayer requests via
Virgin Media
4m
0
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Source: Ofcom, based on BBC data.
Note: The BBC's iPlayer measurement system is not yet audited. It is working towards meeting
industry standards for video and audio streaming and downloading. It is constantly working on its
measurement systems and reserves the right to augment or change its methodology as the platform
develops. Some figures for Virgin Media are estimates. This chart does not include content viewed via
BT Vision or Tiscali TV.
…but consumers appear to view 4OD content more through their TVs
The 4OD content proposition differs from the BBC iPlayer, which is prevented by the BBC
Trust from offering content more than 30 days old online; Channel 4, by contrast, now makes
both catch-up (recently broadcast) and some archive content available free-to-view online
(see introduction to section 5.2.2).
Figure 5.8 shows the cumulative requests to view 4OD programming in 2008. In contrast to
iPlayer content, the majority of 4OD content is viewed through a TV service rather than
online (so the charts are not strictly comparable). This may be partly because Channel 4
persevered with a less user-friendly desktop application model for longer than the BBC.
Under this model, users downloaded software to their computers that they used to access
and play content, rather than streaming it directly through a web browser. It could also be
that the launch of the iPlayer on Virgin Media increased 4OD’s TV views, as consumers
looking for iPlayer content discovered that Channel 4 programmes were easily available on
the same platform.
270

Figure 5.8 Cumulative requests to view programmes on 4OD, 2008
Cumulative
requests Q1: 32m Q2: 66m Q3: 97m Q4: 132m
8 7.4m
6.9m 6.7m
6.5m 6.5m 6.6m 6.5m 6.3m 6.3m
5.9m
6 5.5m TV
5.0m 4.8m
4.7m
4.1m 5.9m
5.1m 5.9m PC
3.8m
4 3.4m 5.0m
3.3m
2
0
Jan Feb Mar Apr May June July Aug Sept Oct Nov Dec
Source: Channel 4
Note: TV VOD includes Virgin Media and Tiscali TV.
While there are differences in the way consumers use the BBC iPlayer and 4OD – and how
each is used compared to broadcast television – all three are united by a summer lull in
viewing. The two online services saw a reduced rate of increase in cumulative requests to
view in the summer months of 2008, before growth picked up again in September. This
could be a result of people spending more time before the start of the new autumn television
season.
Half of Virgin Media homes now use VoD – and they are using it more and more
With about 3.5 million subscribers (compared to c. 0.4 million for BT Vision and c. 0.1 million
for Tiscali TV), many of the people able to access video on demand (VoD) through their
television set are Virgin Media subscribers.48 Data from Virgin Media show that TV VoD
reached more than half (52%) of Virgin homes in Q4 2008, an increase of five percentage
points on Q4 2007. During the same period the total average number of monthly TV VoD
views rose by 20 million to 53 million, driven by the increase in the user base and also by a
30% rise in average VoD views per user, to 30 per month.
Figure 5.9 VoD use in Virgin Media homes
VoD views per month/VoD reach
60
50
40
Q4 2007
30
53m 52%
47%
20 Q4 2008
33m 30
10 22
0
Average total VoD views Average VoD views per Average VoD reach
per month month per user
Source: Virgin Media, fourth quarter 2008 results press release
48
Consumers can also watch VoD on their television sets via the Nintendo Wii or Sony PlayStation 3.
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Proposals for the next generation of online TV services
Several of the major broadcasters have sought to capitalise on the success of web-based
TV services by developing new proposals seeking to develop the interface with the television
set, improve content navigation or offer a ‘one-stop-shop’ for online catch-up TV content. In
particular, two key proposals emerged in 2008 which have sought to move online viewing
forward:
 Project Kangaroo – was a proposed commercial joint venture (JV) developed by
BBC Worldwide, ITV and Channel 4. It planned to provide a service accessible to any
UK consumer with a PC, carrying a broad range of catch-up, archive and other
content. The JV partners believed that the service would benefit consumers, in
particular, by making it easier for them to find content to watch online. In June 2008
the Office of Fair Trading referred Kangaroo to the Competition Commission (CC),
which issued a final report blocking the service in February 2009 on the grounds that
it was a threat to competition in the developing VoD market. Ofcom provided the CC
and OFT with information and assistance in relation to their investigations. The CC
noted that as the parties controlled the vast majority of UK-originated content this
would put them in a strong position to restrict competition. The CC also considered
that UK viewers might benefit from better VoD services if the parties – possibly in
conjunction with other new and/or already-established providers of VoD – competed
directly with each other. In July 2009 Arqiva, the transmissions operator, announced
that it has agreed to acquire the platform assets of Project Kangaroo.
 Project Canvas – is a planned partnership between the BBC, ITV, BT and others to
develop an environment for internet-connected television platforms, enabling the
delivery of on-demand audio-visual content to television sets in the UK. The BBC
Trust is currently reviewing the BBC’s involvement in the Canvas proposal and will
publish provisional conclusions in autumn 2009.
Online TV aggregation
Apart from the BBC iPlayer (licence fee-funded) and Sky’s Sky Player TV (subscription, on-
demand and ad-funded), a large amount of online catch-up TV is free-to-view and funded by
advertisers. The latest industry estimates of the underlying revenue mix for audio-visual
content delivered online reflect the importance of advertiser-funded content aggregation.
Screen Digest estimates that online TV services in the Entertainment, News and information,
and Sports genres generated revenue of £48m in 2008 (excluding film, film trailers, music,
adult content or programmes featured on user-generated content (UGC) sites). Of this,
advertising revenue now stands at £22.1m, accounting for 46% of total online revenue, up
from £4.9m in 2007.
272

Figure 5.10 Total online TV revenue
Revenue (£millions)
£50 £48.2m
Advertising-
£40 supported
£22.1m
£30 Subscription
£20.6m
£20 £4.9m £14.9m VOD
£11.2m
£10 £6.7m £2.3m £11.7m £3.5m
£2.9m £8.4m DTO
£6.4m £2.0m £7.7m
£0 £2.8m £1.9m
2004 2005 2006 2007 2008
Source: Screen Digest media analyst consultancy
Note: DTO = download to own.VOD = video on demand.
5.2.3 The problem of unauthorised content sharing
The digitisation of vast libraries of content, and the widespread availability of fast broadband
networks are changing the ways in which content can be distributed and accessed.
Consumers no longer have to purchase a physical disc or book but can instead access
digital material online from a multitude of sources (both lawfully and unlawfully) using a
number of technologies (such as streaming, direct downloads or peer-to-peer downloads).
In its Digital Britain report the Government proposed that Ofcom could have a role in
addressing the problem of unlawful peer-to-peer file-sharing in the UK. In this context, the
rest of this section provides an overview of unlawful file-sharing in the UK, highlighting recent
initiatives to address the issue before looking in more detail at consumer behaviour, using a
combination of consumer research and audience data. Subsequent sections look at the
markets for audio and video which are particularly affected by unlawful file-sharing.
Digital content sharing attracts the interest of the Government’s Digital Britain report
Unlawful copying and distribution among some consumers affects all sections of the content
value chain, and has prompted the Government to examine what might be done to address
it. While unlawful copying has existed for some time (e.g. home taping and pirate videos),
faster internet connections, greater media literacy, the ability to produce high-quality digital
content reproductions and the ease of distributing such content have all coincided with
growing public debate on unlawful file-sharing.
It is difficult to quantify the impact of unlawful file-sharing. Some industry representatives
believe that it is now the dominant means of accessing content – for example, the
International Federation of the Phonographic Industry (IFPI) claims that around 95% of all
downloaded music is unauthorised49, and an LEK study for the Motion Picture Association
put the UK film industry’s losses at over $1bn in 2005.50 But others put the figure lower, and
its scale is likely to vary by content type (audio, film, software, games, audio-visual content
etc).
49
The Digital Music Report 2009, IFPI, http://www.ifpi.org/content/library/DMR2009.pdf.
50
‘The cost of movie piracy’, LEK/MPA, http://www.mpaa.org/leksummaryMPA%20revised.pdf.
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A range of initiatives have been pursued by industry and Government to address the
unauthorised sharing of content, including educational campaigns, legal action, a
memorandum of understanding among key stakeholders, proposed legislation, and legal
alternatives to file-sharing.
In July 2008, the Government, leading ISPs, the BPI (the UK record labels’ association) and
the UK film industry signed a memorandum of understanding (MOU) to work towards
reducing unlawful file-sharing. As part of this project the ISPs undertook to send informative
letters to consumers suspected of unlawful file-sharing, but was ended on the publication of
the interim Digital Britain report.
The Government’s Digital Britain report, published in June 2009 included proposals to give
Ofcom a duty to take steps at reducing online copyright infringement, in particular by
requiring ISPs to take specified action in relation to subscribers engaging in unlawful file-
sharing51. The Government is currently consulting on aspects of these legislative proposals.
However, these initiatives are not unique to the UK. One example is the so-called ‘Loi
HADOPI’ (sometimes referred to as ‘three strikes and you’re out’) in France, whereby those
caught repeatedly downloading unlawfully could see their internet connection suspended.
The first draft of these provisions was blocked by the Constitutional Court because the
penalty would be imposed by a Government agency (HADOPI), not by the judiciary. The
Senate then agreed a revised version of the law. This confers the power to order a
suspension to a judge, who may decide the case in an accelerated procedure without further
investigation, or hold a hearing on the basis of evidence provided to the public prosecutor by
HADOPI. This revised law will now be considered by the National Assembly.
A number of new services have launched offering a legal alternative to unlawful file-sharing.
Examples include free advertising-supported music-streaming sites such as Spotify and
We7, and a deal between Universal and Virgin Media which offers consumers unlimited MP3
downloads from Universal’s catalogue (in return for a monthly fee), but threatens temporary
suspension of internet access to persistent offenders who unlawfully distribute Universal’s
material.
Copying physical discs and file-sharing used equally by those who regularly copy
unlawfully
Uncovering attitudes and behaviour towards unauthorised content distribution is difficult,
because consumers may be reluctant to disclose activities that they know to be unlawful,
and some may not know which services are lawful and which are unlawful. But
Entertainment Media Research (EMR) data suggest that concerns over file-sharing need to
be seen in context. Among those who have ever accessed unauthorised content, the main
method used for both video (26%) and audio (37%) is copying physical discs (Figure 5.11).
This is followed by unlawful file-sharing, used by 25% for music copying and 21% for TV
programmes and film.
However, if we look only at those people who say they regularly copy unlawfully, both
copying methods are used a similar amount – implying that disc copying and file-sharing are
equally serious concerns. No more than 5% of internet users fall into this camp, according to
the EMR data - possibly reflecting a reluctance to admit the full extent of unlawful activities,
but also perhaps pointing to a relatively small number of people being involved in high
volumes of file-sharing.
51
For a full summary of the proposals see Chapter 4 of the final Digital Britain report at
http://www.culture.gov.uk/images/publications/chpt4_digitalbritain-finalreport-jun09.pdf.
274

Figure 5.11 Incidence of accessing unauthorised content
Proportion who do activity (%)
0% 10% 20% 30% 40%
Allow others to copy CDs 5% 12% 20% 37%
Allow others to copy DVDs 4% 9% 13% 26%
Filesharing unauthorised music 5% 11% 9% 25%
Filesharing unauthorised movies/TV 5% 8% 8% 21%
Filesharing unauthorised games 3% 5% 8% 16%
Regularly Occasionally Rarely
Source: Entertainment Media Research/Wiggin.
Q: Please tell us whether you do any of these leisure activities? (Base: n=1512).
Audiences to file-sharing networks have fluctuated
Much of the public debate has focused on unlawful file-sharing as the chief means of
distributing unauthorised content, and audio files as the type of content most-frequently
shared unlawfully. But it is important to note that the P2P technology behind file-sharing can
be used as a legitimate means of acquiring and distributing certain forms of content.
Two of the most popular means of file-sharing in the UK are LimeWire and the BitTorrent
protocol. LimeWire is a piece of software which the user installs on their computer and which
enables them to search, access, and distribute content, all within the same programme. In
contrast, users of the BitTorrent protocol are required to search BitTorrent tracker websites
to find content, which they can then access and distribute using one of a number of pieces of
software (called BitTorrent clients).
Figure 5.12 Unique audiences of leading file-sharing sites and networks
6,000
Unique Audience (000’s)
5,000
Leading
4,000 filesharing
networks and
3,000 websites
2,000 LimeWire
1,000
0
Jun- Jul- Aug- Sep- Oct- Nov- Dec- Jan- Feb- Mar- Apr- May- Jun-
08 08 08 08 08 08 08 09 09 09 09 09 09
Source: Nielsen Online
Notes: (1) The unique audience of leading file-sharing networks and websites represents the number
of users who have done at least one of the following: visited one of the five leading BitTorrent
trackers; used one of the four leading BitTorrent clients; used Limewire.
Data from Nielsen Online show that the unique audience of leading P2P software and
websites used for file-sharing has fluctuated throughout the year, but in June 2009 was very
much the same as in June 2008 (-2%). However, the means by which users share files is
275

changing; in June 2008, LimeWire was used by 2.9 million file-sharers but by June 2009 the
LimeWire unique audience had fallen by almost a third to 1.9 million file-sharers (Figure
5.12).
Figure 5.12 shows that an increase in the number of BitTorrent users is taking up the slack
created by the decline in popularity of LimeWire for file-sharing. Between June 2008 and
June 2009 the total amount of time spent by file-sharers on five of the leading BitTorrent
tracker websites increased by 11.5% to 36 million minutes a month. However, the average
time spent in a month by a user on at least one of these websites has declined in the same
period by 7%, to 16 minutes 40 seconds. The time spent browsing for content on BitTorrent
tracker websites displays a seasonal pattern, with more browsing occurring during winter
months, peaking at Christmas time, with the least amount of time spent during the summer
months, especially in July and August (Figure 5.13).
Figure 5.13 Time spent on leading BitTorrent trackers
60 30
Total minutes per month (millions)
50 25
Minutes per month
40 20 Total
minutes
30 15
20 10 Minutes
per user
10 5
0 0
Jun- Jul- Aug- Sep- Oct- Nov- Dec- Jan- Feb- Mar- Apr- May- Jun-
08 08 08 08 08 08 08 09 09 09 09 09 09
Source: Nielsen Online
Notes: (1) Tracker websites used here are The Pirate Bay, Mininova.org, isoHunt, TorrentReactor,
and Torrentz. (2) Data in this chart only includes BitTorrent trackers and is incomparable with data in
Figure 5.12.
However, the data in Figure 5.12 do not represent the total number of people engaged in
unlawful file-sharing, because:
 it is impossible to tell what people actually use these sites and applications for – as
people can use them for entirely legal purposes; and
 unique audience data tracks the number of unique users who access a site or
application online. It does not track intensity of use – many people may click through
once and never return; and
File-sharers claim that price and choice are the main reasons they download content
unlawfully
Entertainment Media Research found that nearly half (48%) of those who engage in unlawful
file-sharing content copying said that they would continue to access ‘free’ content for as long
as it is available, and 45% thought that legal downloads are too expensive.
Choice was the other main issue cited by people who access unauthorised content in the
survey. Thirty-eight per cent said they would pay for legal downloads if legitimate sites had
what they wanted, while 32% complained that legal sites did not have the same content
276

range as illegal sites. It is also worth noting that a third (33%) of people who access
unauthorised content say that they don’t know which sites are legal and which are illegal.
Nevertheless, it can be difficult to establish the real reasons behind consumer behaviour
since surveyed opinions do not always reflect actual conduct, especially around a
contentious issue like unlawful file-sharing.
Figure 5.14 Attitudes towards unauthorised content
Proportion of pirates who agree with statement (%)
Total
0% 20% 40% 60% 80% 100%
agree
If free content available I will continue to access it 14% 34% 39% 7% 7% 48%
Legal downloads are too expensive 19% 27% 39% 9% 6% 45%
Would pay for legal d/ls if they had what I wanted 11% 27% 45% 10% 7% 38%
Don't know which sites are legal/illegal 11% 22% 41% 17% 9% 33%
Legal d/l sites don't have range of illegal sites 10% 22% 49% 11% 8% 32%
I object to paying to download/stream content 9% 20% 46% 17% 8% 29%
Don't think anyone suffers 7% 21% 49% 14% 9% 27%
Don't think I'll be sued/prosecuted 7% 17% 47% 18% 11% 24%
If caught there's not much they could do 7% 14% 47% 22% 10% 21%
Strongly agree Agree Neither agree nor disagree Disagree Strongly disagree
Source: Entertainment Media Research/Wiggin.
Q: Please tell us whether you do any of these leisure activities? (All pirating content, n=595).
Wishing to abide by the law is the main reason people don’t access unauthorised
content…
Further data from Entertainment Media Research show that the reason most commonly
given for not copying content unlawfully (Figure 5.15), is a desire not to break the law – cited
by half of those who don’t do so, although this fell to 34% among 15-19 year olds. Younger
people were also less likely to say that all of the content they want is available legally (13%).
Figure 5.15 Top five reasons why people don’t access unauthorised content
Proportion selecting each option (%)
0% 20% 40% 60%
34%
51%
Don't want to break law 47%
54% 15-19
54%
19%
30%
Not worth the hassle 30%
40% 20-24
36%
24%
33%
Concerned about viruses and spyware 27%
30% 25-34
28%
21%
26%
Not fair to rightsholders 24%
29%
35-44
31%
13%
29% 45-54
Everything I want is available legally 30%
26% 31%
Source: Source: Entertainment Media Research/Wiggin.
Q: Why do you not engage in online piracy? Please select all that apply. Base: all who don’t pirate
(n=917).
277

…but younger people have fewer scruples about accessing content for free
A survey conducted by Human Capital provides further evidence of the attitude held by
younger people towards the availability of music content; it suggests that two-thirds of 15-
24s think that downloading music for free is “morally acceptable”; while only four in ten
believe that they should have to pay for the music that they want.
It is not clear whether this age group will continue to hold these opinions as they grow older
– this may be a generational rather than a cohort effect. But it is possible that the content
industry might respond to this, as Spotify has done, by developing legitimate but free-at-the-
point-of access download or streaming services.
Figure 5.16 15-24s’ opinions on music content
Proportion answering yes/no (%)
0% 20% 40% 60% 80% 100%
Is it morally acceptable to
66% 34%
download music for free?
Do you feel guilty for
30% 70%
downloading music for free?
Do you think you should have
to pay for the music you 39% 61%
want?
Yes No
Source: Youth and Music survey 2009, Human Capital/Marrakesh Records.
Base: All 15-24 year olds (n=1026).
Note: Excludes those who did not express an opinion.
5.2.4 The market for digital audio content
The music industry has been particularly affected by changes in modes of content
distribution and consumption. In the context of the role that the Government has asked
Ofcom to play in negotiations over unauthorised downloads of audio-visual material, and our
wider interest as the regulator of the networks over which digital music content flows, we
now set out an analysis of the market for digital music.
Accessing digital audio content
Digital audio content is available in a variety of ways. Three of the most common include:
direct downloads – full track downloads from pay-per download sites such as iTunes,
eMusic or Amazon, or subscription services such as Napster;
peer-to-peer (P2P) downloads – peer-to-peer file-sharing technologies include protocols,
software and websites which enable users to download, among other things, audio content
from one or a number of individuals simultaneously. Equally, these technologies enable the
user to upload such content to other users on the same P2P network; and
online streaming – music streamed directly over the internet in a browser (for example
We7) or through a downloadable application (like Spotify). The content can be free-to-listen
and supported by advertising, or accessible on a subscription or one-off fee basis.
278

Digital downloads begin to stem the decline in UK music sales
The total retail value of music sales continued to shrink in 2008, but at a declining rate.
Screen Digest data reveal a 5% reduction in the retail value of music sales between 2007
and 2008 (Figure 5.17). This is substantially less than the 17% drop recorded between 2006
and 2007, helped by a slowdown in the decline in sales of physical music, offset by
accelerating growth of digital music sales (Figure 5.18).
Figure 5.17 Value of retail music sales in the UK
-17% Growth (%YOY) -5%
1,600
1,400
Retail revenue (millions)
1,200
1,000
800 £1,480m
600 £1,224m £1,156m
400
200
0
2006 2007 2008
Source: Screen Digest
The mobile platform continues to play an important role in stimulating digital music sales. In
a year that saw the launch of Nokia’s Comes With Music and the iPhone 3G, a third of digital
music purchases were made over a mobile device during 2008, broadly in line with 2007
(Figure 5.18).
Figure 5.18 Physical and digital proportions of retail music sales in the UK
100% Digital £86m Digital £125m (+44%)
90% Digital £196m (+57%)
Mobile £61m
Proportion of retail revenue
80%
70%
60%
50% Physical Physical
£1,394m £1,099m (-21%) Physical
40% £961m (-13%)
PC £135m
30%
20%
10%
0%
2006 2007 2008 PC/Mobile Split in
2008
Source: Screen Digest
Physical album sales continued to decline, but at a much slower rate, down by less than 10
million units in 2008 compared to more than 20 million units in 2007. Digital album sales
went up by over 4 million, which helped stem the overall decline in album sales to less than
5 million units.
279

Digital distribution also helped fuel the growth in singles sales, which rose 33% year-on-year
- physical sales now make up only 4% of the singles market. With album sales declining and
singles sales growing rapidly, albums and singles are now beginning to head towards sales
volume parity.
Figure 5.19 Music sales by volume, 2006 - 2008
162.3 Albums Singles
160 2.8
144.6
139.8
140 6.2
Sales volumes (millions of units)
10.3
120 115.1
100
86.6
80 159.5 Digital
66.9
138.4 Physical
129.5
60 110.3
78
40 53.1
20
13.8 8.6
0 4.9
2006 2007 2008 2006 2007 2008
Source: Entertainment Retailers’ Association yearbook 2009.
In 2008 consumers had more choice than ever before in the range of online stores from
which they can download digital music, as Play.com, Tesco Digital, and Amazon all
launched download services. And there has been innovation in pricing structures and
purchase options, driven partly by partnerships between download stores and rights owners;
Spotify announced in March 2009 that it had partnered with 7Digital to offer pay-per-
download music, and in June 2009 Virgin Media announced a service which will offer
unlimited downloads and streaming from Universal Music’s entire catalogue. Virgin Media
also plans to offer an ‘entry-level’ service for consumers who may not want an ‘all you can
eat’ product; Sky mooted a similar offer with Universal in July 2008 but further details have
yet to appear.
However, Apple’s iTunes Store remains the largest digital music retailer in the UK, and
according to the BPI’s annual statistics report accounted for 72% of all singles sales, and
three-quarters of all digital albums sold in the UK. In January 2009, Apple announced that it
would remove digital rights management (DRM - see The end of DRM section below), and
introduced a new, tiered, pricing structure for single track downloads. These had historically
been priced at 79p but now cost 59p, 79p or 99p, allowing record labels to charge a
premium for the most popular ‘must have’ purchases.
280

The rise of DRM-free digital music
The launch in 2008 of big brand-name digital music stores like Amazon, Tesco Digital, and
Play.com all without digital rights management (DRM) software was the start of a shift
towards DRM-free music amongst digital retailers. DRM-free music also appeared in the ‘all
you can eat’ model of music consumption when Datz.com launched the Datz Music Lounge
as a challenger to Nokia’s Comes With Music unlimited music offering.
However, the biggest shift towards DRM-free digital music occurred on 6 January 2009,
when Apple, as the largest digital music retailer in the UK, announced that it had come to an
agreement with the four major record labels - Universal Music Group, Sony BMG, Warner
Music Group and EMI, as well as thousands of independents, to offer all music at the iTunes
store DRM-free. Prior to this, Apple had had a deal with EMI, but with the new industry-wide
initiative in place, more than 10 million DRM-free tracks now are available from the iTunes
store.
The removal of DRM from Apple’s music library means that music purchased from iTunes
can be played on any digital music player and not just Apple’s iPods and iPhones. In its
annual summary of the recorded music and music publishing industries Enders Analysis
commented that “the removal of DRM will improve the state of competition in the market for
permanent downloads, since all stores become player-agnostic and all players become
store-agnostic”52. Nevertheless, DRM is still seen by many as a possible enabler of future
business models.
Pay-per-download remains most popular revenue model for music online …
Music revenue from pay-per-download and subscription download-to-own services totalled
£134.8m in 2008, a 73% year-on-year increase. Pay-per-download sites such as iTunes and
7Digital generated the vast majority of this revenue (£125.4m). Subscription services such
as Napster, which offer either unlimited or a fixed number of downloads in exchange for a
monthly fee, generated £9.4m, up by 14% but continuing to fall as a proportion of total
revenue.
Figure 5.20 Online music revenues
Revenue (£millions)
CAGR (%)
£140m £134.8m
1yr 4yr
£9.4m
£120m
14% 53% Subscription
£100m
£78.1m
£80m
£8.3m
£60m £52.6m £125.4m
£6.0m
£40m £30.2m 79% 120% Pay-per-
£69.9m download
£4.6m
£20m £46.6m
£7.0m £25.6m
£0m
2004 2005 2006 2007 2008
Source: Screen Digest
Note: does not include revenues from ad-supported streaming sites.
52
Enders Analysis, “Recorded Music and Publishing”, 4 June 2009
281

...but online streaming services emerge as an alternative...
Ofcom analysis based on Nielsen audience data (Figure 5.21) reveals Spotify’s rapid ascent
during 2009, entering in March with three times the unique audience of competitor We7 and
growing at an average of 25% per month to June 2009. However, We7 is rising strongly, with
average growth of 38% a month over the same period. Last.fm remains the most popular
free-to-listen music streaming service in the UK and has seen its unique audience rise by
48% in the last 12 months.
Figure 5.21 Unique audience of UK free-to-listen music streaming services
Unique Audience (millions)
1.4
1.2 Last.fm
1.0
0.8 Spotify
0.6
0.4 We7.com
0.2
0.0
Jun- Jul-08 Aug- Sep- Oct- Nov- Dec- Jan- Feb- Mar- Apr- May- Jun-
08 08 08 08 08 08 09 09 09 09 09 09
Source: Nielsen Online
Note: Due to a change in methodology, use caution for comparisons pre-October 2008.
The UK’s free-to-listen online streaming services
Free-to-listen online streaming services such as Last.fm and We7 have existed for several
years. Last.fm was founded in 2002 as a music recommendation service and personalised
internet radio station. In January 2008 Last.fm’s business model evolved by allowing users
to stream each track up to three times. Users of the premium subscription service pay a £3
monthly fee to remove advertisements from the website and to use other advanced features.
We7 was launched in April 2007 as an advertising-funded music download service, but
announced a switch of focus to a music streaming model (underpinned by advertising) in
October 2008. Tracks from all four major labels (Universal Music Group, Sony BMG, Warner
Music Group, and EMI) can be accessed within the internet browser (without the need for a
download or registration) and feature short 5-10 second ‘blipverts’ before the start of each
song.
The most recent addition to the roster of UK free-to-listen music streaming services is
Swedish start-up Spotify, which launched its subscription service in October 2008 after
announcing a deal with the four major record labels. In February 2009 the ad-supported free
version of Spotify was released from public beta trial phase and opened up to everyone in
the UK. Unlike its competitors We7 and Last.fm, Spotify is not a browser-based service and
requires users to install a downloaded application on their computer to stream music53. The
free version of Spotify features 30-60 second audio advertisements about three times an
hour, while the premium version at £9.99 a month removes the ads and offers content before
its public release and exclusive competitions. Users of the free version can also purchase a
£0.99 day-pass to remove adverts.
53
The Last.fm player is a client version of the Last.fm service, and this user experience is replicated
on the Last.fm website.
282

While the number of people using free-to-listen music streaming services has risen over the
past year, the majority of digital music listening on the PC occurs offline. In June 2009
iTunes and Windows Media Player (WMP) (the two main applications through which
consumers can listen to digital music stored on their computer’s hard drive) attracted unique
audiences of 7.1 million and 14.2 million respectively. In this context these figures show the
number of people who opened and ran these applications on their computers and do not
necessarily represent a connection to the internet or a website. The unique audience figures
of iTunes and WMP far outweigh the number of users engaging with online music streaming
services. Windows Media Player is the default media player, bundled with Microsoft’s
operating system, while iTunes is required for those who own an iPod or iPhone.
Nevertheless, while Spotify’s audience might be smaller (although growing fast), the amount
of time that its users spend on it is growing rapidly and is now higher than that of either WMP
or iTunes. Over the past year the average user spent 1.5 to 2 hours per month on iTunes,
while the comparable figure for WMP fluctuated between 45 minutes and an hour. But in
Spotify’s first full month after public launch users spent nearly 3 hours on the service, and
since then the average time spent has stabilised at around two hours 15 minutes. Users of
free-to-listen streaming websites Last.fm and We7 use these music services for around 10
minutes per month (Figure 5.22).
Figure 5.22 Time spent using selected music services and media players
Time per person (hours)
3:00:00
Spotify
iTunes
2:00:00
Windows Media