The Communications Market 2006

4 Television

Published : 10 August 2006

181
Contents
4.1 Key themes - Television

184

4.1.1 Strong performance by mainstream networks’ spin-off channels

184

4.1.2 ...
4.3.14 Programmes made for a regional audience

225

4.3.15 Repeats

227

4.3.16 European programming

228

4.3.17 Operato...
4.1 Key themes - Television
4.1.1 Strong performance by mainstream networks’ spin-off channels
The five main channels (BBC...
range of on-demand content in high definition alongside BBC and ITV highdefinition broadcasts. BSkyB is now offering an HD...
4.2 The year in TV
4.2.1 The five mainstream channels spin offs gain share
The five mainstream channels (BBC One, BBC Two,...
Figure 4.2: The 20 channels that gained most percentage point share in 2005
Percentage point gain in share in 2005
ITV3

0...
Figure 4.3: Multichannel penetration in the UK
Homes (m)

20
Analogue cable

15

Digital cable
Digital terrestrial (DTT)

...
followed suit with the launch of More4 which has attracted an older, ABC1-skewed
audience.
2. Taking subscription channels...
A number of comparable devices and services were either launched or announced in
2005, as outlined in Figure 4.6 (note tha...
The BBC, meanwhile, began to explore the possibilities of on-demand over
broadband on two other fronts:
•

The integrated ...
Figure 4.8: On-demand mobile content services available or planned
Service

Partners

Delivery model Status

Services

BT ...
The White Paper emphasised the characteristics that should distinguish BBC content
– high quality, challenging, original, ...
Figure 4.10: Television licences awarded in 2005
Breakdown of licences

Other
15%
Sport
4%
Movies
4%
HD channels
4%
Gaming...
Looking ahead, the availability of HD-capable equipment and content is set to widen
with the launch of two competing high-...
4.2.9 Digital television - the roadmap to switchover is revealed
The Secretary of State for Culture, Media and Sport confi...
Digital UK, the organisation responsible for managing the transition to digital
television, launched its programme of comm...
Research jointly commissioned by Ofcom and Digital UK revealed that a significant
proportion (60%) of people had heard of ...
4.2.10 Platform operators launch service enhancements
BSkyB
In the year to the 31st March 2006, BSkyB revenues were estima...
a slot had risen more than eleven-fold in the three and a half years since Freeview’s
launch (Figure 4.17).
Figure 4.17: I...
4.2.11 Channel operators launch new channels
The BBC
Licence fee revenue broke through the £3bn barrier for the first time...
ITV
ITV’s total revenue in 2005 reached £2,177m, up 6% on the year. Net advertising
revenue (NAR) comprised 75% of that to...
was followed in June 2006 by an announcement that Five planned to launch two new
free to view services Five US and Five Li...
4.3 The television industry
4.3.1 TV revenue exceeded £10.5bn in 2005
TV industry revenue rose by £490m (4.8%) in 2005 to ...
Advertising revenue earned by commercial multichannels grew by 1% to £1,295m.
As in 2004, the figures for commercial multi...
Much of the gain in advertising revenue accruing to the multichannels came from
ITV1’s expense (Figure 4.21), with Channel...
4.3.3 Industry flow of funds– subscription revenue shows significant growth
Figure 4.23 provides a simplified flow of fund...
4.3.4 Total industry output stood at 1.4 million hours in 2005
2005 saw 1.4 million hours of output broadcast by all UK te...
Figure 4.25: Investment in network programmes £m
£m

5,000

Movies/sport channels
1,206

653

236
177
488

3,000

1,089

5...
Figure 4.27: Investment in originated output on the five main networks
£m

3,000
2,500

388

374

357

2,000

1,022

975

...
Figure 4.29: Hours of originated output by the five mainstream networks in
peak time and all day
All day real cost/hour (£...
The daytime schedule shows a different genre mix. In 2005, Light Entertainment
/Modern Music, News and Films all took a la...
Figure 4.32: The BBC’s digital channels

100%

£53m

19,051

26,798

27,278

29,832

31,421

32,792

32,839

£81m

£84m

£...
Channel 4 was the one network that went against the trend toward broadcasting
more General Factual in peak time. Peak time...
Figure 4.34: Genre concentration curves for the five main networks in peak
time
Proportion of hours (percent)

100%
five

...
Figure 4.35: The five main networks’ genre mix in daytime
Hours by genre, by channel and year
BBC TWO

BBC ONE

itv1

100%...
22,306 hours. Despite transmitting 17% of the multichannel hours in 2005, Children’s
channels delivered 11% of the origina...
Figure 4.38: Investment in content by channels only available in multichannel
homes (source: operator returns and Ofcom an...
4.3.9 Compliance with regulatory obligations
What are the regulatory obligations?
All television broadcasters licensed by ...
4.3.10 Original productions
Original production quotas apply to all PSB channels, across the whole day and
separately for ...
A new common definition is taking longer than expected to become effective across
all PSBs and an agreed transitional peri...
Figure 4.41: Breakdown of expenditure on production, by broadcaster and
macro-region, 2004 and 2005
Percentage of producti...
Figure 4.42: Percentage of qualifying hours commissioned from independent
producers, 2004 and 2005
Proportion of qualifyin...
Although there are no specific quotas, it is important that the scheduling of
independent productions across dayparts is s...
Figure 4.45: Broadcasters’ performance against news quotas, all day and peak
time, 2004 and 2005
Hours per year

Quota

Ac...
Figure 4.47: The BBC’s performance against regional programming quotas,
hours per year, 2004
Hours per year

Quota
8,000

...
4.3.15 Repeats
There are no quotas limiting the number of repeats in the commercial PSB schedule
but any substantial incre...
Figure 4.50: Proportion of repeats in peak time, excluding programmes shown
first on another channel, 2004 and 2005
Hours ...
Figure 4.51: Broadcasters’ performance against European programming (TVWF
Directive) requirements, 2005
Proportion of tran...
Figure 4.52: Broadcasters’ performance against access services requirements,
2005

BBC One

Subtitling
Audio description
S...
Sky Movies 5

10%

46.6%

2%

4.8%

1%

1.1%

Sky Movies 6

10%

39.4%

2%

5.8%

1%

1.1%

Sky Movies 7

10%

48.5%

2%

...
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  1. 1. The Communications Market 2006 4 Television Published : 10 August 2006 181
  2. 2. Contents 4.1 Key themes - Television 184 4.1.1 Strong performance by mainstream networks’ spin-off channels 184 4.1.2 Competition for audiences intensifies on Freeview 184 4.1.3 Operators bring content on demand and on the move to market 185 4.1.4 Roadmap for digital switchover takes shape 185 4.2 The year in TV 186 4.2.1 The five mainstream channels spin offs gain share 186 4.2.2 Multichannel TV gains in popularity on Freeview 187 4.2.3 The five main channels diversify revenue sources 188 4.2.4 On-demand content shifts up a gear 189 4.2.5 The industry embraces content on the move 191 4.2.6 Emerging policy framework defines future shape of TV market 192 4.2.7 Another year of record TV licence awards 193 4.2.8 High definition television comes to market for the World Cup 194 4.2.9 Digital television - the roadmap to switchover is revealed 196 4.2.10 Platform operators launch service enhancements 199 4.2.11 Channel operators launch new channels 201 4.3 The television industry 204 4.3.1 TV revenue exceeded £10.5bn in 2005 204 4.3.2 The multichannels continue to build advertising share 205 4.3.3 Industry flow of funds– subscription revenue shows significant growth 207 4.3.4 Total industry output stood at 1.4 million hours in 2005 208 4.3.5 Originated hours fall due to ITV1’s reduced regional output 209 4.3.6 211 Factual has been the growth peak-time PSB genre for seven years 4.3.7 ITV, BBC and Five increase the proportion of peak time General 213 Factual in 2005 4.3.8 Entertainment and Children’s were the largest multichannel genres 216 4.3.9 Compliance with regulatory obligations 219 4.3.10 Original productions 220 4.3.11 Regional productions 220 4.3.12 Independent productions 222 4.3.13 News and current affairs 224 182
  3. 3. 4.3.14 Programmes made for a regional audience 225 4.3.15 Repeats 227 4.3.16 European programming 228 4.3.17 Operators’ market shares 232 4.3.18 The five main channels retained more share in peak than in other 233 slots 4.3.19 Share loss from the five mainstream networks offset by spin-off 234 channels 4.3.20 Competition for Freeview audiences intensified in 2005 235 4.3.21 Five mainstream networks’ portfolio share holds up in multichannel 236 homes 4.3.22 The production sector 4.4 The television viewer 241 247 4.4.1 Multichannel broadcast platforms available to consumers 247 4.4.2 Freeview drove the growth of multichannel homes in 2005 250 4.4.3 Future growth in multichannel homes looks set to continue 252 4.4.4 Freeview attracts an older, more affluent demographic 254 4.4.5 Consumption of television services 255 4.4.6 TV reach amongst younger people is falling 256 4.4.7 The picture of channel share since 1955 – multichannels making 258 inroads into the share of the five mainstream networks 4.4.8 Total share of Entertainment channels grows, driven by Freeview 260 4.4.9 The five main networks’ spin-off channels gained share in 2005 264 4.4.10 Multichannel operators cater for most audience demographics 266 4.4.11 Violence, swearing and intrusion remain key concerns for the public 267 4.4.12 Television remains the public’s primary source for news 269 4.4.13 TV news viewing is declining 271 4.4.14 Regulating television for the protection of children and youth 273 4.4.15 Public attitudes toward advertising 277 183
  4. 4. 4.1 Key themes - Television 4.1.1 Strong performance by mainstream networks’ spin-off channels The five main channels (BBC One, BBC Two, ITV1, Channel 4 and Five) have launched a range of spin-offs over the last eight years, starting with BBC News24 in 1997. In 2005 the commercial mainstream channels were especially active - ITV launched ITV4, CITV and ITVPlay; Channel 4 took E4 and Film Four free-to-air on Freeview and launched More4 and Quiz Call; Five announced the 2006 launches of Five Life and Five US. These new channels have come to air with a number of advantages over their competitors: • • • established brand identities; promotional airtime on channels with a wide reach; and access to rich programme archives and well-known programme brands. An analysis of the channels available only in multichannel homes that gained the most share in 2005 shows that mainstream spin-offs featured prominently in the top twenty strongest performers. The strong performance of these channels is reflected in the portfolio shares of the five mainstream channels and their spin offs – in each case, share lost from the main network has been to some extent offset by share gains on these spin-off channels. 4.1.2 Competition for audiences intensifies on Freeview By the end of March 2006, Freeview had been installed in 7.1m homes, having gained 2 million homes in 12 months. The growing reach of Freeview increased the attractiveness of the platform to commercial broadcasters in 2005 and, amid reports of escalating prices for spare Freeview slots, the five main channels and digital-only channel operators4 brought higher value free-to-air content onto the platform. That included the channel launches outlined above and BSkyB swapping Sky Travel for Sky Three. In a sign that competition on Freeview is intensifying, the digital-only channels collective audience share across the whole of 2005 exceeded that of any one of the five main networks for the first time. The platform still provides some protection to the five main channels from the steep falls in audience share typically associated with analogue terrestrial homes moving to satellite or cable, but the level of protection is diminishing. The intensification of competition for audiences looks set to continue with the launch of Five’s two new channels scheduled for later in 2006. 4.1.3 Operators bring content on demand and on the move to market Alongside the strengthening of the Freeview proposition other platforms launched value-added services in 2005/06. • 4 High definition television (HDTV). Both BSkyB and Telewest brought their HDTV services to market. Telewest’s service arrived first, offering access to a ‘Digital only channels’ are taken to mean those channels that are only available on the Freeview, Top Up Tv, FreeSat, Sky and ntl:Telewest platforms. The term includes the channels that are available in analogue cable homes. 184
  5. 5. range of on-demand content in high definition alongside BBC and ITV highdefinition broadcasts. BSkyB is now offering an HDTV channel bundle that includes Sky Sports, Sky Movies, Sky One, ArtsWorld, National Geographic, Discovery and the BBC’s HD channel on top of Sky Box Office. • On-demand content. Telewest began offering full video on demand in 2005 through its pay-per-view Teleport service. BSkyB acquired broadband access provider EasyNet and launched its Sky by Broadband service offering access to a selection of films and sports news clips. • TV over broadband. Channels and content providers began to exploit the high take-up of broadband in the home, with the launch of paid-for content available via the internet from Channel 4 alongside free access to music video and entertainment clips from MTV. Meanwhile, the BBC trialled its integrated media player (iMP, later renamed BBC iPlayer) in late 2005. AOL (in a deal with Warner Studios) also came into play with a film download service. Channel 4 began to simulcast its main channel over the internet and the BBC and ITV are piloting a simulcast service for all of their channels. • TV over mobile. A number of broadcasters and channel operators joined forces with mobile operators, telecommunications operators and transmission infrastructure providers to test the public’s appetite for mobile television. Trials using DAB spectrum in London and utilising the DVB-H standard in Oxford suggested that consumers were willing to pay for mobile TV – and that content was often consumed at ‘dead’ times such as when commuting into work. 4.1.4 Roadmap for digital switchover takes shape In September 2005 the Secretary of State for Culture, Media and Sport, Tessa Jowell, announced the date when analogue television transmissions will cease. Between 2008 and 2012 the switchover process will progressively free up spectrum currently used to support analogue television broadcasts. With the roadmap for the transition now in place, Digital UK, the organisation responsible for overseeing the UK’s transition to DTV, kicked off a seven year national advertising campaign. Joint research commissioned by Ofcom and Digital UK has revealed that a majority of the population had heard of digital switchover and that about 30% have already converted all their television sets to digital. But with many homes having two or more television sets, there is still a large number of analogue televisions needing conversion. 185
  6. 6. 4.2 The year in TV 4.2.1 The five mainstream channels spin offs gain share The five mainstream channels (BBC One, BBC Two, ITV1, Channel 4 and Five) began a programme of multichannel launches beginning with the launch of BBC News24 in 1997. Since then, these channels have together launched 17 additional channels (Figure 4.1), three of which have either closed (ITV News) or been replaced with new services (BBC Choice and BBC Knowledge). The three main commercial channels were particularly active at launching channels during 2005. ITV brought ITV4, CITV and ITVPlay to air, while Channel 4 launched More4 and Quiz Call (through its subsidiary Ostrich Media). Five also announced the launch of two new free-to-air channels, Five Life and Five US, which are due to launch later in 2006. Figure 4.1: The mainstream channels’ spin-off channel launches Operator Channel Launch BBC BBC News 24 BBC Parliament BBC Choice BBC Knowledge CBBC CBeebies BBC Four BBC Three November 1997 September 1998 September 1998 June 1999 February 2002 February 2002 March 2002 February 2003 ITV ITV News ITV2 ITV3 ITV4 CITV ITV Play August 2000 December 2002 November 2004 November 2005 March 2006 March 2006 Channel 4 Film Four* E4* Quiz Call More4 Closed/replaced November 1998 January 2001 August 2005 October 2005 February 2003 March 2002 December 2005 *Originally subscription-only services Many of the recent spin-off channel launches feature in the list of channels that have gained the greatest percentage point share in 2005 (Figure 4.2). 186
  7. 7. Figure 4.2: The 20 channels that gained most percentage point share in 2005 Percentage point gain in share in 2005 ITV3 0.97% Channel 4 E4 ITV2 Five True Movies BBC3 ABC1 More4 Living TV 2 UKTV Drama UKTV Style Gardens UKTV People BBC2 Sky Sports 3 Men+Motors Sky Three ITV4 Sky Travel CBBC 0.0% 0.1% 0.2% 0.3% 0.4% 0.5% 0.6% Source: BARB The strong performance of the spin-off channels, which has helped to offset some of the share loss incurred by the five mainstream networks, may be explained by the fact that these channels benefit from established brand identities, are promoted on channels with a wide reach and have access to rich programme archives and wellknown programme brands. 4.2.2 Multichannel TV gains in popularity on Freeview Digital television penetration broke through the 70% barrier in early 2006 (Figure 4.3). Continuing a trend from 2004, Freeview conversions were the main driver behind the growth of digital television take-up in 2005, gaining 2.0 million homes in the 12 months to March 2006 and taking the total number of Freeview homes to 7.1 million. For the first time, main sets in the home with Freeview exceeded the number of analogue main sets (though satellite is still the most popular method for receiving television on the main set in the home), but when all sets are taken into account the majority (60%) are still analogue-enabled. 187
  8. 8. Figure 4.3: Multichannel penetration in the UK Homes (m) 20 Analogue cable 15 Digital cable Digital terrestrial (DTT) 10 Free-to-view digital satellite 5 Analogue satellite Pay digital satellite 0 1999 2000 2001 2002 2003 2004 2005 2006 Source: Operator figures, sales data and Ofcom estimates The growing popularity and reach of Freeview came alongside both a broadening of the range of channels available on the platform and an increase in the levels of investment made by operators in channel content meant that multichannel share on Freeview exceeded that of any one of the five main networks for the first time (Figure 4.4). Figure 4.4: Channel shares on Freeview Audience share 30% BBC One BBC Two 20% ITV1 Channel 4 Five 10% Other 0% 2001 2004 2005 2006 Source: BARB 4.2.3 The five main channels diversify revenue sources In 2005 the five main channels took steps to counter increasing competition for their established base of advertising revenue. A number of new approaches emerged during the year: 1. Continuing expansion into the multichannel market The networks have developed targeted services designed to capture share, enhance appeal to advertisers and thereby maintain (or ideally build) portfolio share. For example, capitalising on the growth in popularity of its two existing multichannel services, ITV launched ITV4 at the end of the 2005 and CITV in early 2006. ITV4 is targeted at a younger, male audience and is designed to complement established audiences for ITV’s other channels. CITV allowed ITV to capitalise on its established presence in children’s output and its extensive programme catalogue. Channel 4 188
  9. 9. followed suit with the launch of More4 which has attracted an older, ABC1-skewed audience. 2. Taking subscription channels free-to-air With the DTT platform attracting an increasing number of viewers, two channels found it economically viable in 2005/06 to discard the subscription model and rely instead on advertising revenue. Channel 4 toook the plunge with E4, which went free-to-air on Freeview ahead of Big Brother 6; it followed with FilmFour in July 2006. 3. Reduced dependency on advertising revenue By building direct transactional relationships with audiences, channels can lessen their dependence on advertising revenue. Channel 4 launched Quiz Call in August 2005 and ITVPlay went to air in March 2006. Offering cash prizes, these gaming channels raise revenue through a premium rate telephone number that quiz participants call. ITV announced that ITVPlay had generated £2m of profit in January 2006 during a pilot phase. 4. Diversification into new media ITV acquired Friends Reunited in 2005, bringing in a range of new revenue streams from services including dating and genealogy into ITV’s top line. It also launched a local service for Brighton and Hastings over broadband which has the potential to deliver new revenue streams in the future. 4.2.4 On-demand content shifts up a gear The market for on-demand content evolved in 2005 as a range of platform operators, content providers and businesses outside the media sector sought to capitalise on the public’s appetite for programmes delivered at their convenience. Two delivery models are now established. The first, the personal video recorder (PVR) uses mass storage in the home pioneered first by TiVo in the year 2000 and then by BSkyB with Sky+ (Figure 4.5). This service had attracted 1.4 million subscribers by the end of the first quarter of 2006, representing a 46% increase in 12 months. Figure 4.5: Sky+ subscribers Homes (m) 1.5 1.0 1.3 0.5 0.4 0.5 0.6 0.8 0.9 1.4 1.0 0.0 Q2 2004 Q3 2004 Q42004 Q1 2005 Q2 2005 Q3 2005 Q4 2005 Q1 2006 Source: BSkyB 189
  10. 10. A number of comparable devices and services were either launched or announced in 2005, as outlined in Figure 4.6 (note that Sky+ is included for completeness). Figure 4.6: Local storage options available or planned Cost Operator Service or device Description Up-front (£) Monthly (£) BSkyB Sky+ £299 £0 – £10 A PVR capable of storing 80 hours of content. HDTV compatible. Telewest TV Drive None £0 – £10 A PVR capable of storing 80 hours of content. HDTV compatible. Various Freeview PVR £130 minimum None PVRs typically offering 80 hours of storage, some with 7 day EPGs and dual tuners. Freeview consortium plan to promote them using the Freeview Playback label later in 2006. Various Plug-in device for PCs or Mac £29 minimum None USB devices that enable a PC or Apple Mac to decode the Freeview signal and to record content onto the hard drives Forthcoming Top Up TV Anytime tbc tbc Set top box offering PVR functionality. BT Vision tbc tbc Integrated Freeview tuner and PVR. Access to pay per view content. The revenue models underpinning these services vary from one-off device fees (Freeview PVRs) to monthly subscriptions for device rental (Telewest’s TV Drive) to service-based subscriptions (Sky+). The second on-demand delivery model to emerge in 2005 exploits the increasing penetration of broadband connections to the home. The growth in popularity of legal audio downloads has shown that consumers have an appetite for digital downloads and, given the chance, many are willing to pay for them. This demand has translated into the audio-visual space with peer-to-peer services such as BitTorrent becoming increasingly popular. Responding to the technological and consumer demand opportunity, platform operators, content producers and rights owners have developed a series of on-demand services to offer the customer legal video download services (Figure 4.7). Figure 4.7: On-demand internet-based content services available or planned Operator Cost Description BBC Free Time-limited access clips and shows from BBC Two and BBC Three including The Culture Show and Anthea’s Tips. MTV Free Access to music videos and entertainment-based content. Offers consumers the chance to purchase CDs. BSkyB Free for premium subs Access to sports news clips and a selection of films. Channel 4 99p per show Paid-for episodes of Lost and Desperate Housewives, accessible for 24 hours. Five £1.50 per show Downloadable episodes of Fifth Gear. BT tbc Pay-per-view access to a range of films and archive programming and near-live premier league matches Flextech tbc Online rentals of US shows e.g. Gray’s Anatomy and Alias and chance to buy own shows e.g. Most Haunted. Forthcoming: 190
  11. 11. The BBC, meanwhile, began to explore the possibilities of on-demand over broadband on two other fronts: • The integrated media player (iMP) pilot explored customers’ appetites for broadcast quality downloadable content. Running through the third and fourth quarters of 2005, the pilot made use of peer-to-peer filesharing to minimise the download burden on the BBC’s infrastructure; and • Mirroring ITV’s local broadband service for Hastings and Brighton which launched in October 2005, the BBC followed in December with a broadband and interactive satellite pilot of ‘ultra-local’ television, offering targeted news services to a number of local territories within the West Midlands region. 4.2.5 The industry embraces content on the move Delivering content not just when consumers want it but where they want it was also an emerging theme in 2005, with operators piloting or launching services over both mobile networks and the internet. The delivery of audio-visual content to mobiles enables broadcasters to raise additional revenue off the back of existing and reversioned content. It also enables customers to make use of traditionally ‘dead’ time such as the commute to work, and offers broadcasters the opportunity to forge a relationship with an audience demographic whose relationship with traditional television is weakening. Several broadcasters struck deals with 3G mobile network operators to deliver audiovisual content to mobile handsets. Sky by Mobile was launched with Vodafone in October 2005 with a total of 19 channels bundled into two packages – one Factual, the other Entertainment-based. Paying £5 per month for either package (on top of the usual network subscription), subscribers get access to content from channels such as Discovery and Sky News. ITV came to an agreement with the 3 network in November to give its subscribers access to live television coupled with programme clips and highlights. Meanwhile, two services offering TV content to mobile handsets were piloted in 2005. The first trial, in June 2005, involved Virgin Mobile/BT and DAB broadcast capacity to deliver content to mobile handsets. This service generated average viewing levels of one hour per week, and the subsequent evaluation revealed that 66% of users would be willing to pay up to £8 per month the service. BT has subsequently confirmed that it will be launching a commercial version of this service, Movio, towards the end of 2006. The second trial, in September, involved Arquiva, O2 and Nokia. It used the DVB-H mobile television standard, offering access to 16 live television channels including Discovery, MTV, Cartoon Network and the five main networks. Interim results suggested that there was an appetite for the delivery of content on the move, with viewing averaging three hours per week. A summary of these mobile content pilots and fully-fledged services is illustrated in Figure 4.8. 191
  12. 12. Figure 4.8: On-demand mobile content services available or planned Service Partners Delivery model Status Services BT Movio BT DAB Virgin Mobile Technology Broadcast Pilot in London Sky News, Cartoon Network, ITV2, E4, Channel 4 02 Trial O2 Arqiva DVB-H Broadcast Pilot in Oxford Cartoon Network, CNN, Discovery Channel, Sky Sports News, Sky Travel, Chart Show TV, Sky News, Sky Travel Orange TV 3G One to one Available to Orange subscribers for £10 per month Bloomberg, Bravo, Cartoon Network, CNN, Kerrang!, Kiss, Smash Hits, FHM TV, Living TV, Channel 4 Vodafone 3G One to one Available to Vodafone subscribers for £3 £10 per month Sky News, Sports and Factual pack: Sky News, Sky Sports News, Discovery, CNN, Bloomberg, The History Channel, National Geographic Channel Sky Music & Entertainment pack: Sky One, MTV, Cartoon Network, Bravo, LivingTV, Nickelodeon, Discovery Lifestyle, Paramount Comedy Variety pack: Fashion TV, Eurosport, Channel 4, HBO content Widening the availability of broadcast channels using the Internet was another trend amongst broadcasters in 2006. Channel 4 launched a simulcast service of its main channel over the internet. ITV and BBC also began piloting a similar service for all of their channels (though this is only available through broadband service providers who support multicasting, which ensures that the burden on the broadcaster’s distribution infrastructure is minimised). 4.2.6 Emerging policy framework defines future shape of TV market Three broadcasting policy areas took significant steps forward in 2005/06, which together will provide a roadmap for the future development of the BBC and may also come to define the shape of the industry as a whole. The first, digital switchover, is considered in section 4. The second development came in June 2005 with an announcement by Ofcom of the review of the Channel 3 and Channel 5 licence payments. Reflecting the declining value of ITV’s access to analogue spectrum, the licensing terms were revised in a way that was forecast by ITV to reduce its licence payments by £132m to £75m in 2005. ITV anticipates that on completion of digital switchover in 2012, the payments made for its analogue licences will total £4m per annum. The third development in March 2006 saw the publication of the DCMS White Paper on the government’s policy towards the BBC in the next charter period (2007 to 2016). The DCMS definition of the BBC’s public purposes • • • • • • 192 Sustaining citizenship and a civil society; Promoting education and learning; Stimulating creativity and cultural excellence; Reflecting the UK’s nations, regions and communities; Bringing the world to the UK; and Building digital Britain.
  13. 13. The White Paper emphasised the characteristics that should distinguish BBC content – high quality, challenging, original, innovative and engaging. The responsibilities of the new governance body, the BBC Trust, were defined with an emphasis on clarity of purpose and clear separation from the executive body. The publication of the White Paper was preceded by a BBC bid for licence funding running at 2.3 percentage points above inflation for seven years to help deliver the BBC’s blueprint for the next Charter, Building Public Value. The White Paper was followed by the BBC’s Director General announcing the ‘Creative Future’ strategy in April 2006, setting out the editorial strategy the Corporation plans to adopt to underpin the delivery of the blueprint. The BBC has since announced a reorganisation of its business to support the delivery of Create Future. 4.2.7 Another year of record TV licence awards Ofcom once again awarded more television broadcast licences in 2005 than ever before. Note that a licence issued does not equate to a service launched on any DTV platform; there can be a significant lag between getting a licence and launching a service. In some cases, issued licences never result in a service launch. The number of licences issued in 2005 rose to 168, up from the 156 that were issued in 2004. Of that total, Ofcom estimates that 85% were for UK channels (Figure 4.9). Figure 4.9: Licences issued by Ofcom and the previous regulator (ITC) Number of licences issued 180 160 140 120 100 80 60 40 20 0 25 36 12 Overseas licences UK licences 134 109 29 33 43 50 126 93 114 120 143 50 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 Note: For years with purple bars, no distinction is made between UK licences and overseas licences. Source: Ofcom Entertainment and Shopping continue to be the most popular genres for which licences were issued in 2005, as Figure 4.10 illustrates. They also included licences issued for the HDTV services on BSkyB and Telewest, and for ITVPlay and Channel 4’s Quiz Call service. 193
  14. 14. Figure 4.10: Television licences awarded in 2005 Breakdown of licences Other 15% Sport 4% Movies 4% HD channels 4% Gaming 4% Music 6% Factual 7% Entertainment 35% Ethnic 8% Shopping 13% Source: Ofcom 4.2.8 High definition television comes to market for the World Cup High Definition Television (HDTV) was launched in the UK in December 2005 when Telewest began a four-month roll out of its high-definition service. BSkyB followed in May 2006 with the launch of Sky HD ahead of the World Cup. Telewest’s service offers access to a range of films on demand (through its Teleport product) and to the BBC’s and ITV’s high definition services. Sky, meanwhile, has put together a channel bundle that includes its sports and film services alongside factual output from Discovery and Artsworld, although output on those channels is not always broadcast in a high-definition format. (Figure 4.11). Figure 4.11: Comparison of the two high-definition services Telewest HD Cost Sky HD • £10 - £15 per month (depending on • £299 for a set top box • £10 per month subscription tier) Services • TV Drive (80 hour PVR) • HD content from ITV and BBC • Pay-per-view films • Eight channels: Sky Sports, Sky Movies, Sky One, ArtsWorld, Discovery, National Geographic, BBC HD • Pay-per-view films from Sky Box Office • Sky+ (80 hour PVR) available for £0 - £10 (depending on subscription tier) Sky estimates that sales of HD-ready television sets would reach 1.4 million in 2006, taking the total number of set sales to 2.1 million by the end of 2006. On top of these commercial service launches, a consortium of broadcasters launched a six month pilot of HDTV on the DTT platform in June 2006 in the London area. Five hundred homes have been equipped with set-top boxes capable of decoding the HD signal, giving access to content including Lost, Space 1999, event programming from the BBC (Wimbledon and the World Cup) and a number of BBC co-productions such as Bleak House and Planet Earth. Meanwhile, the BBC trialled downloadable HD content via its integrated media player pilot (BBC iPlayer). 194
  15. 15. Looking ahead, the availability of HD-capable equipment and content is set to widen with the launch of two competing high-definition DVD formats (Blu-Ray and HD DVD). The take-up of these formats (and ultimately whether or not one emerges as the dominant format) may be determined by the relative popularity of the next generation of games consoles. A Blu-Ray DVD player will be integrated into the PS3 while an HD DVD player will be marketed as an add-on to the Xbox 360. High-definition TV explained High-definition TV (HDTV) is the generic term that is used to describe any television signal that has a higher resolution than the standard TV signal that has been broadcast for nearly forty years. The term HDTV actually covers a range of different standards. A standard UK television signal comprises 625 lines of information from the top of the screen to the bottom (just 576 of these lines can be seen by the viewer), and 768 lines from left to right. This means that fine details – especially on newer large-screen TVs – tend to become blurred. HDTV increases the number of lines of information, either to 720x1280 or to 1080x1920. This means that finer details can be represented within the picture. HDTV can also differ from a standard television broadcast by the way in which the lines of information are refreshed (updated) on the screen. In standard TV, and in the current 1080x1920 format, the horizontal lines of the picture are renewed alternately – i.e. lines 1,3,5,7…etc. are refreshed to the bottom of the screen, then lines 2,4,6,8…etc. are refreshed. Since UK TV pictures are broadcast at 50Hz, this means that every line of the picture actually only changes at half that rate – 25 times per second. This system is known as interlacing, and is usually depicted by the suffix ‘i’. The alternative system is called progressive scanning, and entails updating each line of the picture in sequence. This means that the whole picture refreshes 50 times per second – double the rate of interlacing. Progressive scanning can give the viewer the perception of higher vertical resolution than an interlaced picture. Progressive scan formats have the suffix ‘p’. Currently, Sky’s HD broadcasts use the 720x1280 progressive scan system (known as 720p), whereas the BBC’s HD output is at 1080x1920 interlaced (or 1080i). An important factor for HD viewers is that most ‘HD-ready’ TVs can only support 720-line signals (most LCD and plasma TVs currently have 768 lines top-tobottom and 1024 lines left-to-right). Indeed, the ‘HD-ready’ logo can be applied to any TV that has a minimum of 720 horizontal lines. The small number of plasma TVs that support 1080x1920 are currently priced at the high end of the market, although prices may fall as production increases. Viewers with 768x1024 TVs can still view 1080i HD pictures, but some of the lines of information need to be combined in order to display the picture 195
  16. 16. 4.2.9 Digital television - the roadmap to switchover is revealed The Secretary of State for Culture, Media and Sport confirmed in September 2005 that digital switchover will be completed by 2012. Tessa Jowell explained that the switchover programme would begin in 2008 with the Border region, and roll out across other ITV regions over the following four years (Figure 4.12). Figure 4.12: The timetable for digital switchover Source: Digital UK 196
  17. 17. Digital UK, the organisation responsible for managing the transition to digital television, launched its programme of communications and assistance in May 2006, in what will be a seven year, £200m campaign to inform and support the public through switchover. With 72.5% of UK homes receiving multichannel television on their main set, there are still 7 million homes which have no access to digital television. Ofcom’s Media Literacy research uncovered a variety of reasons for not switching to multichannel television, as highlighted in Figure 4.13. Two barriers to adoption included contentment with the five main channels and concerns over cost. Figure 4.13: Reasons for not switching to digital television Proportion of respondents not intending to get digital TV in the next 12 months Happy with current channels/not interested Expensive Concerns over frequency of viewing Lack of understanding Quality of content No coverage Don't watch much TV Hard to use Other 68% 27% 11% 5% 4% 4% 3% 3% 5% 0 10 20 30 40 50 60 70 Source: Media Literacy Audit June – August 2005. Multiple responses permitted These barriers may subside as the Freeview channel proposition continues to strengthen and as Freeview set top box costs fall further. Even with a large proportion of homes having already converted their main sets to multichannel television, the fact that many have two or more sets means that there are still a substantial number of homes needing conversion (Figure 4.14). Figure 4.14: Number of sets per home Proportion of homes 30% 25% 20% 15% 30% 34% 21% 10% 11% 5% 3% 0% 1 2 3 4 5 or more Source: Ofcom 197 80
  18. 18. Research jointly commissioned by Ofcom and Digital UK revealed that a significant proportion (60%) of people had heard of digital switchover, but many of those people did not realise that every set in the home would need converting to digital (Figure 4.15). Figure 4.15: Awareness of ‘digital switchover’ and awareness of the need to switch all sets Proportion of respondents (percent) 100% 80% 37% 40% No 60% 40% Yes 60% 62% Heard of digital switchover Aware of need to convert every set 20% 0% Source: Ofcom/Digital UK That same research suggests that nearly two-thirds of the UK population have already converted, or plan to convert, all of their television sets to digital when required. A further 25% may not convert all sets, but plan to convert some (Figure 4.16). Figure 4.16: Plans to convert television sets Proportion of respondents (percent) 40 30 20 10 35 26 25 11 3 0 All sets already converted Source: Ofcom/Digital UK 198 All sets will be converted Some sets will be converted No sets will be converted Don't know
  19. 19. 4.2.10 Platform operators launch service enhancements BSkyB In the year to the 31st March 2006, BSkyB revenues were estimated to be £4,314m, up 14%. Subscription revenue increased by 10% to £3,149m while advertising revenue rose to £344m, a 4% increase. In that same period, BSkyB gained an additional 400,000 homes taking the platform operator’s total UK subscriber base by the end of the quarter to 7.7 million. Sky+ subscribers exceeded one million for the first time in 2005 and had reached 1,430,000 by the end of the first quarter of 2006. Multi-room subscribers (which allows different Sky channels to be viewed in different rooms in the home) stood at 990,000 at the end of the same period. In September 2005 BSkyB restructured its channel packages to widen choice and simplify pricing to support the drive towards a 10 million homes subscriber target for 2010. At the time of the restructuring the cost of the top tier package was increased by £1.50 to £42.50 per month. In October, BSkyB took a controlling interest in broadband service provider Easynet and also launched Sky by Broadband, offering existing subscribers access to downloadable films and sports news clips over a broadband connection. The company has since launched a free broadband access service that is available to all of its subscribers. Ntl/Telewest NTL and Telewest completed their merger in 2005, giving the UK a near single cable operator (Wight Cable remains independently owned and operated). The merged business had 3.32 million subscribers by the end of Q1 2006 (including analogue and digital subscribers), up 43,000 in 12 months. NTL:Telewest became the first ‘quad-play’ operator in the second quarter of 2006 with its acquisition of Virgin Mobile. The acquisition concluded talks that began in late 2005. The company explained that the acquisition would provide opportunities for cross-selling of products between respective customer bases and that it hoped that new customers would be drawn to the business through the offer of innovative new product bundles. Separately, Telewest embarked on a programme of service enhancements in 2005. These included the launch of an on-demand service, Teleport, and their PVR service, TV Drive. Telewest also made further forays into channel investment with the acquisition of SitUp TV, which operates a range of retail, auction services and film channels. Including the Flextech and UKTV channels, Telewest now controls 11 digital-only channels and partly controls a further ten. Freeview Freeview gained 2 million homes in the year ending of March 2006, taking the total number of homes with a Freeview box attached to the main set to 7.1 million. Freeview maintained its position as the second most popular choice for the reception of multichannel television on the main set after Sky. The growing popularity of the Freeview platform has driven up the price of spare capacity for new channels. In its recent annual report, ITV estimated that the cost of 199
  20. 20. a slot had risen more than eleven-fold in the three and a half years since Freeview’s launch (Figure 4.17). Figure 4.17: ITV’s estimated cost for a channel slot on Freeview Cost of capacity for a single channel on Freeview (£m) 12 8 11.5 4 5.0 1.0 0 Q42002 2004 Q1 2006 Source: ITV results, 2005 The typical cost of a Freeview box at the time of writing (based on a survey of electrical retailers) stood at around £50 (the cheapest box available at the time of writing was on offer for £19.99) with PVR-capable devices typically costing between £100 and £200. The Freeview consortium has announced the launch of a Freeview Playback campaign to raise awareness and understanding of Freeview PVR devices. Several new channels were introduced onto the Freeview platform in 2005/2006: • • • • • ITV4 launched towards the end of the year, replacing ITV News; Sky Three replaced Sky Travel; E4 and Film Four went free-to-air; More4 was launched as a free-to-air channel; and ITV launched its first dedicated children’s channel, CITV. With Freeview slot costs escalating and advertising revenue coming under pressure, operators have begun to fill some of Freeview’s available slots with services that rely on new revenue models – two examples were the quiz-based channels Quiz Call in October 2005 and ITVPlay in March 2006. Top Up TV In November 2005, Top Up TV announced that Five had taken a strategic investment in the company. This was followed in 2006 with Five announcing that its ability to launch two new channels on Freeview was linked to the strategic investment that it had taken in Top Up TV. Around the time of Five’s announcement, Top Up announced an Autumn launch of a PVR-based service, Top Up TV Anytime. 200
  21. 21. 4.2.11 Channel operators launch new channels The BBC Licence fee revenue broke through the £3bn barrier for the first time in the year 2005/06. It rose by 5.4% to £3,125m while expenditure increased 4.2% to £3,237m in the same period. The BBC’s commercial businesses contributed a further £95m, with BBC Worldwide generating profits before interest and tax of £89m (up 62%) and BBC Resources contributing a further £6m (down 14%). The BBC’s eight UK-based television channels recorded a fifteen minute weekly reach of 85.3%, down by 1.3 percentage points on 12 month’s earlier. The 11 national radio stations along with nations/local radio delivered reach of 66.5%, while bbc.co.uk monthly reach increased by 3.1 million to 13.7 million unique users. Reflecting the BBC’s ongoing desire to harness digital technologies to widen the distribution of existing content and develop/deliver new content to licence payers, the BBC iPlayer pilot offered time-limited access to content downloaded to a user’s PC. Meanwhile, the BBC’s high-definition channel launched on Sky and Telewest ahead of the 2006 World Cup Following-on from the publication of Building Public Value in 2004 (the BBC’s contribution to the DCMS consultation on Charter review) the Director General outlined in April 2006 his editorial blueprint for translating the BBC’s public purposes (as laid out in the DCMS White Paper on the future of the BBC) into a delivery plan. The Creative Future includes commitments to: • • • relaunch bbc.co.uk with more personalisation and richer audio-visual content develop a new teen brand delivered over existing digital platforms build broadband portals around content areas such as Music and Sport The DCMS took the decision to replace the BBC’s Board of Governors with a BBC Trust. With greater distance between the Trust and the BBC’s executive body, it will be responsible for issuing service licences that will define the remit and budget of each of the BBC’s services alongside commissioning a Public Value Test whenever the executive proposes a significant change to existing services or the introduction of a new one. Finally, BBC announced the decommissioning of two long-running television series. Top of the Pops and Grandstand. While Top of the Pops once generated audiences of around 15 million, audiences in its final Sunday evening slot were closer to 1 million. 201
  22. 22. ITV ITV’s total revenue in 2005 reached £2,177m, up 6% on the year. Net advertising revenue (NAR) comprised 75% of that total and stood at £1,631m - a rise of 3% on a year earlier. ITV1’s NAR fell by 3% (£45m) to £1,462m but this was offset by strong NAR growth from ITV’s remaining channels, where revenue rose 91% on the year to £111m. ITV4 went to air in the third quarter of 2005 as the company’s fourth digital-only channel. In the same quarter, ITV announced the closure of its news channel, freeing up capacity on the platform in advance of the launch of ITV’s children’s channel, CITV. Tapping in to a new, consumer generated, revenue stream ITVPlay came to air in March, following a three-month pilot. The company has also confirmed that a timeshifted version of ITV2 will launch at the end of 2006. These launches were accompanied by a comprehensive rebranding of the company’s channel portfolio at the beginning of 2006. ITV1’s network commissions rose by £24m to £591m, while acquisition costs were up by a further £47m. The company also increased investment in its digital-only channels by 97%, taking total spend to £61m. These increases were offset by a reduction in sports costs which fell by 32% to £96m, while regional commissioning spend fell by 12% to £125m. At the same time, ITV launched a regional broadband pilot for Brighton and Hastings, offering access to local news and other content and via a broadband portal. Channel 4 Channel 4 revenue rose by 6.3% in 2005 to £894m. The contribution made by the corporation’s main channel stood at £725m or 82% of the total; the digital channels delivered a further £88m, up 14% on 2004. Channel 4 took a 20% share in the Freeview consortium that now comprises ITV, Channel 4, National Grid Wireless, BSkyB and the BBC. The channel also announced an intention to bid for the second DAB national commercial radio multiplex, and has since launched a radio brand on its website, offering podcasts connected to a range of Channel 4 shows such as Big Brother and The Richard and Judy Show. The company also launched paid-for broadband downloads of its hit shows Lost and Desperate Housewives, alongside the launch of its FourDocs site, a portal where the public can upload short factual videos. E4 went free-to-air on Freeview in mid-2005 and audience share has risen significantly as a consequence. FilmFour went free-to-air on Freeview in July 2006 while More4 was launched in late 2005. Five Five’s parent company RTL reported the broadcaster’s revenue for the year to December 2005 as £324m, up 12% on 2004. At the same time, it increased its programme spend by 9.8% to £190m. It has since announced that content spend in 2006 will increase again by 6.3% to £202m. In a move to fund more prime-time drama and scripted comedy, Five decommissioned its long running soap, Family Affairs, which broadcast its final episode at the end of 2005. In July 2005, RTL took full control of Five, acquiring 35.4% of the business from United Business Media for £248m. This was followed in November by an announcement that Five had made a strategic investment in Top Up TV. That deal 202
  23. 23. was followed in June 2006 by an announcement that Five planned to launch two new free to view services Five US and Five Life (a channel offering women’s programming and content based around its children’s morning Milkshake brand). Also in 2005, Five joined forces with UK subscription channels to acquire first-run free-to-view rights on shows from the US. These deals included the rights to Prison Break (with UKTV) and to Grey’s Anatomy (with LivingTV). BSkyB In the calendar year 2005, BSkyB earned £222m in wholesale channel revenue from the cable companies (up 0.5% on the year) and £341m in advertising revenue (up 5.2%). Amid growing audiences to Freeview channels, Sky Three replaced Sky Travel in October 2005, premiering the first episode of the fourth season of 24. In mid-2006, BSkyB also bid successfully for four of the six packages of Premier League football rights (Setanta won the remaining two packages). BSkyB paid £1,314m for 92 games per season. The company also won the near-live rights to Premier League football in a joint bid with BT. These deals start in 2007/08 and will last for three years. Flextech The Flextech family of channels include a portfolio of entertainment channels Bravo, Trouble, LivingTV and a 50% stake in UKTV. In total, reported revenue for these channels stood at £132m in 2005. UKTV Style Gardens launched as a spin-off from the established leisure-based UKTV Style, and the channel has already built market share. Telewest’s acquisition of SitUp Ltd in 2005 for £194m added auction channels bid tv and price-drop tv and retail service Screenshop to the Flextech’s channel portfolio. In the 12 months to 31st March 2006, SitUp Ltd reported revenues of £218m. Setanta Sports Setanta spent 2005 and early 2006 strengthening its content proposition with a series of acquisitions and successful bids for sports rights. In mid-2005, the company took a controlling stake in the North American Sports Network (NASN, offering coverage of North American sports in several European territories). Setanta began 2006 by announcing the roll-out of pay-per-view Scottish Premier League matches across the UK via DTT, following a successful trial in the Grampian region. The company went on to win two of the six packages of matches advertised by the FA Premier League in May 2006 and at the time of writing had just secured the exclusive rights to cover the US PGA tour in the UK. 203
  24. 24. 4.3 The television industry 4.3.1 TV revenue exceeded £10.5bn in 2005 TV industry revenue rose by £490m (4.8%) in 2005 to reach £10,622m. Subscriptions totalled £3,891; net advertising revenue £3,548m; public funding through the licence fee contributed £2,433m, while other sources of revenue totalled £749m. The growth in total revenue was driven largely by an increase in subscriptions earned by BSkyB and NTL/Telewest, which rose by 8.5% in 2005. The close of 2005 marked a five year period of sustained growth in subscription revenue averaging 14.5% p.a. over the period. Having first overtaken net advertising revenue in 2004, subscriptions now exceed it by a 10% margin. Net advertising revenue grew by £67m in nominal terms (1.9%) in 2005 to £3,548m, marking the end of a three year period where advertising revenues grew at an average of 4% per annum. Public funding continued to play an important role in the UK’s broadcasting ecology. In 2005, Ofcom estimates that the funding allocated by the BBC to television was £2,433m, up 5% on 2004. On top of that figure, S4C received funding from the DCMS totalling £88.8m (included in the ‘Other’ category in the figure below). As the Communications Market Report highlighted in 2004, non-broadcast revenue from pay-per-view, retail and interactive services is emerging as an important component of total industry revenue. In 2005 this revenue source held steady at £749m (Figure 4.18). Figure 4.18: Total TV industry revenue by source £m 3,891 4,000 3,471 3585 3,385 3,147 Subscriptions 3252 3,481 3,000 3,548 3,242 2476 2883 2049 2,000 2,216 1,820 2,433 Licence fee allocated to TV 650 534 2002 2003 397 0 2000 2,319 1,934 781 1,000 2,302 2001 Net advertising revenue 746 749 2004 2005 Other Source: Operator returns and Ofcom estimates Segmenting revenue by industry operator, Figure 4.19 reveals that the revenue raised by the commercial analogue broadcasters increased by approximately 2% in 2005, with total revenue rising by £63m to £2,907m. This followed a 6% growth in the previous year. 204
  25. 25. Advertising revenue earned by commercial multichannels grew by 1% to £1,295m. As in 2004, the figures for commercial multichannels includes revenue from channels owned by channel retailers and platform operators (e.g. BSkyB and NTL:Telewest). Figure 4.19: Total TV industry revenue by sector £m 12,000 10,000 3,585 8,000 2,476 2,883 795 1,397 1,005 2,981 2,675 2,716 1,911 2,028 2000 2001 Platform operators 3,252 987 3,891 2,049 6,000 4,000 1,287 1,295 2,677 2,844 2,907 2,309 2,396 2,414 2,528 2002 2003 2004 Commercial multichannels 2005 2,000 Commercial analogue channels Publicly-funded channels 0 Source: Operator returns and Ofcom analysis 4.3.2 The multichannels continue to build advertising share The distribution of advertising revenue between commercial analogue channels and those only available in multichannel homes shows the analogue operators continuing to take a large percentage of the total in 2005. That said, multichannel share of Net Advertising Revenue (NAR) increased by 8.6% over the year, thanks to the increasing share of commercial impacts taken by those channels (Figure 4.20). Figure 4.20: Net advertising revenue by sector £m 4,000 3,500 3,000 590 826 534 676 794 863 2,500 Commercial multichannels 2,000 1,500 2,881 2,559 2,612 2,566 2,686 2,685 2001 2002 2003 2004 2005 1,000 500 Commercial analogue channels 0 2000 Source: Operator returns and Ofcom analysis 205
  26. 26. Much of the gain in advertising revenue accruing to the multichannels came from ITV1’s expense (Figure 4.21), with Channel 4 increasing its total share of advertising revenue by 0.6 percentage points and Five putting on 0.7 percentage points. Figure 4.21: TV advertising market share - 2005 Total NAR = £3,548m (2004 figures in brackets) Other 24.3% (23.0%) ITV1 47.2% (49.7%) Five 8.5% (7.8%) Channel 4 20.0% (19.4%) Source: Operator returns and Ofcom analysis New and alternative streams of revenue remain important to the industry, although they grew by only 0.5% over the year. Over the same period, sponsorship revenue rose by 5% to £120m, public funding increased by 2.9% to £89m, and programme sales rose to £69m (Figure 4.22). Shopping and interactive revenue both fell in the year, but the comparability of these figures from one year to the next may be impaired by changes in conventions for the accounting of interactive revenue; they may also be affected by the fact that Ofcom had not received revenue returns from all multichannel licensees at the time of writing. Figure 4.22: Breakdown of non-broadcast revenue Total non-broadcast revenue = £750m (2004 = £746m) Other revenue £85m Programme sales £69m Other public funding (S4C) £89m Sponsorship £120m Source: Operator returns and Ofcom analysis 206 TV shopping £154m Interactive services £104m Pay-per-view £129m
  27. 27. 4.3.3 Industry flow of funds– subscription revenue shows significant growth Figure 4.23 provides a simplified flow of funds for the television industry in 2004 and 2005. The most significant changes in 2005 included: a substantial increase in the flow of subscription revenue into the industry; and a modest rebalancing of expenditure between in-house and external commissions from channels. The latter benefited from a £70m boost, while the spend on the former fell by £54m. Figure 4.23: Simplified flow of funds in the TV industry, 2005 (2004 in italics) £m Subscribers £3,548m £1,606m £443 £2,819m Pay TV operators £457 £457 Viewers £3,891m £1,536m External producers and rights holders2 £2,795m Channels £4,450m £4,583m Advertisers & £3,668m sponsors £3,594m £1,536m £1,590m Government In-house producers £89m £86m Source: Operator returns, operator results and Ofcom analysis 1 The bold figures represent 2005, the italicised figures 2004 2 Excludes flows to channels owned by vertically integrated broadcasters (BSkyB and Telewest) 3 Includes both UK and non-UK content and rights providers 4 Includes commissions to producers owned by broadcasters (e.g. Granada and SMG) from third-party channels Note that this picture represents a simplified analysis in several respects: • it does not cover playout and transmission costs; • it provides no breakdown of revenue in the content provision sector between producers and rights owners, nor between UK and overseas providers, due to a lack of sufficiently detailed data; • it includes limited information regarding the vertically integrated broadcasters, to whom the concept of flows from platform operations to channel businesses does not apply. The pay-tv operator to channel flows only represent transfers earned by channels that are not wholly owned by platform operators, and therefore exclude any flows to BSkyB and Flextech channels; and • The figures that have been used to update this flow of funds analysis are derived from multichannel and PSB data submissions. All the major channels had made their submissions at the time of writing; however, it is possible that some variation in the figures between 2004 and 2005 is attributable to a slightly different mix of data submissions supplied by small and medium-sized broadcasters. 207
  28. 28. 4.3.4 Total industry output stood at 1.4 million hours in 2005 2005 saw 1.4 million hours of output broadcast by all UK television channels. The Films, Shopping, Music and Gaming genres (offering little in the way of traditional programming) accounted for just under 700,000 of those hours. Of the remaining 713,227 hours of output (Figure 4.24), the digital-only channels were responsible for 87%, a 13% increase on 2004. The five main channels accounted for a further 6% (or 42,555 hours); the BBC’s digital services made up another 5% (or 32,839 hours) while nations and regions output took up the remaining 3% (or 11,212 hours). Original production (‘originations’ or ‘originated output’) includes all output excluding repeats and programmes acquired from other broadcasters. In 2005, 131,066 hours were originated, with the multichannels accounting for 65% of the total (85,796 hours). The five main channels continued to play a role as the ‘engine’ of originations, making a substantial 16% contribution (20,752 hours) in contrast to their broadcasting just 6% of total hours. A further 11% came from the BBC’s digital channels, who together commissioned 14,013 hours in 2005. Nations and regions made up the remaining 8% or 10,505 hours. Figure 4.24: Total and originated hours of output Proportion of hours by operator (percent) 100% Other digital channels 80% 85,796 60% 619,790 Programmes for Nations & Regions BBC digital channels 40% 10,505 14,013 20% 32,839 42,555 0% 11,212 Total hours of output 20,752 Main five channels (network) Total hours of originations Source: Operator returns Investment in content fell by 1.3% or £62m in 2005, coming in at £4,692m. The reduction was driven by the falling costs of Sports and Film rights and reduced spend by BBC One (£78m or 9%), BBC Two (£13m or 3%) and ITV1 (£24m or 3%). This was offset by increased investment by the BBC’s digital services, Channel 4, Five and the multichannel operators. With respective increases of 1%, 11%, 3% and 24%, these channels together increased content investment by £170m (Figure 4.25). 208
  29. 29. Figure 4.25: Investment in network programmes £m £m 5,000 Movies/sport channels 1,206 653 236 177 488 3,000 1,089 526 4,000 262 190 492 Digital-only commercial channels BBC digital channels Five Channel 4 2,000 862 381 368 878 1,000 838 800 ITV1 + GMTV1 BBC Two BBC One 0 2004 2005 Source: Operator returns and Ofcom analysis 4.3.5 Originated hours fall due to ITV1’s reduced regional output Across the five mainstream networks, hours of originated output fell by 3,019 hours (9%) to 31,257 hours in 2005 (note that this figure includes 20,752 hours of network originations and 10,505 of nations and regions originations). This downward trend dates back to at least 2000 when total originations stood 18% higher at 36,869 hours (Figure 4.26). With the five main networks reprioritising investment towards peak-time output (peaktime originations rose by 119 hours (or 2%), much of the reduction in 2005 hours was explained by a 2,547 hour (20%) decline in originated regional output; the latter was driven by ITV1’s lower regional quota. Non-peak-time originations also fell in 2005 by 591 hours (4%). Figure 4.26: Hours of originated output on the five main channels Transmitted hours 40,000 35,000 30,000 15,161 14,933 14,496 13,006 Regional originations 13,052 25,000 10,505 Non-peak network originations 20,000 15,000 16,358 16,213 15,936 16,321 15,733 15,142 Peak-time network originations 10,000 5,000 5,350 5,615 5,712 5,695 5,491 5,610 2000 2001 2002 2003 2004 2005 0 Source: Operator Figure 4.27 outlines the investment that funded originated hours from the five main networks. Total investment fell by £60m or 2% to £2,622m in 2005. This followed average reductions of 1.5% in the preceding two years. 209
  30. 30. Figure 4.27: Investment in originated output on the five main networks £m 3,000 2,500 388 374 357 2,000 1,022 975 953 369 359 989 323 995 Regional originations 950 Non-peak network originations 1,500 1,000 1,203 1,347 1,348 1,328 2001 2002 2003 2004 Peak-time network originations 1,349 2000 500 1,265 2005 0 Source: Operator returns With reductions in regional content spend being outstripped by the drop in regional hours, there was a 11% increase in the cost per hour (CPH) of regional output in 2005, its highest level for at least five years (Figure 4.28). Figure 4.28: Cost per hour for originated content on the five main networks Cost per hour (£k) 250 241 242 237 236 225 225 200 Peak-time network originations 150 Non-peak network originations 100 58 50 64 60 24 25 63 61 27 28 63 28 Regional originations 31 0 2000 2001 2002 2003 2004 2005 Source: Operator returns and Ofcom analysis Figure 4.29 offers a complete picture of originated output from the UK’s PSBs, by including the BBC’s investment in its services available only in multichannel homes. In peak time (defined by the time interval 18:00 – 22:30), total hours of originations rose by 4% in 2005 to 179 hours per week. While this was 3% below the high point of investment in originations, it was still 12% higher than the equivalent figure in 2001. Turning to originated output from the five mainstream networks across the whole schedule, hours fell modestly in 2005 to 669 hours per week - a 2.0% reduction on 2004 and 5.8% down on 2003. 210
  31. 31. Figure 4.29: Hours of originated output by the five mainstream networks in peak time and all day All day real cost/hour (£k, 2005 prices) 70.5 71.4 70.3 73.1 Peak real cost/hour (£k, 2005 prices) 73.3 160.6 157.3 156.0 165.4 155.8 200 600 231 283 286 275 269 BBC digital channels 400 74 74 71 76 74 80 69 95 101 101 96 57 62 62 64 68 118 112 110 105 104 BBC One 65 74 17 16 23 BBC digital channels Five Channel 4 66 72 16 13 14 23 25 23 21 26 26 26 25 25 ITV1+GMTV1 19 18 19 21 BBC Two 26 26 26 26 BBC One 51 100 BBC Two 69 ITV1+GMTV1 200 68 26 67 95 150 17 Five Hours per week Hours per week 800 50 Channel 4 0 0 2001 2002 2003 2004 2005 2001 2002 2003 2004 2005 Source: Operator returns and Ofcom analysis 4.3.6 Factual has been the growth peak-time PSB genre for seven years The patterns of investment that PSBs have made in their output over the last seven years have evolved significantly. Figure 4.30 breaks down the hours of output by genre that the five PSBs transmitted between 1998 and 2005. In peak time, General Factual emerges as the growth genre, making up 28% of total hours in 2005 (up from 21% in 1998). This growth has come at the expense of Light Entertainment/Modern Music, Films and Sport, whose share of peak-time hours fell by four, two and two percentage points over the same period. Among the remaining smaller genres, Religion enjoyed a boost in 2005, increasing by 40% to 73 hours or 1 hour 24 minutes per week. Figure 4.30: PSB genre mix in peak time Proportion of total hours 100% 500 406 380 428 530 362 401 341 1424 1472 1580 1623 1334 1330 1395 1268 1047 1038 1013 947 937 972 757 2077 2070 1863 80% 60% 1848 1748 1880 1854 688 1935 Sport Light Entertainment & Modern Music Films Drama Education General Factual Religious 40% 1702 1972 1802 1824 1814 2015 2105 2253 Children's Arts & Classical Music 20% 333 256 257 246 255 284 296 318 Current Affairs 935 917 835 785 News 2002 2003 2004 2005 790 849 867 925 1998 1999 2000 2001 0% Source: Operator returns 211
  32. 32. The daytime schedule shows a different genre mix. In 2005, Light Entertainment /Modern Music, News and Films all took a larger proportion of total hours (13%, 15% and 11% respectively) than each did in 1998 (8%, 11% and 9% respectively). These gains came amid reductions in the hours of Sport, Education, General Factual and Drama, each of which lost two percentage points of daytime share of hours over the same period (Figure 4.31). Figure 4.31: PSB genre mix in daytime Proportion of total hours 100% 2161 1921 2193 1832 1958 1849 2038 2250 2352 2448 2665 2810 2713 1913 1957 2113 2188 1959 2069 2080 2464 2292 2236 1863 2135 2294 1331 1344 1276 1198 918 2031 694 2056 738 1797 821 3953 60% 2239 1782 80% 2099 3911 3658 3189 2833 3165 3150 3512 Sport Light Entertainment & Modern Music Films Drama Education General Factual Religious 40% 4403 4422 4392 4613 Children's 4856 5055 4906 4575 379 384 Arts & Classical Music 20% 764 671 692 756 807 830 2443 2425 2491 2678 2753 2939 3299 3191 1998 1999 2000 2001 2002 2003 2004 2005 0% Current Affairs News Source: Operator returns Changes in the genre mix across the BBC’s digital services reflect the channel launches that have occurred in the past five years. There are two distinct trends. The first is the growth in hours of children’s programming as a result of the launch of two children’s channels (CBeebies and CBBC); the second is the reduction in General Factual hours in 2002 as a result of the launch of BBC Four in place of BBC Knowledge. Over this seven-year period, total hours of output on the BBC’s digital channels grew at an average rate of 18% per annum, while investment in that output rose by 26% per annum – driving cost per hour up from £5.2k to £8.0k over the period (Figure 4.32). 212
  33. 33. Figure 4.32: The BBC’s digital channels 100% £53m 19,051 26,798 27,278 29,832 31,421 32,792 32,839 £81m £84m £99m £195m £228m £236m £262m 1747 1203 1242 1656 1751 1306 1340 1615 1738 1143 1478 2297 1690 1260 1360 2482 7990 Output (hrs) 10,165 Investment (£m) 7983 8021 8033 1117 1435 1240 140 503 495 348 906 98 2014 80% 4676 1878 964 115 568 4647 60% 5662 5916 40% 1153 1462 1589 4540 4759 5398 Other Light Entertainment & Modern Music Arts & Classical Music General Factual 7494 Children's 8837 6871 17890 17674 Current Affairs 8125 20% 8296 8377 8500 8589 2000 2001 2002 2003 News 0% 1998 1999 2004 2005 Source: Ofcom analysis 4.3.7 ITV, BBC and Five increase the proportion of peak time General Factual in 2005 Figure 4.33 offers an analysis of the structure of peak time schedules by network. It illustrates how the five main channels are pursuing different genre investment strategies. In 2005, the one genre that enjoyed growth across most of the five networks was General Factual. Conversely, Light Entertainment/Modern Music all showed a decline in hours showed. On BBC One, General Factual’s share of peak time hours grew by two percentage points in 2005, with the channel bringing to air Big Cat Week, Egypt, Life in the Undergrowth, Seaside Rescue and Trauma. This was followed by Drama with a one percentage point increase in output and News which increased by 0.9 percentage points. The growth in those genres came at the expense of Sport/Light Entertainment and Modern Music which collectively lost 4.4 percentage points. On BBC Two General Factual and Arts/Classic Music all grew (5.4 and 3.8 percentage points respectively) while Films, Light Entertainment and Sport each fell as a proportion of the peak time schedule (by 3.1, 5.2 and 2.0 percentage points respectively). ITV1 saw General Factual and Films as the growth genres in 2005 (gaining 2.4 and 1.4 percentage points each), with Ladette to Lady, The Real Good Life and Package Holiday Undercover as just three series examples for 2005. Offsetting those genre increases, Light Entertainment and Modern Music lost 2.9 percentage points, followed by News which lost 1.6 percentage points. Five decreased the proportion of News in its peak-time schedule (by 2.4% percentage points), Films (2.2%), Education (2.0) and Light Entertainment/Modern Music (1.0). In their place, Five brought more General Factual and drama-based content, which increased by 4.7 and 2.3 percentage points respectively. 213
  34. 34. Channel 4 was the one network that went against the trend toward broadcasting more General Factual in peak time. Peak time General Factual hours fell on Channel 4 in 2005 by 4.8 percentage points. These hours were replaced most significantly by Light Entertainment/Modern Music and General Factual (up 2.8 percentage points), Current Affairs (0.9), Religion (0.5) and Arts/Classical Music (0.4). Figure 4.33: The five main networks’ genre mix in peak-time Hours of output and cost per hour (£k) Cost per hour (£/hr) £310k £289k £118k £122k 100% 80% 86 310 48 207 280 52 55 60% 394 174 410 329 415 35 69 £361k £362k £139k £136k 12 15 60 67 258 303 290 329 105 107 79 59 229 223 311 20% 0% 6 8 17 43 29 42 318 306 £66k 37 66 452 415 659 510 579 673 100 78 Sport Light Entertainment & Modern Music Films Drama 472 723 759 340 36 83 Education 86 58 710 40% £64k General Factual Religious Children's 23 162 76 32 92 52 156 128 53 134 447 18 46 26 370 39 127 113 3 9 23 20 11 217 214 155 115 19 Arts & Classical Music Current Affairs News 2004 2005 2004 2005 2004 2005 2004 2005 2004 2005 five ITV1 BBC Two Channel 4 BBC One Source: Operator returns ITV1 was the channel where a single genre dominated most noticeably. Drama (including soaps) accounted for 49% of its peak-time schedule in 2005. For BBC Two and Channel 4, the dominant genre was General Factual, accounting for 46% and 35% of their schedules respectively. In Five’s case, Drama was dominant with 31% of its peak-time schedule; the same was true for BBC One, but even then it only accounted for 26% of peak-time hours. Genre diversity across the networks varied significantly, and this can be shown with a genre concentration curve as illustrated in Figure 4.34. By way of illustration, two genres made up 68% of ITV1’s peak-time schedule. In descending order, the equivalent figures for the other networks were 66% (BBC Two), 58% (five), 54% (Channel 4) and 49% (BBC One). 214
  35. 35. Figure 4.34: Genre concentration curves for the five main networks in peak time Proportion of hours (percent) 100% five 80% BBC One Channel 4 BBC Two ITV1 ITV1 60% Channel 4 BBC One BBC Two 40% five 20% 1 2 3 4 5 6 7 8 9 Source: Operator returns and Ofcom analysis Daytime patterns of investment across the five main networks differ significantly from peak-time, with greater genre diversity. A unique audience profile (people not in fulltime employment, students, etc.) and lower audience volumes at this time of day, may point to the networks’ willingness to experiment and to take more risks with new shows instead of relying on a small number of tried and tested genres and/or formats. Experimentation in non-peak has in the past occasionally led to hit shows that have then migrated into peak time – examples of this are The Weakest Link and Bargain Hunt. Underlying the growing commercial significance of ‘late daytime’, ITV has identified the 16:00 – 18:00 slot as a future focus for the company. The dominant genre on BBC One in 2005 daytime was News with 28% of total hours, closely followed by General Factual with 24%; on BBC Two Children’s content was the biggest single genre category with 30% of hours. General Factual was the largest single genre category on ITV1, taking 35% of the daytime schedule; on Channel 4 it was Light Entertainment and Modern Music (31%); Five’s Children’s output took 31% of hours, closely followed by Films with a further 28% (Figure 4.35). Comparison of daytime output across 2004 and 2005 reveals that ITV1 significantly reduced the proportion of daytime hours devoted to Children’s content (by 4.8 percentage points) and Education (by 3.9 percentage points), to be replaced by Light Entertainment and Modern Music (which increased by 8 percentage points in 2005). Channel 4 increased its General Factual output by 5.3 percentage points and reduced its Drama output (by 2.5 percentage points) and Light Entertainment/Modern Music (by 2.4 percentage points). Five’s biggest genre shift in daytime was towards Film, increasing hours by 8.4 percentage points in 2005. This came at the expense of Drama (4 percentage point drop) and Light Entertainment/Modern Music (4.8 percentage point drop). 215
  36. 36. Figure 4.35: The five main networks’ genre mix in daytime Hours by genre, by channel and year BBC TWO BBC ONE itv1 100% 88 111 127 578 66 627 408 450 94 189 1006 553 40% 222 115 Drama 653 655 1041 419 16 151 487 1048 438 Education 479 General Factual 105 309 37 49 43 548 13 1 30 1340 185 11 1431 1249 29 21 48 3 487 54 482 3 0% 162 1 30 1337 1375 283 551 681 1198 537 3 204 36 5 390 9 99 26 Religious Children's 314 80 20% 1230 1449 795 735 Light Entertainment & Contemporary Music Films 1217 849 111 198 88 71 Sport 546 152 229 533 914 17 353 563 571 294 393 584 241 608 532 60% five 5 201 400 547 80% Channel 4 Arts & Classical Music Current Affairs 766 1 328 7 102 26 227 439 12 230 6 News 323 2004 2005 2004 2005 2004 2005 2004 2005 2004 2005 Source: Operator returns 4.3.8 Entertainment and Children’s were the largest multichannel genres The channels in the six main multichannel genres (Entertainment, Children’s, Factual, Sport, News and Leisure) broadcast 549,559 hours of output in 2005. Entertainment channels accounted for 37% of that output signalling the enduring popularity and broad appeal of this type of content in multichannel homes (Figure 4.36). Figure 4.36: Hours of output on channels available on multichannel platforms Total broadcast hours in 2005 = 546,559 Leisure 7% News 9% Entertainment 37% Sport 14% Factual 16% Children's 17% Source: Operator returns and Ofcom analysis Only 16% of these total hours consisted of first-run originated content – in contrast to the PSBs for which 73% of their hours in 2005 were originated. Among the multichannel operators, Entertainment was the single largest originated genre with 36% of total hours. That was followed in 2005 by Sport which added a further 26% or 216
  37. 37. 22,306 hours. Despite transmitting 17% of the multichannel hours in 2005, Children’s channels delivered 11% of the originated hours, pointing to a higher degree of repetition and re-versioning in that genre when compared to the other five genres. The same was true for Factual and Leisure categories which together originated 6,864 hours or 8% of the total, despite transmitting 23% of multichannel hours (Figure 4.37). Figure 4.37: Multichannel originations Hours of originated content in 2005 = 85,796 Factual 5% Leisure 3% Children's 11% Entertainment 36% News 19% Sport 26% Source: Operator returns and Ofcom analysis Digital-only channel operators invested £652m in content (excluding Films and Sport) in 2005, up by 24% on 2004. This represented 18% of total UK spend on originations (including PSB spend but excluding Films and Sports costs) and contrasts with the share of hours broadcast by these channels which stood at 87% in 2005. Entertainment was the channel genre where investment in originated output was highest, accounting for 59% or £387m of the total. Of the remaining spend, News, Children’s and Factual accounted for a further £175m or 27% of the total (Figure 4.38). 217
  38. 38. Figure 4.38: Investment in content by channels only available in multichannel homes (source: operator returns and Ofcom analysis) £m £652m 700 600 500 400 34 35 62 21 53 60 Shopping Music News Leisure 300 Factual 200 387 100 Entertainment 0 2005 218 Children's
  39. 39. 4.3.9 Compliance with regulatory obligations What are the regulatory obligations? All television broadcasters licensed by Ofcom in the UK are subject to European legislation requiring them to meet European independent production targets. A total of 70 cable, satellite and public service broadcasters are also subject to access service obligations, introduced in the Communications Act 2003, to subtitle, sign and audio describe a proportion of their programming. Additional obligations are imposed in the Act for public service broadcasters (PSBs): the BBC, ITV1, Channel 4, five and S4C (in Wales). Public service channels include the BBC’s digital channels, but exclude the commerciallyfunded broadcasters’ digital-only services (for example, ITV2, ITV3, ITV4, E4 and More4). Channels 3, 4 and 5 are subject to conditions laid down in the Communications Act 2003, under which they must comply with a set of obligations and quotas, designed to make sure that minimum levels of certain types of programmes are produced and broadcast. Some of these obligations, such as the 25% independent production quota, are statutory and apply across the board to all public service broadcasters (including the BBC), whereas other obligations are not specified in detail in the legislation. Ofcom sets a number of other production quotas (eg originated material) and programme genres (eg news, regional), in consultation with the broadcasters, and ensures that they comply with the levels required. A degree of flexibility is possible because different levels may be set for different broadcasters, depending on individual remits, and quotas may be adjusted over-time. Ofcom has a direct relationship with the commercial PSBs in terms of quota compliance but for the BBC, its Board of Governors is responsible for regulating and monitoring output, setting the majority of the BBC’s targets. However, Ofcom must be consulted and must agree with the BBC on particular commitments. Services provided by the S4C Authority in relation to programmes broadcast by S4C in Wales are also regulated by Ofcom. Ofcom has a duty under the Communications Act 2003 to report on the communications market as a whole on an annual basis, so the BBC and S4C quotas, together with the figures achieved, are included in this section where relevant. Fewer fixed quotas exist now than under previous regulatory regimes with a continued movement towards greater self-regulation by broadcasters. This process involves broadcasters’ publication of their forward plans, outlining programme output intentions for the year ahead, coupled with reporting back on achievements against plans for the previous year. Broadcasters must consult Ofcom before making any significant changes in their programme policy, particularly those involving reductions in their public service commitments. In 2005 two significant changes were agreed and implemented on ITV1. As a result of the recommendations of Ofcom’s PSB Review, further consolidation of ITV’s regional output took place. There was also an agreed reduction in the amount of Children’s programmes. 219
  40. 40. 4.3.10 Original productions Original production quotas apply to all PSB channels, across the whole day and separately for peak viewing hours (6pm to 10.30pm). Such quotas are necessary to encourage a thriving UK production market and to provide viewers with a varied choice of home-produced programmes, as opposed to bought-in material from other sources. Originations for the purpuses of this quota are defined to be commissions from broadcasters to their in-house production resources or independent producers. Programmes which have been made for other countries are excluded, although some co-productions are included (depending on the financial contribution made). Figure 4.39 shows the quotas and the proportions achieved by the PSB channels in 2004 and 2005. With one exception all channels exceeded the required minimum. Five achieved an all-day figure of 52% in 2005 against the quota of 53% and explained its failure on errors in a new reporting system which had not come to light until the end of the year. Ofcom has agreed to accept the shortfall on condition that the quota is exceeded by an equivalent amount in 2006. Original programmes predominate on UK public service channels, particularly in peak time on BBC One, BBC Two, ITV1 and S4C where well over 90% of the schedule was originally produced for a UK audience. Figure 4.39: Broadcasters’ performance against original production quotas Percent original programming Quota Achieved 2005 100% 90% 99% 42% 49% 70% 75% 85% 94% 50% 61% 70% 71% 80% 95% 90% 96% 80% 97% 53% 52% 60% 62% 20% 65% 82% 90% 95% 80% 79% 70% 84% 70% 73% 80% 81% 70% 82% 40% 70% 82% 60% 90% 99% 80% All day S4C Five ITV1 Chan n el 4 Four Thre e BBC On e T wo BBC BBC BBC S4C Five Thre e BBC Four CBB C Cbee bies BBC Ne w s 24 BBC Parli a me nt ITV1 Chan n el 4 T wo BBC BBC BBC On e 0% Peak time * BBC Three and Four peak-time hours are 19:00 – 22:30 Note: BBC figures include programmes made or commissioned for other BBC channels Source: Operator returns 4.3.11 Regional productions The aim of the regional production quota is to encourage the maintenance or development of a range of production centres in the nations and regions, rather than a concentration in the London area, and to ensure that the independent production sector maintains its geographic diversity outside the M25 area. The quota is in two parts: the proportion of expenditure on programmes; and the volume (hours) broadcast. It covers own productions, made by broadcasters themselves, as well as commissions from independent producers. 220
  41. 41. A new common definition is taking longer than expected to become effective across all PSBs and an agreed transitional period is in place which allows the previous definitions of production to apply in 2005. The new definition will come into force from 2006. ITV1 has the highest requirement for out-of-London production, and in 2005 45% of network productions by value were made outside the M25 in 2005 and 38% by volume (Figure 4.40). Ofcom’s PSB review recommended an increase in ITV1’s quotas to 50% from 2005 but these new levels have yet to be achieved. The regional production quota applies across all the BBC’s public service channels as a whole, not by individual channel, and in 2005 the BBC achieved 34% by value and 33% by volume - increases for both on the previous year. Figure 4.40: Broadcasters’ performance against regional production quotas Percentage of network production produced outside London, by value and by volume Quota Achieved 2005 50% 40% 30% 45% 20% 40% 30% 38% 34% 33% 30% 31% 24% 10% 33% 25% 30% 33% 10% 30% 10% 0% All BBC ITV1 Channel 4 By value Five All BBC ITV1 Channel 4 Five By volume Note: quota not applicable to S4C Source: Operator returns Ofcom’s remit with respect to regional production also extends to assessing whether the different production centres constitute a suitable range across the UK in terms of geographical spread. Figure 4.41 shows the proportion of expenditure on regional production outside the M25, broken down by macro-region, comparing 2004 and 2005. ITV1’s proportion of expenditure in London increased in 2005 and while production continued to be concentrated in Leeds and Manchester, the proportion made in the north fell a little – from 35.3% to 33.9%. Figure 4.41 also shows that the nations continued to produce significantly less output than other areas, despite Ofcom’s request that the ITV network widen its geographical spread of production outside London, in particular to increase production in the nations. 221
  42. 42. Figure 4.41: Breakdown of expenditure on production, by broadcaster and macro-region, 2004 and 2005 Percentage of production by value 100% 2.5% 6.7% 2.0% 0.8% 1.8% 4.0% 80% Scotland 5.7% 3.2% 1.3% 6.6% 6.4% Wales 4.5% 2.0% 3.7% 60% 16.9% 18.7% 35.3% Northern Ireland 3.1% 33.9% 11.7% North of England 40% South of England 10.0% 10.1% 8.1% 20% 8.6% 5.4% 0% 7.6% 6.1% 8.6% 7.0% 1.4% 1.3% 2004 2005 2004 2005 BBC ITV1 Note: quota not applicable to S4C Source: Operator returns 3.0% 7.1% Mids & East Anglia 1.1% 2004 2005 Channel 4 2004 2005 Five 4.3.12 Independent productions The statutory requirement that broadcasters must commission a minimum of 25% of programmes (excluding news and repeats) from independent producers applies to all PSBs. For the BBC, it applies across all the BBC’s PSB channels taken together (BBC One, Two, Three, Four, CBBC, CBeebies, News24, BBC Parliament) and separately on BBC One and BBC Two. The percentage for the BBC as a whole increased from a figure of 30% in 2004 to 31% in 2005 (Figure 4.42). BBC One and BBC Two exceeded the quota, achieving 28% and 39% respectively. ITV1 also exceeded the quota, achieving 33% in both years. Channel 4 and Five, which were originally established as publisher-broadcasters and set up to commission programmes from the independent sector, rather than produce programmes themselves, easily exceed the quota every year and 2005 was no exception. 222
  43. 43. Figure 4.42: Percentage of qualifying hours commissioned from independent producers, 2004 and 2005 Proportion of qualifying hours commissioned from independent producers, 2004 and 2005 100% 91% 88% 87% 84% 82% 80% 59% 60% 40% 2004 2005 39% 39% 33% 33% 30% 31% 27% 28% 22% 22% 20% QUOTA= 25% 0% All BBC BBC One BBC Two BBC digital ITV1 Channel 4 Five S4C Source: Operator returns Figure 4.43 shows the proportion of programmes commissioned from independent producers across a range of different types of programmes by network. The legislation states that broadcasters must show a range and diversity of independent commissions but this does not mean that the 25% quota has to apply rigidly to every programme genre. Broadcasters do generally commission some independents in each of the main genres and in many cases at least 25% of programmes within the main genres. The figure indicates that Channel 4 and Five together commission most or all of their output from independent producers. The BBC and ITV1 show a greater diversity of approach by genre. It is notable that ITV1 tends to produce Sport and Current Affairs in-house while the BBC does the same with Drama and Arts. Figure 4.43: Percentage of qualifying hours commissioned from independent producers, by genre, 2005 Drama Sport Current affairs Factual Arts 73% Entertainment 57% 77% Percentage of qualifying hour commissioned from independent producers by genre, 2004 and 2005 Education Religion Children's Regional progs 100% 80% All BBC 93% 100% 92% 100% 100% 100% 81% 95% 85% 87% 85% 95% Channel 4 0% 4% 40% 31% 20% 26% 17% 3% 4% 42% ITV1 0% 0% 0% 37% 17% 30% 25% 40% 18% 17% 10% 28% 32% 20% 73% 40% 97% 97% 60% Five Source: Operator returns 223
  44. 44. Although there are no specific quotas, it is important that the scheduling of independent productions across dayparts is satisfactory, particularly in peak time, when most people are watching. Figure 4.44 shows the amount of networked programmes by volume broadcast in peak time in 2005, compared with 2004. BBC One increased the volume from 21% to 25%, while the levels on BBC Two fell slightly (from 32% to 31%). ITV1 showed the lowest level of independent productions in peak in both years, accounting for 18% of its network schedule. This is partly accounted for by the high proportion of soaps in peak time (all of which are produced in house) – excluding soaps brings the total up to 24%. Channel 4, Five and S4C all showed a higher proportion of independent commissions in peak time in 2005 than in 2004. Figure 4.44: Percentage of peak-time qualifying hours commissioned from independent producers, excluding regional programmes, 2004 Proportion of peak-time hours 90% 81% 80% 73% 73% 74% 70% 69% 62% 60% 2004 50% 2005 40% 30% 32% 31% 21% 25% 18% 18% 20% 10% 0% BBC One BBC Two ITV Channel 4 Five S4C Source: Operator returns 4.3.13 News and current affairs It is a statutory requirement that all PSBs must provide high quality national and international news and current affairs programmes, in sufficient quantity in peak viewing hours as well as at other times. Quotas are set for all hours and for peak time and both news and current affairs quotas apply to the commercial PSBs. For the BBC, the news quotas apply to BBC One only and the current affairs quotas apply to BBC One and BBC Two combined. Note that Five’s annual hourly news quota in peak for 2005 was reduced to 100 hours. The minimum figures were exceeded by all broadcasters (Figure 4.45 and Figure 4.46). 224
  45. 45. Figure 4.45: Broadcasters’ performance against news quotas, all day and peak time, 2004 and 2005 Hours per year Quota Achieved 2004 Achieved 2005 1,500 1,380 1,508 1467 1,000 ITV1 Channel 4 150 171 169 BBC One 208 213 217 S4C 100 150 119 Five 125 137 135 469 619 478 ITV1 Channel 4 275 281 293 BBC One 200 200 230 0 208 311 319 365 385 465 500 Five S4C Source: Operator returns Figure 4.46: Broadcasters’ performance against current affairs quotas, all day and peak time, 2004 and 2005 Achieved 2005 S4C Channel 4 Five 41 45 30 ITV1 10 10 14 BBC One & Two 80 117 126 Five 35 44 45 ITV1 105 117 110 130 238 248 BBC One & Two 60 77 71 208 212 215 Channel 4 78 90 93 450 400 350 300 250 200 150 100 50 0 Achieved 2004 365 434 433 Quota S4C Source: Operator returns 4.3.14 Programmes made for a regional audience Regional services are available only on ITV1, BBC One and BBC Two. The quotas applying to the BBC and the amounts achieved are shown in Figure 4.47. Individual quotas are not set for each of the separate nations and the English regions, with the overall requirement applying across BBC One and Two taken together and expressed as an annual total. More than 7,000 hours were broadcast in 2005, an increase of 233 hours on 2004 and well above the target of 6,580 hours. Additional quotas apply on BBC One for regional news, regional news in peak time and other regional programmes in peak. The quotas were all met and the volumes shown in 2005 exceeded the 2004 equivalents. 225
  46. 46. Figure 4.47: The BBC’s performance against regional programming quotas, hours per year, 2004 Hours per year Quota 8,000 Achieved 2004 Achieved 2005 7,048 6,580 6,815 6,000 3,920 4,000 4,400 4,656 2,010 2,156 2,217 2,000 1,030 1,069 1,084 0 All regional programming BBC One regional news BBC One regional news in peak Regional programming in peak excl. news on BBC One Source: Operator returns The quotas for ITV1 are set for individual regions and were standardised for most English regions following the creation of a single ITV. In 2005 the requirement was reduced to seven hours in total each week, of which at least 5.5 hours must be news and 1.5 hours must be other regional programmes. Higher quotas apply in the nations to reflect their additional responsibilities while somewhat lower quotas apply in the smaller regions. The volume of news output in the ITV regions has been maintained and while the volume of other regional programmes has reduced, this has generally been outside peak viewing hours. The minimum requirements were met or exceeded in all ITV regions and nations (see Figure 4.48). Figure 4.48: The ITV1 licensees’ performance against regional programming quotas, 2004 and 2005 Hours per year 7:00 7:18 7:00 7:15 7:00 7:13 9:22 9:57 7:00 7:17 7:00 7:16 7:00 7:17 7:00 7:17 7:04 7:29 5:38 5:38 7:00 7:14 5:42 6:25 7:00 7:15 8:00 9:45 9:41 12:00 Achieved 9:30 10:16 Quota 4:00 Source: Operator returns 226 TV es tc ou nt Yo ry rk sh ire U W al es W es t M er id ia n Sc ot Ty ti sh ne Te es W An gl ia Bo rd er C en tra l C ha nn el G ra m pi an G ra na da Lo nd on 0:00
  47. 47. 4.3.15 Repeats There are no quotas limiting the number of repeats in the commercial PSB schedule but any substantial increase could be regarded as a significant change in the service provided and might constitute grounds for intervention by Ofcom. Figure 4.49 shows that the proportion of repeats has increased in 2005 across all PSB channels, except S4C, compared with 2004. A programme is regarded as a repeat if it has been previously shown on that channel in the same or substantially the same form. BBC One, ITV1 and S4C had the lowest levels of repeats of all the PSB channels, at 22% (S4C), 32% (ITV1) and 33% (BBC One). In peak time the proportion of repeats is much lower. (Figure 4.49 and Figure 4.50). Figure 4.49: Proportion of repeats in the PSBs’ schedules, all day, excluding programmes shown first on another channel 2005 Repeats in 2004 Repeats in 2005 120% 97% 100% 82% 80% 60% 40% 71% 79% 83% 66% 63% 56% 44% 38%40% 41% 38% 33% 34% 26% 32% 28% 28% 22% 20% 0% BBC One BBC Two BBC Three BBC Four CBBC Cbeebies ITV1 Channel Five (excl. 4* GMTV1) S4C Source: Ofcom research, 2004 Note: 2004 excludes programmes first shown on another channel; 2005 includes those programmes. *Exluding schools programmes 227
  48. 48. Figure 4.50: Proportion of repeats in peak time, excluding programmes shown first on another channel, 2004 and 2005 Hours per year 64% 67% 55% 54% 43% 37% 40% 35% 30% 30% 27% 23% 23% 19% 14% 13% 10% 10% 11% 10% 9% 0% BBC One BBC Two BBC Three BBC Four ITV1 (excl. GMTV1) Channel 4* Five S4C Source: Operator returns 4.3.16 European programming All broadcasters, including cable and satellite companies, must comply with the European legislation, the Television Without Frontiers Directive. This specifies that: • • • where practicable the majority of programmes shown must be European (including UK productions); at least 10% must be independent European works; and at least 50% of the independent productions must be “recent works” (made within the last five years). All public service channels easily exceeded these targets in 2005 (Figure 4.51). The EU legislation recognises that some channels may not be able to meet the targets in the early years, but they should demonstrate an incremental progression towards the quota. There is also some leeway if it is not practicable for broadcasters to comply; if for example, cable and satellite channels have difficulty in meeting the quotas because by the nature of their services they are more dependent on material from non-European sources. Data on compliance with the TVWF Directive for all UK broadcasters is published every two years by the European Commission. 228
  49. 49. Figure 4.51: Broadcasters’ performance against European programming (TVWF Directive) requirements, 2005 Proportion of transmitted programmes (percent) European programmes European independents Recent works 100% 96% 99% 63% 94% 71% 52% 71% 69% 82% 100% 40% 97% 99% 18% 96% 89% 96% 93% 26% BBC TWO 29% BBC ONE 90% 91% 26% 85% 82% 24% 50% 10% 50% 40% 20% 97% 60% 82% 40% 62% 80% 0% Target BBC BBC THREE FOUR CBBC Cbeebies ITV1 Channel (excl. 4 GMTV1) Five S4C Source: Operator returns Listed events There were no instances of any broadcaster failing to comply with the Code. Access services Until the Broadcasting Acts 1990 and 1996 were amended by the Communications Act 2003, only public service broadcasters and digital programme service licensees were required to subtitle, sign and audio-describe a proportion of their programmes. From the beginning of 2004, access service obligations were extended to many cable and satellite channels. The targets vary, according to when they started broadcasting or at what level they are ranked (Figure 4.52). In 2005, most channels managed to achieve the targets they were set, and many chose to exceed them, particularly for subtitling. Music channels were not able to obtain copyright owners’ permission to use lyrics for subtitling until late in the year, so were not able to meet their subtitling obligations in full. A few other channels missed some of their targets for technical or other reasons, but they have undertaken to make up the shortfall during 2006, on top of their targets for that year. 229
  50. 50. Figure 4.52: Broadcasters’ performance against access services requirements, 2005 BBC One Subtitling Audio description Signing Annual Achieved Annual Achieved Annual Achieved quota5 (Q1,2,3 & 4) quota (Q1,2,3 & 4) quota (Q1 2,3 & 4) 88.75% 90.2% 6.35% 7.7% 3.17% 3.2% BBC Two 88.75% 90.9% BBC Three BBC Four 67.5% 67.5% CBBC 67.5% Cbeebies BBC News24 Service 6.35% 6.8% 74.0% 6.35% 17.8% 3.17% 3.5% 71.6% 6.35% 9.6% 3.17% 3.4% 72.2% 6.35% 11.7% 3.17% 3.6% 67.5% 80.3% 6.35% 9.1% 3.17% 3.9% 67.5% 68.1% 3.17% 3.6% ITV1 (excl. GMTV) 84% 93.0% 6% 8.2% 3% 3.6% GMTV1 71% 85.9% 6% 3.1% 3% 3.4% Channel 4 84% 86.7% 6% 9.5% 3% 3.3% Exempt 3.17% 3.3% Five 66% 68.2% 6% 6.5% 3% 3.2% S4C 67% 66.7% 6% 7.2% 1% 1.4% ITV2 14% 53.7% 4% 6.3% 1% 4.0% GMTV2 14% 48.7% 4% 8.4% 1% 4.6% 10% 10.5% 2% 2.8% 1% 1.4% 10% 43.7% 1% 5.0% Level One ITV3 ITV News 6 Exempt E4 10% 47.8% Sky News 10% 80.8% 1% 1.2% 1% 1.3% Sky One 10% 63.6% 2% 7.7% 1% 1.4% Sky Two 10% 53.9% 2% 6.3% 1% 1.7% Sky Sports 1 10% 19.2% 2% 3.0% 1% 1.1% Sky Sports 2 10% 16.4% 2% 4.4% 1% 1.3% Sky Sports 3 10% 15.2% 2% 5.3% 1% 1.4% Sky Sports Extra 10% 13.2% 2% 5.2% 1% 1.6% Sky Sports News 10% 19.6% 1% 1.8% Sky Travel 10% 16.1% 2% 4.7% 1% 1.6% Sky Movies 1 10% 46.0% 2% 5.8% 1% 1.1% Sky Movies 2 10% 40.2% 2% 5.6% 1% 1.2% Sky Movies 3 10% 45.3% 2% 6.2% 1% 1.2% Sky Movies 4 10% 38.4% 2% 5.9% 1% 1.1% 7 5 2% 11.9% Exempt Exempt Twelve-month targets for audio -description and signing on BBC channels run from 1 November, and for subtitling from 1 April. The relevant twelve-month period for audio description and signing on ITV’s regional services runs from 15 November. The annual subtitling targets shown for BBC channels shown in this table are a weighted average of those applying during 2005. Further details of the targets can be found in the Code on Television Access Services (http://www.ofcom.org.uk/tv/ifi/codes/ctas/?a=87101). 6 The ITV News Channel closed in December 2005 7 Sky Mix changed its name to Sky Two on the 31 October 2005 230
  51. 51. Sky Movies 5 10% 46.6% 2% 4.8% 1% 1.1% Sky Movies 6 10% 39.4% 2% 5.8% 1% 1.1% Sky Movies 7 10% 48.5% 2% 5.2% 1% 1.3% Sky Movies 8 10% 38.4% 2% 5.4% 1% 1.3% Sky Movies 9 10% 49.7% 2% 5.3% 1% 1.3% Sky Cinema 1 10% 22.9% 2% 3.3% 1% 1.0% Sky Cinema 2 10% 22.9% 2% 3.3% 1% 1.1% Sky Box Office 10% 87.1% 2% 1.6% 1% 1.7% Disney Channel 10% 96.4% 2% 0% 1% 0.7% Disney Playhouse 10% 65.6% 2% 0% 1% 1% Disney Toon 10% 99.6% 2% 0% 1% 0% MTV 10% 11.5% 2% 5.8% 1% 2.8% MTV Hits 10% 5.1% Exempt 1% 2.7% MTV Base 10% 5.8% Exempt 1% 1.6% VH1 10% 9.5% Exempt 1% 1.4% VH1 Classic 10% 6.0% Exempt 1% 2.8% TMF 10% 11.0% Exempt 1% 1.6% Nickelodeon 10% 70.24% 2% 4.3% 1% 1.6% Hallmark 10% 11.6% 2% 3.0% 1% 1.2% Sci Fi Channel Paramount Comedy Channel 10% 10.4% 2% 3.1% 1% 1.0% 10% 10.8% 2% 2.3% 1% 3.6% Living TV 6.66% 48.7% 2% 15.4% 1% 2.0% Discovery Channel 6.66% 21.6% 2% 1.7% 1% 0.4% Bravo 6.66% 28.1% 2% 7.5% 1% 2.6% Challenge TV 6.66% 31.6% 2% 6.2% 1% 1.4% Trouble 6.66% 45.5% 2% 8.6% 1% 2.3% Cartoon Network 6.66% 5.7% 2% 3.8% 1% 4.2% UKTV Gold 6.66% 54.5% 2% 10.8% 1% 1.3% UKTV G2 6.66% 46.4% 2% 15.5% 1% 1.5% UKTV Food 6.66% 37.0% 2% 4.8% 1% 1.0% UKTV History 6.66% 40.5% 2% 16.4% 1% 1.9% UKTV Style 6.66% 54.0% 2% 6.3% 1% 0.6% UKTV Documentary 6.66% 56.0% 2% 13.7% 1% 1.8% History Channel Discovery Real Time UK National Geographic Jetix 3.33% 8.9% 2% 3.4% 1% 1.5% 3.33% 15.8% 2% 2.2% 1% 0.8% 3.33% 5.2% 2% 5.0% 1% 0.6% 3.33% 13.1% 2% 5.4% 1% 2.2% The Box 3.33% 14.3% Exempt 1% 1.8% The Hits 3.33% 16.3% Exempt 1% 1.8% Level Two Level Three 231

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