Preparing for change – what will drive future

growth?

DCMS content seminar, 16 July 2012

2

Incentives to invest in content are based on a

virtuous circle inherited from an analogue environment

2

The success of the current content system is a result of these three interlinking factors – but

future developments in the industry may challenge this virtuous circle.

Scale investment in high quality UK-originated content

Significant reach and large audience share

Perceived benefits lead to scale ad revenues / public

funding

Investment in content

Revenue Viewing

3

Increases in TV sector revenue have largely

been driven by pay TV subscriptions

NAR vs. other

non-

subscription

revenue 2009 Total non-

broadcast

revenue

£713mn

Net Advertising

Revenue

£3.5bn

Subscription

revenue

£4.8bn

Licence fee

allocated to

TV £2.7bn

Pay-per-view

(£48mn)Interactive

(£53mn)

TV

shopping

(£190mn)

Other

revenue

(£125mn)

Other public

funding

(S4C)

(£102mn)

Sponsorship

(£178mn)

International

exports

£1.4bn

Sources of revenue for the UK TV industry – 2010

Note: Size represents

relative revenues

(figures are indicative)

• Changes in technology, regulation and distribution have enabled a range of new models to generate income from content

exploitation (including VOD, PPV, TV shopping, sponsorship etc)

• However, they remain small relative to advertising, subscription and the licence fee and are complementary to these

sources rather than representing a viable alternative income stream

Source: Ofcom CMR, PACT/UKTI, Oliver&Ohlbaum

Although small, this is the

only element that is

forecasting significant

growth

4

Industry spend is

rising, and has

done so

consistently for a

number of years…

…but this is mainly

driven by growth in

pay TV

(particularly sports

and films) – PSB

spend is dropping

PSB network programme spend; by channel 2006-2011

Total TV network spend 2007-2011

5

The discovery and navigation of content is key

to future levels of disruption

• To date, the PVR has tied on-demand viewing to

linear discovery and linear distribution. In a TiVo

interface, or an app-style EPG, this need no longer

be the case.

• Here are three alternative EPGs which could

disrupt funding, audiences, or regulation:

The Social EPG: • Nascent evolution, but social media apps may allow

users sort channels based on recommendations.

The App-PG:

• Apps fully understood by

consumers due to

smartphone and tablet

take-up

• Use of apps by both

content providers (OTT

services) and platform

operators is increasing.

My-PG:

• Display of ‘favourite shows’ based

on viewing behaviour.

• Already occurring in devices (e.g.

TiVo).

…the opportunity for new content

creators to enter the market via

established services

Youtube’s ‘Original Channels’ project

provides funding to producers in order

to create original content.

6

Online distribution and take-up brings both

opportunities and threats to the growth of content investment

IP distribution enables…

…increasing accessibility to over-the-top subscription VOD

services, giving content creators the opportunity to drive additional

viewing and new areas of revenue.

…but also raises potential issues…

Online copyright infringement

- has the potential to affect

revenues and subsequent

investment

Intellectual property – the

cross-jurisdictional nature of IP

delivery could make appropriate

remuneration more difficult (see

recent EU proposals on music)

7

Linear TV minutes have been resilient for the

last decade in the face of strong disruptive winds

• Despite all of the changes to

UK television in the past 8

years, linear viewing

minutes have proved

remarkably resilient.

• It should be noted that

before the BARB panel

changed in 2010, linear

viewing had experienced a

3.6% decline in minutes.

• A further fall of 2.2% was

observed between 2010 and

2011 which should be

followed closely in 2012.

• However, as far as

advertisers are concerned,

people are watching as

much linear TV as in 2003.

220 218 216 212 212 215 212 225 220

0

50

100

150

200

250

2003 2004 2005 2006 2007 2008 2009 2010 2011

Average Linear TV Minutes Consumed (BARB)

Linear TV Minutes (BARB)

Other TV Viewing (BARB, Enders, Infosys)N.B. New BARB panel introduced 2010 which means comparisons with previous years

(including trends) should be treated with caution.