DEVELOPMENTS IN THE UK TELEVISION MARKET

December 2002

2

Contents

• Industry Figures

• Digital TV

• Programming and Audiences

• Focus on ITV

3

Sources of UK television revenue...

Source: ITC

Components of television revenue in 2001

Net Advertising Revenue

44%£3.4 billion

Sponsorship1%£84 million

Sale of goods4%£312 million

Other5%£382 million

BBC licence fee spent on TV

21%£1.7 billion

SubscriptionRevenue

25%£2.0 billion

...and trend in share of main components,1995-2001

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

1995 1996 1997 1998 1999 2000 2001

NAR

Sponsorship

Subscription

Sale of goodsOther

BBC licence fee spent on TV

4

0%

10%

20%

30%

40%

50%

60%

70%

80%

1995 1996 1997 1998 1999 2000 2001

Channel 3 incl GMTV

Channel 4 incl S4C

Five

Cable and Satellite and other

UK TV Net Advertising Revenue by channel over time...

Source: ITC

5

PQR

Cash Bids

Tender payments by Channel 3, Five and Additional Services licensees,1993-2001

Note: The drop in total tender payment in 1999 reflects the renewal of some Channel 3 licences. The increase in PQR in this year reflects the policy decision that more emphasis be given to the PQR component of tender payments.

The Broadcasting Acts 1990 and 1996 require that certain kinds of licence are awarded by the ITC after a process of competitive tender. Licences awarded in this way are required to make additional payments to the Treasury (via the ITC). Additional payments are in two parts. The first is a percentage, set by the ITC, of qualifying revenue (PQR). The second part is the cash bid, which on renewal is set by the ITC. This is index-linked and payable annually.

Source: ITC

£ m

illio

n, n

omin

al p

rices

0

50

100

150

200

250

300

350

400

450

500

1994 1995 1996 1997 1998 1999 2000 2001

6

Contents

• Industry Figures

• Digital TV

• Programming and Audiences

• Focus on ITV

7

Take-up of digital television compared with other home technologies

Source: ITC

Digital TV’s strong initial growth is, in part, a result of the move to switch existing subscribers from analogue todigital packages - by 1998 analogue multichannel TV had already achieved penetration of some 25% of households

Colour TV Sets1969-1978

VCR1980-1989

PC1984-1993

Satellite1987-1996

Digital TV1998-Sep 2002

0

10

20

30

40

50

60

70

80

0 1 2 3 4 5 6 7 8 9Year after launch

Pen

etra

tion

(% o

f hou

seho

lds)

8Source: Company data

Pay TV take-up by platform

UK Multichannel Pay-TV Penetration, Quarter 3, 2002

PlatformHouseholds

(‘000s)% of UK TV households

Digital Cable

2,037 8.4%

DigitalSatellite

6,063 24.9%

Analogue Cable

1.333 5.5%

Total 9,433 38.7%

* Please note: ITV Digital went into Administration on 27 March 2002 and ceased trading on 1 May, therefore we have only included subscriber numbers up to 31 March 2002.

UK Pay-TV Growth, 1999 - 2002

Analoguemultichannel

ITV Digital*

Sky Digital

Digital Cable

Mill

ions

of

subs

crib

ers

1999 2000 2001 2002

0

2

4

6

8

10

12

Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3

9

How people are watching free-to-air digital television, Q3 2002

Sources: Estimates for iDTVs are provided by Intellect, all other figures are ITC estimates

Sky FTA Churn317,000 (20%)

We estimate that 25% of Sky’s ex-subscribers still use the set top box to obtain FTA

channels

Sky FTA Viewers 230,000 (15%)

More than 200,000 households are estimated to have taken advantage of Sky's £100 FTA box

offer before it was withdrawn in early 2002 - it is being re-introduced in early 2003

Ex-ITV Digital600,000 (37%)

We estimate that 600,000 of ITV Digital’s ex-subscribers now use the

set-top box to receive Freeview services

iDTV308,000 (20%)

The number of iDTV sets is beginning to show

significant growth

FTA DTT Adaptors120,000 (8%)

A small number were using set top boxes provided by manufacturers such as Pace -

following the launch of Freeview this number is expected to increase rapidly

10

Quarterly growth in pay-TV subscribers

Digital

Analogue multichannel

Total multichannel

Source: Company data

-40%

-20%

0%

20%

40%

60%

80%

100%

2000 2001 2002

Q1 Q1 Q1 Q2 Q2 Q2 Q3 Q3 Q4 Q4 Q3 Q4

1999

Q3

11

Range of available digital basic packages (Satellite & Cable)

More than 20 channels, mostly

free to air

NTL

Telewest

£15

Sky

£12.50

Please note: prices for NTL and Telewest packages include phone line rental;installation charges are applicable for all three platforms

More than 14 channels, mostly

free to air

Channels included:

Cost:

Cost:

Cost:

Channels included:

Channels included:

More than 40 channels

£19.50

£18.50

£15.50

More than 20 channels,mostly free to air

4 ‘themed’ packs (Popular mix, Knowledge, Kids/music, Lifestyle

pack), each offering some 25 channels

Some 44 channels

£21.50

More than 70 channels

£25.50

£18.50

More than 70 channels

Source: Company literature, January 2003

£25.50

More than 70 channels

12

ADSL

NTL

Telewest

‘000

s

-

200

400

600

800

1,000

1,200

Q2 Q3 Q4 Q2 Q3Q1

2001

Q1

2002

Source: Company literature

Growth in broadband internet subscribers 2001-2002

93,000

222,000

147,000

330,000

479,000

748,000

1,046,000

13

Contents

• Industry Figures

• Digital TV

• Programming and Audiences

• Focus on ITV

14

Audience share in all homes by channel, 1999-2002

Source: BARB

%

BBC1

BBC2

ITV1

C4

Five

Other

0

5

10

15

20

25

30

35

Q31999

Q4 Q12000

Q2 Q3 Q4 Q12001

Q2 Q3 Q4 Q12002

Q2 Q3

(CAGR)

(-2.8%)

(-8.0%)

(15.5%)

(2.8%)

(-1.6%)

(2.4%)

15

Audience share in multi-channel homes by channel, 1999-2002

Source: BARB

BBC1

BBC2

ITV1

C4

Five

Other%

0

5

10

15

20

25

30

35

40

45

Q31999

Q4 Q12000

Q2 Q3 Q4 Q12001

Q2 Q3 Q4 Q12002

Q2 Q3

(CAGR)

(3.9%)

(-1.6%)

(-6.8%)

(1.8%)

(2.4%) (-1.1%)

16

Audience share in analogue terrestrial homes by channel, 2001-2002

Source: BARB

Five

BBC1

BBC2

ITV1

CH4

2001

0

5

10

15

20

25

30

35

40

Q1 Q2 Q3 Q4 Q1 Q2 Q3

%

2002

17

Average weekly audience reach (3 minutes consecutive) by channel, all homes, 2001-2002

0

10

20

30

40

50

60

70

80

90

100

Q31999

Q4 Q12000

Q2 Q3 Q4 Q12001

Q2 Q3 Q4 Q12002

Q2 Q3

%

BBC1

BBC2

ITV1

CH4

CH5

18

Viewer profiles by type of television received

Profile of viewers by type of service and age, Q3 2002

Profile of viewers by type of service and social class, Q3 2002

Source: BARB

Children

16-34

35-54

55+

ABC1 C2DE

Analogueterrestrial

homes 59%41%

Multi-channelhomes 56%

44%

Allhomes 60%

40%

Analogueterrestrial

homes 50%25%

18%7%

Multi-channelhomes 22%

36%28%

14%

Allhomes

35%30%

23%11%

19

Hours viewed per household per day by social class, 2001-2002

Source: BARB

Q3 2001

Q4 2001

Q1 2002

Q2 2002

Q3 2002

0

0.5

1

1.5

2

2.5

3

3.5

4

4.5

All Homes

ABC1 C2DE All Individuals

Multichannel Homes

ABC1 C2DE All Individuals

%

20

Hours viewed per household per day by age, 2001-2002

Source: BARB

Q3 2001

Q4 2001

Q1 2002

Q2 2002

Q3 2002

0

1

2

3

4

5

6

All Homes

Children 16-34 35-54 55+

%

Children 16-34 35-54 55+

Multichannel Homes

21

Issue of ITC licences

Source: ITC estimates

Issue of ITC licences and total number of licensed programme services, 1994-2001

-100

0

100

200

300

400

500

600

1994 1995 1996 1997 1998 1999 2000 2001

Net licences issued in year (all services)

Total programme services

Note: The negative figure for net licences issued in 2000 reflects the replacement of many regional cable licences with fewer national licences.

22

Contents

• Industry Figures

• Digital TV

• Programming and Audiences

• Focus on ITV

23

The ITV licensees

Grampian

Scottish

Ulster

Border

Tyne Tees

Yorkshire

Granada

Central

AngliaHTV

Carlton/LWTWestcountry

MeridianChannel

24

The ITV licensees - ownership structure

ITV

Scottish Media Group

Carlton GroupGranada Group

Anglia

Border

Granada

LWT

Meridian

Tyne Tees

Yorkshire

Central

Carlton

HTV

Grampian

Westcountry

Scottish

Ulster

Channel

25Source: BARB

Audience share by region, ITV1 compared with BBC1, Q3 2002

ITV1

BBC1

0

5

10

15

20

25

30

35

40

Borde

rW

est

South

Eas

t

Scotla

nd

Yorks

hire

Lond

on

Ulster

South

Wes

t

Midl

ands

North

Eas

t

North

Wes

t

East o

f Eng

land

Wale

s

26Source: BARB

Audience share for regional news programmes by region,ITV1 compared with BBC1, Q3 2002

ITV1

BBC1

0

5

10

15

20

25

30

35

40

45

50

Ulster

Borde

r

North

Eas

t

South

Eas

t

Midl

ands

Scotla

nd

Lond

onW

est

Yorks

hire

North

Wes

t

East o

f Eng

land

Wale

s

South

Wes

t

27

Original programmes (including repeats) as a percentage of total output (hours) by channel

Source: ITC; Channel 4 Annual Report

ITV, Channel 4 and Five all have requirements in their licences to produce a set amount of original programming each year.

Note: Channel 4’s original programming target was only introduced as a licence requirement in 1998;prior to this the figures were reported in Channel 4’s Annual Report.

Achieved in 2001

ITC LicenceRequirement

ITC Licence Requirement for original programmes and actual performance, 2001

%

Original programmes as a percentage of total output, 1995-2001

0102030405060708090

100

1996 1997 1998 1999 2000 2001

%ITV

Channel 4

Five

65%81%ITV

60%69%Channel 4

55%58%Five

28Source: ITC

ITV, GMTV, Channel 4 and Five all have requirements in their licences to commission a set amount of programming from

independent producers each year.

ITC Licence Requirement for independently produced programmes and actual

performance, 2001

Qualifying independents as a percentage of total qualifying output,

1995-2001

Qualifying hours commissioned from independent producers as a percentage of total qualifying output by channel

Achieved in 2001

ITC LicenceRequirement

%

0102030405060708090

100

1996 1997 1998 1999 2000 2001

ITV

Channel 4

Five25%

31%ITV

25%61%Channel 4

25%73%Five