DEVELOPMENTS IN THE UK TELEVISION MARKET

September 2002

2

Contents

• Digital TV

• Programming and Audiences

• Business Economics

• Focus on ITV

3

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 to digital packages - in 1998 analogue multichannel TV had achieved penetration of some 25%

Year After Launch

0

10

20

30

40

50

60

70

80

0 1 2 3 4 5 6 7 8 9

Pen

etra

tion

(% o

f hou

seho

lds)

Colour TV Sets1969-1978

VCR1980-1989

PC1984-1993

Satellite1987-1996

Digital TV1998-June 2002

4Source: Company literature

Pay TV take-up by platform

UK Multichannel Pay-TV Penetration, Quarter 2, 2002

PlatformHouseholds

(‘000s)% of UK TV households

Analogue Cable

1,417 5.8%

DigitalSatellite

6,101 25.0%

Digital Cable

2,026 8.3%

Total 9,544 39.1%

UK Pay-TV Growth, 1999 - 2002

Totalanaloguemultichannel

ITV Digital*

Sky Digital

Digital Cable

Mill

ions

of

subs

crib

ers

1999 2000 2001 2002Q2 Q4 Q2 Q2Q3 Q1 Q4 Q2Q3 Q1 Q4Q3 Q1

0

2

4

6

8

10

12

* 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. As no figures were publicly available for subscribers as of this date, ITV Digital subscribers were assumed to be equal to the latest figures released (i.e. for Q4, 2001).

5

Quarterly growth in digital pay-TV subscribers

-40%

-20%

0%

20%

40%

60%

80%

100%

2000 2001 2002

Digital

Analogue multichannel

Total multichannel

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

1999

Source: Company literature

6

Range of available digital basic packages (Satellite & Cable)

More than 20 channels, mostly

free to air

NTL

£20

Telewest

£15

Sky

£10

More than 20 channels, mostly

free to air

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

£23

£18.50

£13

4 ‘themed’ packs (Variety; News & Documentary; Kids & Music; General

Entertainment) each offering more than 50 channels

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

pack), each offering some 25 channels

Some 44 channels

£21.50

More than 70 channels

£26

£25.50

£16

More than 70 channels

More than 70 channels

Source: Company literature

7

Contents

• Digital TV

• Programming and Audiences

• Business Economics

• Focus on ITV

8

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.

9

Audience share in all homes by channel, 1999-2002

Source: BARB

0

5

10

15

20

25

30

35

Q21999

Q3 Q4 Q12000

Q2 Q3 Q4 Q12001

Q2 Q3 Q4 Q12002

Q2

%

BBC1

BBC2

ITV1

C4

C5

Other

10

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

Source: BARB

0

5

10

15

20

25

30

35

40

45

Q21999

Q3 Q4 Q12000

Q2 Q3 Q4 Q12001

Q2 Q3 Q4 Q12002

Q2

BBC1

BBC2

ITV1

C4

C5

Other%

11

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

Source: BARB

0

10

20

30

40

50

60

70

80

90

100

Q21999

Q3 Q4 Q12000

Q2 Q3 Q4 Q12001

Q2 Q3 Q4 Q12002

Q2

BBC1

BBC2

ITV1

C4

C5

%

12

Viewer profiles by type of television received

Profile of viewers by type of service and age, Q2 2002

Profile of viewers by type of service and social class, Q2 2002

Source: BARB

ABC1 C2DE

58%42%

Analogueterrestrial

homes

57%43%

Multi-channelhomes

60%40%All

homes

Children

16-34

35-54

55+

Analogueterrestrial

homes 50%25%

18%7%

Multi-channelhomes

22%37%

28%13%

Allhomes

35%32%

23%11%

13

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

Source: BARB

Q2 2001

Q3 2001

Q4 2001

Q1 2002

Q2 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

%

14

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

Source: BARB

All Homes

0

1

2

3

4

5

6

Children 16-34 35-54 55+

Multichannel Homes

Children 16-34 35-54 55+

%

Q2 2001

Q3 2001

Q4 2001

Q1 2002

Q2 2002

15

Contents

• Digital TV

• Programming and Audiences

• Business Economics

• Focus on ITV

16

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

17

0%

10%

20%

30%

40%

50%

60%

70%

80%

1995 1996 1997 1998 1999 2000 2001

Channel 3 incl GMTV

Channel 4 incl S4C

Channel 5

Cable and Satellite and other

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

Source: ITC

18

PQR

Cash Bids

Tender payments by Channel 3, Channel 5 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

19

Contents

• Digital TV

• Programming and Audiences

• Business Economics

• Focus on ITV

20

The ITV licensees

Grampian

Scottish

Ulster

Border

Tyne Tees

Yorkshire

Granada

Central

AngliaHTV

Carlton/LWTWestcountry

MeridianChannel

21

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

22Source: BARB

Audience share by region, ITV1 compared with BBC1, Q2 2002

ITV1

BBC1

0

5

10

15

20

25

30

35

40

Borde

r

Ulster

North

Eas

t

Wale

s

Yorks

hire

North

Wes

t

Scotla

nd

Midl

ands

Lond

onW

est

East o

f Eng

land

South

& S

outh

Eas

t

South

Wes

t

%

23Source: BARB

Audience share for regional news programmes by region,ITV1 compared with BBC1, Q2 2002

%

0

5

10

15

20

25

30

35

40

45

50

Borde

r

Ulster

North

Eas

t

South

& S

outh

Eas

t

Wes

t

Lond

on

Midl

ands

Scotla

nd

Yorks

hire

North

Wes

t

East o

f Eng

land

Wale

s

South

Wes

t

ITV1

BBC1

24

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

Source: ITC; Channel 4 Annual Report

ITV, Channel 4 and Channel 5 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

Channel 5

65%81%ITV

60%69%Channel 4

55%58%Channel 5

25Source: ITC

ITV, GMTV, Channel 4 and Channel 5 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

Channel 525%

31%ITV

25%61%Channel 4

25%73%Channel 5