THE UK TELEVISION MARKET:AN OVERVIEW

September 2003

2

Contents

• Industry revenues and expenditure

• Multichannel platforms and digital TV

• Broadcasters and channels

• Programming and audiences

3

Sources of revenue to UK broadcasters

Source: ITC

Components of television revenue in 2002(12 months to end September)

Trend in share of main components,1997-2002

Net Advertising Revenue

44%£3.1 billion

Sponsorship1%£82 million

Sale of goods3%£248 million

Other4%£319 million

BBC licence fee spent on TV

26%£1.8 billion

SubscriptionRevenue*

21%£1.5 billion

NAR

Sponsorship

Subscription

Sale of goodsOther

BBC licence fee spent on TV

0%

10%

20%

30%

40%

50%

60%

1997 1998 1999 2000 2001 2002

* defined as subscription revenue to pay-TV channels, not platform revenue

4

UK TV Net Advertising Revenue by channel over time

Source: ITC, figures for 12 months to September of relevant year

Channel 3incl GMTV

Channel 4 incl S4C

Five

Cable and Satellite and other

0%

10%

20%

30%

40%

50%

60%

70%

80%

1997 1998 1999 2000 2001 2002

Channel NAR 2002

Five £221m

ITV1 £1,727m

Channel 4 £623m

Cabsat and Other

£575m

5

PQR

Cash Bids

Tender payments by Channel 3, Five and Additional Services licensees,1997-2002

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, calendar year figures

£ m

illio

n, n

omin

al p

rices

0

50

100

150

200

250

300

350

400

450

500

1997 1998 1999 2000 2001 2002

6

Programme budgets for the terrestrial channels, 2001-2003

0

200

400

600

800

1,000

1,200

BBC1 (Network)

BBC2 ITV1(Network)

C4 Five

2001

2002

2003

Source: Company reports, press reports and ITC estimates (for the BBC in 2003)

7

The UK programme supply market

Source: ITC

At the Secretary of State’s request, the ITC conducted a comprehensive review of the programme supply market in

autumn 2002.

The ITC made a series of recommendations which were accepted and incorporated into the Communications Bill. Among the actions proposed by the ITC were measures to strengthen

the growth potential of the independent production sector, including the requirement that public service broadcasters develop Codes of Practice to provide a clear framework for their

dealings with independent producers.

Size composition of UK production market by share of turnover 2001

BBC Granada

Carlton

SMG

FremantleMedia

EndemolTVCorporation

Otherindependents

8

International trade by UK TV companies

Source: ONS (2002 figures available in late 2003)

International transactions of TV companies,1999-2001

Others

North America

Other Europe

European Union

0

200

400

600

800

1,000

1,200

1999 2000 2001 1999 2000 2001

Exports Imports

£m

9

Contents

• Industry revenues and expenditure

• Multichannel platforms and digital TV

• Broadcasters and channels

• Programming and audiences

10

Range of available digital basic pay-TV packages (Satellite & Cable)

NTL

Sky

£12.50

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

102 channels incl. some 90

free to air

Cost:

Cost:

Channels included:

Channels included:

£18.00

£15.50

More than 30 channels,incl. some 25 ‘free to air’

4 ‘themed’ packs (Popular, Knowledge, Kids/music, Lifestyle), each offering

some 113 channels (incl. FTA)

£18.50

187 channels (incl. FTA)

Source: Company literature, 30 September 2003

£28.00

Some 100 channels(incl. ‘free to air’)

Telewest

Cost:

Channels included:

£13.50

More than 30 channels,incl. some 20 ‘free to air’

£25.50

More than 100 channels(incl. ‘free to air’)

11

Source: ITC Multichannel Quarterly. (Please note that these figures do not currently take into consideration platform overlap, therefore all households are considered to be discrete multichannel units. However, the ITC is currently working on a methodology to report more accurately on multi-platform households.)

Multichannel TV take-up by platform

FTA satellite

Digital terrestrial

Analogue satellite

Analogue cable

Pay digital satellite

Digital cable

UK multichannel TV growth, 2000 - 2003

2000 2001 2002 2003

Mill

ions

of

subs

crib

ers

0

2

4

6

8

10

12

14

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

UK Digital TV Penetration, Quarter 2, 2003

PlatformHouseholds

(‘000s)% of UK TV households

Digital Cable

2,188 8.8%

Pay DigitalSatellite

6,559 26.4%

ADSL 11 0.0%

FTA DigitalSatellite*

739 3.0%

Digital Terrestrial*

1,790 7.2%

Total 11,287 45.5%

* ITC estimates

12

How people are watching free-to-air digital television, Q2 2003

FTA DTT Adaptors

797,000 (32%)

Following the launch of Freeview the number of set-top boxes in use (from manufacturers

such as Pace) is increasing rapidly

Ex-ITV Digital

600,000 (24%)

We estimate that 600,000 of ITV Digital’s ex-subscribers now use the set-top box to receive Freeview services

Sky FTA

738,900 (29%)

Sky’s FTA set-top box offer has been re-introduced at £120, although it is not actively marketed. This figure also includes estimates

of ex-Sky subscribers who continue to use their set-top box for FTA services

iDTV

393,000 (16%)

The number of iDTV sets is beginning to

show significant growth

Source: ITC estimates

13

Share of multichannel television homes by platform, Q2 2003

Share of multichannel homes in the UK

Source: ITC

Satellite59%

Cable26%

Digital Terrestrial TV14%

ADSL0%

14

The cable industry has seen significant consolidation in the last decade

Major Cable Operators

Atlantic Telecom

BT

Cable & Telecoms

Cable & Wireless

CableTel

Comcast Europe

ComTel

Convergence Group

Diamond Cable

Eurobell

General Cable

Telecential

Telewest

1997

13 companies controlling 155 regional franchises

Today

2 major operators

1992

29 companies (19 from the US or Canada)

Bruncor;Coastal/Leonard;

Diamond Cable;IVS;

N-Com;Scotcable;

United Artists/US West;

Yorcan;BT;

Comcast;English Cable;

Jones Intercable;Nynex;

Starstream;

US Cable Corp;Cable

Corporation;CUC;

General Cable;Leicester/Fundy;

PacTel;Southwestern

Bell;Vento/Wash Post;

Cable London;Devanha Group;

Insight;Maclean Hunter;Alan Robinson;

Telecable;Videotron;

There are also twosmaller operators:

(Isle of Wight)

(NW England and SW Scotland)

Source: Cable Yearbook and ITC

15

BT Openworld and BT

Broadband accounted for

51% of all ADSL connections in Q2

2003

Source: Company data

Growth in broadband internet subscribers 2001-2003

Note: most broadband internet connections do not currently support

TV broadcast services

ADSL

NTL

Telewest

Hou

seho

lds

(mill

ion)

2001 2002 2003

147,000222,000

330,000

479,000

748,000

1,047,000

1,334,000

1,760,000

-

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

2.0

2.2

Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2

2,152,000

16

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-Q2 2003

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 ho

use

hold

s)

17

Forecast take-up of digital TV

Source: ITC / BBC

Digital television take-up, 1998-2007

Total UK households95% of householdsUpper scenarioAverage of City analystsLower scenario

0

5

10

15

20

25

30

98 99 00 01 02 03 04 05 06 07Year-end

UK

hou

seho

lds

(mill

ions

)

58%

78%

In 2002, the Secretary of State asked the ITC and BBC jointly to examine what the future growth of digital penetration might be in the UK. Given the particular difficulty of generating projections at that time, we considered two possible scenarios for the market’s development. The “upper” scenario is generated by a generally favourable set of market conditions for the three main digital platforms (satellite, cable and DTT). The “lower” scenario arises if conditions prove more negative and / or operators adopt more limited strategies.

In the upper scenario, digital penetration roughly doubles over the next five years, from 10 million households at the end of 2002 to around 20 million by the end of 2007, a 78% penetration rate. Growth is more modest in the lower scenario, with take-up rising to just under 15 million (58% penetration) by the end of 2007.

18

Contents

• Industry revenues and expenditure

• Multichannel platforms and digital TV

• Broadcasters and channels

• Programming and audiences

19

Key milestones in the history of commercial television in the UK

1955: ITV launches - regulated by the

Independent Television Authority (ITA)

1969: ITV goes colour

1972: ITA becomes the Independent

Broadcasting Authority (IBA)

1981: First subscription

service, Starview, begins

1982: Channel 4 and S4C launch

1984: First cable service

is licensed

1989: Sky television launches

a four-channel service on satellite

1990: BSB launches on satellite - Sky and BSB merge to form BSkyB

Source: ITC

1991: Independent Television Commission (ITC) is successor to IBA; the first competitive tender is held for

Channel 3 licences

1997: Channel 5 (now Five) launches

1998: Digital TV launches

2002: ITV Digital goes into administration;

Freeview launches in November; number of

channels available in the UK now exceeds 200

20

Performance of the terrestrial channels and their subsidiaries

Source: ITC and BARB

* Share figures for terrestrial channels are for all homes in August 2003; figures for the subsidiary channels are for multichannel homes in August 2003 and are only available for those channels with 0.1% share and above.

BBC1

BBC2

ITV1

Channel 4

Five

24.5%

11.5%

22.9%

9.7%

6.3%

BBC

BBC

See nextslide

Channel 4

RTL (65%);UBM (35%)

Channel Share*Owner

BBC3 (0.7%); BBC4 (0.2%); CBBC (0.6%); CBeebies (1.2%); BBC News 24 (0.6%);

BBC Parliament (n.a.)

See BBC1

ITV2 (1.8%); ITV News (0.2%)

E4 (0.7%); FilmFour (0.1%)

n.a.

‘Subsidiary’ channels (share*)Logo

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

GMTV** Owned jointly by Carlton, Granada, SMG and Disney

22

Terrestrial licensees must meet targets for original programming...

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.

Original programmes as a percentage of total output, 1997-2002

ITC Licence Requirement for original programmes and actual performance, 2002

Achieved in 2002

ITC LicenceRequirementFive

55%58%

Channel 460%

67%

ITV65%

81%%

ITV

Channel 4

Five

0102030405060708090

100

1997 1998 1999 2000 2001 2002

23Source: 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, 2002

Qualifying independents as a percentage of total qualifying output,

1997-2002

…for qualifying hours commissioned from independent producers...

Achieved in 2002

ITC LicenceRequirement

%

ITV

Channel 4

Five

25%

86%Five

25%

66%Channel 4

25%

30%ITV

0102030405060708090

100

1997 1998 1999 2000 2001 2002

24

…and for programme production outside London

Source: ITC Annual Report 2002

ITV1, Channel 4 and Five are required to spend a proportion of their programming budget on production outside London. The requirements for 2002

for each channel are listed below.

ITV1 = 50%

Channel 4 = 30%

Five = 10%2001

2002

50.3%

56.0%

ITV1

29.0% 30.0%

Channel 4

12.8% 11.2%

Five

25

UK multichannel television: most popular channels

* Share figures are for multichannel homes in August 2003

† UKTV is a 50:50 joint venture between Flextech‡ and BBC Worldwide

‡ Flextech is owned by Telewest

Channel Owner Share*Logo

Sky Sports 1 BSkyB 2.1%

ITV2 Carlton (44%); Granada (56%) 1.8%

CBeebies BBC 1.2%

UK Style UKTV † 1.2%

UK Gold UKTV † 2.5%

Sky One BSkyB 2.8%

Sky Premier 1 Sky 0.9%

Sky Sports 2 BSkyB 1.0%

Source: ITC

Nickelodeon BSkyB (50%); Viacom (50%) 1.0%

Source: ITC and BARB

Hallmark Crown Entertainment Ltd 0.9%

26

Contents

• Industry revenues and expenditure

• Multichannel platforms and digital TV

• Broadcasters and channels

• Programming and audiences

27

Audience share in all homes by channel, 2000-2003

Source: BARB

(CAGR*)

BBC1 (-1.4%) (13.5%)Other

ITV1 (-7.4%)

BBC2 (-0.8%)

C4 (-2.7%)

Five (2.8%)

%

* CAGR = Compound

Annual Growth Rate

0

5

10

15

20

25

30

35

Q22000

Q3 Q4 Q12001

Q2 Q3 Q4 Q12002

Q2 Q3 Q4 Q12003

Q2

28

%

Audience share in multichannel homes by channel, 2000-2003

Source: BARB

(CAGR)

BBC1 (-0.6%)

(1.4%)BBC2

(-6.0%)ITV1

(0.1%)C4

(3.9%)Five

(2.7%)Other

* CAGR = Compound

Annual Growth Rate

0

5

10

15

20

25

30

35

40

45

50

Q22000

Q3 Q4 Q12001

Q2 Q3 Q4 Q12002

Q2 Q3 Q4 Q12003

Q2

%

29

Audience share in analogue terrestrial homes by channel, 2001-2003

Source: BARB

%

BBC1

BBC2

ITV

CH4

Five

0

5

10

15

20

25

30

35

40

Q22001

Q3 Q4 Q12002

Q2 Q3 Q4 Q12003

Q2

30

Average weekly audience reach (3 minutes consecutive) by channel, all homes, 2000-2003

Source: BARB

%

BBC1

BBC2

ITV

CH4

Five

40

50

60

70

80

90

100

Q2

2000

Q3 Q4 Q1

2001

Q2 Q3 Q4 Q1

2002

Q2 Q3 Q4 Q1

2003

Q2

31

Viewer profiles by type of television received

Profile of viewers by type of service and age, Q2 2003

Profile of viewers by type of service and social class, Q2 2003

Source: BARB

Children

16-34

35-54

55+

ABC1 C2DE

Analogueterrestrial

homes 62%38%

Multi-channelhomes

55%45%

Allhomes 59%

41%

Analogueterrestrial

homes 52%25%

17%6%

Multi-channelhomes 23%

37%27%

13%

Allhomes

35%31%

22%11%

32

Hours viewed per household per day by age, social class and platform, Q2 2003

Source: BARB

All homes

Multichannelhomes

No

of

hou

rs

0

1

2

3

4

5

AllIndividuals

ABC1 C2DE Children 16-34 35-54 55+

33Source: BARB

Audience share by region, ITV1 compared with BBC1, Q2 2003

ITV1

BBC1

%

0

5

10

15

20

25

30

35

Borde

r

Ulster

North

Eas

t

Yorks

hire

Midl

ands

North

Wes

t

Wale

s

Scotla

nd

East o

f Eng

land

Wes

t

South

Eas

t

Lond

on

South

Wes

t

34Source: BARB

Audience share for regional news programmes by region,ITV1 compared with BBC1, Q2 2003

ITV1

BBC1

%

0

5

10

15

20

25

30

35

40

45

Ulster

North

Eas

t

Borde

r

South

Eas

t

Scotla

nd

Midl

ands

Lond

on

Yorks

hire

Wes

t

North

Wes

t

East o

f Eng

land

Wale

s

South

Wes

t

35

Number of TV sets

Total (%)

Three 27

One 19

Five + 6

Two 36

Four 12

Number of television sets in the home

No. of days Total (%)

5 4

7 85

1 or 2 2

6 4

3 or 4 4

Less thanonce a week

< 0.5%

Number of days watchingtelevision in an average week

Note that the figures presented are for individuals, not households e.g 19% of individuals live in a

household with only one TV set

The number of television sets per household and the number of days spent watching television in an average week

Source: The Public’s View 2002