Broadcast TV Feels Pain-on-Demand

Broadcast television has been the big dog of the media industry for nearly half a century. It has dominated the media time of the British consumer, created the nation’s watercooler moments and dominated the advertising spend of the biggest brands.

Remarkably, broadcast television has shrugged off the forecasts of digital doomsayers predicting rapid decline under the assault of a digital transformation of consumer behaviour. Despite the dramatic proliferation of social media, online video and web content, two key numbers defining a medium’s strength have remained stubbornly solid.

Key 1: television still pulls in 25% of total UK advertising spend1 just as it did a decade ago. Key 2: total broadcast television hours watched, either live or recorded, by the average British citizen has changed fractionally over the last ten years2.

Television’s advertising share has gently declined since the high point in 2011 but this is a mere flesh wound compared to the brutal chopping of advertising spend on the once powerful newspaper and magazine brands. Back in 2006 the average British citizen watched 3.6 hours of broadcast TV per day, adding up to a whopping 25.2 hours per week – yes, that’s more than a day per week. In 2016 that figure had slipped only marginally to 3.53 hours or 24.7 hours per week.

British people like television. Despite all the flux, they have kept on watching and the advertising has stayed too. Given the intensity of media change, this is remarkable.

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But it isn’t quite as simple as that.

Until 2012 viewing remained robust across age and demographic groups. But since then digital disruption has begun to hit hard.

Let’s look under the bonnet of those numbers. First the technicalities - there was a panel change between 2009 and 2010, which added 16 minutes to the average viewing volume. This was a handy bonus.

More importantly the demographics of our fast-ageing population have boosted total viewing significantly, covering up other weaknesses. The older we get, the more television we consume. The average 20-year-old watches less than 1.9 hours of broadcast TV per day but by the time you are over 65 you watch over 5.7 hours per day. Keeping up to date with Loose Women and waiting for Alexander Armstrong to burst into song on Pointless soaks up those hours.

In 2012, a fundamental shift began. Younger audiences started watching TV in new ways. The trend lines for traditional broadcast TV viewing moved south, led by children and 16-24s with dramatic drops in their time spent watching – a fall of almost a third in just 5 years.

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Why? Subscription video on demand (SVOD) services had arrived – initially Netflix, then Amazon Prime and Now TV. Over 9 million UK households now pay for one or more SVOD services. Household penetration is highest in households with children or young adults. Younger audiences have voted with their remotes.

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The impact of SVOD’s rise on television industry dynamics will be greater than the effect of the rise of Sky in the 1990s.

SVOD services are relatively low cost, compete hard in the genres of television in which traditional broadcasters have, until recently, retained their strength and create a high-quality advertising-free environment that challenges the licence-fee funded BBC model as much as it does commercially funded players.

Netflix is the big beast and at £7.99 per month has plenty more growth potential as it attacks Sky’s underbelly and creates a new market. Amazon’s service is free for Prime users and Amazon’s objective of household dominance means that television investment is part of a much larger strategic story.

Their combined, annual commissioning budgets are growing rapidly and already amount to $12-13 billion (£9-10 billion). Compare these figures with the budgets of the big UK commissioners – the BBC spend £1.67bn across their many channels, ITV £1bn and Channel 4 £0.7bn – which are under pressure and spread across many more hours and genres. The gap in relative spending power will continue to grow.

British TV has always prided itself on its quality and distinctiveness, but these values are unclear to younger generations with SVOD. They contrast the production values of series such as Narcos, Orange Is The New Black or House Of Cards with those of traditional UK broadcasters. SVOD players can be far more targeted in their commissioning, backing writers and formats that are more niche and risky to add to their archive while traditional broadcasters must keep a firm eye on the costs and relevance to an older audience. The BBC and Channel 4 face further regulatory pressures of commissioning guidelines, the rights of independent producers and regionality.

In my own household, new Netflix series can swallow huge chunks of our viewing for weeks. I see this dynamic played out more powerfully in households with teenage children. Asking two teenage kids to name their favourite programmes on Netflix resulted in a stream of suggestions; for the BBC and Channel 4 a few programmes were mentioned; ITV prompted I’m A Celebrity and nothing more.

The emerging generations will never evolve ‘traditional’ television viewing habits. Instead they are likely to move further away as SVOD broadcasters learn more about their interests and use personalisation and depth of programming to serve them more effectively.

The BBC’s fear is that its programming strengths are steadily whittled away in the big audience battlegrounds such as drama and popular factual, leaving Auntie with the ‘boring’ genres of news and high-brow, serious factual and mainstream popular entertainment increasingly consumed by an ageing audience, while younger viewers slip away.

The Night Watchman was wonderful drama of the highest quality that matched Netflix production values but was a rare event and even BBC period drama struggles to stand up to Netflix’s The Crown. How long before Netflix or Amazon create their own version of Blue Planet, competing for another piece of BBC heartland? Will future generations remain happy to pay a licence fee of £12.25 per month when Netflix is less expensive? The BBC has proven remarkably resilient in dealing with long-term threats but Tony Hall, Director General, has good reason to be concerned.

Many households who subscribe to SVOD services are also Sky subscribers. They are households who love TV and are willing to pay for it.

The strength of SVOD services applies plenty of pressures on Sky, demonstrated by the news that Sky is changing the structure of its programming packages. Essentially, Sky has had to beef up its £20 per month basic packages and abolish its mid-level package, which doesn’t offered enough value to subscribers against the SVOD challenge. Pressure is building on Sky’s business model and, if the core sports rights were to be successfully challenged, it could become nasty. Disney’s proposed acquisition of 21st Century Fox, majority owner of Sky, should create badly needed programming options to fight back if it goes ahead.

The commercial TV providers are winners and losers from the growth of SVOD. Their monthly reach to younger audience remains strong. As Mark Ritson emphatically shouted in Marketing Week, it is foolish for marketers to make significant moves away from television since it remains the medium that best delivers reach, visibility and impact.

But SVOD is rapidly eating into the regularity of that reach and impact to a growing proportion of the much-desired under 45-year-old audience. Traditional broadcasters need a dramatic response if the trend is to slow and it is unclear where that might come from. The challenge is greatest for Channel 4 with its positioning to the advertising market as the home of a younger, edgier audience. Let us hope that Ian Katz, the new Director of Programmes at Channel 4, fresh from Newsnight, has a clear vision and spends his £700m cleverly.

Perhaps the traditional broadcasters can mimic the SVOD paid-for business model? ITV Hub+ at £4 per month offers subscribers ITV programming without the advertisements. Does ITV have the quality or depth of programming to make this work? I am sceptical.

The traditional broadcasters also face a technology fight. Sitting on the tube today I watched two 30 something male commuters indulge in petrol-fuelled escapism through episode 1 of Amazon’s Grand Tour on their phones. Switching seamlessly across screens and prompting ever more relevant viewing options, the SVOD players are setting new standards and new expectations.

The platforms created by the traditional broadcasters are generally OK if a little unreliable at times in my experience. Viewed through the eyes of the next generation, the interfaces reinforce their view of the relative merits of the providers – “Well, they’re just British, not American like Netflix or Amazon who are all over the world,” a 13-year-old explained.

The teenagers are right. Our TV industry remained robust and domestic until 2012 but now the fight is international, deep-pocketed and quietly existential. The younger audience is choosing international on the remote. Without potent, innovative responses from our domestic broadcasters, their market positions will steadily be undermined.

1 WARC/Advertising Association.
2 BARB, the UK authority in audience measurement.

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About Tim Ewington

Co-founder of Shortlist Media. Previously co-founder of media strategy consultancy, Human Capital. Still innovating, consulting and investing.
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