Show me the money: how broadcasters develop their digital strategies
- The article briefly explains how the biggest UK broadcaster wants to develop viable new revenue streams, with a particular emphasis on online and on-demand. The attraction of taking a slice of such revenues is obvious, but the competition is also high and British broadcasters have their own strategies to achieve their goal.
With fewer large TV audiences to target, what success are broadcasters having with alternative revenue streams? Is survival in the digital age ultimately about having fingers in as many pies as possible?
As the digital future becomes more of a reality and attracting large TV audiences gets increasingly difficult, the biggest UK broadcasters want to develop viable new revenue streams, with a particular emphasis on online and on-demand.
The total TV advertising market is expected to keep growing, albeit slowly, until 2012, but ITV1 has already seen its share of commercial viewing from the all important 16- to 34-year-old demographic nose-dive by 55% between 1999 and 2008, according to Group M. For youth-friendly Channel 4, the loss of the youth audience figure stands at 16%.
"The reason Channel 4 got into the world of on-demand first, quickly and with scale was because we partly felt it was a genuine business opportunity to punch above our weight in an emerging market," says Rod Henwood, C4's outgoing business director.
Henwood built C4's 4oD service and is also an architect of Kangaroo, the not-yet launched online, on-demand platform jointly owned by C4, the BBC and ITV.
"Equal partnership in Kangaroo - despite C4 having a lower share of linear viewing - is a validation of that strategy," he says. Until at least 2010, ITV plans to tap into all sorts of new areas including online betting and gaming - it already has a deal with PartyGaming, for example - digital classified and display advertising and adfunded online programming.
The attraction of taking a slice of such revenues is obvious, but massive competition on the web, relatively low numbers of people watching internet TV, and nascent syndication strategies mean earning real money could be a long-term goal. But Kangaroo is part of a new and important offensive line by the broadcasters.
"Where the traditional broadcasters had once dominated the closed UK TV market, the market is now evolving," says Arash Amel, an analyst at Screen Digest. "There are new power players on the internet - such as Google, Apple, MySpace and Facebook - which are increasingly associated with TV content online. The broadcasters are moving to defend their position on a new emerging platform."
Screen Digest predicts that by 2012 just £200m will come from advertising, pay per-view and subscription revenue, specifically through "open" internet TV services, such as those offered by ITV.com, Channel 4, online content aggregator Joost and MTV Overdrive. Around 40% of this revenue will come from simply exploiting sports content online. To put this £200m figure in perspective, Screen Digest forecasts that the traditional TV ad market in 2012 will be worth £3.839bn.
The mobile TV revenue opportunity is, medium-term, equally slim. Predictions are that such services will generate just a few hundred million in the UK by 2011, with most of the revenue going to mobile network operators, according to Screen Digest. ITV's aim is to earn £150m from ITV.com by 2012, but to put this in context ITV1 is expected to pull in £1.5bn in ad revenues in 2008.
"ITV's principle source of revenue will be broadcast TV for years to come," says Adam Smith, futures director at Group M, part of WPP Group. "Everything else will be single digit percentages."
Even as the number of people and the amount of time spent on the internet and other digital devices continue to rise, people are watching more TV - some 10 minutes more per day on average than in 1997, according to TV marketing body, Thinkbox. Most of this increase is from the rise of multi-channel TV.
So are the new, growing digital revenues cannibalising TV revenue? "My view is that the potential over the medium term is that online revenue will be largely incremental," says Carolyn Fairbairn, director of corporate development and strategy at ITV. She argues that maintaining a focus on ITV's core broadcaster competences of making big, attractive entertainment shows - coupled with "must watch" sports content - will fuel increases in audience and revenue, no matter what platform they are delivered on.
"There has been immense pressure on TV advertising over the last few years - driven by a fast digital transition - which has depressed ad prices on TV," says Fairbairn. "The idea that there is some inexorable decline in the TV ad market is not what we expect and not what we are seeing." In fact, some observers expect a "market correction" in the price differential charged between traditional TV ads and relatively expensive online ads as the internet video market matures. Today, advertising around online video content can command a double- digit premium against a TV ad, despite the fact that the total audience for the online ad is much smaller.
"Whatever the price premium [of online video] is now, it will come down," says C4's Henwood. "Although current online prices will [be sustained] for a while longer, in 10 years' time they might be half what they are now." But, in any case, he predicts that advertising funded will be the dominant model in the on-demand world.
One broadcaster that seems to have caught on early about diversifying its revenues is BSkyB. The dominant pay TV company launched its Sky Anytime service in early 2006, offering Sky and, more recently, third-party channel content to PCs, as well as to TVs equipped with the latest Sky set-top boxes and to mobile phones.
Late last year Sky signed deals with Warner Bros and Paramount which will allow Sky Movies' customers to access films including Mission Impossible 3, Harry Potter and the Goblet of Fire and Superman Returns using Sky Anytime on the PC.
At the moment the on-demand Sky Anytime service on the TV is a push video on-demand service that downloads a selection of content to Sky set-top boxes for consumers to choose from. But Sky's moves into broadband and its Sky View research on what Sky homes are watching are positioning the pay TV company on other digital delivery platforms, allowing Sky to deliver highly targeted ads to individual homes along with broadband delivered programmes.
"Sky will do well as they become a huge broadband provider - over 3 million broadband subscribers are predicted by 2010 - and crucially they have got key content rights sewn up, such as sports," say Ian Maude, an analyst at Enders Analysis. "There's a good chance they can also use those rights to build up an ad-funded, and paid-for, internet business." According to Enders Analysis, by 2012 Sky will make more than £110m from online advertising in all its forms - search, classified and display.
"A key difference for us is that we have a direct relationship with our customers and that provides a lot of knowledge," says Stephen Nuttall, director of BSkyB's commercial group. "The key is a hybrid model with lots of local storage (on a set-top box) and high bandwidth broadband through a one-to-one pipe. Push over satellite, pull over internet."
Sky calls these developments, quite simply, "smart TV".
Article first published on MediaGuardian.co.uk
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