Communications Market Report

Research Document Publication date: 23 August 2007

Foreword
This is the fourth of Ofcoms annual reports to focus on trends and developments in the UKs communications market, with the aim of providing a context for decision-making by Ofcom, as well as by commercial and public sector organisations. The communications sector plays a vital role in the UKs economy and in the life of its citizens. We estimate that revenue of over 50bn was generated in 2006 by a combination of broadcasting and telecoms networks and services. And figures from the Office of National Statistics suggest that in terms of Gross Value Added, telecoms, broadcasting and the content-related components of the creative industries contribute over three times as much as the UKs electricity, gas and water supply industries combined. But given the amount of time we spend using communications services this is perhaps not surprising. We estimate that, on average, each person now spends more than seven hours cumulatively every day watching, listening, making phone calls and web-browsing. This reflects both the growing importance of communications services in our work and leisure lives and a growing desire, particularly among the young, to use multiple services simultaneously. Driving this growing role in our lives is the widening availability of increasingly sophisticated telecoms services and a greater number of audiovisual services accessible via the internet. Yet despite this, real household monthly spend on communications services fell for the second year running in 2006, down 1.5% to 92.65, driven by falling fixed and mobile call prices amid growing competition in the telecoms sector. Much of the growth in the sector stems from the arrival of converged equipment, capable of receiving services from more than one operator and over multiple platforms. Many operators now also offer communications bundles comprising a variety of different services. To reflect this, we have changed the structure of this years report by introducing a section on convergence at the start of the document. This adopts an approach which follows the progress of services and content from their creation and packaging, through distribution over fixed and wireless networks, and into navigation and then use by consumers. We have also commissioned new research which looks at the impact on traditional media of two key digital technologies: the mobile phone and the digital video recorder (DVR). In both cases we observe signs of a challenge to traditional industry economics, with up to 78% of DVR owners claiming that they regularly fast forward through advertisements while watching recorded programmes, and growing substitution of the new generation of high specification mobile handsets for devices such as cameras, portable music players and games consoles. Last year we reported on the particular threat to traditional media posed by the changing consumption habits of 16-24 year-olds. This year we explore the results of the first wave of a continuous research project commissioned by Ofcom into the use of communications by UK children. This research finds, for example, that more than 75% of 11 year olds claim that they own each of: TV sets, games consoles and mobile phones. We then consider each of the communications industries looking at the provision and takeup of networks, services and content, across television, radio and telecoms. We draw on a range of data provided by operators, primary research findings from Ofcoms regular surveys, and audience measurement from BARB and RAJAR. In addition, we have used more third party data this year, to help us describe the converging marketplace.

This publication forms the second of Ofcoms three major 2007 Communications Markets Reports (CMRs). The Nations and Regions CMR, published in May, looked at issues affecting the rural and urban populations in different parts of the UK, and the International CMR, to be published around Christmas, aims to place the UK in a wider perspective, reflecting the globalisation of the sector and the growing importance of the European Union on regulatory issues. We hope that this report will contribute to a greater understanding of the changing ways in which communications services are delivered and consumed in the UK. As such, it is intended to support Ofcoms regulatory goal to research markets constantly and to remain at the forefront of technological understanding. It also fulfils the requirements of section 358 of the Communications Act to publish an annual statistical review. We welcome feedback on all Communications Market Reports and would be particularly interested to hear views on the Convergence section of this document. Please email Ofcoms Market Intelligence team on market.intelligence@ofcom.org.uk Ed Richards Chief Executive

Contents
Section Foreword 1 Converging communications markets 2 Television 3 Radio 4 Telecommunications Glossary Table of figures Page 2 11 99 187 253 320 330

Key points: converging communications markets

The availability of broadband to more than half of UK households has driven the development of converged services and devices. Convergence has opened up major revenue opportunities for the producers of many content types. Over the first half of 2007 90% of UK singles sales by volume came from digital downloads to the computer or a mobile handset. The market for computer game playing has also been transformed, with millions of consumers worldwide now engaging in shared online gaming experiences. Audiovisual content, by contrast, continues to be largely broadcaster-funded, although independent producer revenue from new media rights more than doubled to 42m in 2006. The traditional advertiser-funded model of broadcast audiovisual output faces pressures both from the growing popularity of online advertising (it rose by nearly half in 2006 to 2bn) and from the multichannels (which attracted advertising revenue of over 1bn in 2006). The terrestrial broadcasters have in turn embraced the internet as a new distribution platform with Channel 4, ITV and the BBC all launching internet-based on-demand and/or live access to their content. Increasingly sophisticated devices are beginning to influence consumer behaviour. Fifteen percent of individuals now have a digital video recorder (DVR) and up to 78% of adults who own them say they always, or almost always, fast-forward through the adverts when watching recorded programmes. Access to communications devices is widespread among children, with more than three quarters of 11 year olds claiming ownership of a TV set, a games console and a mobile phone. Bundled communications services are increasingly popular with consumers, with 40% of households now taking more than one communications service from the same provider (up a third on last year). A majority of broadband customers take it as part of a bundle. Each person now consumes more than seven hours of media and communications services cumulatively per day. However, the tendency to consume some media simultaneously means that the actual time spent on media is likely to be less than this. The alarm is the mobile handset feature which has the highest substitutional impact on stand-alone devices, followed by the camera. A significant minority of people also say their mobile is substituting for their stand-alone portable music player or games console.

Key points: television

Total television industry revenue stood at nearly 10.8bn in 2006, up 1.4% on 2005. The gap between subscription and advertising revenue widened further during the year; subscriptions rose by 3.5% to over 4bn while advertising fell by 2.2% to 3.5bn. The industry as a whole broadcast 1.8 million hours of output in 2006. Together, hours of output from channels in the genres of Entertainment, Factual, News, Leisure, Childrens, Sport and Ethnic output grew to just over one million 15% of these were first-run originated content. In-house production fell 8.7% over the year to 1,430m, while spend on independent production and acquisitions grew 6.8% to 3,077m. All of the public service broadcasters exceeded their independent programme quota of 25% by at least five percentage points. Hours of first-run originated regional output have fallen by 20% since 2001 to total 11,919 in 2006; spend has fallen by 9.2% to 324m over the same period. Digital television penetration broke through the 80% barrier in Q1 2007, taking the total number of homes with multichannel television to 20.4 million (80.5% of the total). There are now more Freeview devices connected to the main television set in the home than pay satellite set top boxes. By Q1 2007, 8.4 million homes had Freeview, up 33.3% on the year, while 8.0 million households took pay satellite, up 8.3%. When all television sets in the UK are taken into account, 49% have yet to be converted to digital. Ofcom awarded 109 licences to broadcast in the UK in 2006; 29% of these were for Entertainment channels, 28% for Ethnic genre channels and 17% for Factual. The number of ethnic channel licences awarded grew by 20% over the year. The five main networks have been losing audience share but have been able to offset this to some extent by the strong performance of their spin-off channels; Film4, More4, E4, ITV3 and ITV4 were among the top ten gainers in share in the year to December 2006. The combined audience share of the five terrestrial channels is greater on Freeview (68%) than on cable and satellite platforms (49%). However, the downward trend is more pronounced on Freeview (which lost six percentage points in the year to March 2007). Nearly 450,000 households now subscribe to high-definition television services (HDTV) (1.7% of total TV homes). Forty-three per cent of HDTV subscribers claim to watch more television overall since taking the service but 77% say that they watch fewer hours of non-HD channels.

Key points: radio

Total funding for the UKs radio industry stood at 1.15bn in 2006, down 0.6% on 2005. We estimate that BBC radio expenditure reached 637m or 55% of the total. National commercial radio earned around 270m from net advertising revenue (23%), while local commercial radio added a further 153m (13%). Commercial sponsorship made up the final 91m (7.9%). Radio reach has been stable over the last five years at around 90%. However, total listening hours fell by 1.4% in the year to Q1 2007, and are down 4.0% on five years ago. Listening hours have fallen furthest among 25-34 year olds, down by 17.3% over five years, and among children, down 8.7%. However, the over-55s are now listening to more radio, with hours up by 5.5%. The fall in hours has mainly affected local radio, with BBC local radio listening down by 6.7% over the year and local commercial radio down by 4.1%. By contrast, national stations have increased their listening hours, with national commercial radio, in particular, increasing share across all age groups, up by 1% over the year. BBC network stations also gained hours, up by 0.5%. The BBCs share of radio listening rose to 56% in Q1 2007, up three percentage points since 2002, while the share of commercial radio fell to 42%, down by four percentage points. BBC network stations share at 45.4% was higher than all commercial radio. However, national commercial share (10.7%) overtook BBC local and nations listening (10.6%) for the first time. Three main groups accounted for 67% of all commercial radio listening by Q1 2007. GCap Media had a 31% share (34% in Q1 2006), Emap 24% (up by 1%) and Chrysalis (now Global Radio) 12%, (up by 0.4%). DAB digital radio will develop further in 2008, with the launch of the second national commercial DAB multiplex. The new national licence was awarded to the 4Digital Group Limited in July 2007 and the new network will carry ten national digital radio services as well as text and data services. Ofcom is licensing further local DAB multiplexes during 2007, with seven advertised and two awarded by July. A further three multiplex licences are scheduled to be advertised later in the year. Cumulative DAB digital radio set sales passed 5 million during Q1 2007 with 1.8 million sales in the previous 12 months. RAJAR estimates that 19.5% of UK adults now own a DAB set, up eight percentage points on last year. There are currently over 300 DAB radio set models on the market, with the average price for a portable set now around 70. Some 58% of listeners say they have accessed radio through one of the digital platforms (up seven percentage points on last year); 41% have listened via DTV, 24% over the internet, and 8% via mobile phone. Twenty seven per cent of UK adults now own an MP3 player, with 5% using them to listen to radio podcasts. Fifteen new FM licences were awarded by Ofcom during 2006, with a further four awarded by May 2007. FM licensing has now come to a close with the latest round of awards. Ofcom had awarded a total of 140 community radio licences by July 2007.

Key points: telecoms

Average household spend on telecoms services fell by nearly a pound in 2006 to 64.73 per month. For the first time, average mobile spend fell (by 70p to 31.72) as falling prices more than compensated for an increase in the total number of connections and in the average number of voice calls and text messages per subscriber. Like-for-like prices (based on a basket of services with average usage at 2006 levels) fell by nearly 9%. Total industry revenue in 2006 was 47.0bn, of which 38.5bn was retail revenue (i.e. revenue from end-users). This was an increase of 1.4% on 2005 but represents significantly slower growth than the previous five years as fixed-line revenues declined and growth in mobile and broadband revenues slowed. More than half of UK households had broadband by March 2007. The average (blended) headline speed in June 2007 was 4.6Mbit/s, although actual speeds experienced are often considerably lower, varying according to the quality and length of line from premises to exchange and the number of simultaneous users. Households with a mobile connection (93%) exceeded households with a fixed connection (90%) for the first time in 2006. Average calls per mobile connection rose above 100 minutes a month for the first time, while average calls per fixed-line connection fell below 300 minutes. At the end of 2006 there were nearly 70 million active mobile phone subscriptions in the UK, with further growth being driven by multiple handset or SIM ownership. Of these, 35% were contract connections (1% higher than a year previously). 3G moved into the mainstream in 2006 with connections growing by 70% to reach 7.8 million. The combined total of 3G customers on O2, Orange, T-Mobile and Vodafone networks is now higher than those on 3G-only operator 3UK. Local loop unbundling accelerated through 2006 so that by the end of March 2007, 72% of UK premises were connected to an unbundled exchange (an increase from 45% in March 2006). The proportion of premises in unbundled areas taking LLU services rose from 3% in March 2006 to 9% in March 2007. BTs share of fixed voice volumes fell below 50% in 2006, for the first time. Indirect operators (those offering services over another providers infrastructure) were the main beneficiaries as their share of fixed-line voice calls rose from 25% in 2005 to 28% in 2006. Analysis of time spent online reveals that Britain is a nation of shoppers and social networkers. More time was spent on eBay than on any other web site, and social networking sites Bebo, MySpace, Facebook and YouTube are all in the top ten sites by time spent. Women aged 25-34 spend over 20% more time online than their male counterparts. Silver surfers also account for an increasing amount of internet use with nearly 30% of total time spent on the internet accounted for by over-50s (although, as over-50s account for 41% of the UK population, their internet usage remains significantly lower than average).

The Communications Market 2007

1

1 Converging communications markets

11

Contents
1.1 Introduction 1.2 Key market data 1.3 Overview of market convergence
1.3.1 Defining convergence 1.3.2 The evolution of convergence 1.3.3 Service bundling 1.3.4 Approach to the rest of this section

13 15 19
19 19 21 24

1.4 Content and voice

1.4.1 Professionally produced content 1.4.2 User-generated content

27
27 36

1.5 Aggregation
1.5.1 Audiovisual output 1.5.2 Audio 1.5.3 Aggregating user-generated content

43
43 46 47

1.6 Distribution
1.6.1 Digital distribution platforms in the UK 1.6.2 The characteristics of spectrum 1.6.3 The growing capabilities of digital distribution platforms 1.6.4 Future developments

49
49 53 56 60

1.7 Devices
1.7.1 Overall device take-up 1.7.2 TV sets 1.7.3 DAB radio sets 1.7.4 Mobile handset functionality 1.7.5 Digital video recorders

65
65 66 67 67 69

1.8 Navigation
1.8.1 The role of the electronic programme guide in navigation 1.8.2 Navigation online

73
74 76

1.9 Consumption
1.9.1 Cross-media consumption 1.9.2 Use of the internet 1.9.3 Use of mobile phone features 1.9.4 Use of digital video recorders 1.9.5 Adults attitudes towards other digital communications services 1.9.6 Childrens consumption of digital communications

79
79 80 82 84 89 91

1.10 Conclusion

97

12

1.1 Introduction
In recognition of the changing shape of the communications sector, we have altered the structure of this years Communications Market Report. More and more operators are providing services which cross the traditional boundaries of communications; for example telecommunications operators are offering content over their infrastructure, and broadcasters are using the internet and mobile platforms for distribution. And consumption habits are changing too. We believe that this calls for a new approach on how Ofcom reports market developments. This chapter begins with key industry measures of availability, take-up, spend, revenue and consumption time, for the telecoms, TV and radio sectors. We then move away from an industry-by-industry analysis to provide an overview of converging markets. The heart of this chapter follows the progress of services and content: from their creation and packaging; through distribution over fixed and wireless networks; into navigation; and then use by consumers. Readers can then find detailed industry analysis for telecommunications, television and radio in the three chapters which follow this one. Data in this report cover the 2006 calendar year, with additional Q1 2007 data where available. We show trends using a five year historical time series where possible and use nominal figures unless stated. Comments and responses to this report, and the converged approach we have adopted in particular, would be very welcome at market.intelligence@ofcom.org.uk. The information set out in this report does not represent any proposal or conclusion by Ofcom in respect of the current or future definition of markets and/or the assessment of significant market power for the purposes of the Communications Act 2003, the Competition Act 1998 or other relevant legislation.

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1.2 Key market data

In 2006 consumers embraced digital communications devices and services in increasing numbers, while operators began to harness new business opportunities made possible through converging technologies. The availability of many platforms continued to widen and particular progress was made with: Local loop unbundling, where the number of premises with access to an unbundled exchange rose more than a half to 72%; 3G mobile, where the proportion of the population living in a postal district where at least one operator reported at least 50% area coverage rose from 84.3% to 91.4%; Broadband speeds, where blended headline speeds increased from 1.6Mbit/s at the end of 2005 to 4.6Mbit/s in June 2007; and IPTV, where Tiscali TV rolled out its service beyond London and Stevenage in 2007 to Birmingham, Newcastle and Edinburgh, and we now estimate the service to be available to 15% of homes. Digital communications service availability, 2005 and 2006
UK-wide Platform Fixed line 2G mobile1 3G mobile2 DSL3 LLU4 IPTV5 Digital cable6 Digital satellite Digital Terrestrial TV7 DAB digital radio8 2006 2005 Change England 0.0 n/a 6.9 0.0 28.0 5.0 0.0 0.0 0.0 2.0 100% 100% 95.2% n/a 77.2% n/a 48% n/a 73% n/a Scotland 100% 98.0% 75.3% n/a 50.4% n/a 23% n/a 57% n/a Wales N Ireland 100% 99.8% 74.1% n/a 39.8% n/a 37% n/a 82% n/a 100% 99.6% 59.5% n/a 31.3% n/a 30% n/a 58% n/a

Figure 1.1

100.0% 100.0% 99.8% 91.4% 99.6% 72% 15% 45% 98% 73% 88% n/a 84.3% 99.6% 45% 10% 45% 98% 73% 86%

Notes 1. Percentage of population living in postal districts where at least one operator reports at least 95% 2G area coverage. Sourced from GSM Association / Europa Technologies. 2. Percentage of population living in postal districts where at least one operator reports at least 50% 3G area coverage. Sourced from GSM Association / Europa Technologies. 3. Percentage of premises able to receive DSL services based on data reported by BT. 4. Percentage of premises connected to an LLU-enabled exchange. 5. IPTV availability figure calculated on the assumption that Tiscali TV is now available in London, Stevenage, Birmingham, Newcastle and Edinburgh. 6. Digital cable availability only. Analogue cable is still available in a small number of additional areas. 7. Availability of services from all six digital multiplexes. 8. DAB digital radio coverage figure based on a Digital One estimate. Both the BBC and Digital one have built new transmission masts during 2006/07. 9. Changes in availability are expressed as percentage points.

15

Improved coverage was a factor driving increased consumer take-up of digital devices and services in 2006. Fifty-two percent of homes had taken broadband services by the end of the first quarter of 2007; digital television penetration rose seven percentage points to 80.5% by the end of the same period; 15% of homes now have a digital video recorder (DVR); and 11.2% of mobile subscribers connect through a 3G mobile network. Figure 1.2 Digital communications technologies take-up , 2005 and 2006

Proportion of individuals (%)

100%
Fixed line = 90.0% Digital TV = 80.5%

75%
2006 2005

50%

Broadband = 52% MP3 player = 40%

20%

DVR = 15% 3G = 11% LLU = 9%

Innovators Early Adopters

DAB = 19%

0%
Early Majority Late Majority Late Adopters

Source: Ofcom research and operator data Notes: All figures relate to the end of Q1 2007 except for 3G which is end of 2006. All figures are measured as a proportion of individuals except for 3G, which represents the proportion of mobile subscribers, LLU which represents the proportion of premises in unbundled areas and DTV, which represents the proportion of homes with a digital television reception device on the main set.

Real monthly household spend on communications services fell for the second year running in 2006, to 92.65, down 1.5% in real terms on 2005, with telecoms spend continuing to account for the lions share; competitive pressure on fixed and mobile voice played a large part in the reduction. Consumer spend per household on television services also fell slightly year-on-year in real terms.

16

Figure 1.3

Household spend on communications services, 2006

per month, 2006 prices

100 86.55 80 23.24 60 40 20 0 2002 2003 2004 2005 2006 6.47 24.37 91.13 24.39 7.90 28.31 94.24 25.03 9.15 31.36 94.03 25.77 9.38 32.42 92.65 Radio 25.42 TV 10.20 31.72 Internet and broadband Mobile voice and text 29.85 27.95 26.16 23.91 22.81 Fixed voice

Source: Operators and Ofcom estimates

Despite an expanding range of media available to many consumers, the amount of time spent watching television and listening to radio each day continued to exceed comfortably the number of minutes spent making landline or mobile phone calls. However, for the last four years there have been signs that use of the internet may be starting to substitute to some extent for broadcast media; since 2003 TV viewing hours per head have fallen by 3.6% while radio listening declined 2.0%. Mobile has made some inroads into the fixed sector over the period, increasing by 58% between 2002 and 2006 to 3.7 minutes per day per person, while fixed line minutes fell by 8% over the same period to 6.9 minutes per day per person. The increasing tendency of consumers to perform media stacking, whereby more than one medium is consumed at the same time, should be taken into account when comparing these figures while the total media consumption time per day in 2006 amounted to 433 minutes per person the total time spent on media is likely to be less as some of these minutes double up. Figure 1.4
300 250 200 150 100 50
14 36

Time spent using communications services

Change 2002 - 2006

Minutes per day per person

-3.6% 216 173 -2.0% +158% -8% +58%

224*

TV Radio Internet Fixed Mobile

170

7.5

2.4 2006

6.9

3.7

0 2002

Source: BARB, RAJAR, operators, Nielsen//Netratings and Ofcom calculations Notes: The TV figure is for 2003 rather than 2002 to avoid the effects of changes in BARB panel composition. Daily figures were calculated from monthly data on the assumption that there are 30.4 days in the average month; the exception was internet consumption where the quoted figures relate to May 2002 and April 2006, and the number of days in those months were used. The internet consumption figures for 2006 excludes the use of applications. The numbers quoted in this report are not comparable to those in the 2006 edition, owing to a change in source.

Widening service availability and increased consumer take-up have each played a part in boosting the components of industry revenue that Ofcom monitors by 1.2% to 50.4bn in 2006. Mirroring consumer spend, telecommunications services continued to account for a large part of revenue but, as in 2005, television industry revenue was the faster growing

17

component. It was fuelled partly by increasing subscriber numbers, but mostly by rising average revenue per user, offset somewhat by falling advertising revenue. Radio advertising also experienced a contraction in 2006, but unlike TV it did not have the cushion of growing subscription revenue; so total radio revenue fell by nearly 9% in 2006. Figure 1.5
Revenue (bn)
60 50 40 30 20 10 0 2002 2003 2004 2005 2006
32.2bn 34.4bn 36.3bn 38.0bn 38.5bn

Communications industry revenue

42.2bn
8.9bn

44.8bn
9.3bn

47.6bn
10.1bn

49.8bn
10.6bn

50.4bn
10.8bn

Growth 05-06 (%) -8.8%

Radio

+1.8%

TV

+1.3%

Telecoms

Source: Operators

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1.3 Overview of market convergence

1.3.1 Defining convergence
A variety of definitions of convergence exist, and this report does not lay claim to provide the definitive description. Instead, it proposes an approach from which future definitions (and the analysis that follows from them) can be improved. At its most fundamental level convergence has been facilitated by the replacement of analogue technologies with their digital counterparts. This has resulted in networks which were designed to carry one medium instead carrying a variety of media. Similarly, many devices can now handle a multiplicity of media types where formerly they had one dedicated purpose. So convergence could perhaps be said to have an impact on three key areas: Content offering an opportunity for content producers to create use mixed-media formats (e.g. TV/interactive/web) and new ways to distribute existing content; Networks upgrades that widen the capabilities and capacity of historically separate and single-purpose distribution infrastructure; and Devices the creation of equipment that offers functionality typically delivered on stand-alone devices.

1.3.2 The evolution of convergence

With these definitions in mind, Figure 1.6 illustrates that communications markets have been converging for some time, but that the pace has accelerated since 2005. Figure 1.6 The convergence timeline
MS Windows 3.1 launches Sky encrypts its channels First World Wide Web browser, Mosaic, launches IBM PC launches Cable tripleplay: telephone, TV & broadband iPod launches BBC Online launches

Ceefax launches

Skype launches

3G operators awarded licences

BT Fusion launches Fixed line SMS

ITV live streaming Virgin quad play 52% homes broadband Joost launches BBC iPlayer launches BT Movio launches and closes

1973

1981

1993

1997

2000

2003

2005

2007

1967

1976

1989

1992

1994

1998
Sky Digital and OnDigital launch BBC Choice and ITV 2 launch

2002

2006
C4 live streaming 4OD launches Free broadband BT 21CN announced DVB-H mobile television trials

VCRs first available

First text message sent

First email sent Colour TV launches Satellite TV launches

Electronic Telegraph launches

OnDigital folds Freeview launches

Source: Ofcom

These developments mean that consumers are now faced with a set of communications services not just profoundly different from those in the 1970s, but even from those in the mid-1990s.

19

Ten years ago, the internet could only be accessed using a dial-up connection and analogue multichannel television was the only alternative to the public service broadcasters. Second generation mobile networks were still being rolled-out, text messaging was in its infancy, it was early days for audio streaming and video streaming was only just launching. In some respects, this industry had more in common with that of the 1970s than it did with todays communications markets. Content was still often carried to consumers over a specific network, usually to a defined consumer device. The picture today is very different: a wide variety of devices are capable of supporting many different media and can connect to at least one (and often more than one) digital communications network, eliminating the hard wired relationships between content, networks and devices. Figure 1.7
DISTRIBUTION CONTENT

Communications markets 1970s, 1990s and today

1970 1995 Audio
Voice Text Pics Audio AV Voice Text

2007
Pics AV Audio

Voice

AV

PSTN

Transmitter Transmitter

PSTN Masts

PSTN Cable
Transmitter and satellite

Transmitter Towers PSTN Masts Satellite Cable Altnets

DEVICE

Dedicated networks Dedicated devices

Some network convergence Dedicated devices

Converging networks Converging devices

No segment of communications has remained untouched by convergence. Producers have new ways of exploiting content; packagers can distribute services over new platforms and to new devices, while consumers can find content using new navigational tools and can consume it in an expanding number of ways. Figure 1.8 Key communications market developments in 2006

Content and rights

Packaging

Distribution

Device

Navigation

Consumption

The development and production of content - audio, audio-visual, music and publishing. Producers and broadcasters agreed terms of trade for new media rights; revenue from these rights more than doubled to 42m. Consumers embraced usergenerated content.

Aggregating content - into channels or into portals; packaging channels into bundles. The range and breadth of packaged communications grew significantly, with new operators entering the market and historically separate services bundled together.

Description

Distributing content over infrastructure 2G, 3G, DTT, DSat, DCable, ATT, DSL.

Receiving and consuming content on a reception device.

Instruments and services that help consumers find content.

Consumers devoting time to viewing AV output, listening to audio and surfing the internet. Consumption of traditional broadcast media continues to decline, along with fixed voice minutes. Mobile voice continued to grow in popularity.

Distribution platforms increasingly took on the ability to carry more than one sort of media, perhaps most noticeably with mobile internet access, which became more useable.

The growing power of devices saw game consoles such as the PS3 offering realistic gameplay while mobile phones began to competed with stand-alone devices in areas such as photography

Electronic programme guides now offer an easy way to find broadcast content. Listings magazines remain popular but have continued to see their circulation fall year-on-year.

Over the last year players from historically different parts of the communications industry have joined forces to take advantage of converging markets. These ranged from

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Key developments

straightforward acquisitions, to exclusive partnerships, to the bundling of products and services from different parts of the value chain: content and rights, packaging, distribution, device, navigation and consumption. Below we list a selection of company deals and partnerships from the last 12 months. Figure 1.9
Date Aug 2007

Selected deals and partnerships since September 2006

Deal Nokia installs Microsofts new content access technology into certain handset series. The two companies also agree to collaborate in efforts to improve consumer access to and experience of digital content 3 UK offers Google Search and Google Maps on the Planet 3 mobile portal Sky and Amstrad announce the terms of a recommended cash offer to be made by Sky Digital Supplies for Amstrad Virgin puts Football League match highlights on its broadband and mobile platforms HMV offers EMIs DRM-free catalogue for download Tiscali to add the full set of Sky basic channels to its line-up ITN launches free news and entertainment content on 3's video service, with advertising delivered by Rhythm New Media Bebo and Orange launch a social networking service on the Orange network

Participants Nokia, Microsoft

Aug 2007 July 2007 July 2007 June 2007 June 2007 Apr 2007 Mar 2007 Mar 2007

3, Google BSkyB, Amstrad The Football League, Virgin Media EMI Music, HMV BSkyB, Tiscali ITN, 3, Rhythm New Media Bebo, Orange

Channel 4, BSkyB, Emap, The 4Digital Group, led by majority shareholder Channel 4 Radio, submits a bid for UTV, Carphone the new DAB national radio multiplex licence. The licence was awarded to the group Warehouse, UBC Media in July 2007 Group EMI, Last.fm BT, Vodafone BSkyB, ITV EMI Music, Jamster 3, Skype, Sling Media, Yahoo!, Nokia, Google, eBay, Microsoft, Orb, Sony Ericsson 3, BSkyB ITV, Premium TV EMI Music, T-Mobile, Rhythm New Media EMI makes its artists music available to Last.fm users BT announces Vodafone as its exclusive mobile partner for the BT Vision TV service BSkyB buys a 17.9% stake in ITV EMI to make mobile real tones and music videos available to Jamster users 3 links up with a range of operators, manufacturers and application providers to launch its X-series service

Feb 2007 Dec 2006 Nov 2006 Nov 2006 Nov 2006

Nov 2006 Oct 2006 Sept 2006

3 agrees to offer Sky Mobile TV to its subscribers ITV links up with Premium TV to stream UEFA Champions League football games over itv.com EMI and T-Mobile collaborate on a trial of ad-supported mobile video with advertising delivered by Rhythm New Media

1.3.3 Service bundling

For consumers, perhaps the most tangible sign of convergence in 2006 was the increasing availability of bundled packages of communications services. From a small number of operators offering a narrow set of communications packages, 2006 saw the entry of a large number of new players and broader bundled offers. In most cases, each of the different services in a bundle still travels over a distinct network and is received by a separate device, and hence, in the main, bundling constitutes convergence only to the extent that the customer can receive more than one service from the same operator. However, recent technological developments mean that service convergence and network and device convergence are becoming entwined. For example, in September 2006 Orange became the second company (after BT Fusion) to offer a handset which can switch between fixed and mobile networks.

21

In the face of intensifying competition, the ability to bundle services allows operators to offer different product combinations, each with varying features at different price points. For example, broadband services can be delivered with different headline speeds and may be offered more cheaply to those willing to accept longer contract lengths. In addition, customer acquisition may be boosted by supplementary promotions such as free wireless routers with certain packages. Bundling may also be driven by operational and longer-term strategic concerns: Having previously been restricted to one platform, operators can exploit economies of scale from serving multiple platforms; Bundling may protect operators existing markets; moving into another operators territory in anticipation of them moving in to yours; and Finally, bundling has become increasingly central in retaining customers, which has become progressively more important as markets become saturated, customer acquisition costs remain high and customers continue to churn.

While Figure 1.6 shows that operators have been bundling services for decades, the range of operators entering the market, the pace at which new bundles have been offered, and the complexity of some of the offerings has increased noticeably in the past year. Some of the key launches in the last 12 months are shown in the chart below: Figure 1.10 Bundling since April 2006
NTL/Telewest launches quadplay bundles, containing TV, fixed line, broadband and mobile Sept 06

Orange launches bundled broadband and mobile

BT launches BT Vision, and with it, bundled TV offers

Vodafone launches bundled broadband and mobile

June 06

Dec 06

Jan 07

April 06

July 06 Sky launches bundled broadband, fixed and pay TV

Nov 06

Mar 07 Tiscali launches bundled TV and broadband

TalkTalk launches bundled broadband and fixed telephony

Orange launches Unique a fixed mobile convergence product

Source: Ofcom

The table below shows the range of different services offered by the main operators. Consumers do not always need to purchase a bundle in order to receive more than one service from the same operator but the stand-alone proposition may not offer a price discount. Conversely, in certain cases the bundled elements cannot be taken as stand-alone services. For example, Sky Broadband and Sky Talk are only available to Sky TV subscribers and TalkTalk Broadband is only available to subscribers to Carphone Warehouses most expensive fixed-line service.

22

Figure 1.11

Bundled service offers from major suppliers, June 2007

Virgin Media Vodafone TalkTalk PlusNet

Be (O2)

Toucan

Orange

BSkyB

Tiscali

Tesco

Pipex

AOL

BT

Standalone broadband Fixed and broadband Broadband, fixed and TV Broadband, fixed, TV and mobile Broadband and mobile Broadband, mobile and TV Broadband, fixed and mobile Fixed and mobile Fixed and TV Fixed, TV and mobile Converged offers

Y Y

Y Y Y

Y Y Y Y Y Y Y Y

Y Y

Y Y

Y Y

Y Y

Y Y Y

Y Y

Y Y Y Y

Y Y

Y Y Y Y

Y Y Y

Y Y Y Y Y Y

Y Y Y

Y Y Y Y

Source: Pure Pricing Note: Highlighted box denotes that the combination of services requires the purchase of additional services.

Service bundling has increased the range of consumer propositions significantly, as different operators may offer numerous bundles containing different dimensions to each service. Different headline broadband speeds, different ranges of TV channels and varying numbers of inclusive mobile minutes, texts and data access may make comparison between operators not necessarily simple. The situation is complicated further by the additional offers mentioned earlier. These may include online discounts, free extras such as wireless routers, reduced monthly charges for longer-term contracts, and additional customer service charges such as for receiving a paper bill. However, the greater range of offers means that if consumers shop around and spend time examining the details of different bundles, they may well find a better-value offer than they did when they purchased single services from different operators. There is also a potential impact on switching. On the one hand customers may find it more difficult to switch provider when all their services are tied up with one operator, and they may be locked in for longer, as bundled deals are generally associated with longer contracts in an effort to retain customers. Offsetting that to some degree, the rolling of services into one bundle may provide extra incentive for customers to shop around, as the advantages of switching provider become more pronounced when they are calculated for a range of services as opposed to a single one. 1.3.3.2 Take-up of multi-service offerings Driven by the greater range of bundled combinations and by the deals on offer, the number of households taking bundled communications services increased by a third in the year to Q1 2007, up 11 percentage points. According to consumer research, 40% of households now take more than one service from the same provider.

23

Figure 1.12
50%

Households taking bundled services from an operator

Proportion of households (%)

40% 40% 30% 20% 10% 0% Q1 2005 Q3 2005 Q1 2006 Q3 2006 Q1 2007 29% 31% 29% 35%

Source: Ofcom research, Q1 2007

Fixed line voice is the service that most commonly features in bundles purchased, followed by broadband, the penetration of which among specified purchase bundles has increased by 23 percentage points over the last two years. The increase in the take-up of bundled broadband is related to the growth of broadband per se, and the other services that broadband facilitates such as IPTV. The other category contains thirteen different service combinations, the most popular of which are broadband and multichannel TV followed by fixed voice, broadband and mobile. Figure 1.13 Bundled services purchased by consumers by type

Proportion of bundles purchased (%)

100% 14% 80% 60% 23% 40% 20% 0% Q1 2005 Q3 2005 Q1 2006 Q3 2006 Q1 2007 12% 30% 5% 15% 13% 4% 16% 19% 18% 13% 44% 47% Other 13% 2% 8% 12% 18% Fixed voice, dial-up and multichannel TV Fixed voice and multichannel TV Fixed voice and dial-up 40% Fixed voice, broadband and multichannel TV Fixed voice and broadband

9% 4% 13% 16%

12% 4% 10% 13% 17%

36%

Source: Ofcom research, Q1 2007

1.3.4 Approach to the rest of this section

The remainder of this section looks at each the communications sector from the perspective of a value chain and is structured into six sections: a) b) c) d) content creation and voice; content aggregation; distribution over networks; reception through a device;

24

e) f)

navigation through to content; and consumers consumption.

To provide two practical examples of how the value chain approach can be applied to communications markets operators, compare the roles of the BBC and BT in 2007 and 20 years earlier. Figure 1.4 illustrates the intensity of activity undertaken by each organisation at each stage of the value chain at each of those time points. It shows how both have changed their focus along the chain, reducing exposure to (or even exiting) some activities (for example, broadcast distribution in the case of the BBC) and building up a bigger role/presence at other stages of the chain (for example, BTs acquisition of various ondemand content rights). Figure 1.14 BBC and BT roles in the communications market value chain
Content and rights

Aggregation

Distribution

Device

Navigation

BBC
A BBC now obliged to commission proportion of output from the independent sector - and has opened up more commissioning budget to independents. BBC's terrestrial distribution infrastructure sold off in 1997 to Crown Castle. Now contracts for carriage on terrestrial and satellite. BBC monopoly on its TV and radio listings broken in 1992. Radio Times still available, but competes with EPGs and other listeing magazines.

BT BBC 1987
A B C D BT has recently acquired film, music and sporting rights which are now available through its ondemand service BT Vision The range of services that BT once offered to domestic premises were limited to voice telephony. BT now offers a broad range of packaged services to suit a variety of consumer needs. BT once enjoyed an exclusive role in the retailing and rental of domestic telephony devices. There are now a large number of equipment suppliers.

BBC 2007
E

BT 1987
D E F F

BT 2007

While reading the remainder of this section, please bear in mind four key points: A wide variety of data sources have been used - the analysis is undertaken using data provided to Ofcom by operators and licensees, data from Ofcoms consumer tracker surveys, bespoke research commissioned for the report, and third party data sources; Analysis is not evenly distributed across each of the six stages owing to the richness of data at some stages, and to an absence at others, we have been unable to analyse all aspects of convergence with the same level of scrutiny; The analytical framework may sometimes strain reflecting the degree to which the industries we regulate cannot yet be considered as fully converged; and Stages of analysis are sometimes blurred at times, points about one segment of the value chain are made at another to help with the narrative flow.

25

1.4 Content and voice

The effect of converging technologies has been felt across most content markets: Computer games manufacturers have seen their market expand as rising broadband take-up has allowed consumers to interact with one other in multi-player online games; mobile handsets are now also powerful enough to offer engaging gaming titles; The music industry has found that sales of singles have been boosted through online and mobile downloads; The press were among the first to harness the opportunities of converging technologies with the launch of websites in the mid-1990s; and The audiovisual production industry is still predominantly funded by broadcasters but revenue from the exploitation of new media rights is growing quickly.

The analysis in this section includes all these industry-produced content forms alongside advertisements. They can be distributed using print media, mobiles, television, radio or the internet. From the perspective of communications markets, there are also those forms of content generated by individual consumers such as voice and texts. Historically, these two forms of content (industry, consumer) enjoyed quite separate roles industry content tended to be distributed on a one-to-many basis, developed with a massmarket audience in mind, while voice and texts were distributed on a one-to-one basis. However, with the development of the world-wide web and the emergence of so-called Web 2.0 applications, these distinctions have become increasingly blurred. Mass-market industry players have found themselves able to tailor output for narrow audience segments, while consumers in turn have found an outlet that permits them to communicate with large numbers of individuals simultaneously. For the purposes of the analysis of content and rights, this section will make a distinction between professionally-produced output and that created by individual consumers, in the form of voice, SMS and user-generated content.

1.4.1 Professionally produced content

The creative industries considered in this analysis were estimated by the Department of Culture, Media and Sport (DCMS) to have generated Gross Value Added (GVA) of 25bn in 2004 (the last year for which comparable data was available). Publishing and advertising alone accounted for approximately 64% of this figure, and 1.6% of UK-wide GVA. Per head of workforce, the television and radio industries combined delivered the highest level of GVA at 73k. Advertising generated 70k while publishing followed with 54k. The equivalent figures for the music and interactive leisure software industries were 42k and 36k respectively.

27

Figure 1.15
bn, 2004
15

Creative industries Gross Value Added (GVA) contribution, 2004

Gross value added per employee (000, 2004)
80 73k 70k

Gross Value Added (m) GVA per employee ('000)

12 60 54k 9.2bn 9 42k 7.1bn 6 36k 40

5.1bn

3.0bn 3

20

0.8bn 0 Publishing TV & radio Advertising Music Games 0

Source: Frontier Economics analysis of ABI (Annual Business Inquiry) data

The remainder of this section considers aspects of the games, music, audiovisual industries and the press. 1.4.1.1 Online and console games Multi-player online games increasingly popular The growing availability of devices capable of handling a variety of media coupled with networks that are able to distribute a range of digital content has helped to transform the games landscape over the last five years. This has tested the historical division in the games industry between proprietary consoles (home and handheld) and stand-alone (i.e. nonnetworked) computers. The popularity of multi-player games delivered over the internet has risen significantly while distribution channels have also felt the effects of converging technologies as, for example, games can be downloaded straight to consoles hard drives. These developments are blurring the distinctions between games and user-generated content, as so-called massively multiplayer online (MMOs) games like Second Life and World of Warcraft offer consumers the chance to lead virtual lives where they and their fellow players are, in effect, the stars of the show. What are massively multiplayer online games? The high bandwidth connectivity provided by a broadband connection has enabled increasing numbers of consumers to participate in multi-player games over the internet. Second Life and World of Warcraft are two such games, the former with 7 million players and the latter with 9 million subscribers worldwide. While access to a basic tier of Second Life is free, there is a monthly subscription that allows a users avatar (i.e. their representative inside the game) to buy land and buy and sell goods and services. Participation in World of Warcraft requires users to purchase gameplay time.

28

Not only do their business models differ, so do the user objectives. World of Warcraft requires users to slay monsters and fulfil quests; in Second Life there is no overall objective and its world is open-ended and user-generated, meaning that there are no set boundaries and that almost everything has been designed and built by users. Several communications industry operators have joined and built a presence in Second Life. They include Reuters, the BBC, Channel 4 and Sky News, which has hosted virtual interviews and events and report Second Life and real-life news. Mobile games growing in popularity Mobile phone handsets have also started to become a games platform, with around 19% of subscribers claiming to play between one and three games on their phone at least monthly; 4% claim to play daily (Figure 1.16). Figure 1.16
20m 15m 10m 5m 0m 2.6m Almost every day
Source: M:Metrics

Frequency of mobile phone game playing, Jan 2007

Number of mobile subscribers playing games on their mobile (m)

13.1m 4.1m At least once a week 6.4m One to three times a month Total

While attempts have been made to address the compromises that have to be made in gameplay on a mobile device (Nokias NGage, for example, was marketed as a handheld games device), limitations on screen size, button configuration and environmental factors such as the location in which mobile games are played (for example at home or during a commute) are likely to have a bearing on future mobile game development. Unlike consoles, where the more popular titles tend to be complex real-time action games, mobile games players tend to play arcade puzzle and strategy games (Figure 1.17).

29

Figure 1.17
500
421

Most popular mobile games genres, May 2007

Estimated subscribers (thousands)

400 300 200 100 0

Arcade puzzle Retro arcade Board Strategy Casino Sports Word or Number Quiz Other Card Action/adventure Racing First-person shooter 246 234 220 215

203

197

177

152

136

132

109 54

Source: M:Metrics

1.4.1.2 Music Digital distribution reviving the singles market? Advancing digital technologies have exerted a strong influence over the sales, formats and distribution channels of music in the UK. While overall music revenue fell by an average of 3.4% p.a. over the last five years, this has been offset somewhat by the growing popularity of both mobile and online music, with digital music trade sales (i.e. the revenue that finds its way back to the music labels) in 2006 accounting for 67m of total industry revenue of 1.1bn; 37% of digital sales (25m) were purchased through a mobile handset while the remaining 63% (42m) were bought online (Figure 1.18). Figure 1.18 Total and digital music sales in the UK, 2006
Total sales = 1109m
100% 80% 60% 40% 20% 0% Total music trade sales Total digital music trade sales Digital: 67m Mobile downloads 25m

Proportion of all trade sales (%)

Digital sales = 67m

CDs and vinyl 1,042m Online downloads 42m

Source: IFPA and Screen Digest

Service providers offering access to downloadable music now abound. OD2 was the first major organisation to negotiate rights with key studios and to operate a music download service on behalf of third party organisations such as Coca Cola and Wanadoo. Today, perhaps one of the most well known services is iTunes, which launched in 2004 and by May 2007 was attracting 5m unique monthly users. At almost the same time, all five UK mobile platform operators also took advantage of the download capabilities of mobile handsets with the launch of their own music sales sites (Figure 1.19).

30

Figure 1.19
Network Orange O2 T-Mobile Three

Mobile network operators music services

Service Orange World O2 Active Mobile Jukebox Planet 3 Launch Jul 04 Nov 03 Mar 04 Aug 04 Q3 04 Nov 04 Aug 2006 catalogue 500k 130k n/a 500k 400k 600k Track prices 1.50 From 99p 1.50 1.50 1.50 From 99p

Virgin Mobile Virgin Bites Vodafone Vodafone Live!

Source: Screen Digest

The music market offers one of the more compelling examples of how converging technologies can help stem falling sales. Throughout the 1990s and 2000s, the singles market was in decline; in 2002, a single had to achieve sales of around 26,000 in order to get in to the top ten by 2006 that figure had halved. The emerging popularity of single track sales through mobiles and online, however, could well reverse this trend, as illustrated in Figure 1.20. Between 2005 and 2006, digital single sales trebled and digital downloads accounted for 79% of all units sold in 2006; this proportion rose further to 90% in the first half of 2007. Album sales have also seen year-on-year reductions in physical sales. However, these have recently been partially offset by online distribution, where volumes rose by 160% between 2005 and 2006 to 4.7m units, representing 1.4% of all sales, increasing to 3.5% by H1 2007. Recognising the importance of digital downloads to the future of the UKs music sales, the official Top 40 began to include them in its sales figures in April 2005 (Figure 1.20). Figure 1.20
Unit sales
Digital single sales
100m 80m 60m 40m

Digital single and album sales

Digital album sales
5m

79% of all single sales

4.7m
1.4% of all album sales

72m

4m 3m 2m

1.8m

24m
20m 1m

6m
0m 2004 2005 2006 0m

0.2m
2004 2005 2006

Source: IFPA and Screen Digest

Along with the legitimate purchase of digital music, people of all ages have downloaded music illegally. This appears to be most prevalent among younger age groups (where 57% of people claim to have downloaded illegally), as is the absolute rate of growth (up by 16 percentage points between 2006 and 2007).Looking ahead, an increasing proportion of people who have already illegally downloaded music say they will do so even more in the next 12 months 18% in 2007 versus 8% in 2006 (Figure 1.21).

31

Figure 1.21

The prevalence of unauthorised downloads, 2007

"Thinking about [unauthorised music], do you think in the next year you will download tracks"
More often 100%
53%

Proportion of respondents (%)

"Have you ever downloaded unauthorised music?"
Change since 2006 (percentage points) 16
60 50 40 30 24% 20 38% 57%

About the same

Less often

80% 56% 65% 60%

30%

41%

40% 41%

41%

10 0 13-17 18-24 25-34 35-44 45+

20%

29% 18% 8% 2006 2007

0%

6% 2005

Source: The 2007 Digital Music Survey, Entertainment Media Research Ltd in association with Olswang. Note: n= 1721 for the first chart and n=740 for 2007 in the second chart.

1.4.1.3 Audiovisual (AV) content Broadcast commissions still account for the lions share of AV revenue Non-broadcast rights, including those generated from convergent markets, are emerging as valuable alternative sources of revenue for independent producers (see Figure 1.22). A recent survey of independent producers by trade-body PACT suggested that the revenue generated for independent producers by new media rights rose by 121% in 2006 to 42m. Figure 1.22
Sales
150
124m

Independent producer revenue from non-broadcast rights

(million)

100
59m

2005
42m 14m 24m 19m

50

2006

0 Corporate New Media Other

Source: PACT 2007 Notes: Other activities include music publishing, consumer products, talent management and the production of commercials and idents.

The status of new media rights within the media industry was put on a firmer footing in 2006 when the major broadcasters agreed terms of trade with PACT that defined how those rights were to be treated in negotiations between producers and commissioners.

32

The impact of converging technologies on the treatment of content rights The agreements struck between the UKs main broadcaster and PACT follow on from the 2003 Communications Act, which stated that rights not explicitly assigned to a broadcaster remained with the producer. Terms were agreed on a range of rights issues including catchup windows and VoD, along with revenue-sharing agreements for pay-per-view services. These agreements were an important step in ensuring that the PSBs were able to develop full-fledged online AV propositions such as 4OD and itv.com, both of which launched in the last year. The sale of audiovisual rights to premiership football matches by the FA Premier League provides an example of how rights holders are responding to market convergence. For the three football seasons from 2001/02, the Premier League for the first time put new media rights to tender, offering mobile rights in addition to those for television, while internet rights were reserved for its clubs own websites. A multi-million deal was secured from new operator 3 for exclusive mobile rights. A similar exercise was undertaken for the three seasons from 2004/5. However, this time internet rights were also made available to the successful TV rights bidder, BSkyB, which used football rights as a central plank in building its own online presence. However, for the three seasons from 2007/8 it was clear that a platform-based approach was no longer practical. With the streaming of live TV channels available through mobile TV and IPTV, the Premier League instead opted for a platform-neutral approach, with successful bidders able to utilise their rights on TV, internet and mobile. Television broadcasters led the bidding for the live match packages, with BSkyB landing four of the packages, and Setanta winning two. Other rights were sold on a windowing basis. BSkyB and BT won the rights to offer full matches in a window for 50-hours from 10pm on match day, which they will do through their broadband, satellite TV and IPTV platforms, and also on mobile platforms, wherever they have agreements with network providers. BSkyB, with backing from News International newspapers The Sun and The News of the World, also beat a joint bid from the five mobile operators for a package including short post-match highlights soon after full-time and in-match clips for some games. They are expected to utilise these clips through the Sky mobile application. It is clear that although the ability to distribute content to a range of devices (TV, mobile, computer) means it is no longer practical simply to divide rights by platform, different types of rights are appropriate for different platforms. Television is particularly well suited for live, the internet for catch up and mobile for short near-live clips. The FA Premier League has been able to maximise its revenues by creating different rights packages appropriate for the different platforms, while BSkyBs aspiration to be a leader in football on all platforms meant that it bid for all types of rights. However, put into the context of many independents core business the production of broadcast AV - the value of new media still looks modest. The rights to 1 million hours of AV output including repeats and sporting events were acquired by the UKs television broadcasters in 2006 at a cost of nearly 4.5bn. Only 14% of those hours were broadcast for the first time with 147,826 hours of first-run output transmitted in 2006 (Figure 1.23).

33

Figure 1.23

Hours of broadcast AV output in 2006

Total hours = 1,019,978 Originated hours = 147,826
Other digital channels Repeats 872,152 100,734

Proportion of total hours (%)

100% 80% 60% 40% 20%
Originated: 147,826 11,919 13,619 21,554 Five main channels

Nations & regions output

BBC digital channels

0% Total hours of output Total hours of originations

Source: Operators Notes: Includes the five PSB channels and multichannels in the Entertainment, Factual, Leisure, Sport, News and Childrens genres.

With independent production benefiting from statutory obligations (BBC, ITV1, Channel 4 and Five) and further voluntary commitments from the BBC, the combined revenue of the top five independent producers in the UK was estimated by Broadcast to have reached 555m in 2006 (Figure 1.24). Figure 1.24
Revenue (m)
200m 166m 150m 146m 126m

Revenue from the UKs top five independent producers, 2006

100m 59m 50m 44m

0m Hit Entertainment Talkback Thames TWI Tiger Aspect Aardman Animation

Source: Broadcast Indies Survey 2007

1.4.1.4 Press The press were among the first to harness converging technology The effects of converged technologies have also been felt by the press not only in the production of print media but also in the distribution of content over digital platforms. The UK press was a pioneer in the exploitation of convergent media in the shape of the internet, amid declining circulation of both popular and broadsheet newspaper titles (Figure 1.25).

34

Figure 1.25
4

Popular and broadsheet daily circulation

Average daily sales (millions)

Daily Express Daily Mail 3 Daily Mirror Daily Star 2 Daily Telegraph Financial Times Guardian 1 Independent Sun 0 Jul-02 Times Jul-03 Jul-04 Jul-05 Jul-06

Source: ABC / Mediatel.co.uk

From early incarnations that focused mainly on reproducing the print edition online (the Electronic Telegraph was a pioneer in 1994), most of the UK press, popular and broadsheet, now produce online editions, with a wide range of functions and features, many of which encourage user-generated content. Most recently, The Times and the FT have branched out into tele-journalism, offering audiovisual streamed packages of their leading journalists opining on stories of the day (Figure 1.26). Figure 1.26
Paper The Guardian The Times The Telegraph The Independent The Financial Times

Content and functionality offered online by the UK broadsheets

Website Yes Yes Yes Yes Yes Mobile Podcasts TV Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Blogs RSS Digital edition Email Desktop Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Business model Ads Ads Ads Ads Subscription and ads

Source: Ofcom Note: A digital edition is a full version of the print copy that can be accessed online

The result has been a growing monthly audience, for the broadsheet websites, which have shown an ongoing ability to attract new users. By May 2007 the Independent was attracting over a half a million unique monthly users; The Times Online was being read by over a million users following its recent relaunch, while the Guardian led the broadsheets with over 1.75 million online readers per month (Figure 1.27).

35

Figure 1.27
Unique users (m)
2.0m

Unique monthly users of the broadsheet internet sites

The Guardian
1.5m

The Telegraph
1.0m

The Independent Times Online

0.5m

0.0m Oct-06

Nov-06

Dec-06

Jan-07

Feb-07

Mar-07

Apr-07

May-07

Source: Nielsen//Netratings At home data

1.4.2 User-generated content

One-to-one voice telephony Signs of fixed-mobile call substitution? Traditionally individuals have been regarded as the consumers of content but if the definition of content is extended to include voice telephony, then they have long been a participant in content production. In 2006, 152 billion minutes of fixed calls were made across the UK, along with 82 billion minutes of mobile calls, equating to 11 minutes of telephony time per person per day (Figure 1.28). Figure 1.28
200
165bn 167bn 164bn 160bn 152bn

Fixed and mobile minutes

Billions of minutes

150 Voice 100

52bn 59bn 64bn 71bn 82bn

50 0 2002
Source: Operators

Mobile

2003

2004

2005

2006

The growing availability of one-to-several services underpinned by digital technologies for example conference calling, email, instant messaging and even multi-person VoIP chat rooms offer consumers opportunities to reach out to wider audiences. The popularity of text messaging highlights how new communications media can capture consumers imagination. (Figure 1.29).

36

Figure 1.29

SMS and MMS volumes

Billions of messages
14 12 10 8 6 4 2 0 SMS MMS

Source: Operators

Television/radio and telephony together, however, have given consumers the opportunity to play a part in creating one-to-many content. Phone-ins have been a familiar feature of television and radio shows for many years. The emergence in the late 1990s and early 2000s of participation TV, enabling viewers to vote and play a part in TV quizzes through texts, calls and red button services, further widened individual consumers ability to be a part of a one-to-many medium. Latest television operator data suggest that interactive services (including premium rate telephony and red button revenue) reached 123m in 2006, up 18% on 2005 (Figure 1.30). However, as a result of the temporary suspension of many of the phone-in quizzes amid concerns over their fairness, it is possible that the publics appetite for this sort of participation TV will have diminished. Figure 1.30
Revenue (m)
150m
123m

Source: Operators

1.4.2.2 One-to-many Web 2.0 content While SMS and participation TV offered the first opportunities for consumers to create rather than consume content, involvement really began to accelerate with the arrival of Web 2.0 media in 2004/05. Their popularity was fuelled by the coincidence of two separate developments that occurred over this period; take-up of media capture devices and the growth of home broadband. We now examine each of these.

20 02 20 Q2 02 20 Q3 02 20 Q4 03 20 Q1 03 20 Q2 03 20 Q3 03 20 Q4 04 20 Q1 04 20 Q2 04 20 Q3 04 20 Q4 05 20 Q1 05 20 Q2 05 20 Q3 05 20 Q4 06 20 Q1 06 20 Q2 06 20 Q3 06 Q 4

Television interactive revenue, 2005 2006

120m 90m 60m 30m 0m

104m

2005

2006

37

Web 2.0 It is generally perceived that the term web 2.0 describes a natural evolution of the web. The term is intended to mimic the naming convention of software packages, where the second version of product is often called version 2.0. In broad terms, the main ingredients of web 2.0 are: Advanced software: New software technologies which allow easy development of powerful new applications. One example is AJAX, a web development technique used for creating interactive applications which make web pages feel more responsive so that the entire page does not have to be reloaded each time the user requests a change. Democratic approach: Users are playing an increasing role in how the web develops, from creating content to refining searching. For example, the collaborative effort put into compiling pools of information have given rise to ideas like the Wikipedia online encyclopaedia, and book-marking networks like Digg and del.icio.us have started a "web-tagging" movement, giving users more control over how information is organised on the web. Social networking: The integration of various ways for users to interact, such as chat, messaging, email, video, voice chat, file sharing, blogging, discussion groups and virtual worlds has opened a plethora of new avenues for social networking. The increasing penetration of media capture devices such as stand-alone digital cameras, webcams, DV-cams and, perhaps most importantly, mobile phones with AV capture functionality, gave rise to a growing desire to share content. Figure 1.31 illustrates the increasing proportion of mobile phones sold with integrated digital camera capabilities, and with memory card slots that permit the storage of large volumes of pictures, video and audio. The figure also illustrates the widening availability of digital cameras (six in ten people now claim to have one, up 20% on 2005) and webcams (26% of those with a computer have one, up nearly 45% on 2005).

38

Figure 1.31

Sales of AV-capable mobile phones and take-up of digital cameras/webcams

Consumer takeup of digital cameras and webcams

Proportion of mobile phone sales with cameras or memory slots

100% 83% 80% 79%

61% 60% 54% 51%

40% 31% 26% 20% 18%

2005/06

2006/07

2005/06

2006/07

0% Sales of mobile phones with memory card slot Sales of mobile phones with a camera

2005

2007

2005

2007

Proportion of people with a Proportion of people with a digital camera webcam

Source: GfK and the Oxford Internet Institute; n=2815 for the digital camera question and n=3350 for the webcam question. Note: Figures for mobiles are for year to May; figures for cameras and webcams are over year to December

Meanwhile, the increasing availability of computers in the home with a broadband internet connection made it easier for consumers to quickly upload and share data-hungry media such as pictures, audio and video. By the final quarter of 2006, 69% of homes had a computer and, of that proportion, 72% had a broadband connection, up from 58% in Q4 2005 (Figure 1.32). Figure 1.32
80% 64% 60% 54% 53% 40% 45% 39% 20% 7% 0% Q4 2002 26% 11% 57% 57% 50% Broadband 65% 67% 69% Computer 63% Internet

Take-up of computers and the internet in UK homes

Proportion of individuals (%)

Q4 2003

Q4 2004

Q4 2005

Q4 2006

Source: Ofcom research

Responding to the emerging signs of these consumer trends, a variety of applications have been developed to facilitate media-uploading onto the internet for consumption by large audiences. Figure 1.33 provides a brief description of just a small selection of the more popular of these Web 2.0 applications, which range from the relatively simple (e.g. blogging and photo uploading) through to powerful desktop production tools that enable live broadcasts of AV material, captioning and the playing of pre-recorded material.

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Figure 1.33
Site Blogger.com Wikipedia.org Flickr.com Myspace.com YouTube.com Mogulus.com BlogTV.com Ustream.com
Source: Ofcom

Description of a selection of Web 2.0 applications

Functionalities User-created blogs, including text, pictures and hyperlinks User-created encyclopaedia Photo sharing Social networking, allowing uploaded music, text and pictures Video sharing Live and pre-recorded video broadcasting allowing captioning and insertion of pre-recorded video packages Live and pre-recorded video broadcasting Live and pre-recorded video broadcasting

The impact of widening participation in the creation of user-generated content can be seen from the sixfold growth in the three years to October 2006 in the number of articles available to consumers on Wikipedia, with each article becoming richer as average entry sizes grew over the same period from 500B to 1KB. The worldwide community of producers has grown significantly since the site was first founded, with nearly 40,000 users worldwide making at least five edits a month on the site by October 2006 (Figure 1.34). Figure 1.34 Articles on Wikipedia and the size of its producer community
Number of users

Number of articles on Wikipedia

1,400,000 1,200,000 1,000,000 800,000 600,000 400,000 200,000 0

160000
May 2002 Median article length = 512B

120000 80000
Oct 2006 Median article length = 1kB

10 edits ever 5 edits monthly 100 edits monthly

40000 0
ct 20 01 ct 20 02 ct 20 03 ct 20 04 ct 20 05 O ct 20 06 O

Source: Wikipedia

Across the universe of user-generated content, the volume of material being uploaded to Web 2.0 sites is substantial. In addition to the 1,845 new articles appearing daily on Wikipedia, 3,744,000 new photos are uploaded to Flickr and 65,000 new video clips are loaded onto YouTube. Assuming an average YouTube clip length of 30 seconds, 542 hours of video are uploaded to YouTube every day a years worth of new video appearing on the site every sixteen days. Amid the growing popularity of user-generated content sites, there are signs in the US that mainstream broadcast-based content commissioners are capitalising on their appeal by

40

adding their own content. Figure 1.35 illustrates the volume of content uploaded to YouTube by some of them; CBS is particularly notable for the 2,059 clips it has uploaded since it first launched a branded channel on the site in mid-2006. It currently enjoys first place in terms of channel popularity with 117m views since it first posted content. With several US networks now offering full-length programme episodes on their own websites, the material uploaded to YouTube tends to be short and promotional suggesting that, at present, YouTube is used by broadcasters as a means to promote broadcast content and to drive audiences to their own websites. Figure 1.35 US broadcasters and rights holders on YouTube, 2007
1 2,059 2 3,747 3 191 8 26 12 820 18 286

YouTube channel rank Videos uploaded

Number of views ever up until June 2007

150m 120m 90m 60m 30m 0m CBS Universal Music NBC RCA Warner Records NBA 117m 87m 60m 45m 31m 24m

Source: YouTube, July 2007

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1.5 Aggregation
The market for packaging content into products of interest to viewers, listeners or readers has been occupied for many years by established service brands such as the BBC, ITV and Channel 4. Converging technologies have recently opened up this role to new entrants, as traditional constraints on market entry such as limited distribution capacity have become less important. The aggregation of content by broadcasters has traditionally been funded by advertising. However, this model is coming under increasing pressure as revenues fragment among an increasing number of operators and online advertising grows in popularity. Traditional broadcasters have responded by harnessing the online channel themselves; Channel 4, ITV1 and the BBC have all made their programmes available over the internet live and/or ondemand over the past year. The audio market has felt the effects of convergence for some time and may offer an insight into how audiovisual services will evolve. Live listening is now distributed over a range of digital platforms (DAB digital radio, digital television, the internet and mobiles), and many traditional aggregators (i.e. broadcast radio stations) now offer listen again access to archive content on-demand over the internet. The user-generated content sites also act as aggregators and are attracting users in increasing numbers as people use them to access photographs from friends and family and as they build up virtual friendships using social networking sites. This section examines the role of new and old content aggregators, highlighting the steps each has taken to adapt to converging markets.

1.5.1 Audiovisual output

1.5.1.1 Broadcasters While some have long predicted the imminent death of broadcast radio and television, the appetite for new licences to broadcast appears to be undiminished. Proliferating broadcast channels and other new media have resulted in audiences fragmenting across an increasing number of services. This effect has been particularly strong among younger people. Leading to an ageing of the audience profile of established AV packagers such as the public service broadcaster (PSB) channels and to the growing popularity of online advertising in the marketing mix of blue chip companies, as illustrated in Figure 1.36.

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Figure 1.36

Advertising spend by medium

Proportion of spend (%)

100% 788m 80% 4147m 60% 4341m 4378m 4653m 166m 816m 197m 914m 465m 825m 1,367m 986m 1043m 4820m 2,016m 1084m 4594m Cinema Internet Radio Outdoor 40% 8,504m 20% 8,314m 8,359m 8,742m 8,581m 8,346m Television Press

0% 2001 2002 2003 2004 2005 2006

Source: The Advertising Association Notes: These figures include all advertising spend, including display and classifieds. Internet expenditure includes paid-for search. All figures are nominal.

The volume of online campaigns and the number of advertisers choosing online as an advertising platform has grown rapidly since 2004. A large number of blue chip organisations now advertise online, including prominent members of the communications industries (Figure 1.37). Figure 1.37
10,000 Number of online campaigns Number of online advertisers 8,000 6,483 7,441 7,641

UK online campaigns and advertisers, Jan Apr 2007

Advertiser 1. Microsoft 2. Hewlett Packard 3. O2 Campaigns 104 75 67 66 60 57 55 55 49 47 Total banner ads served 363 381 396 195 182 305 663 130 302 172

6,000

5,673

4. Fidelity
4,159 4,000 2,860 3,753 4,134

5. Dell 6. Orange 7. Sky

2,000

8. Amazon 9. HSBC

0 2004 2005 2006 2007

10. IBM

Source: Nielsen Netratings Notes: Red indicates communications market operators

The three commercial PSBs have to compete with the growing popularity of commercial digital-only channels. In 2006, these digital channels sold advertising worth over 1bn for the first time, and took a 30% share of advertising, up from 24% in 2001 (Figure 1.38).

44

Figure 1.38

Distribution of TV ad revenue among PSBs and multichannels

Proportion of television net advertising revenue (%)

100%
590m 826m 534m 676m 794m 863m 1024m

80% 60% 40% 20% 0% 2000

Source: Operators
2881m 2612m

Commercial multichannels

2559m

2566m

2686m

2685m

2,426m

Commercial terrestrial channels

2001

2002

2003

2004

2005

2006

The PSBs have responded by taking advantage of the additional broadcast capacity afforded by digital television platforms to launch their own multichannels. In so doing they have gained audience share from targeted digital-only channels. This has, to a large extent, compensated for share reductions on their main channels in multichannel homes. These additional channels have had the added benefit of attracting younger viewers (Figure 1.39). Figure 1.39 Share of PSB spin-off channels in multichannel homes
Proportion of parent channel share (%)
12%

Audience share (%)

25%

11%

20% 7% 12.9%

9%

19.6%

10%

7% 15% 6% 10.6% 10% 12.8%

15.9%

8%

Proportion of parent channel share

6% Spin-off channel share

4% 5%

2%

0% 2002 2003 2004 2005 2006

0%

Source: BARB and Ofcom calculations

1.5.1.2 Online audiovisual aggregators The growing popularity of broadband has recently sparked the development of online AV aggregation services. Services such as Joost and Babelgum strive to converge the traditional TV user experience with the flexibility afforded by the internet. Both use peer-to-

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peer distribution technology which enables the streaming of video content for viewing on computers at near-broadcast TV resolution. This requires significant bandwidth, but can be achieved without the need to own a distribution network. Both Joost and Babelgum are currently in beta development stage, and are supported by targeted advertisements, enabling the services to be offered free of charge to end-users. Figure 1.40 compares Joost and Babelgum in some key dimensions that distinguish the two services: financial support, set-up and installation, content and deals, and unique features. Figure 1.40 Features of Joost and Babelgum
Joost Financial Support Set up and installation Predominantly a venture capital operation (Sequoia Capital, Index Ventures etc) Quick download and installation; however does not automatically update to the latest version. Beta is available for Intel-based Apple Macs and PCs running Windows. Not available on Linux Relatively more content from brand names such as Endemol, Warner Music, CBS, Viacom and NHL. Content is a mixture of professional and user generated Ability to rate and add tags to videos; my Joost enable users to chat with other users watching same channel, blog about the show with the ability to capture screenshots; ability to create user widgets; ability to re-size player window screen Babelgum Predominantly a private venture by Silvio Scaglia (Largest shareholder in FastWeb) Quick download and installation; Beta is currently only available on computers running Windows

Content and Deals

Limited branded content but more niche and independent content. No user-generated content. Allows professional independent producers to upload video and pays $5 for every 100 views Ability to create custom smart channels which is used to deliver personalized content and advertisements; ability to bookmark content; Limited social features

Features

1.5.2 Audio
Converging technologies began to open up new distribution opportunities to audio aggregators in the mid 1990s, when Real Audio launched. KJHK 90.7FM in Kansas US became the first mainstream radio broadcaster to stream its services over the internet in 1994. In the UK Virgin Radio followed suit in 1996 and the BBC was the first to offer comprehensive access to its audio archive from recently broadcast content. Since then, digital television platforms have launched with the ability to carry audio-only services, opening up yet more distribution opportunities for audio content. As a result, a significant proportion of audio listening now occurs over digital platforms, particularly among younger people (Figure 1.41). Figure 1.41 Frequency of listening by digital platform
Via internet at least weekly 21% 20% 16% 15% 11% 10% 6% 5% 0% Q104 Q105 Q106 Q107 5% 9% 6% 6% 8% 13% 19% Via mobile phone ever 23%

Proportion of respondents (%)

Via DTV at least weekly 25%

Source: RAJAR

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New digital radio stations have been launched to take advantage of the greater capacity offered by digital platforms. Many have been successful in attracting additional if modest listening share enabling the BBC, GCap and Emap to build an audience portfolio in a similar manner to the five main television channel operators. In spite of widening choice and new distribution strategies, overall listening to radio per head fell by about 5% in the five years to the end of Q1 2007. The effect among 15-24 year olds was particularly pronounced, with an equivalent reduction of about 13%. This might be explained by the fact that convergence has had an impact on the audio market in ways that new radio stations and wider distribution cannot compensate for. For example, audio on-demand has been available widely in the UK for some time offering streamed access to archive output and downloadable podcasts. The latter has emerged as a popular method of accessing audio while on the move and suppliers have responded with an expanding range of podcasts (Ricky Gervais podcast series has found particular success) in a wide variety of genres (see Figure 1.42). Even DAB digital radio in the UK will soon be able to support audio downloads; the second national DAB multiplex, which Ofcom recently awarded to the 4Digital Group Ltd, includes a proposal to offer a range of podcasts from at least nine providers by August 2008. Figure 1.42
12,000 11,409 10,342 9,000 7,710 7,207 6,039 5,878 5,671 5,106 3,769 3,000 3,266 2,074 1,812 1,301 1,085 423 0 9,886

Podcasts available through iTunes

Number of podcasts available

6,000

re

ily

gi lm

M us ic

ie s

itic s

Ar t

io n

co m ed

el ig io

or ts

og

cu ltu

ea l

sin e

fa m

bb

ici n ed

uc at

ch no l

po l

Sp

&

ho

hi ld re

ew

cie

es

G am

So

Source: Typicalmacuser.com

Most recently, the internets ability to offer consumers a tailored audio experience captured the attention of CBS. They paid a reported $280m for Lastfm, a site that learns about its registered users musical preferences and tailors live streamed output to reflect their tastes.

1.5.3 Aggregating user-generated content

The online production and publishing websites discussed in the content section above also act as user-generated content aggregators. In the seven months to May 2007, the monthly UK unique user base of YouTube increased by nearly a half to 6.5 million users, while Wikipedias increased by 30% to 6.4 million. MySpaces audience has increased by 25% since November 2006, and FaceBooks user base has quadrupled since October 2006. The one exception to the pattern of rising popularity is Flickr, whose audience in the UK appears to have stabilised at just under a million unique users every month (Figure 1.43).

Sc ie n

ce

G ov er

TV

Bu

&

&

Ed

Te

ty

&

&

&

nm

en t

ss

th

47

Figure 1.43
Unique users (m)
7m 6m 5m 4m 3m 2m 1m 0m Oct-06

Unique UK users of a selection of UGC sites, monthly

YouTube Wikipedia Myspace Facebook Flickr

Nov-06

Dec-06

Jan-07

Feb-07

Mar-07

Apr-07

May-07

Source: Nielsen//Netratings At home data

YouTube has emerged as the most popular of the video sharing sites, with a worldwide monthly audience of 37 million users who typically view 2,500 million clips. That equates to 68 clips per user per month which, on the assumption that each clip lasts 1.5 minutes, equates to 3 minutes of viewing per person per day. Put into the context of over three hours of television viewing per head per day, it would appear that at present, consumers are not substituting the broadcast AV for on-demand content offered by the online video sharing sites (Figure 1.44). Figure 1.44 Users and video streams taken from video sharing sites
Unique users 37m 56m 7.5m Monthly video streams 2,500m 1,500m 60m User streams per month 68 27 8 Implied daily viewing 3.4 mins 1.3 mins 0.4 mins

Video sharing site

YouTube MySpace Video Google video

Source: Screen Digest/comScore

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1.6 Distribution
Many homes now have access to seven digital distribution platforms (satellite, cable, terrestrial, DAB digital radio, fixed lines and 2G and 3G mobile) thanks to the progressive roll-out of digital distribution infrastructure. The two platforms that have made particular progress between 2005 and 2006 are 3G mobile (where the proportion of population living in postal districts where at least one operator reports at least 50% 3G area coverage rose from 84% to 91%) and DAB digital radio (estimated by Ofcom to have increased from 86% population coverage to 88%). Each platform has particular strengths but over the past year we have started to see the emergence of hybrid devices which combine different distribution technologies. These include the BT Vision V-box, which offers DTT with IPTV, and the Nokia N95 mobile handset, which includes WiFi, GPS satellite, Bluetooth and infrared connectivity. This section examines the characteristics of these digital distribution platforms before looking in depth at the allocation and value of the spectrum that underpins several of them. It goes on to review how, thanks to converging technologies, some of these platforms have shown themselves capable of carrying a range of different communications media. It concludes by considering future possible developments in the use of spectrum and in fixed-line communications.

1.6.1 Digital distribution platforms in the UK

There are seven main consumer-facing digital distribution platforms commercially available in the UK (Figure 1.45). They differ widely both in their availability and in the functionality they support; we now examine each in turn. Figure 1.45 Digital platforms to the home and to the consumer

Sa te llit e

Terrestrial television

DAB digital radio

2G mobile 3G mobile

Digital cable

Fixed line

1.6.1.1 Broadcast platforms digital satellite, digital terrestrial and DAB The broadcast platforms (digital terrestrial television (DTT), digital satellite (DSat), and DAB digital radio) are effective at distributing large quantities of audio or audiovisual data to consumers on a one-to-many basis.

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Digital satellite offers high levels of nationwide coverage (to around 98% of UK homes) and substantial capacity through a constellation of satellites situated at 28.8 degrees East, with each satellite transmitting channels from a collection of transponders. Consumer access to the platform typically requires a visit from an installation specialist, and is often provided by BSkyB which offers both a subscription service and a one-off payment to receive free satellite services. Dishes and boxes capable of receiving free-to-view satellite channels are also available from a number of specialist electrical retailers in the UK. Digital terrestrial television (DTT, which supports Freeview and Top Up TV) is available to approximately 73% of homes via 80 transmitters, a figure that will remain fixed until digital switchover commences in October 2007 (Figure 1.46). DTT capacity is divided into six multiplexes each of which is capable of carrying a number of services. Provided that a consumer has a functioning roof-top (or in some cases a set-top) aerial, they can gain access to DTT channels through a plug-and-play set top box. Figure 1.46 DTT and DAB coverage in 2007

Notes: DTT map indicates areas capable of receiving all six multiplexes. DAB coverage map indicates areas that can receive at least one multiplex.

We estimate that DAB digital radio is available to 88% of the UK population. Consumers typically listen using dedicated DAB radio receivers, although a number of devices which enable computers to access DAB are also available. The platform carries national radio services on two national mutiplexes (one operated by the BBC and the other by Digital One). A third national commercial multiplex will launch by July 2008. Local multiplexes, offering radio services on a local or regional basis, are also available in varying numbers across the UK. Convergent technology has enabled the DAB platform to deliver a variety of media to endusers, including text and information on broadcast radio services, an electronic programme guide and broadcast television through the BT Movio service (although the closure of this service has now been announced). The second commercial multiplex operator, 4Digital Group Ltd, plans to offer downloadable podcasts when it launches next year.

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1.6.1.2 Digital cable Nationwide roll-out of the cable network first began in the early 1980s with digital network upgrades following in the late 1990s. Progressive consolidation between individual franchisees (which were licensed by the Cable Authority and then the Independent Television Commission), culminated in the market being served by two major operators ntl and Telewest. A small number of franchises remained independent of these two organisations (Wight Cable covering the Isle of Wight and Small World in Scotland). The merger between ntl and Telewest was followed by the launch of Virgin Media in 2006. The cable platform has less extensive coverage than either satellite or terrestrial television (45% versus 98% and 73% respectively). Benefiting from a hybrid coaxial/fibre and twisted copper pair network, the platform supports a high bandwidth return path and video ondemand along with standard telephony services. It was the first to pioneer dual play services which bundled fixed-line telephony and television subscription services; it was also the first to market with a triple play product which also included broadband. Figure 1.47 Cable coverage in 2007

Source: Ofcom

1.6.1.3 Fixed-line services Besides cable, the other widespread fixed-line digital network serving the general public in the UK is based on the copper access network owned by BT. This network has been deployed over many decades, primarily to deliver analogue telephone signals to customers. By the early 1970s, there were 10 million installed lines. Starting in the early 1980s and continuing into the 90s, the central parts of the network were modernised to carry the telephone traffic digitally. However, for a standard telephone service, the final connection to the customer from the exchange remained analogue, a situation which remains today.

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A significant step towards making the network fully digital began at the beginning of the current decade, when Assymetric Digital Subscriber Line (ADSL) was deployed by BT. Today, BTs competitors can gain access to the copper lines serving their customers and install their own ADSL equipment, in a process called local loop unbundling (LLU). ADSL technology allows computer data, in a high speed and fully digital form, to be carried alongside the analogue telephone signals over the copper lines to customers. Today, the network consists of around 40 million installed copper lines totalling 120 million kilometres in length. These are served by 4 million telegraph poles, 90 thousand street cabinets and 5,500 local exchange buildings. 1.6.1.4 Mobile networks Mobile telephony first became available in analogue form in 1985, using low-power transmissions, with the transmitters arranged so that the network is made up of a series of cells, allowing the re-use of the same spectrum in multiple locations. The digital 2G and 3G mobile networks are effective in offering tailored one-to-one consumer services such as voice telephony, video calling, SMS and web browsing. The cellular networks configuration also favours location-specific services for example helping consumers find local services such as taxis and restaurants. Figure 1.48 2G and 3G mobile network coverage in 2007

2G mobile coverage

3G mobile coverage

Source: Ofcom / GSM Association / Europa Technologies; data as at Q1 Note: 2G map shows where the indicated number of operators have at least 95% 2G area coverage. 3G map shows where the indicated number of operators have at least 50% 3G area coverage.

1.6.1.5 Combining platform strengths Devices which combine the strengths of alternative distribution platforms have emerged over the last two years. Examples include: VoIP mobile devices such as BT Fusion and Orange Unique, which offer VoIP when in range of a WiFi router and standard mobile telephony when out of range;

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Mobile GPS hybrids like the Nokia 95 that allow mobile devices to work with the Global Positioning System network and thereby provide accurate location-based services; DTT IPTV services such as BT Vision, which offers access to Freeview channels along with on-demand access to AV output through a DSL connection; Mobile DAB hybrids such as the BT Movio service (whose closure has now been announced), which was offered in partnership with Virgin Mobile, combining mobile telephony with access to television and digital radio services using DAB spectrum; and DSat fixed line set top boxes, acquired from BSkyB, which also offer a dial-up return path, allowing viewers to participate in interactive services.

Other operators have sought to enhance the capabilities of platforms using non-network hybrids. The Sky Anytime service offers on-demand access to content that is pushed onto a portion of the Sky+ hard drive, allowing consumers full on-demand access to a limited quantity of AV output selected by Sky. Top Up TV Anytime relies on a similar delivery model. Sky has also recently announced that it will work with Sony to launch a Playstation Portable (PSP) download service that will enable PSP owners to view a selection of Skys programmes on the handheld device.

1.6.2 The characteristics of spectrum

Many of these digital distribution platforms make use of spectrum which is licensed by Ofcom. It is often classified according to its frequency, as this determines two key properties the propagation range and the available bandwidth for data transfer. Low frequencies can propagate over long distances but have limited bandwidth, while the converse is true at high frequencies. However, there is a range of frequencies, roughly around the UHF (ultra-high frequency) band, where a balance can be achieved between propagation range and bandwidth. This prime part of the spectrum is called the sweet spot. The chart below illustrates where this sweet spot is and where various distribution networks sit across the radio spectrum. It is impossible to show all the important distribution technologies in one chart, because a large proportion of new wireless technologies are emerging in this prime area of the radio spectrum.

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Figure 1.49
Electric Waves

Location of distribution networks across the radio spectrum

Radio Waves Infra-red Visible Light Ultra Violet X-Rays Gamma Rays Cosmic Rays

Radio Spectrum
Long Medium Wave Wave Radio Radio
VLF LF MF

Sweetspot Bluetooth / Wifi Short 3G/ Satellite FM Wave TV Radio Radio DAB GSM 3.5G
HF VHF UHF SHF EHF

30 kHZ

300

30 MHz

300

30 GHz

300

Increasing Range Decreasing Bandwidth

Source: Ofcom

Decreasing Range Increasing Bandwidth

1.6.2.2 Use of spectrum by industry Spectrum is essential to the operations of both the commercial and public sectors. It is widely used in the telecommunications, broadcasting and transport industries and also by the emergency services, military and science. The split in the use of UK spectrum by industry has not changed significantly in the last year; the MoD is the largest single holder of spectrum, with 30% of weighted use (Figure 1.50). Figure 1.50 Weighted use of spectrum, 2007
Business radio Cellular 5% 4% Aeronautical and maritime 14% Science 1% Broadcasting 13%

Emergency services 2% Defence 30%

Other 7%

Fixed / satellite 24%

Source: Ofcom Note: This relates only to spectrum below 3GHz. The chart has been weighted such that a 1MHz allocation at 100MHz is given equal weighting to a 10 MHz allocation at 1GHz

1.6.2.3 Economic benefit of spectrum The economic value generated by the use of radio spectrum is estimated to have increased significantly in the last four years. Europe Economics estimates that the net economic

54

benefit of radio spectrum to producers and consumers in the UK has increased by nearly 50% between 2002 and 2006, to a total of 44.8bn. Europe Economics ascribed the rise primarily to large increases in the mobile communications sector, where subscriber numbers have risen along with spending, in particular on SMS and mobile data use, and the broadcasting sector, where the number of digital TV households has increased substantially, and where surveys have recorded increases in the value that consumers place on broadcasting services.1 Figure 1.51
bn

Value generated by use of spectrum in the UK

25 20 15 10 14.4

21.8

14.7

2002

5.9 5 0
Public mobile Broadcasting Satellite links Fixed links Wireless broadband Private mobile radio Other

2.9 2.8

3.8 3.9 0.0 0.3 1.1 1.2 0.1 0.1

2006

Source: Europe Economics, March 2006

1.6.2.4 Spectrum auctions Ofcom most often uses auctions to assign unused spectrum to those who can use it best. Two auctions were held in 2006 for the 1781.7-1785 MHz band paired with 1876.7-1880 MHz and the 412-414 MHz band paired with 422-424 MHz. There were 14 bidders for 12 licences for the first auction and six bidders for four licences for the second auction. The two auctions together generated licence fees of 4.3m. Further UK-wide auctions are in the pipeline. The timetable for the spectrum award programme can be found on the Ofcom website, with a summary of the next steps and timings (based on Ofcoms best estimates).2. Some of the key bands which we expect to auction in the future are: 872-876 MHz paired with 917-921 MHz 1452-1492 MHz 2010-2025 MHz and 2500-2600 MHz Parts of the10, 28, 32 and 40 GHz bands

1.6.2.5 Spectrum trading Ofcom introduced spectrum trading for some licences towards the end of 2004, and has monitored the volume of trading since that date. Spectrum trading is measured in terms of
Although Europe Economics followed the 2002 methodology as closely as possible, differences in the methodologies and the use of new data sources could also be partly responsible for the difference in the estimates of economic value 2 http://www.ofcom.org.uk/radiocomms/spectrumawards/timetable/
1

55

assignments, rather than licences. An assignment is the authorisation given by Ofcom for a station to operate using a specific radio frequency channel in a defined location under specific conditions, and a licence may be comprised of a large number of assignments. In 2006, eleven assignments were traded which were independent of any other commercial activity (i.e. unrelated to mergers and acquisitions). Although this figure is low, it represents a 120% increase on the five assignments traded in 2005. An increase in the volume of spectrum trading is expected in the coming years as Ofcom plans to make more licence classes tradable.

1.6.3 The growing capabilities of digital distribution platforms

1.6.3.1 The internet TV services distributed over the internet are growing in number Channel 4 and the BBC launched on-demand internet content two to three years ago with the launch of 4Docs and watch again access for specific programme series respectively. But the mainstream broadcasters have continued to seize further opportunities afforded by convergent technologies in the last 12 months. in the summer of 2006, Channel Four launched live streaming of its channels although programmes for which live online rights had not been acquired remained off-line. This was followed by the launch of a pay-per-view on-demand download service called 4OD; ITV launched live streaming of all its networks in June 2007, along with streamed ondemand access to recently aired episodes of Coronation Street and Emmerdale; and The BBC has recently launched iPlayer, offering on-demand access to recently broadcast content.

Figure 1.52 summarises the current internet service offer by these three broadcasters. Figure 1.52 AV output distributed by PSBs over the internet, August 2007
Live channels Broadcaster BBC Service BBC One BBC iPlayer offers on-demand BBC Two access to programmes shown in BBC Three the last seven days BBC Four CBBC CBeebies News 24 BBC Parliament ITV1 ITV2 ITV3 ITV4 On demand Business model Free to view

ITV

ITV.com offers access to recent

episodes of Emmerdale and Coronation Street ITV local offers on-demand access to local news and information

Free to view though ads may be played

Channel 4

Channel 4

4OD on-demand downloadable

access to a range of archive programmes

Pay per download

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The internet as a distribution platform The internet is a publicly-accessible global communications network, which enables the interconnection of a wide variety of devices ranging from domestic computers and other devices in the home to large corporate computer networks. Networks and devices attached to the internet communicate by exchanging packages of data using a defined format called Internet Protocol (IP). Along with the content of the communication, an IP packet contains all of the information required for it to traverse the internet between the source and destination of the communication. Additional information carried within IP packets enables different service types and characteristics to be used between devices, for example email, web browsing and voice in the form of Voice over IP.
Corporate users Domestic users Corporate network

Regional Internet Service Provider's network

Backbone Internet Service Provider's network

Regional Internet Service Provider's network Regional Internet Service Provider's network Application hosting networks

Backbone Internet Service Provider's network Corporate network

Backbone Internet Service Provider's network

Regional Internet Service Provider's network

Backbone Internet Service Provider's network

Backbone Internet Service Provider's network Regional Internet Service Provider's network

Application hosting networks

Corporate users

Domestic users

1.6.3.2 Mobile Mobile TV There are two ways of delivering TV services to mobile phones either via the data capability of existing mobile networks or through a dedicated broadcast network. An example of the latter was BT Movio, a platform which used a version of DAB radio broadcast technology to deliver mobile TV content to Virgin customers with a special dual-function mobile phone. This service offered four channels, including BBC One and E4, but was reported to have low subscriber numbers and its closure was announced in the summer of 2007. While other broadcast-based systems are being trialled including the DVB-H standard for which the European Commission recently expressed a preference - the only mobile TV services current commercially available in the UK use existing mobile data networks. ROK TV is unique among these, in that it operates over 2G networks, whereas the others are 3G. ROK TV is independent from the underlying network customers of any 2G network can subscribe providing they have downloaded the client software to a compatible handset.

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Whereas ROK TV combines content packaging, distribution platforms and the client equipment and/or software. Kamera is a different type of company which focuses primarily on content packaging, working with content creators, for example Associated Press, to produce customised channels of content suitable for delivery over a range of mobile TV systems. Mobile access to the internet There are four key prerequisites before access to the internet from mobile handsets becomes mass-market, and there are signs that all four elements are finally coming together in 2007. 1. High-speed data transfer. 3G networks offer speeds of up to 384Kb/s (with nascent HSDPA upgrades increasing speeds up to 1Mb/s), compared to maximum speeds of 32-40Kb/s over GPRS. In practice, this means that on a 3G network web pages can be loaded in much less than a second, streamed video is of good quality and a full music track can be downloaded in less than a minute. In 2006, 19.1% of new connections were 3G (34.3% of contract connections), meaning that by the end of the year 11.2% of UK mobile subscribers (7.8million) were able to connect to a 3G network. Affordable data transfer. The cost of browsing the mobile internet has come down dramatically, with four of the five mobile network operators now offering unlimited access for a fixed fee (see Figure 1.53). A fair usage cap of 1GB means that approximately 100,000 mobile web pages could be viewed, or 250 music tracks downloaded, or 130 minutes of video watched. Mobile data pricing, July 2007
Unlimited data tariff or add-on 3 O2 Orange T-Mobile Vodafone 5 per month Not available 5 per month (weekend and evenings only) 7.50 per month 7.50 per month Fair usage cap per month 1GB 1GB 1GB 150MB Per MB charge outside unlimited tariff 2 per MB 3 for 2MB 5 for 4MB 4 for 4MB 3 for 1MB 1 per day (40MB) 1 per day (15MB) Pre-pay availability

2.

Figure 1.53

1 per day (4MB) 3 for 2MB 5 for 4MB 1 per day (25MB) 1 per day (40MB) 1 per day (15MB)

Source: Operators web sites, July 2007 Note: Table illustrates lowest cost option for customers on standard contracts. Inclusive tariffs also available on certain contracts from some operators.

3.

Handsets capable of offering functional web browsing experience. In order to be able to use the mobile internet effectively, web pages must be rendered into a format appropriate for viewing on a mobile handset. In order to do this, the handset must be capable of reading XHTML programming code; nearly 80% of handsets sold in the first half of 2007 offered this capability (Figure 1.54).

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Figure 1.54
100%
Percentage of total sales

Mobile handset sales with XHTML functionality

24% 21% 18%

80%
61%

47%

48%

41%

38%

27%

60% 40% 20% 0% Q2 2005 Q3 2005 Q4 2005 Q1 2006 Q2 2006 Q3 2006 Q4 2006 Q1 2007 Q2 2007
39% 54% 52% 60% 62% 73% 76% 79% 82%

Without XHTML With XHTML

Source: GfK

4.

Availability of content and services offering a mobile experience comparable to that of the fixed-line internet. In the past year there has been a shift away from operators focusing on their own mobile portals towards facilitating access to the open internet, as an increasing number of sites become mobile-enhanced and major internet players such as Google, MSN and Yahoo have invested heavily in launching mobile applications. An example of this came in June 2007 when Vodafone combined its launch of a flat-rate data tariff with new network software, which reconfigures web pages and makes them easier to view and navigate. Vodafones content partners include Google, YouTube, MySpace, eBay and Yahoo Mail.

But the mobile internet has yet to take off in the mass market However, while the ingredients may now be in place for the mobile internet to take off, uptake is still slow. Only 13% of mobile phone users surveyed in June 2007 were using their mobile to access the internet, while a large gap remained between the capability of mobile devices and customers awareness of and use of these capabilities (Figure 1.55). Figure 1.55
Percentage of mobile users 15+

Awareness and use of mobile phone features, June 2007

50% 40% 30% 20% 10% 0%

44% 35% 29% 32% 27%

Aware mobile has capability

11% 10% 2%

13% 8% 7%

11%

Personally use

Internet access

Email access

Download Download Instant Watch TV and view and listen Messenger video clips to music

Source: Ofcom research

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1.6.4 Future developments

1.6.4.1 Fixed-line networks A number of technologies (often referred to as next-generation networks) can be used to upgrade the capabilities of fixed-line telephony networks. There are two types of next generation network upgrade: 1. Next generation core networks (also sometimes just known as NGN) are internet-protocol based core networks which can support a variety of existing and new services, typically replacing multiple, single service legacy networks. Network operators are deploying core NGNs to make operational cost savings, achieve quicker time to market for new products and enable more flexible product packaging. Several operators in the UK are upgrading their existing core networks including BT, Cable & Wireless and Carphone Warehouse. Others, notably Thus and Easynet, invested in core NGNs when they built their networks. BT has estimated that the cost of its core NGN deployment will be 10bn and that it will deliver annual savings from 2008/09 of 1bn. Next generation access networks (NGA) are broadband access networks which connect the end-user to a core network capable of a bandwidth quantity and quality significantly in excess of current levels (a benchmark of 20Mbit/s or more is often used) and enabling new services, such as HDTV over broadband, to be delivered to end-users. Next generation access can be facilitated through several technologies including: fibre deployment, advanced exchange-based DSL over copper, and copper bonding (simultaneous use of multiple copper pairs), cable network upgrades and wireless infrastructure deployments.

2.

There are two main types of fibre deployment: Fibre to the street cabinet (FTTC): fibre is deployed between the exchange and the cabinet in the street, but the existing copper between the customer premises and the cabinet continues to be used. This can offer speeds of up to 50 Mbit/s, depending on local conditions. Fibre to the home (FTTH) and fibre to the building (FTTB): which enable speeds of 100 Mbit/s and more as the fibre link extends from the core network to the customers premises, bypassing the existing copper local loop. Fibre upgrade path for existing copper network
Current ADSL broadband
DSL

Figure 1.56

Exchange
Fibre

DSL

t olu Ev

ADSL2 Street cabinets Fibre ADSL2+ Fibre Fibre VDSL

ion

Fibre-to-thehome
Source: Ofcom

Fibre-to-the-cabinet

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NGA in the UK In contrast to some other countries, operators have not announced the rollout of NGA on a large scale in the UK, although several smaller scale deployments are expected: BT is deploying a FTTH network in a new development at Ebbsfleet in Kent, and has said that, from 2008, has said it will deploy FTTH as standard for new-build developments. Digital Region, a consortium backed by local authorities and the South Yorkshire Regional Development Agency, has stated that it will target half a million households and businesses from 2008, using a fibre to the cabinet (FTTC) architecture. Virgin Media recently doubled the speed of its premium cable broadband service to 20 Mb/s and is trialling even higher speeds in Ashford.

Market and technical conditions vary between countries, which may explain why NGAs could be deployed later in the UK than elsewhere. Relatively high levels of digital and pay-TV takeup and a relatively short local loop (which enables relatively high speed exchange-based DSL) mean that services which require NGA in some countries may be deliverable in the UK using current-generation broadband. 1.6.4.2 Wireless Ultra-wideband (UWB) Although the concept of ultra-wideband (UWB) dates back many decades, it was only in the late 1990s that advances in the technology allowed its practical application in consumer electronics. UWB is a technology developed to transfer large amounts of data wirelessly over short distances, typically less than ten metres. Unlike other wireless systems, which use spectrum in discrete narrow-frequency bands, UWB operates by transmitting signals over a wide band of spectrum. According to a European Commission Decision3, an ultrawideband radio system is defined as a radio system having a bandwidth greater than 50 MHz. UWB technology can be used for a range of applications within a Personal Area Network (PAN) environment, including data transfer between computers and handheld devices or external storage devices, and video streaming between a DVD player and a TV set. UWB supports data rates of 100Mbit/s or greater and enables extended battery life due to the bursty nature of its transmissions. While the most economically significant UWB applications are likely to be in a PAN environment, other potential UWB applications include ground-probing radar, positioning location systems, wireless sensors, asset tracking and automotive systems. Cognitive radio While there are a range of definitions for cognitive radio technology, the basic concept hinges on the ability of a cognitive radio device to be aware of the spectrum usage in its neighbourhood and to identify lightly-used spectrum. Subsequently, the cognitive device transmits at that frequency but checks before each transmission that this frequency is available. If the frequency becomes occupied, the cognitive device transmits at another frequency that is free.
3

Commission Decision of 21 February 2007 on harmonisation of the radio spectrum for equipment using UWB technology in a harmonised manner in the Community (2007/131/EC): http://eurlex.europa.eu

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Potentially, cognitive radio allows a more efficient use of the spectrum as it makes use of spectrum that is temporarily not needed by a primary user. Another advantage is that cognitive radio devices can operate without the need for central planning, making it an attractive proposition for military applications. However cognitive radio technology faces a number of significant technical challenges ranging from the ability to sense correctly that a block of spectrum is free to being able to scan a wide enough range of frequency bands to identify a free channel. According to some work commissioned by Ofcom, potential applications for cognitive radio include overnight backup and file downloads, particularly with multimedia content. However these applications are currently well served by WiFi technology. Wireless payments In the last few years, the mobile industry has seen a trend towards integrating an everincreasing range of features into handsets, paving the way for remote control on life. A sample of the features that have made it into the handset includes cameras, music players, satellite navigation solutions, game consoles and TV. Presuming that a handset and a wallet are an individuals inseparable companions, combining the two seems logical. Transactions over wireless technologies span a range of services such as ticketing for transport systems, at sports arenas or for parking meters and payment at check-out points in coffee shops, grocery stores or other retailers. Wireless payments are generally carried out in one of the following ways: Premium SMS (Short Message Service): e.g. a mobile ringtone can be purchased by sending a text message to a premium rate number; Using a WAP (Wireless Application Protocol) or internet site: e.g. a music clip can be downloaded from a content providers WAP or internet site by sending across the customers card details. Alternatively, identification and authentication can be carried out in the background between the mobile operator and content provider, using appropriate information stored previously with the mobile operator; and Short-range data transfer: e.g. a train ticket can be purchased by waving a handset close to a reader using electronic money (e-money).

In the scenarios where wireless payments are made by premium SMS or using WAP/internet site), the radio-bearer technology is likely to be either a variant of cellular technologies (2G, 2.5G, 3G) or WiFi. As for short range data transfer, RFID (radio frequency identification) or NFC (near field communications) is likely to be used. While 2G/3G and WiFi are well established technologies, RFID and NFC have lower penetration. In the main, RFID and NFC are short range technologies allowing small amounts of data from other devices or tags to be read when they are within close range (generally less than 10 cm). A number of wireless payment solutions have been launched worldwide in the past few years. In Japan, Sonys FeliCa technology (based on RFID) is integrated in a few handset models for operators such as NTT DoCoMo or KDDI. In June 2007, a California-based startup, Obopay, announced a partnership with the US operator, Verizon Wireless, to allow wireless payments using Obopays software on a mobile browser or even using text messaging. Credit card companies are engaging with wireless payment technologies. Visa Europe has announced plans to launch the RFID-enabled Visa payWave card payments across Europe, starting with the UK, from autumn 2007. In 2006, a consortium of UK mobile operators another component of the wireless payment value chain - promoted PayforIt, a scheme

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allowing customers to make purchases over the air through a trusted intermediary company, also known as an accredited payment intermediary. Local wireless distribution technologies taking off Using spectrum on a localised basis to enable devices to talk to one another wirelessly has become increasingly popular with consumers. Bluetooth is now fitted as standard to many mobile phones (75% of those sold in the 12 months to Jun 2007 were Bluetooth enabled), laptops and computers. Accessories designed to interface with these devices such as headsets, keyboards and printers are also widely available.

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1.7 Devices
Take-up of many digital communications devices increased further in 2006. Digital television was installed on the main set in 80.5% of homes by the end of Q1 2007. An estimated 19.5% of homes had DAB digital radio devices while 15% had a digital video recorder. Even among young children, access is high - at the age of five, over 50% have their own television, 10% have a mobile phone and over 40% have a games console. Newer digital devices offering services enhancements are also becoming more widely available. High-definition (HD) ready TV sets sales in Q4 2006 accounted for 39% of all sales, up 25 percentage points on Q4 2005, fuelled by increasing consumer demand for large flat-panel sets which tend to be HD-ready, by the reduction in unit prices (the average HD-ready set price fell below 1,000 for the first time in Q4 2006) and by the introduction of HD channels. The power and functionality of mobile phone handsets also continued to increase during 2006, with the first signs that their non-voice features (such as a camera) could compete with their stand-alone counterparts. This section examines consumers adoption of digital devices, starting with an overview of device take-up and going on to examine sales of the newer digital devices such as HD-ready televisions and DAB digital radio sets. It then goes on to outline the results of two pieces of new Ofcom research. The first looks into consumers use of mobile handset functionalities and the second focuses on consumer acquisition of digital video recorders.

1.7.1 Overall device take-up

Take-up of MP3 players and digital video recorders (DVRs) continues to grow, with 40% of individuals claiming access to the former (up 13% on 2005) while 15% of individuals now have the latter (nearly double the 2005 figure). DVD player take-up, along with PC penetration appeared to plateau in 2005/06, while VCR take-up has been declining since 2001; a possible sign that consumers are switching VCRs for DVRs. An increasing proportion of individuals have access to a 3G mobile network, with 11% of individuals having a 3G subscription, up four percentage points on 2005. Figure 1.57 Audiovisual device take-up

Proportion of individuals (%)

100% 80% 60% MP3 player 40% 20% 0% 2000 TV-enabled PC DAB digital radio DVR 3G handset 2001 2002 2003 2004 2005 2006 Q1 2007

Video recorder Digital television DVD player

Source: Ofcom research

Digital communication technologies are widely used by children. Fifty per cent of five year olds have their own TV set, and this increases with the childs age up to 15. At the age of 11 a similar proportion of children possess games consoles, TV sets and mobile phones

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(between 75% and 80%); but as they grow older levels of mobile phone ownership edges ahead to make it the single most common device, owned by 90% of children by the age of 14. Comparison with Ofcom research conducted in 2005 for the Childrens Media Literacy Audit shows that mobile phone ownership is now higher at most ages than it was in 2005, and that the largest increase in ownership has been among 8-9 year olds. With the growing popularity of websites that allow the posting of video clips, it is perhaps not surprising that among 13-15 year olds, 15% claimed to own their own webcam. Figure 1.58
100% 80%
Radio

Proportion of children that own media device

TV Games console

60% 40% 20%

Laptop/ PC with internet access Mobile phone MP3 player DVD player Digital camera

0%
5 6 7 8 9 10 11 12 13 14 15

Webcam

Source: Ofcom research, April/May 2007

1.7.2 TV sets
Of the 7m sets that were sold in 2006, 2 million had an integrated digital tuner, almost 2.5 times as many as in 2005. Sales of digital sets as a proportion of all TV sets sold was at its highest during the year in Q3, when they constituted 37% of sales. This then dipped to 24% in Q4. With sales of analogue sets showing only limited signs of diminishing, digital sets have had the effect of boosting overall television set sales during 2006 and Q1 2007. Figure 1.59 TV set sales per quarter

TV sets sold per quarter

3000 2500 Digital 2000 1500 1000 Analogue 500 0 Q1 2002

Q1 2003

Q1 2004

Q1 2005

Q1 2006

Q1 2007

Source: GfK

Of the 7 million TV sets sold in 2006 2.4 million were HD-ready. HD compatibility now forms part of the standard specification for many large flat-panel TV sets. This, combined with steeply falling prices (Figure 1.60) has led to the growing sales of HD-ready sets.

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Figure 1.60

Average price of a TV set

Average price per unit ()

6,000 5,000 4,000 Digital 3,000 2,000 1,000 0 Q1 2002 Analogue HD ready

Q1 2003

Q1 2004

Q1 2005

Q1 2006

Q1 2007

Source: GfK

1.7.3 DAB radio sets

Seasonality is a feature of many digital device sales, and particularly so with DAB digital radio sets. In 2006 1.7 million sets were sold, half in the final quarter of the year in the run-up to Christmas. Once again, falling equipment prices could well have fuelled demand (combined with widening choice and availability), dropping from an average of 460 in March 2002 to 90 in March 2007. Figure 1.61 DAB set sales per quarter

DAB sets sold per quarter

800 Portable 600

400

Car

200 In-home 0 Q1 2002

Q1 2003

Q1 2004

Q1 2005

Q1 2006

Q1 2007

Source: GfK

1.7.4 Mobile handset functionality

The mobile handset is emerging as a highly converged device, with the regular launch of new models integrating features that go well beyond basic voice telephony. The pace of change in the sophistication of mobile handsets has been such that non-voice functions (for example, the ability to take photographs) may potentially substitute for stand-alone devices. Many of the Nokia N-series handsets concentrate on a particular non-core feature such as a video camera (N93) or music player (N91). Sony Ericsson has different series depending on the lead function; its W-series phones specialise in playing music whereas many of its K-

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series phones specialise in taking pictures. Other handsets, such as Apples iPhone (released in the USA in June 2007, and set to be launched in the UK later in the year) and the Nokia N95 focus on a greater range of features; these are listed out in Figure 1.62 below to demonstrate the breadth of services offered by recently released mobile handsets. The iPhone and the N95 also herald the incorporation of functions into the mobile handset which could come to rival the quality of a specialist device. The iPhones music player has similar design and technical specifications to a stand-alone iPod, and the camera within the N95 offers picture resolution of up to five megapixels (most dedicated digital cameras launched before 2005 were sub-five megapixels). Figure 1.62
Metric Weight Size Display Capacity Operation frequency Data connectivity Camera Music FM radio Video GPS Email MMS Battery

Comparison of Apple iPhone and Nokia N95

Apple iPhone 135g 115 x 61 x 11.6mm 3.5 inch (480 by 320 pixels) 4GB or 8GB flash drive GSM (850, 900, 1800, 1900 MHz) Wi-Fi, EDGE and Bluetooth 2.0 megapixels MP3 player; also supports several other formats No 640 x 480 pixels at 30 frames per second No Yes No Up to 8 hours talk time; up to 250 hours standby Nokia N95 120g 99 x 53 x 21mm 2.6 inch (240 x 320 pixels) 160MB internal capacity (also takes 2GB memory cards) WCDMA2100, EGSM900, GSM (850, 1800, 1900 MHz) Wi-Fi, EDGE, Bluetooth, Infrared, GPRS Fast Data Up to 5.0 megapixels MP3 player; also supports several other formats Yes 640 x 480 pixels at 30 frames per second Yes Yes Yes Up to 4 hours talk time; up to 225 hours standby

The impact of the newest generation of mobile phones on stand-alone devices has yet to be felt fully, owing to the fact that mobile functionalities are only just approaching the quality of stand-alone devices. However, the rapid mobile phone replacement lifecycle in the UK means that increasing numbers of consumers are likely to acquire phones with non-call related functions which match their stand-alone equivalents. To understand the degree to which this is likely to impact on consumer behaviour, we commissioned research in July 2007 that examined mobile phone features outside the core activities of making calls and sending SMS messages. It found that the function most mobile phone owners were aware of was the camera (65% of mobile phone owners), and this figure may well rise again since, according to GfK, in the year to June 2007 84% of phones sold had an integral camera. It is interesting to note that the awareness of the camera feature is highest, followed by games and alarms, which have been available for longer as mobile phone functions. This may be because the camera is a physical part of the handset, which is more difficult to overlook than a menu option or because there has been more publicity about camera function than other features.

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Figure 1.63

Prompted awareness of mobile phone features

% of mobile phone owners who are aware of function

Camera Games Alarm Video camera Diary or organiser Internet access Email access Ability to download music FM radio Ability to download and view video clips Instant Messenger Wifi access Ability to watch TV 0% 65% 63% 61% 46% 45% 44% 35% 32% 30% 29% 27% 12% 10% 20% 40% 60% 80%

Source: Ofcom research, July 2007

1.7.5 Digital video recorders

A digital video recorder (DVR) is a digital TV set top box including a hard disc drive which allows the user to record, pause and rewind live TV. DVRs may not only substitute for VCRs and DVD players but, as we showed in the distribution section, can enhance the functionality of certain digital platforms BSkyBs use of the Sky hard disk drive to support its Sky Anytime service is a good example of this. DVR terminology There are many terms for the device, which we refer to with the acronym DVR (digital video recorder). Some operators and retailers use the term PVR (personal video recorder) or DTR (digital television recorder). Indeed, when Sky first launched Sky+, it was called an iPTR (an integrated personal television recorder). The Communications Market Report has chosen to use the term DVR primarily because, as the internet and broadcast media converge, some devices are emerging which can record audiovisual content delivered either over IP networks or over the airwaves. In the spirit of convergence, we are keen to acknowledge that the networks over which the content travels are not limited to broadcast networks. In future it may be that the term digital recorder may be more appropriate. In Q1 2007 15% of respondents reported having a DVR in the home (almost double the 2006 figure). The earliest brand of DVR introduced to the UK in 2000 was TiVo, which launched in partnership with Sky; Sky followed up with an independent product, Sky+ in 2001. Top Up TV Anytime and the Telewest TV drive, (now called V+ following the rebranding to Virgin Media) both launched in 2005, and Freeview Playback was unveiled in 2006. The relative launch dates of the various operators are reflected in the penetration figures; according to Ofcom research, DVR penetration has reached 19% of multichannel homes, but this is skewed towards Sky subscribers, among whom penetration stands at 28%.

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Figure 1.64

DVR penetration in all homes

Proportion of respondents (%)

20%

15%

10%

5%

0% 2002 2003 2004 2005 2006 Q1 2007

Source: Ofcom research

In common with other digital devices, falling prices helped to drive take-up of DVRs during 2006. The one-off average cost of a Freeview DVR more than halved from 323 in Q2 2003 to 137 in Q1 2007. By Christmas 2006 Aldi were offering a DTT DVR for under 100. BSkyB and Virgin Media have also taken steps towards changing the revenue model of their DVR services to widen their popularity. Sky cancelled the Sky+ 10 per month subscription fee in early 2007, while V+ is available free of charge to subscribers to Virgins top tier. The technology behind DVRs has also become more sophisticated. In 2006 Sky introduced a service whereby subscribers can programme their Sky+ box from their mobile or online; in 2007 they launched Sky Anytime, which stores a selection of Sky programmes on a DVR for seven days; these can be saved to the hard disk if desired. Sky Anytime follows in the footsteps of Top Up TV Anytime, which provides overnight downloads of TV programmes from key subscription TV channels, and on-demand access to 30 films a month supplied by Universal under the Picture Box brand. These anytime services show how the satellite and DTT platforms are competing with the full on-demand service offered by cable - these push services together with the decreasing cost of local storage are enabling these networks to offer near-video-on-demand services, which may become quicker as broadband services improve.

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The costs of local storage As recently as 2000, a hard disk capable of storing 80 hours of standard definition TV content would have cost about 1,500. Today that same amount of storage would cost about 25. Devices offering local digital video storage that were the preserve of professionals seven years ago are commonplace consumer items today in the form of DVRs. A similar story emerges for other consumer devices which use a lot of storage. The first iPod, launched at the end of 2001, had enough storage for around 1,250 songs and cost $400 in its US home market. Today, a 20,000 song unit costs $349. This trend is likely to continue, decreasing the price and increasing the capacity of devices with local storage and opening the way for new applications. Tomorrows DVRs, for example, may be able to store everything that has been broadcast on all channels for many weeks, allowing the user to go back in time on the electronic programme guide (EPG) without having to set up any recordings or download anything from the internet. Another important trend in storage has been the arrival of flash memory. This is an alternative to hard disks that uses integrated circuits, instead of spinning magnetic disks, for storage. It has advantages in terms of size, weight, robustness, power consumption and, in some cases, speed. Its disadvantage is cost while hard disk capacity is around 15p per gigabyte today, flash memory is closer to 5. However, that 30-fold price premium has fallen from 100-fold four years ago. A current flash-based version of the iPod with similar capacity to the original 5GB hard disk model costs half as much, weighs 20% as much and plays for two and half times as long on a single battery charge. This trend looks likely to increase further price drops in flash memory will mean it can be affordably employed in an increasing range of applications, displacing hard disks. However, hard disks will remain a much cheaper option for applications that require particularly large amounts of storage such as high-definition video, at least for some time.

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1.8 Navigation
The traditional, paper-based, model for locating television programmes has been challenged over the last nine years since electronic programme guides (EPGs) were first introduced with the launch of digital television platforms. Although millions of listings magazines are still sold each week (the top four enjoy a combined monthly readership of 12m), circulation has fallen year-on year, and Ofcom research into homes with digital video recorders reveals that the EPG is the first port of call for those deciding which television programmes they want to watch. But navigation now extends beyond broadcast output; the likes of Google, Yahoo! and MSN allow consumers to locate content on the internet and lately these operators have begun to offer services which provide assistance in finding AV content. Electronic programme guides have challenged the role of listings magazines The past fifteen years have seen an increasing number of ways in which consumers can find out which programmes are being broadcast on TV and radio, and when. Prior to 1992, the BBC and ITV each had control over their schedule listings and held the exclusive rights to publish them in TV listings magazines (the Radio Times and TV Times respectively), and to license them to daily newspapers. 1992 saw the deregulation of television listing magazines, with the result that new titles entered the market and, over time, the editorial treatments adopted by these magazines adapted to accommodate the increasing number of television/radio channels available. Around the same time, VideoPlus launched, allowing consumers to engage more easily in time-shifted viewing. But it was not until 1998 that arguably one of the biggest shifts in broadcast navigation came to market in the shape of the SkyGuide on digital satellite and equivalent electronic programme guides (EPGs) on the Telewest and ntl platforms. Figure 1.65 The broadcast navigation timeline
Barcode scanning remote control Deregulation of TV listings Sky+ series linking Sky EPG via mobile

TV Times

1955

1987

1992

2001

2007

1927

1991

1998

2004

Radio Times

Video Plus

Sky EPG

Freeview seven day EPG

Source: Ofcom research

While still popular with consumers, television listings magazine readership have suffered, with the Radio Times recording a 10% reduction in readership since 2002 and the TV Times falling by 36% over the same period (Figure 1.66).

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Figure 1.66
5,000 4,000 3,317 3,000 2,000 1,000 0

Readership of TV listings magazines

Monthly readership (k)

4,578 3,819 2,969 1,965 1,248 2,903 1,844 2002 2005

Radio Times

TV quick

TV Times

What's on TV

Source: ABC

Those reductions might be explained by the growing popularity of the EPG as a navigational device. Ofcom research suggests that 54% of those with a DVR cite the EPG as a tool they use to find out about television programmes; TV listings rank second with 41% (Figure 1.67). While the demise of the magazines has been predicted for some time, their ability to provide editorial content and context still sets them apart from the current generation of EPGs which offer limited amounts of information beyond a brief synopsis, programme start-time, duration and channel. Figure 1.67 Tools used to decide on programmes viewed

Proportion of respondents with DVR (%)

0% The onscreen TV guide TV guide in a newspaper or magazine Trailers for TV programmes By switching on the TV and channel hopping TV guide on the internet Recommendations from friends or family Other 1% 17% 16% 10% 10% 41% 20% 40% 60% 54% 80%

Source: Ofcom research, July 2007

1.8.1 The role of the electronic programme guide in navigation

All the main DTV platforms have comprehensive electronic programme guides Comprehensive EPGs now exist on all three main DTV platforms. In each case, consumers can locate content using channel numbers, via a browser bar while continuing to watch a main channel in full screen or via an EPG which may occupy the full screen or may work in conjunction with a quarter-screen version of the channel being viewed. Sky and Virgin Media organise channels on their EPGs by genre. On the Freeview platform there is also some genre ordering, but since channels were first ordered by genre, decisions on subsequent channel listings have resulted in some appearing out of genre order. It is

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difficult to draw firm conclusions about the link between a channels EPG position and the audience that it attracts because many other factors are at play. However, ordering channel shares by EPG position does reveal interesting viewing patterns. In satellite homes there is a rough saw tooth profile, with notable departures such as UKTV Gold, E4, Magic TV and CBeebies (Figure 1.68). Figure 1.68
3

Channel shares in satellite homes, 2006

Lifestyle & culture Film Music Sport
Sky Sports 1

Viewing share (%)

Entertainment Children's News Documentary

2.5
Sky One

1.5
UKTV Gold E4 CBeebies Sky Movies Comedy Hallmark Discovery RT UKTV Style MTV Magic Sky News Nick Jr Disney Discovery

Living TV ITV3

0.5

Source: BARB Note: This includes viewing of all channels by the BARB panel, but excludes share of the five terrestrial channels. This ensures that patterns of share among non-PSB channels are visible.

In Freeview homes, there is also evidence of the sawtooth. However, owing to the more flexible approach to selecting EPG numbers for newer channels there appears to be a pattern of gradual share reductions the deeper into the Freeview EPG that a channel appears (Figure 1.69). Figure 1.69
2.5

Channel shares in Freeview homes, 2006

Viewing share (%)

1.5

0.5

Source: BARB Note: This excludes share to the five terrestrial channels

BB IT C V2 T B B hr C ee Fo ur Sk ITV U yT 3 KT h V ree hi st o M ry or e4 E4 AB C 1 U Q KT VC V br the ig h ht its id ea s FT N TM Bi F d TV IT V Fi 4 lm 4 E4 +1 IT V Fi 2 + lm 1 4 Fi +1 ve Fi US ve Li C fe BB C be C eb ie BB s BB C N CIT C ew V Pa s rli 24 a Sk S m e y ky n t Sp N or ew ts s Ne w s

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EPG reshuffles may disrupt channel shares Periodically, EPG owners and operators find the need to reorganise channels as, for example, the volume of channels in a particular genre category grows larger. At the end of February 2006, a new genre category was created on the SkyGuide. A group of channels that were previously in the Entertainment category were reallocated to Lifestyle and Culture, which was introduced as a new genre and listed second after Entertainment. At the time that the change was made, the share of some of channels in this new category did appear to be disrupted, although in some cases the impact may have only been temporary as viewers lost and then found the relocated channel. Figure 1.70
4.0 3.5 3.0 2.5
UKTV Bright Ideas

Channel shares for the Lifestyle and Culture EPG category

New category beta testing
UKTV Style

Share in satellite homes(%)

New category full launch

UKTV Food

2.0 1.5 1.0 0.5 0.0

04 Ju Se ly 04 pt em be No r0 ve 4 m be r0 Ja 4 nu ar y 05 M ar ch 05 M ay 05 Ju ly Se 05 pt em be No r0 ve 5 m be r0 Ja 5 nu ar y 06 M ar ch 06 M ay 06 Ju Se ly 06 pt em be No r0 ve 6 m be r0 6 ry ar ch Ja nu a M ay
Discovery Home & Health Discovery Travel+Living Discovery Real Time

Discovery Real Time

Source: BARB

This data needs to be seen in context. Ofcom has not fully investigated the effects of channels moving within the EPG and changes in viewing figures may be the result of numerous factors, which may vary depending on the facts of each case.

1.8.2 Navigation online

The three biggest online navigators Google, Yahoo! and MSN began life as search engines that provided consumers with help in finding websites. Over time, these navigators have built up a considerable following in the UK, as illustrated in Figure 1.71.

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04

04

Figure 1.71
Unique users
25m

Google, MSN and Yahoo! unique monthly users in the UK

20m
Google

15m
MSN

10m
Yahoo!

5m

0m
October 2006 January 2007 April 2007

Source:

Nielsen//Netratings

While these sites retain their core search capability, they now also offer consumers a range of additional functions that encourage them to spend more time on the site and create incentives to increase visit frequency. These functions include email, instant messaging, calendars, maps and city guides. The range of content types that the navigators now make available to consumers has also broadened; for example, Yahoo! has acquired photo sharing site Flickr, while Google has recently purchased video sharing site YouTube and Blogger.com. All three also offer their own branded video search services, expanding their reach into audiovisual navigation. The size and composition of the audience that Google and other online navigators attracts is proving increasingly attractive to advertisers; Googles reported revenue from its UK operations for the financial year 2005/06 stood at $1,603m, up from $878m twelve months earlier.

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1.9 Consumption
If consumption of each key media type is treated as exclusive of the others, consumers each spend over seven hours per day using communications services. But that figure overstates the time spent consuming communications services since media stacking i.e. consuming more than one type of media at the same time (e.g. texting and surfing, surfing and listening to the radio) becomes increasingly feasible. The effects of convergence are being felt by consumers as, for example, they use the internet for an increasing number of different purposes. Nine per cent of adults with the internet at home claim to use it to watch television programmes; 21% for listening to the radio; and 43% for downloading music files, movies and video clips. Eighteen percent of adults with broadband use the internet to make phone calls. Mobile device sophistication is prompting some consumers to use stand-alone devices less. Thirty-eight per cent of people with a digital camera and 15% of games console owners make this claim. The ability of digital technology to impact on business models has been made clear by the impact that DVRs have had on consumer behaviour up to 78% claim to regularly fast-forward through television adverts. This final section examines these patterns in more depth. It begins with a review of the amount of time consumers spend on each media platform, and then looks at internet usage before examining new research into consumers use of mobile phones and digital video recorders (DVRs). It concludes with an examination of consumer attitudes towards communications services and an analysis of childrens consumption of media services.

1.9.1 Cross-media consumption

Each person now consumes more than seven hours (433 minutes) of media and communications services per day, although the tendency to consume some media simultaneously means that the actual time spent is likely to be less. Ofcom research has found that this trend is particularly pronounced among the young; over half of children aged 5-15 say that they have at some point used their phone, played a game, surfed the internet, played music or listened to the radio while they have been watching TV (Figure 1.72). Figure 1.72
300 250 200 150 100 50
14 36

Time spent per day using different communications services

Change 2002 - 2006

Minutes per day per person

-3.6% 216 173 -2.0% +158% -8% +58%

224*

TV Radio Internet Fixed Mobile

170

7.5

2.4 2006

6.9

3.7

0 2002

Source: BARB, RAJAR, operators, Nielsen/Netratings and Ofcom calculations Notes: The TV figure is for 2003 rather than 2002 to avoid the effects of changes in BARB panel composition. Daily figures were calculated from monthly data on the assumption that there are 30.4 days in the average month; the exception was for internet consumption where the quoted figures relate to May 2002 and April 2006, and the number of days in those months were used. The internet consumption figures for 2006 excludes the use

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of applications. The numbers quoted in this report are not comparable to those in the 2006 edition, owing to a change in source.

The chart above also does not include the time spent on SMS and MMS messages nor does it take into account the impact of more recent media services, such as using the camera, MP3 or GPS functions on a mobile phone or playing on a games console. Indeed, the proliferation of communications services and the emerging ability for content to be transmitted over more networks and be received by a greater range of devices means that providing a comprehensive consumption study is difficult. Given the limitations in measuring content consumption along the value chain, and the fact that consumption data for the telecoms, television and radio industries is available in each of the dedicated sections, this section will instead focus on ways in which people are using the internet to communicate and access audio and audiovisual content and how the use of an increased range of mobile phone features and the ability to record, rewind and pause live TV through a DVR is having an impact on consumption. Viewing recorded programmes is sometimes known as time-shifting and, in a related piece, we will also take a brief look at the recent technology which enables place-shifting.

1.9.2 Use of the internet

Consumer internet usage is looked at in more detail in the telecoms user section, however we will look briefly at a number of converged services, in which voice as well as audio and audio visual content travels over IP networks instead of over the fixed telephone, mobile or broadcast networks. VoIP (Voice over Internet Protocol) is a technology that allows calls to be sent over the internet. Ofcom research in Q1 2007 found that 18% of households with broadband were currently using VoIP services, a four percentage point increase since December 2005 (Figure 1.73). However despite the sharp increase in users, there is as yet little evidence that VoIP is substituting entirely for other voice networks. As discussed in more detail in the telecoms section, VoIP users are more likely to have a fixed line and to have the use of a mobile than the average UK adult. However, there may be some substitution for certain more expensive call types. Figure 1.73
100% 80% 60% 40%
14% 20% 68% 77% 72%

Awareness and use of VOIP

Proportion of adults

Q4 2005 Q4 2006 Q1 2007

18%

20% 0% Awareness of VoIP

Source: Ofcom Research Base: All adults with broadband

Currently using

In addition to voice calls, the internet provides a new network for the distribution of audio and audiovisual content, and the chart below illustrates the proportion of adults using the internet to play games, watch TV and listen to the radio online among other activities. The most

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popular online activity mentioned was the downloading of music files, movies or video clips followed by playing games online or interactively. In both these cases the proportion of 15-24 year olds using the internet for the activity was higher than in any other age group. However, this rule does not apply across all media activities though; the proportion of 25-34 year olds that listen to the radio via the internet is seven percentage points higher than that for 16-24 year olds (though only marginally higher than 45-64 year olds). Figure 1.74
All

Use of the internet at home

15-24
55% 51%

% of households who use the internet for the following activities

25-44 45-64 65+

60% 50%
40%

43% 34% 25% 22% 21% 18% 11% 9% 10% 12% 7% 2% 27% 25% 21% 15% 8% 10% 31% 23% 24%24%

40%
30%

32% 24% 19%

30% 20% 10% 0%

16%

Playing games Downloading music online/interactively files, movies or video clips

Watching TV programmes

Listening to the radio

Watching video clips/webcasts

Using social networking sites

Source: Ofcom research, Q1 2007 Base: All who have the internet at home

It is difficult to determine what proportion of total audio and audio visual content is consumed over the internet, as the consumer research units used here cannot be equated with industry data. As converged services become more advanced, we would hope to be able to provide a more consolidated analysis showing what proportions of different content types are consumed over the different possible combinations of networks and devices. According to Ofcom research as shown in Figure 1.74, 23% of adults with the internet at home use social networking websites, and this rises to 31% among 15-24 year olds. Although social networking websites are not the only ways in which people can meet people online, this tallies with research from the Oxford Internet Survey, which found that in 2007, 23% of internet users have met someone online who they did not know before using the internet (up from 20% in 2005). Of the people who use the internet to meet others 83% say they have 20 or fewer online only acquaintances, with 7% saying they have more than 50 (Figure 1.75).

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Figure 1.75
80% 60% 40%

Number of online-only acquaintances

% of people who meet people online

42%

41%

10%

7%

20% 0% Less than 5 Between 6 and 20 Between 21 and 50 More than 50

Source: The Internet in Britain, 2007, Oxford Internet Survey Base: All who have the internet at home

1.9.3 Use of mobile phone features

The latest, most sophisticated mobile phones contain features which have the potential to be a substitute for stand-alone devices. In the devices section we looked at awareness of mobile phone functions, and now we turn to the use of these functions and any substitutional impact they are having on the use of stand-alone devices. Ofcom research shows that the camera is the most used feature on the mobile handset apart from the core voice and text functions, with 41% of people who were aware that their phone had a camera saying that they had used it. Although a similar proportion of consumers are aware of the games function and the alarm, almost twice as many have ever used the alarm as the games function. The features which people mention using least are the more recent additions to mobile phones, such as the ability to watch TV. These are also the functions which had the lowest levels of awareness (only 10% of mobile phone owners are aware that they can watch TV on their phone, and only 2% use their phone to do so). Figure 1.76 Awareness and use of mobile phone functions

% of people who are aware of and use function

Camera Games Alarm Video camera Diary or organiser Internet access Email access Ability to download music FM radio Ability to download and view video clips Instant Messenger Wifi access Ability to watch TV 0% 2% 2% 7% 11% 12% 10% 20% 40% 60% 80% 8% 11% 10% 30% 29% 27% Use function 18% 16% 13% 35% 32% 21% 38% 46% 45% 44% Aware that phone has function 41% 65% 63% 61%

Source: Ofcom research, July 2007 Base: All who own a mobile phone

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Ofcom research into the extent to which use of mobile phone features is having an impact on use of stand-alone devices shows that 55% of people who use the alarm on their mobile phone claim to use their alarm clock less often as a result, suggesting that a level of substitution has started to occur. The function with the second highest substitutional impact is the ability to play music on mobile phones. The impact is much greater on the use of portable radio/tape/disc players, than it is on the use of either MP3 players or home or car radios. While the majority of people say that the camera and games features on their mobile handset have had no impact on their use of stand-alone devices, a significant minority say they use their separate devices less as a result of having the feature on their mobile phone (38% in the case of cameras and 15% in the case of games). As the level of sophistication of these features on mobile phones has only recently approached that of basic level specialist devices, the impact has probably not yet been felt in the replacement lifecycle of the separate device. Figure 1.77 Impact of mobile features on use of stand-alone devices

% of people who say they use stand-alone device less as a result of having function on mobile phone

80% 60% 40% 20% 0% Alarm clock Portable radio/tape/disc player Camera MP3 player/iPod Home or car radio Games console
55% 51% 38% 34% 22% 15%

Source: Ofcom research, July 2007 Base: All who own each of the stand-alone devices, and use a comparable function on their mobile phone

As shown in Figure 1.78, most people are at home when they play games on their mobile, despite the fact that the majority of people claim that mobile games have no impact on their use of stand-alone games consoles, and that they play games on their mobile when they otherwise wouldnt have used the separate device. The use of the music function on a mobile phone is more evenly spread across a range of locations, and is equally likely whether in the home, travelling or in a public place outside.

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Figure 1.78

Use of music and games on mobile phones by location

% of people who use the games and music functions on their mobile in a particular location
80% 60% 40% 20% 0%
At home Travelling in car/bus/train In a public place In a public place outside inside At work At school Play games 39% 36% 41% 40% 26% 16% 16% 11% 14% 7% 7% Play music

51%

Source: Ofcom research, July 2007 Base: All who use the games and music functions on their mobile phone

1.9.4 Use of digital video recorders

Because of the impact that DVRs could potentially have on the economics of television (notably fast-forwarding through adverts), there has been considerable interest in who is using them and what functions they prefer. Research conducted for Ofcom shows little variation in DVR take-up by age but it does reveal a skew towards the AB socio-economic group, with 28% of ABs in multichannel homes owning a DVR compared with 11% of DEs (as against a multichannel home average of 19%). Households with children were also more likely to own a DVR than those without (24% as opposed to 16%). The results of our research into the functions used on a DVR are detailed below. Most popular DVR functions are those also available on a VCR The most popular use of the DVR is for recording programmes and watching them at a later time. Over 60% of adults who own a DVR claim to have done this at least once, and over 40% regularly (at least once a week). Over half of those who use their DVR to record programmes say they watch all the programmes they record with only 6% saying they do not watch any recorded programmes (Figure 1.79).

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Figure 1.79

Functions used on the DVR

% of people who have used the following functions on their DVR

62% 41% 61% 46% 58% 40% 52% 32% 49% 29% 42% 21% 32% 19% 30% 18% 24% 12%
20% 40% 60% 80% Ever Regularly

Recorded a programme and w atched it on the same day

Recorded a programme and w atched it on a different day

Fast forw arded through adverts

Set to record a programme on the on-screen TV guide

Paused live television

Rew ound a programme to catch a highlight again

Used the series linking function Deliberately started w atching a programme after its official start time in order to skip through the adverts Set to record a programme by clicking on the on-screen icon 0%

Source: Ofcom Research, July 2007 Base: All who own a DVR

When respondents were specifically asked whether they fast-forward through adverts 78% claimed to always or almost always do so. This differs from the figures in the chart above, when respondents were asked about fast-forward in a long list of functions; in this case only 58% of people state that they had ever fast-forwarded through adverts and 40% that they do so regularly. Assuming that the actual figure is somewhere between 40% and 78%, it is evident that a significant proportion of DVR owners are limiting the number of adverts they are viewing. A London Business School (LBS) project, part-funded by Ofcom, studied the actual viewing of 22 individuals who owned a DVR in September-October 2005. Results were collected by filming TV viewing habits on the main TV set by means of an unobtrusive video camera. Comparisons were then made with claimed viewing figures to test the reliability of selfreported data. Although this is an interesting way to analyse DVR-using behaviour, the sample size is not robust, and the very early-adopter DVR users available when this study was conducted are a very different group from DVR users now. In the LBS study only 30% of advertisements on the main TV set were fast-forwarded, and all but two of the 22 respondents claimed a much higher proportion of their viewing was time-shifted than observed. Given the varying results, and the significance of this function to the television industrys business model, it appears further research is required in this area to give a robust and in-depth understanding of the effect of time-shifted viewing on advertising consumption.

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Ofcoms July 2007 research also analysed DVR use by frequency of TV viewing. For the vast majority of functions used (including fast-forwarding through adverts), the popularity of using a function increased with the volume of TV viewed, indicating that people who watch fewer hours of TV are less likely to use the DVR to make the most of the TV viewing time they had available. The research also indicated that ownership of a DVR has not significantly changed the amount of TV people view. As shown in Figure 1.80, one in five (19%) say they watch more TV since owning a DVR, 14% say they watch less, while the remaining majority (66%) said they watch about the same amount. The extent to which the DVR has influenced television viewing differs by how much television respondents consume in general. Light viewers TV consumption is more likely to have decreased than increased as a result of DVR usage, whereas the reverse is true for medium to heavy and heavy TV viewers.4 Figure 1.80 Change in hours watched since owning a DVR

% of people who watch more, equal and less TV as a result of having a DVR
100% 80% 60% 40% 20%
19% 66% 66% 68% 69% 33%

14%

22%

14%

9%

21%

I watch less TV I watch about the same

45% 12% 16% 22%

0% Total

Light watchers

Medium watchers

Medium/heavy watchers

Heavy watchers

I watch more TV

Source: Ofcom Research, July 2007 Base: All who own a DVR

Viewers most often record when they cannot watch a live broadcast The main reason for recording a programme is because consumers are not able to watch the live broadcast, either because they are not at home, or someone else is watching a different channel at the time. This is consistent with the earlier suggestion that DVRs are primarily being used in a similar fashion to a VCR. Only 28% of people say they specifically use their DVR to fast-forward through the adverts when watching TV. This is consistent with the 30% of people in Figure 1.79 who say they deliberately started watching a programme after its official start time in order to skip the adverts. Still fewer people record programmes on their DVR to build up an archive of TV programming (17%) or to organise all their weekly viewing (2%).

4 Respondents were grouped into light, medium, medium to heavy and heavy viewers on the basis of how many hours a day and how many days a week they reported as watching TV

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Figure 1.81

Reason for recording programmes on a DVR

% of people who give reason for recording a programme

0% Because I am not going to be at home Because someone else is watching a different programme To fast forward through adverts 28% 44% 20% 40% 60% 64% 80%

To build up an archive of TV programmes

17%

To record all of my TV viewing for the week

2%

Source: Ofcom Research, July 2007 Base: All who own a DVR

Deference to the live broadcast is supported by the fact that 60% of people mostly or always check live TV before watching a recorded programme (Figure 1.82). This could of course be to check what could be recorded while watching a different previously recorded programme, but is more likely to indicate that people will only watch a recorded programme if there is nothing they want to watch live there still appears to be a strong linear schedule mindset when it comes to TV. This view is supported by industry data from BARB which suggest that just 14% of viewing in DVR homes is time-shifted. Figure 1.82 Frequency of checking live TV before watching a recorded programme

% of people who check whats on live TV before watching a recorded programme

100% 10% 80% 60% 23% 40% 20% 0%
Source: Ofcom Research, July 2007 Base: All who own a DVR

28%

Don't know Never Sometimes Mostly

37%

Always

News and live sports are the genres most preferred to be viewed live For most of the genres surveyed, a majority of DVR owners prefer to watch programmes live. This was particularly the case with programmes which have an obvious element of immediacy - news and live sports stood out in this respect, followed by quiz shows, current affairs, and reality TV. Although the difference was less clear, viewers also prefer to watch both soaps and sports highlights programmes live, perhaps more surprising since they are

87

by default time-shifted from the actual event. Genres in which a preference for time-shifting was expressed were Drama and Film (Figure 1.83). Figure 1.83 Preference for watching live or recorded programmes by genre

% of people who prefer to watch a genre recorded or live

100% 80% 60% 40% 20% 0%

5%

8%

18%

22%

32%

35%

37%

48%

55%

66%

Prefer recorded

94%

90%

78%

74%

66%

65%

61%

48%

41%

30% Prefer live Films

Source: Ofcom research, July 2007 Base: All who own a DVR

For some viewers, time shifted viewing is substituting for watching DVDs As shown in Figure 1.83, Film is the genre that most DVR-owners prefer to watch recorded. As the majority of DVDs are films, one of the likely consequences of this could be an impact on the amount of time spent watching DVDs and Figure 1.84 below shows that 28% of DVR owners claim that they watch fewer DVDs as a result of having a DVR, whereas only 9% claim they watch more. The impact on DVDs may not just be brought about through the benefits of time-shifting and fast-forwarding through adverts; the DVR also enables the viewer to save a greater range of films on their hard disc, so they may be more likely to have a film they wish to view stored than a person without a DVR. Again, it is the heavy TV viewers who seem to use their DVR functions most, as this is the group for whom the DVR is substituting most for the viewing of DVDs.

News

Live sports

Quiz shows

Current Affairs

Soaps

Sports highlights

Reality TV

Documentaries

Drama

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Figure 1.84

Change in amount of DVDs watched since getting a DVR

% of people who watch more, equal number and fewer DVDs as a result of having a DVR

100% 80% 60% 40% 20% 0%

9% 6% 7% 13% 59% 60% 61% 59% 38% 10% 31% 34% 30% 28% 53%

Don't know

I watch fewer DVDs

I watch about the same amount of DVDs I watch more DVDs

All

Light viewers

Medium viewers

Medium to heavy viewers

Heavy viewers

Source: Ofcom research, July 2007 Base: All who own a DVR

Place-shifted viewing Whereas digital video recorders (DVRs) such as Sky+ and Freeview Playback allow viewers to time-shift TV programmes by pausing, recording and rewinding live TV, an increasing number of solutions have emerged over the last year which allow viewers to place-shift their TV viewing allowing them to watch recorded programmes and live TV channels from remote locations outside of the home. Slingbox, from a company called SlingMedia, was one of the first consumer devices to enable place-shifting. The Slingbox is connected to a TV aerial or existing in-home AV equipment such as digital TV set top boxes or DVD players. It encodes and compresses the video and audio signals before sending them to the consumer on a home computer network or via their broadband internet connection. The consumer is then able to view the TV services remotely using a computer, laptop or mobile device connected to the internet. In addition to Slingbox, Sony offers a similar hardware-based product called Location Free TV which allows viewing on devices including their Playstation Portable handheld games console. Orb is an alternative, software only application that runs on a computer and allows users to remotely access the audio and video content stored on their hard disk via the internet. A non-internet based approach to place-shifting is side loading; in the same way that an iPod is synchronised with the music libraries on the users computer, side loading allows users to transfer video content from their computer or DVR onto a phone or portable video player so that it can be viewed on the move. Whilst this solution does not provide access to live TV, it has the advantage that the user does not require access to an internet connection to view their content. Archos has been one of the leading exponents of this approach to place-shifting to date, but the Microsoft Zune and the Apple iPhone are likely to increase competition and raise consumer awareness of this technology.

1.9.5 Adults attitudes towards other digital communications services

Ofcom research indicates that assistance in setting up and using the internet is more likely to encourage adults without the internet to adopt it, as an initial step, before they are able to take advantage of new converged service offerings. This trend is true across all age groups, although it is least marked in the 25-44 bracket (Figure 1.85).

89

Figure 1.85
% of adults

Reasons why adults without the internet might adopt it

20%
17%

All

15%
12%

14% 10% 6% 6% 11% 9% 5% 12% 10% 8%

15-24

10% 5%

25-44

45-64
1% 2% 1%
Someone who could help you set up and learn how to use the internet

0%
Being able to access the internet on your TV rather than needing a PC The ability to download music, films and other files

65+

Source: Ofcom research, Q1 2007 Base: All adults without the internet

Similarly, when asked how valuable different communications services are, more adults rate having fundamental requirements such as a reliable connection to the internet as valuable than relatively new services which give them greater control over radio or TV or wider access to entertainment over the internet. It should however be noted that people often rate improved versions of and easier access to existing services above new services, because it is hard to visualise a new service, and the impact it might have on ones life. People may also believe that it is not possible to take advantage of these new services without having faster internet access. Figure 1.86 Value of specific communications services

% of adults rating a service on a scale of 1 = not at all valuable to 5 = extremely valuable

100% 80% 60% 40% 20%
21% 28% 10% 17% 18% 19% 13% 22% 11% 15% 11% 27% 15% 22% 28% 13% 12% 22% 21% 19% 17% 9% 16% 15% 34% 36% 56%

1 = Not at all valuable 2 3 4

14% 7%

0%

More reliable More control over Easier to choose Wider choice of More control over Ability to watch connection to the how you watch TV what you listen to entertainment via how you listen to short TV clips on internet as it is broadcast on the radio the internet radio as it is a mobile device broadcast

5 = Extremely valuable

Source: Ofcom research, Q1 2007 Base: All adults

Of all the new services, the ability to watch TV clips on a mobile device is noticeably regarded as the least valuable, ranked as not at all valuable by over 50% of adults and as extremely valuable by only 3% of adults (Figure 1.87). Younger people tend to value new services more than older people (particularly the 65s and over), and this is illustrated in the breakdown by age in the attitudes towards new services, two of which are illustrated below. Twenty per cent of adults rate being able to watch TV clips on a mobile device as valuable compared to only 4% of adults aged 65+. There is very

90

little difference between the 45-64 and 65+ age groups; in both cases about 80% of people rate the value of viewing TV clips on a mobile as not valuable. Figure 1.87 Value of watching short television clips on a mobile device

% of adults rating a service on a scale of 1 = not at all valuable to 5 = extremely valuable

100% 80%
56% 35% 50% 66% 72%

1 = Not at all valuable 2 3

17% 16% 21% 17% 14% 6% 8% 5% 13% 11% 5% 2% 12% 12% 3%

60%
20%

40% 20% 0%
14% 7% 3%

4 5 = Extremely valuable

All

15-24

25-44

45-64

65+

Source: Ofcom research, Q1 2007 Base: All adults

Similarly, 47% of 15-24 year olds rate having wider access to and choice of entertainment on the internet as valuable in comparison with only 8% of adults aged 65+. Attitudes towards the internet changed noticeably between each age group, with considerably more rating it as less valuable as the age group gets older. Figure 1.88 Value of wider access to and choice of internet entertainment

% of adults rating a service on a scale of 1 = not at all valuable to 5 = extremely valuable

100%
16% 19% 14% 44% 63% 27%

1 = Not at all valuable 2 3

12% 20% 11% 11% 9% 5% 3%

80% 60% 40% 20% 0%

34%

8% 21%

12% 20%

26% 20%

4 5 = Extremely valuable

15% 21% 11% 14% 7%

All

15-24

25-44

45-64

65+

Source: Ofcom research, Q1 2007 Base: All adults

1.9.6 Childrens consumption of digital communications

Childrens communications consumption throws an interesting perspective on the potential development of converged communications services, as this generation will grow up with less narrowly defined media boundaries than their parents. For example they will be more used to downloading audiovisual content over the internet or to listening to the radio on a digital TV set. As in previous CMR publications, Ofcom is keen to understand and spread awareness of the media consumption habits of young people in order to see how trends are developing. In

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April 2007 Ofcom conducted the first wave of a continuous research project looking at the communications consumption of UK children aged 5-15. Some of the results are presented below, and we hope to develop this work in the coming years. 1.9.6.1 Ownership and use of media devices As shown in Figure 1.89, from the age of 12, two-thirds of children use all of the main media devices TV, games console, radio, laptop/computer with internet access, mobile phone and MP3 player. Games console use peaks at the age of 11-12, whereas the others, with the exception of TV where use is consistently high, plateau as the child reaches 15. Figure 1.89
100% 80% 60%
Radio

Proportion of children that use media devices at home by age

TV Games console

40% 20% 0%
5 6 7 8 9 10 11 12 13 14 15

Laptop/ PC with internet access Mobile phone MP3 player

Source: Ofcom research, April/May 2007

The TV remains the most universally-used device, with all children aged 8-15 having at least one TV in their household and using it. Use of mobile phones, laptops and computers, digital cameras and MP3 players has all risen over the past two years substantially in the case of MP3 players, up from 26% of 8-15 year olds in 2005 to 61% in 2007 (Figure 1.90). The increase in use can in part be attributed to these devices being in the relatively early stages of the product lifecycle - costs are coming down and use is increasing among all demographic groups. By contrast, the devices whose use has decreased or remained constant are those which are the more mature technologies, such as the CD player, radio and video cassette recorder (VCRs), which are now being replaced by newer-generation products. Figure 1.90
100% 100%

Percentage of children who use device at home

2005 All aged 8-15 2007 All aged 8-15

100% 80% 60% 40% 20% 0%

TV

93% 86% 85% 86% 84% 86% 76% 65% 56% 72% 73% 70% 80% 66% 61% 45% 37% 26%

DVD player (not portable)

CD player

Games console/ player

Mobile phone

Radio

Laptop/ PC with internet

Video cassette recorder

MP3 player

Digital camera

Source: Ofcom research, April/May 2007

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1.9.6.2 Childrens regular media activities Watching TV remains by far the media activity that most children do most regularly 93% of children aged 8-15 say they watch TV almost every day. Next most popular is playing computer or video games and using a mobile phone, at 53% each. Despite the fact that the number of children who use DVD players has increased, and the proportion of children using radio has remained stable, the proportion that use them almost every day has dropped significantly in the last two years, from 59% to 38% in the case of watching videos and DVDs (although this may be influenced by the fewer number of children using VCRs), and from 40% to 20% in the case of listening to the radio. Figure 1.91 Media activities regularly performed by children
2005 All aged 8-15 2007 All aged 8-15

100% 80%

96%

93%

61%

60% 40% 20% 0%

Watch TV

53%

50%

53% 47%

59% 52% 38% 35% 37% 28% 20% 20% 40%

Play computer or video games

Use a mobile phone

Use the internet

Watch videos/ DVDs

Read magazines/ Listen to an MP3 player like an comics/ iPod newspapers

Listen to radio

Source: Ofcom research, April/May 2007

The proportion of children watching TV regularly remains consistently high across all age groups, and this explains the high use in Figure 1.91 relative to other media, which have more staggered usage by age. Use of the internet, and mobile phones in particular, increases with age, with the proportion of 12-15 year olds using mobile phones regularly being more than twice that of 8-11s. For younger children, TV is still the main medium, whereas older children use a broader range of media more regularly. Figure 1.92 Media activities regularly performed by children by age group
Aged 5-7 Aged 8-11 Aged 12-15

100% 80% 60%

95%

93%

92% 73% 64% 56% 50% 42% 41% 32% 16% 7% 5% 37% 44% 32% 26% 18% 15% 16% 36% 38% 39% 24%

40% 20% 0%
Watch TV Play computer or video games

Use a mobile phone

Use the internet

Watch videos/ DVDs

Read magazines/ Listen to an MP3 player like an comics/ iPod newspapers

Listen to radio

Source: Ofcom research, April/May 2007

The research also reveals that many children are comfortable performing multiple media activities at once; for example 30% of children aged 5-15 said they used their mobile phone often, or sometimes, while they watched TV at home. In almost all instances the number of children performing different media activities simultaneously increases with age, the most dramatic increase being seen with combined use of mobile phone and TV. This is related to the increase in mobile phone ownership with age but may also be linked to children

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interacting with TV programmes more as they get older; 19% of 12-15 year olds said they had ever sent a SMS to a TV programme or channel whereas 14% had interacted by making a phone call. Figure 1.93 Media activities sometimes or often done while watching TV
All aged 5-15 Aged 5-7 Aged 8-11 Aged 12-15

100%
82%

80%
61%

60%
41%

59% 38% 22% 5% 18% 20% 9%

57%

40% 20%

30% 19% 3%

27% 19%

30% 29%

32% 15% 8% 5% 6% 12%

32%

26% 12%

23%

0%
Use your mobile phone Play computer games on a games console Talk on your landline/ home phone Go on the internet Listen to music on CD/ MP3 player/ computer Listen to a radio station Any of these

Source: Ofcom research, April/May 2007

1.9.6.3 Childrens use of the internet A significant proportion of older children (aged 12-15) are already using the internet to watch and download user-generated and professionally packaged audio and audio visual content. The most popular form of content is music videos followed by user-generated video clips (Figure 1.94). The fact that user-generated audiovisual content is more commonly viewed and downloaded than professional TV and film clips may indicate that children have a preference for this type of content, or may reflect the fact that this type of content is not currently widely available on TV, and therefore is more actively sought out on the internet. Figure 1.94 Content downloading and watching among young people

% of children aged 12-15 who have downloaded or viewed a content type from the internet

80% 60%
41% 49% 34% 25% 20%

40% 20% 0%
Music videos

Videos make by people/ the general public like on YouTube

Clips from films or TV programmes

Whole films or TV programmes

Any of these

Source: Ofcom research, April/May 2007 Base: Children aged 12-15

1.9.6.4 Childrens use of the mobile phone As we saw above, after the age of 11, the device owned by most children is the mobile phone, and the research indicates that although the core activities of making calls and sending SMS texts are still the most commonly performed on a mobile phone, other activities are also significant. Fifty-three per cent of children who have their own mobile phone say they use it to take photos at least once a week and 48% say they use it to play games

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(Figure 1.95). This is higher than results from a separate survey conducted for this report, which indicate that 41% of adults with a mobile phone use it to take photos and 21% use it to play games. This suggests that children are more aware of, and interested in, the functions available on their mobile phone than adults are, and that they view it less as a communications tool and more as a multi-functional device. Figure 1.95
% of children
All aged 8-15 Aged 8-11 Aged 12-15

Childrens use of their mobile phone for various activities

100%
82%

91% 73% 65% 51% 53% 43% 60% 48% 49% 47% 46% 36% 51% 30% 22% 34%

80% 60% 40% 20% 0%

68%

9%

7%

11%

5%

3%

7%

3%

4% 3%

3%

4% 2%

Text messages

Calls

Taking photos

Playing games

Listening to music

Taking videos

Photo messages

Internet Watching TV Video calls access programmes or clips

Source: Ofcom research, April/May 2007 Base: Children aged 8-15 who have their own mobile phone

When asked about why they use different media, children say they mainly watch TV for relaxation and entertainment. Almost the same proportion of children say they use the internet for fun, but children are much more likely to say they use the internet than the TV to learn about things (Figure 1.96). Children are more likely to say that they use the mobile phone for contact with other people, although as we saw above, over 40% of 8-15 year olds also say they use their mobile phone to listen to music, play games and take photos. Figure 1.96
% of children, 5-15

Main reason for using media

100% 80% 60%

3% 7% 10% 15% 10% 3% 13% 16% 34%

None of these
18% 2%

For contact with other people It's just on in the background

34%

81%

22%

To keep up to date with news or sports To find out or learn things Just to pass the time

40% 20% 0% TV
42%

4% 2%

38% 21% 14%

To relax For fun

Radio

Internet

Mobile phone

Source: Ofcom research, April/May 2007 Base: All children who use media at home

The reasons for using the TV remain broadly the same across age groups; fewer 12-15 year olds say they watch TV for fun than those aged 5-7, but this is offset by the increase in 12-15 year olds who say they watch TV for similar reasons such as to relax and pass the time. There is a noticeable shift in the main reason children give for using the internet as they get

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older. The reduction in those who use the internet for fun (60% of 5-7 year olds compared to 26% of 12-15 year olds) seems to be related to the increase in those who use it primarily to keep in contact with other people (1% of 5-7 year olds compared to 31% of 12-15 year olds).

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1.10 Conclusion
The influence of converging technologies was felt across the communications sector in 2006 and at every stage of the value chain. But its impact varied. The radio industry has experienced the transformational impact of convergence for some time; even when dial-up was the predominant means of internet access, users could listen to audio services live and on-demand. More recently, the growing popularity of broadband has opened up new routes to market for music publishers, and the business models of games developers have evolved to address the growing popularity of multi-player online games. The audiovisual industry, meanwhile, is still broadcaster-led in the sense that a large proportion of production company revenue comes from broadcast-based commissioning. However, independent producers are now beginning to find increasing value from new media rights, and broadcasters themselves, are harnessing the new distribution opportunities offered by broadband and wireless technologies. As digital distribution platforms have converged, the traditional packaging strategy for audiovisual content the advertiser-funded television channel has come under increasing pressure from the growing popularity of online advertising and from the expanding range of broadcast channels. Established providers of navigation tools such as Google and Yahoo! are addressing this convergence of networks by adapting their product range introducing video search functionality for example. In addition, new aggregators such as Joost and BabelGum are emerging online. As the availability of digital distribution platforms has risen, so has digital device penetration in the home, equipping consumers with the means to upload content to the internet. And this is perhaps the most notable impact of converging technologies in 2006 the transformation of consumers into content producers.

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The Communications Market 2007

2

2 Television

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Contents
2.1 The year in Television
2.1.1 UK television industry key metrics, 2002 - 2006 2.1.2 Gap widens between subscription and advertising revenue 2.1.3 DTV penetration reaches 80% 2.1.4 PSBs launch time-shifted channels to off-set parent channel losses 2.1.5 Premium rate telephony in broadcasting 2.1.6 High-definition subscribers claim to watch more TV 2.1.7 Time-shifted viewing increases as DVR popularity grows 2.1.8 Ethnic channel licences awarded grew by 20% over 2006 2.1.9 Platform operator update 2.1.10 Broadcaster update

101
101 101 103 104 105 107 108 110 111 113

2.2 The television industry

2.2.1 Television industry revenue 2.2.2 Advertising and non-broadcast revenue 2.2.3 Industry flow of funds 2.2.4 The production sector 2.2.5 TV industry output 2.2.6 The five mainstream channels output 2.2.7 PSB hours of output by genre 2.2.8 Multichannel output by genre 2.2.9 Compliance with regulatory obligations 2.2.10 Original productions 2.2.11 Regional productions 2.2.12 Independent productions 2.2.13 News and Current Affairs 2.2.14 Programmes made for viewers in the nations and regions 2.2.15 Repeats 2.2.16 European programming 2.2.17 Other compliance matters

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117 118 120 121 128 130 132 135 137 138 139 141 144 145 147 148 149

2.3 The Television Viewer

2.3.1 Availability of multichannel broadcast platforms 2.3.2 Digital TV take-up 2.3.3 Growth in multichannel homes 2.3.4 Consumption of television services 2.3.5 Channel reach 2.3.6 Channel share 2.3.7 The five main networks spin-off channel share

153
153 156 159 161 162 164 168

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2.1 The year in Television

2.1.1 UK television industry key metrics, 2002 - 2006
UK television industry
Total TV industry revenue (bn) Proportion of revenue generated by public funds Proportion of revenue generated by advertising Proportion of revenue generated by subscriptions TV advertising spend as a proportion of advertising spend Spend on originated output by 5 main networks (bn) DTV take-up (% of homes in Q1) 2002 8.9 25% 35% 32% 4.9% 2.8 38.5% 2003 9.3 25% 35% 35% 5.3% 2.7 43.2% 2004 10.1 23% 34% 35% 5.3% 2.7 53.0% 2005 10.6 23% 33% 37% 5.5% 2.6 61.9% 2006 10.8 23% 32% 37% 5.7% 2.6 69.7% (Q1 2007 80.5%) 60.0% (Q1 2007 54.6%) 3:36 66.8% 433

Proportion of DTV homes paying for TV (Q1) Viewing per head, per day (hours) Share of the five main networks in multichannel homes Number of channels broadcasting in the UK

86.6%

80.2%

71.7%

64.3%

3:34 77.7% 236

3:44 76.4% 294

3:42 73.8% 379

3:39 70.3% 416

Note: Viewing per head includes individuals 4 years and older

2.1.2 Gap widens between subscription and advertising revenue

The TV industrys revenue dynamics in 2006 were driven (as in 2005) by the migration of analogue television homes to digital platforms. This had an impact on the relative size of subscription revenue compared to revenue generated by advertising and also on the division of advertising revenue among operators. Subscriptions first exceeded TV advertising revenue in 2003. Over 2006 subscriptions grew by 3.5% (138m) to 4,029m, while net advertising revenue (NAR) fell 2.2% (80m) to 3,469m subscription revenue is now 16% higher than NAR (9.7% in 2005). However, with the majority of new digital homes choosing free digital terrestrial TV, the rate of growth in subscriber revenues is falling, down from 8.5% a year ago.

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Figure 2.1
m
5000

Subscription and net advertising revenue

4000 3471 3000 2476 2049 2000 3385 3147 2883

3891 4029 3548 4029 3469 3469 3469

4029

CAGR 2000 - 2006 Advertiser revenue Subscriber revenue

0.0%

11.9%

1000

0 2000 2001 2002 2003 2004 2005 2006

Source: Ofcom/Broadcasters

The pattern of advertising revenue distribution changed markedly in 2006, reflecting the intensifying competition faced by the five main terrestrial networks for audiences. These five channels lost 5% of share in each of 2005 and 2006, which is the highest fall since 2002. This translated into a 9% reduction in their advertising revenue, down to 2,426m; 78% of the reduction was accounted for by ITV Plcs 12.4% (181m) fall in NAR from 1,462m in 2005 to 1,281m in 2006. The beneficiaries were the multichannels, which collectively broke the 1bn advertising revenue barrier in 2006, rising 21% (179m) over the year. However, this was not enough to offset the losses among the public service broadcasters (PSBs), resulting in an overall 79m reduction in television NAR. Figure 2.2
m

Net advertising revenue by sector

4,000
3,471m 3,385m 3,147m
590 826 534 676

3,481m 3,242m
794

3,548m 3,469m
863

3,500 3,000 2,500 2,000 1,500 1,000 500 0 2000 2001

2,881 2,559

1,042

Commercial multichannels

2,612

2,566

2,686

2,685

2,427

Commercial analogue channels

2002

2003

2004

2005

2006

Source: Ofcom/Broadcasters

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2.1.3 DTV penetration reaches 80%

Over eight in ten homes (80.5%) could receive digital television channels on their main set by the close of Q1 2007 and multichannel penetration (including analogue cable) reached 81.7% (Figure 2.3). Figure 2.3
Homes (m)
% of homes 27.2% 34.0% 41.7% 44.7% 48.0% 56.7% 64.9% 71.8% 81.7%

Multichannel penetration in the UK

Households (millions)
25 20 15 10 5 Analogue cable Digital cable Digital terrestrial Free-to-view digital satellite Analogue satellite Pay digital satellite

0 Q1 1999 Q1 2000 Q1 2001 Q1 2002 Q1 2003 Q1 2004 Q1 2005 Q1 2006 Q1 2007

Source: Ofcom, Broadcasters, sales data

The primary driver of growth was Freeview. Two million homes joined the platform in the twelve months to Q1 2007, taking total Freeview homes to nearly 8.4 million, up 31% yearon-year. This meant that the proportion of homes with Freeview on their main set (33%) exceeded the proportion with a pay satellite set-top box (31.6%) for the first time. The platforms growing popularity may be explained by the expanding range of channels it offers and the growing sophistication of Freeview devices. For example: In 2006 CITV and Film4 joined the platform while Teachers TV moved to a two-hour daily daytime slot. IPC and Turner Broadcasting are planning to launch Nuts TV as a brand extension of the mens magazine in Q4 2007; Virgin Radio was made available nationwide via Freeview, while Heart FM was launched in a number of English regions; and The first interactive advertisement for T-Mobile ran in mid-2006. These advertisements have been available on Sky for some years, but the limited amount of bandwidth on Freeview has previously hindered their development on the platform.

In late 2006 the Freeview decoder received a boost as six manufacturers announced that they would produce Freeview Playback branded digital video recorder (DVR) set top boxes, benefiting from the brand in return for supporting an agreed functional specification. DVRs also exerted an influence over the DTT pay-tv proposition in 2006 as Top Up TV relaunched in Q4 as Anytime offering a (mostly) DVR-enabled programme download service rather than live channels. (Three day-part channels Eurosport, UKTV Style and UKTV Gold remained at the time of writing). Alongside programmes from a range of multichannel

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providers, PictureBox also joined the Anytime line-up, giving customers access to a range of films from Universal Studios. The growing attractiveness of DTT to pay television operators was underlined by Setanta Sports joining the platform in early 2007. It now offers a sports channel on the DTT platform for a 9.99 monthly fee, having won two out of the six packages of rights to broadcast FA Premier League games. BSkyB has also demonstrated its interest in pay services over the platform, announcing in February 2007 a joint plan with National Grid Wireless to launch a pay-DTT subscription service. BSkyBs proposal would involve substituting three pay-tv channels for the free-toview services currently available on the platform - Sky News, Sky Sports News and Sky 3. Ofcom is presently reviewing the proposal and intends to issue a consultation in autumn. A Statement is likely to be issued thereafter in the beginning of 2008. DTTs success as a free-to-view digital platform appears to have sparked interest from the BBC and ITV in offering a free satellite service, which they first announced in 2005. (BSkyB already offers free-to-view access to a range of channels through its Freesat service, in return for a one-off fee of 150 for installation and equipment). The BBC Trust recently gave its consent to launch the service, and the BBC currently proposes to have the platform up and running in 2008.

2.1.4 PSBs launch time-shifted channels to off-set parent channel losses

The 2006 Communications Market highlighted the success that four of the five terrestrial channels were having in offsetting parent channel share losses with new channel launches. The BBC launched the first PSB spin-off in 1997, while ITV followed a year later with ITV2. In 2006 launches included CITV and ITV Play from ITV in March 2006, Film4 from Channel 4 in June and Five Life and Five US in October. For Five, the launch of its spin-off channels was timely, as, for the first time, the parent channel experienced a reduction in all homes audience share, down 0.7 percentage points in the year to 5.7%. Figure 2.4
Operator ITV

PSB spin-off channel launches in 2006/07

Channel CITV ITV Play ITV2+1 ITV3+1 Film4* Film4+1 Five Life Five US Channel 4+1 Five life+1 Five UK+1 Launch March 2006 March 2006 (pulled March 2007) October 2006 October 2006 Relaunched July 2006 July 2006 October 2006 October 2006 August 2007 Autumn 2007 Autumn 2007

Channel 4 Five Intended launches

*Originally subscription-only services

As prominent in 2006 as these new spin-off launches was the introduction by public service broadcasters of time-shifted versions of established channels. Channel 4 led the PSBs way in 2002 and 2005 with E4+1 and More4+1. But in 2006, ITV2 and ITV3 time-shifts were

104

introduced, while Five announced the autumn launch of time-shifted versions of its spin-offs. Channel 4 has become the first PSB to decide to timeshift its parent channel, from August 2007. Figure 2.5 illustrates the share contributed by time-shifted channels compared to non-timeshifted versions. It suggests that the impact varies substantially by genre; 12 months after its launch Film4+1 was attracting 40% of the audience share achieved by Film4, while More4+1 stabilised at around 10% after a similar period. The ITV time-shifts were still in growth phases at the time of writing, contributing around 10% and 5% respectively to the share of their non-time-shifted counterparts. Figure 2.5
50% Film4 +1 ITV2+1 40% ITV3+1 More4+1 Film4+1 30%

The share contribution of time-shifted channels

Proportion of non time-shifted share (%)

20%

10%

ITV2 +1 More4 +1 ITV3 +1

0% 1 2 3 4 5 6 7 8 9 10 11 12 Months since launch 13 14 15 16 17 18 19 20 21

Source: BARB

2.1.5 Premium rate telephony in broadcasting

The rise and fall of quiz TV Participation television, as characterised by channels such as Quiz Call and ITV Play, and by long-form programming carried on general entertainment channels, found increasing popularity with UK viewers in 2006. This genre of programming invites viewers to call using premium rated telephone services (PRS) to answer puzzles. When added to mainstream phone-in PRS quizzes, operator data submitted to Ofcom suggest that revenue from interactive services (including phone-ins and use of the red button) reached 123m in 2006, up 18% on 2005. But 2006 also saw an increasing volume of complaints about quiz TV and mounting interest from regulators and MPs. Concerns focused on the fairness of contests and the cost of making calls to the channels. A series of regulatory measures and intense scrutiny of the sector led to a steep decline in the number of channels and hours of programming dedicated to quiz TV. By summer 2007 no self-standing quiz TV channels remained and the numbers of programmes and transmission hours had dropped massively. In March 2007 there were nearly 1,000 hours per week of quiz programming; by July that had fallen to around 90 hours.

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Mainstream use of PRS: matters of trust From February 2007 serious allegations about the conduct of PRS-based games and votes from mainstream programming began to appear in the news media. Particularly grave were accusations of fakery and shoddy practice in viewer prize competitions. In addition to the particular investigations, Ofcom announced in March 2007 the commission of an inquiry into television broadcasters use of premium rate services, led by Richard Ayre, a member of Ofcoms Content Board and formerly Controller of Editorial Policy at the BBC. The inquiry sought to establish whether systemic causes of compliance failure were present in broadcasters use of PRS. Its remit included PRS use in mainstream programming and quiz TV. Richard Ayre concluded that systemic problems were apparent. He made various recommendations, including that broadcasters licences should be changed to contain conditions making them directly and widely accountable for their use of PRS and to implement suitable systems of audit. Ofcom subsequently issued a consultation that included these measures. The fallout from the series of events that led to the inquiry, and continued throughout it, served to raise the importance of its recommendations further still. The reaction from regulators and the broadcasters themselves has been extensive: Ofcom imposed a 50,000 fine on the BBC for fakery in Blue Peter; Five received a 300,000 fine from Ofcom for incidents on its Brainteaser programme; ICSTIS fined Eckoh, the PRS service provider for Channel 4s Richard & Judy You Say, We Pay competition, 150,000 for breaches of its code of practice; In July 2007, the BBC announced the results of a wider audit of programmes broadcast since the beginning of 2005, highlighting six instances where the conduct of staff in the management of phone-in quizzes had been called into question. It has now announced the creation of an editorial standards board along with mandatory ethics training to try to prevent similar incidents in the future; it is also considering the revision of its disciplinary code relating to editorial standards. The Corporation has suspended all competitions pending further inquiries; Five pulled its quiz programme Brainteaser; Channel 4 announced that it would drop PRS competitions and price other PRS applications at cost recovery only; ITV initially suspended all interactive services and contests on its channels for auditing by Deloitte, and closed the ITV Play channel. ITV also ordered a review of its interactive services dating back two years; and Several broadcasters have announced plans to reimburse callers to unfair contests and, in addition, GMTV is organising a series of free draws for entrants who received unfair treatment.

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2.1.6 High-definition subscribers claim to watch more TV

Telewest (now Virgin Media) launched its high-definition (HD) television service in December 2005, offering viewers greater picture resolution than standard television services and Dolby 5.1 sound. Four months later, BSkyB launched its own HD service to coincide with the 2006 World Cup, while around the same time the BBC, ITV, Channel 4 and Five together launched an HD trial on the DTT platform in London. To date, HD services have attracted nearly 450,000 subscribers, of which two-thirds take BSkyBs service while Virgin Media accounts for the remainder. Their service features, along with the DTT trial, are illustrated in Figure 2.6. Figure 2.6
Platforms Provider Launch date Customer terms and conditions -content, channels on offer -Subscription fees, one-off payments

Comparison of high-definition services, 2007

Satellite BSkyB April 2006 299 set-top box with HD subscription, 399 without, 30 installation fee (free with multiroom subscription), 10/month additional subscription fee on top of the standard Sky Digital subscription. Sky One HD, Sky Sports HD (2 channels), Sky Movies HD (2 screens), Sky Box Office HD (2 screens), Artsworld HD, BBC HD, Discovery HD, National Geographic HD, and The History Channel HD. Pay-per view films from Sky Box Office Includes Sky+ functionality (up to 80 hours of PVR storage). Cable Virgin Media December 2005 150 charge to install the V+ set top box. Then 5 a month if youre on TV M or L packages. If youre on TV XL theres no monthly charge. DTT BBC Trial limited period June 2006 Free trial for 450 homes in London. Available on PSBSat.

Services offered

BBC HD is the only broadcast channel on offer, other HD programmes are available on demand. V+ includes an 80 hour PVR and 2000+ hours of ondemand content.

Channels on offer were BBC HD, ITV, Channel 4 and Five

Number of subscribers

292,000

150,000

450

In 2007 Ofcom commissioned research among 400 HD subscribers to understand the impact of the service on television viewing behaviour. Forty-three per cent claimed that their TV consumption had increased since taking HD; of those, a third (36%) said they watched six or more additional hours a week (Figure 2.7). As evidence of HDTVs substitutional potential, 77% of respondents reported watching nonHD channels less since adopting the service. The less-watched channels were often the ones that were also offered in HD format. Viewers therefore stayed committed to certain channels, yet shifted to HD versions when these were available. Respondents also reported that HD viewing constituted roughly one-third of their total viewing time.

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Figure 2.7

HDTVs impact on television viewing hours

Since subscribing to HD TV, do you find that you personally watch more or less TV? Main reason, %

I watch much more TV

14%

(43%)
I watch slightly more TV

29%

I watch about the same amount of TV

57%

Number of hours watch more TV for 3 hours or less 4-5 hours 6-10 hours 11 hours + Average

n=150 % 31% 32% 21% 15% 8 hours

Source: Ofcom Note: Based on 400 respondents; Dont knows are excluded from the chart and table.

The introduction of HD channels may also have had an impact on the programme genres which viewers choose to watch. Forty-three percent claimed to watch more Film and 39% more Sport since getting HDTV, which could be explained by the wider availability of HD content in these genres when compared to others. It is important to note that the increase in viewing time might not be entirely attributed to HD. For instance, it might be related to viewers purchasing HD-ready sets with larger screens, which may influence them to watch more TV. Furthermore, HDTV is still a new service so viewing patterns may be the subject of a novelty effect and not indication of long-term behavioural changes.

2.1.7 Time-shifted viewing increases as DVR popularity grows

DVRs grew in popularity through 2006. Latest Ofcom research suggests that 15% of people had access to Sky+, V+ or a Freeview DVR. Most notably, Sky+ subscriptions grew steadily from 400,000 in Q2 2004 to 1.4 million in Q1 2006, before jumping 800,000 to 2.2 million in Q1 2007 (Figure 2.8).

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Figure 2.8
Homes (m)

Sky+ subscribers

2.5 2.0 1.5 1.0

1.4 2.2

0.5
0.4

0.8

0.0 Q2 2004
Source: BSkyB

Q1 2005

Q1 2006

Q1 2007

Sky+ saw its influence extend beyond the living room as BSkyB launched its mobile Remote Record service, allowing subscribers to set Sky+ to record programmes using a programme navigator accessed through a mobile handset. In February 2007 this was followed with an online service offering similar functionality through the Sky.com website. In March 2007 the company launched Anytime on TV for its Sky HD and Sky+ subscribers. This service automatically stores a selection of the weeks programmes on the Sky+ DVR for later viewing on-demand. The number of DVR-owning households - in particular Sky+ users - has now reached a level where meaningful research can be conducted into the impact of the devices on viewing habits. Figure 2.9 shows that, according to BARB figures, approximately 15% of all viewing in Sky+ homes in the 12 months to March 2007 was time-shifted, rising to 18.7% in peak. Approximately 47% of time-shifted viewing took place on the same day as the original broadcast. There were demographic differences, with women watching marginally more time-shifted programming than men (1% more across the day, rising to 2% in peak) and 3554 year olds time-shifting more than any other age group.

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Figure 2.9

Time-shifted viewing in Sky+ homes March 2006 to March 2007

All Time Peak Time

Percentage of time-shifted viewing

20%

15%
21.5%

19.0%

19.9%

18.0%

15.0%

15.3%

14.8%

15.9%

16.8%

14.7%

17.2%

10%

18.7%

18.8%

13.2%

5%

0%
Individuals Adults Men Women Children 16-34 35-54 55+

Source: BARB

2.1.8 Ethnic channel licences awarded grew by 20% over 2006

Ofcom awarded 126 television licences in 2006 109 for services broadcast in the UK and 17 for overseas audiences. This was down from the record 168 licences awarded in 2005 (Figure 2.10). (Note that an issued licence does not necessarily equate to a service launch. Some channels are subject to delays and others never get off the ground). Figure 2.10
180 160 140 120 100 80 60 40 20 0

Licences issued by Ofcom and the ITC

Number of licences issued

25 36 12 17

134 109 29 33 43 50 50

126 93

143 114 120 109

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
Note: For years with purple bars, no distinction is made between UK licences and overseas licences. Source: Ofcom

Entertainment and Ethnic channels dominated the new awards. Entertainment accounted for 33 of the new licences, down from 48 licences awarded in 2005, while Ethnic channels made up a further 31, up from 12. There was also an increase in the number of Factual licences from ten in 2005 to 18 in 2006 (Figure 2.11).

110

12.2%

Overseas licences UK licences

13.5%

Figure 2.11

UK television licences awarded by genre, 2006

Breakdown of licences (Total licences: 109)

Sport 2 Movies 3 HD channels Gaming 2 4 Music

6

Other
7

Entertainment
33

Factual

18 3 31

Shopping

Ethnic
Source: Ofcom

2.1.9 Platform operator update

BSkyB For the year to 30 June 2007, BSkyB reported 3,406m in retail subscription revenue, up 8% from the previous year, and 352m in advertising revenue, up 3%. The company experienced a 7% reduction in wholesale channel revenue to 208m, as a result of removing its basic channels from the Virgin Media platform (see below) and because of a reduction in cable subscribers take-up of premium-rate channels. By the end of June 2007 there were almost 8.6 million Sky subscribers, of which nearly 2.4 million took Sky+, 292,000 paid-for high-definition channels and 1.3 million subscribed to the Multiroom service. In November 2006, the company acquired a 17.9% stake in ITV Plc for 940m, a move which was ultimately referred to the Competition Commission in May 2007, following submissions by Ofcom and the OFT to the Secretary of State for Trade and Industry relating to public interest and competition concerns. February 2007 saw BSkyB and National Grid Wireless announce a plan to launch a pay-DTT subscription service. Sky proposes to remove Sky News, Sky Sports News and Sky 3 from Freeview and replace them with subscription channels. Ofcom intends to consult on the proposal in the autumn and a statement is likely to be issued in early 2008. In March, Sky removed its basic tier channels from Virgin Medias cable platform after their carriage agreement expired and the parties failed to strike a new deal. The withdrawn channels include Sky One, Sky Two, Sky News, Sky Sports News, Sky Travel and Sky Travel Extra. Skys film and premium sports channels were not affected. Later in June, Sky signed a deal with Tiscali to carry its basic channels. These are in addition to Skys movie and sports channels which are already available through the IPTV service. In May 2007 the company joined Second Life to become the first 24-hour news channel to exist in the virtual world. Second Life is a 3-D virtual world built and operated by its eight

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million users. Skys presence includes a replica of the Sky News studio. It allows users to sit in the presenters chair, read the autocue, operate the control room and leave with a virtual TV set that offers news clips and more. In July 2007 the company announced a plan to make content available from Skys channels for download to Sonys Playstation Portable. Virgin Media NTL and Telewest merged in 2005 and acquired Virgin Mobile in 2006 to become the UKs first quad-play operator, offering mobile, fixed voice, broadband and television services. The company rebranded as Virgin Media in February 2007.The business also includes UKTV and the business formerly known as Flextech. In Q1 2007 Virgin Medias cable revenue stood at 637.3m, down 1% from Q4 2006. Group revenue (including mobile and broadband) was 1,021.9m, down 5.8% over the period. Gross customer additions were 184,300 in Q1, down from 213,500 in the previous quarter. As part of its rebranded proposition, Virgin Media launched the V+ box, based on Telewests DVR TVDrive. It currently offers one HD channel from the BBC along with an 80-hour DVR and 2000+ hours of on-demand content, including HD programming. In February 2007 Virgin Media launched Virgin Central, a channel providing on-demand content to its customers. The channel accompanies Virgins selection of over 500 ondemand films for 2.00 - 3.50 (HD movies are up to 4.50) and more than 1,000 hours of music videos (0.20 per video) and concerts (1.50). Its VOD service is used by 43% of its subscribers. Virgin also offers Free Catch Up TV, which stores subscribers pick of the previous weeks programming for seven days. All on-demand content offers pause, fastforward and rewind features. By April 2007 the organisation had launched a branded Freeview box to reach customers without access to the cable network. The set-top box is free to Virgin customers who subscribe to its 19.99-a-month broadband and phone package. In August 2007 the company announced plans to carry footage from Coca-Cola Football League matches on Virgins broadband and mobile services. The content will be available for two seasons and will offer on-demand highlights of the games for a week after transmission. Virgin also announced that it will launch a new channel, Virgin 1, in autumn 2007, and has agreed to carry Setantas new sports news channel. Freeview Homes with Freeview connected to the main television set grew by 2 million between Q1 2006 and Q1 2007, taking the total number of Freeview homes to 8.4 million. With its growth rate outstripping that of satellite and cable, the platform has become the most popular choice for multichannel television on the main set, exceeding the number of Sky subscriptions for the first time in Q1 2007. In June 2007 the Freeview group launched a branded digital TV recorder in conjunction with six set-top box manufacturers under the Freeview Playback brand. The devices can store roughly 80 hours of content, receive all Freeview channels, have live pause and rewind functionality, a TV guide and some have twin tuners allowing viewers to watch one channel while recording another. 2006/07 also saw the five main broadcasters develop their channel line-up on the platform: Five UK and Five Life launched in October 2006;

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CITV, ITVs first dedicated childrens channel, launched in March 2006; ITV Play launched as a fully-fledged channel in March 2006 but was taken off air in March 2007, and replaced by ITV2+1; and Film4 went free-to-air in July 2006, and a time-shifted version was introduced on to the platform at the same time.

Top Up TV Top Up TV launched in March 2004, offering Freeview customers access to 19 additional channels on a subscription basis. Since September 2006 the number of live channels has decreased gradually as Top Up TV prepared for the launch of its new DVR download service, Top Up TV Anytime, in December 2006. The transformation of Top Up TV to a mainly download service is now complete. It offers viewers three pay-TV channels (UKTV Gold (4pm 1am), Eurosport UK (7:30am 10am) and UKTV Style (1pm 4pm), and access to over 140 hours per week of on-demand content from the following channels: Animal Planet, Discovery Lifestyle, Nickelodeon, Paramount Comedy, MTV, Boomerang, Living, UKTV Gold, Eurosport UK, TCM, UKTV Style, Bloomberg, Cartoon Network, CN Too, Disney Channel, UKTV Food, Discovery Factual, Hallmark channel and Life and Times. The film service PictureBox is also available through Anytime, offering seven downloadable films from Universal Studios each week. Finally, since March 2007, sports channel Setanta Sports also became available through Top Up, offering a range of live sports programming, including Barclays Premiership football matches.

2.1.10 Broadcaster update

The BBC The BBC received licence fee revenue of 3,243m in 2006/07, up 4.6% (142m) from the previous year. BBC Worldwide delivered additional commercial revenue of 810m (up 8%) while BBC Resources generated 126m (down 2%). On 1 January 2007 the new Royal Charter replaced the Board of Governors with the BBC Trust, supporting a model of governance designed to put greater distance between the Corporations regulator and its executive body. The Trusts primary role is to set the BBCs overall strategic direction and to oversee the work of the Executive Board. It is responsible for issuing licences which define the budget and scope of the BBCs services, and for commissioning Public Value Tests when new services are introduced or there are significant changes to existing services. The Corporation has launched a number of new services over the past 18 months:

the BBC iPlayer launched in July 2007; it allows viewers in the UK to watch BBC programming over the internet up to a week after transmission; the Corporation began conducting a free trial of the high-definition channel, BBC HD, in June 2006 in partnership with ITV, Channel 4 and Five; and the BBC and ITV announced plans to launch a free-to-view satellite TV service in spring 2008, which will offer the Freeview channels, an EPG, interactive TV and will support HDTV and PVRs.

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The level of the licence fee was settled in January 2007 by the then Secretary for Culture, Media and Sport, Tessa Jowell, who announced a rise from 131.50 to 135.50 on 1 April 2007, reaching 151.50 in 2012. The broadcaster has since gone on to make a firm commitment to move five London-based departments to Salford Quays by 2011. These include BBC Childrens (CBBC and CBeebies), BBC Childrens Learning, the BBC Research and Development aspect of BBC Future Media and Technology, BBC Radio Five Live and BBC Sport. The BBC reported that the move is expected to create up to 10,000 jobs and add 170m to the regional economy. ITV Plc ITV Plcs total reported revenue was 2,181m in the twelve months to December 2006, down 0.7% or 15m from 2005 (ITV plc Financial Results 2006). The loss was largely attributed to a decline in net advertising revenue (NAR) at the flagship channel, ITV1, down 181m (12%) to 1,281m over the period. Other revenue was actually up 23% from the previous year, driven by NAR gains at ITV2, ITV3, ITV4, ITV News (now off air), CITV and Men and Motors, up 41% (46m) to 157m. Sponsorship was up 29% to 53m and media sales/other income rose 6% to 118m. Spend on ITV1 programming rose by 1m from 2005 to 902m in 2006, whereas combined spend on ITV2, ITV3, ITV4, ITV News, CITV and Men and Motors increased 23% to 75m. Through 2006 and 2007 ITV rescheduled its Childrens output. After the launch of the childrens channel, CITV, in March 2006, Childrens programming hours reduced on ITV1 on weekdays and moved to a weekend slot. ITV also launched the interactive channel, ITV Play, in March 2006, and followed with new time-shifted channels ITV2+1 and ITV3+1 in October 2006. ITV has recently been extending the delivery of its established services to new media platforms. In May 2007 the company revamped its website to introduce live streams of its channels, and a range of new services including a 30-day catch-up facility, an archive of selected programming, made-for-broadband content, user-generated content and broadband games. SMG in Scotland is in separate ownership from ITV but transmits ITV network programmes. It operates under two licences which cover Central and Northern Scotland. In May 2006 Grampian TV and Scottish TV were re-branded as STV North and STV Central respectively. STV's news services, Scotland Today and North Tonight are tailored to the individual regions and also feature local news opt-outs. UTV is the arm of ITV that covers Northern Ireland. Like SMG, is operates across a range of markets, including TV, radio and new media. There was a proposed merger between UTV and SMG, however, in February 2007 UTV announced that its discussions had been terminated. Channel 4 Over 2006 Channel 4s group revenue rose by over 4% to 937m. Advertising and sponsorship grew by 2% - driven by the digital channels More4, E4 and Film4. This compensated for a reduction in revenue on the main channel, down 5.3% to 696m. The Corporation continued to bolster its channel portfolio by taking Film4 free-to-air in July 2006. In September 2006 it followed with the launch of the mobile television channel Shortcuts.

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The broadcaster announced the launch of Channel 4+1 in August 2007 on Freeview, Sky and Virgin Media to accompany its other +1 time-shifted channels, Film4+1, E4+1 and More4+1. It has acquired the Live TV channels, which will allow it to establish six consecutive channels on Skys electronic programme guide (EPG). Life TV broadcasts on channels 135-138, alongside More4, E4 and E4+1. The deal could offer Channel 4 valuable space on the EPG, potentially to launch new channels or reshuffle existing ones without the need to buy additional slots from Sky. The Corporations move into radio received two boosts in 2007. Ofcom awarded the second national DAB multiplex licence to the consortium which it led; the service plans to launch by July 2008. The group also recently took a 50% stake in Emaps digital-only radio station portfolio, which includes Smash Hits and Heat radio. Five RTL, Fives parent company, reported 2006 revenue for the channel of 315m, down 2.8% from 2005. In October 2006 Five launched the spin-off channels Five Life and Five US. It plans to add time-shifted versions of these channels on satellite in Autumn 2007. Five Life broadcasts between 6am and 11pm and is targeted toward a female audience. Its programming includes shows such as The Ellen DeGeneres Show, Angelas Eyes, Footballers Wives and Bad Girls. Five US broadcasts from 12pm to 1am and concentrates on foreign imports from the US. Key programmes include CSI: Crime Scene Investigation, Dirt, Happy Days and Joey. Five also launched its video-on-demand service, Five Download, in October 2006. It enables viewers to download, on a pay-per-view basis, a selection of shows to view on a computer for up to 14 days after transmission. BSkyB For the year ended 31 March 2007, BSkyB reported wholesale channel revenue of 216m and advertising revenue of 343m. In 2006, BSkyB was successful in bidding for four of the six FA Premier League football rights packages (Setanta won the remaining two), paying 1,314m to broadcast 92 games per season through to 2010. The company was also successful in a joint bid with BT for the near-live rights to FA Premier League football, in a three-year deal which allows BSkyB to offer full delayed coverage or extended highlights of 242 games per season from the Barclays Premiership. BSkyB announced plans for a DTT subscription service this year. The company proposes to replace its existing Freeview channels, Sky News, Sky Sports News and Sky 3, with three new channels offering a range of sport, entertainment, movies and news content. Ofcom will consult on the proposal in autumn and aims to release a Statement in early 2008. Setanta Sports Setana offers 12 channels in 24 countries with live coverage of sports such as football, golf, horse racing and rugby. Setanta channels can be accessed via Sky (for 9.99/mth), Virgin Media (9.99/mth), online via Setanta.TV (7.99/mth), and on Freeview with a card slot settop box (9.99/mth, single channel). In 2006 the company announced the roll-out of pay-per-view Scottish Premier League matches across the UK on DTT. In the same year it won exclusive rights to broadcast the

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US PGA tour in the UK and two of the six FA Premier League packages. From August 2007 the three-year deal allows the company to broadcast 46 football matches per season, while BSkyB broadcasts 92.

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2.2 The television industry

2.2.1 Television industry revenue
TV revenue neared 10.8bn in 2006 In 2006 television industry revenue rose by 1.4% to nearly 10.8bn. The slowing of revenue growth came despite a rise in subscription revenue to 4,029m (up 3.5%). Public funding of television services from the licence fee was estimated by Ofcom to total 2,474m, up 1.7% from the previous year. Other revenue (non-broadcast revenue), which includes TV shopping, interactive services, pay-per-view, sponsorship, programme sales, public funding and other revenue climbed to 794m. This was an increase of 6% since 2005 (Figure 2.12). However, advertising revenue declined by 79m (2.2%) from 2005 to 3,469m in 2006. The reduction was driven largely by public service broadcasters (PSBs) losing advertising revenue; ITV Plc in particular incurred a reported loss of 12% year-on-year. Figure 2.12
m
7,737m 8,576m 8,895m 9,330m 10,130m 10,621m 10,765m
4,029 3,469 3,548

Total TV industry revenue by source

4,000
3,471 3,385 3,147 3,252

3,891 3,585 3,481 2,476 2,049 3,242 2,883 2,216 1,820 1,934 781 397 650 746 749 2,302 2,319 2,433

Subscriptions

3,000

2,000

2,474

Net advertising revenue Licence fee allocated to TV

1,000

794

534

Other

0 2000

2001

2002

2003

2004

2005

2006

Source: Ofcom estimates and broadcasters

Over the year, commercial multichannel operators saw a rise in revenue, while commercial analogue channel revenue fell. Commercial multichannel operator revenue increased to 1,449m, up 12% from 2005; this included revenues from channels owned by channel retailers and platform operators (e.g. BSkyB and Virgin Media). Commercial analogue channel revenue fell by 6.5% to 2,717m (i.e. ITV1, Channel 4 and Five). The fall was largely explained by the decline in commercial PSBs net advertising revenue. Channel revenue from the fully-funded BBC and predominantly-funded S4C rose by 1.7% to 2,570m (Figure 2.13).

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Figure 2.13
m
7,737

Total TV industry revenue by sector

8,576

8,895

9,330

10,130

10,621

10,765

12,000 10,000 8,000

2,476 2,049 3,585 2,883 3,252 1,295 1,449 3,891 4,029

Platform operators

6,000
795 1,397

987

1,005

1,287

Commercial multichannels Commercial analogue channels Publicly-funded channels

4,000
2,981 2,675

2,716

2,677

2,844

2,907

2,717

2,000
1,911 2,028 2,309 2,396 2,414 2,528 2,570

0 2000 2001 2002 2003 2004 2005 2006

Source: Ofcom estimates and broadcasters

2.2.2 Advertising and non-broadcast revenue

Commercial multichannel advertising revenue exceeded 1bn in 2006 Figure 2.14 shows that net advertising revenue (NAR) totalled 3,469m in 2006, down 2.2% from 2005. Commercial analogue channels continued to account for the bulk of TV NAR, 2,427m (or 70% of the total), although this total fell by 258m (or 9.6%) from 2005. This reduction was largely driven by the fall in the ITV Networks NAR, down 201m (12%), from 1,675m in 2005 to 1,474m in 2006. The multichannel operators faired better. They accounted for 1,042m (or 30%) of the total in 2006, an increase of 179m (or 21%) over the year.

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Figure 2.14
m

Net advertising revenue by sector

4,000
3,471 3,385 3,147
590 826 534 676

3,481 3,242
794

3,548 3,469
863

3,500 3,000 2,500 2,000 1,500 1,000 500 0 2000 2001

2,881 2,559

1,042

Commercial multichannels

2,612

2,566

2,686

2,685

2,427

Commercial analogue channels

2002

2003

2004

2005

2006

Source: Ofcom/Broadcasters

The degree to which commercial PSBs lost advertising revenue share to the digital-only channels is highlighted in Figure 2.15. ITV Plcs share of NAR stood at 43%, down 4.7 percentage points from 2005. Channel 4s share declined by 1.0 percentage point to 19% and Fives fell by 0.2 percentage point to 8.3%. Multichannel operators picked up 5.7 percentage points of share over the period to 30%. Figure 2.15 TV advertising market share, 2006

Total NAR = 3,469m (2005 figures in brackets)

Other 30.0% (24.3%)

ITV 42.5%
(47.2%)

Five 8.3% (8.5%)

Channel 4 19.2% (20.2%)

Source: Ofcom/Broadcasters

The steps taken by broadcasters to diversify revenue streams have been reflected in the growing size of the non-broadcast revenue category. Between 2005 and 2006 this rose by 6.0% to 794m, with particularly strong growth in sponsorship revenue, up 35% to 162m, interactive services up 18% to 123m, and programme sales up 16% to 80m (Figure 2.16).

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Figure 2.16

Breakdown of non-broadcast revenue, 2006

Total non-broadcast revenue = 794m (2005 = 749m)

Other revenue 81m Programme sales 80m TV shopping 159m

Other public funding (S4C) 91m

Interactive services 123m

Sponsorship 162m

Pay-per-view 98m

Source: Ofcom/Broadcasters

2.2.3 Industry flow of funds

Cable and subscription revenue exceeded 4bn Figure 2.17 is a simplified diagram of the funds flowing into the television industry and the revenue circulating between broadcasters. The most significant developments in 2006 included: cable and satellite subscription revenue exceeded 4,000m for the first time, up 3.5% from 2005; spend on in-house production fell 8.7% over the year to 1,430m, while commissioned productions and acquisitions grew 5.6% to 3,077m. One possible contributory cause could be the BBCs introduction of its Window of Creative Competition scheme, whereby independent producers are given additional opportunity to bid for commissions beyond a 25% statutory quota; and advertising and sponsorship fell 1% to 3,631m, driven by loss in NAR among the PSBs over 2006.

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Figure 2.17
m

Simplified flow of funds in the TV industry, 2006 (2005 in italics)

Subscribers

4,029m 3,891m
+3.5%

Channel packagers
454m1 443m
+5.6%

3,077m 2,913m

Viewers

2,853m 2,819m
1.2%

External producers and rights holders2

2.5%

Channels Advertisers & sponsors 3,668m

3,631m
-1.0%

4,507m 4,450m

+1.3%

-6.9%

1,430m 1,536m

In-house producers

Government

91m 89m

+2.2%

Source: Broadcasters, broadcaster results and Ofcom analysis Notes: 1 Excludes flows to channels owned by vertically integrated broadcasters (BSkyB and Telewest) 2 Includes both UK and non-UK content and rights providers The bold figures represent 2006, the italicised figures 2005

This figure is a simplified representation of the industry due to the following: it does not include transmission and playout costs, nor does it illustrate spend on production facilities such as studios; due to a lack of data it does not break down the revenue generated by external producers and rights holders, nor the divide in spend between UK and overseas providers; it includes limited information regarding the vertically integrated broadcasters, to whom the concept of flows of funds from platform operations to channel businesses does not apply. The channel packagers to channel revenue flows only represent transfers earned by channels that are not wholly owned by platform operators, and therefore exclude any flows to BSkyB and Virgin Media channels; and the figures used in this chart are derived from data submitted to us by UK broadcasters. All of the major broadcasters financial information is included. However, more small and medium broadcasters submitted returns by the submission deadline in 2006 than in 2005; this may explain some of the variation in figures.

2.2.4 The production sector

PSBs continued to account for the majority of spend on originated output We estimate that total investment in first-run original programmes (excluding Sports rights) in the UK was approximately 2.7bn in 2006, having grown by 400m from 2.3bn in 1999. These figures include commissions from both broadcasters in-house production teams and from independent producers for network broadcasts. The largest commissioner was the BBC and, taking into consideration its digital services, it accounted for about 45% of the total market in 2006. ITV1s spend on original productions declined over the last two years but accounted for 29% of the total in 2006 while Channel 4s share was 14%. Digital-only channels commission relatively few programmes, acquiring most of their programmes from external sources. Their investment in UK commissions is consequently much lower, amounting to about 4% of the total in 2006.

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Figure 2.18
2.3bn 3.2% 4.2%

Total investment in originated network production in the UK

2.5bn 2.6bn 2.8bn 2.8bn 2.8bn 2.8bn 2.7bn

% of total investment

100% 80% 60% 40% 20% 0%

3.2% 3.6% 16.2%

3.7% 4.2% 15.2%

16.1%

6.3% 3.7% 13.4%

7.7% 3.9% 14.6%

8.0% 3.9% 13.7%

9.2% 4.0% 13.9%

7.5% 4.1% 14.2%

Digital-only channels BBC digital S4C

32.5%

31.1%

31.7%

29.7%

29.7%

28.2%

27.9%

29.4%

Five Channel 4

41.2%

41.1%

40.5%

41.6%

39.4%

40.7%

39.1%

38.6%

ITV1 BBC One/BBC Two

1999

2000

2001

2002

2003

2004

2005

2006

Source: Ofcom/Broadcasters

The majority of the BBCs investment is through in-house commissions in 2006 the figure was 73% across all BBC channels, amounting to 872m, while spend on external commissions totalled 322m. ITV1 commissions to external producers represented 36% of the channels originated output in 2006, up from 221m in 2005 to 274m in the last year. Channel 4 and Five are publisher-broadcasters who do not operate significant in-house production and their investment in external commissions in 2006 totalled 380m and 107m respectively. Figure 2.19
Investment (m)

Spend on first run commissions by PSBs: 2005 & 2006

800
160m 165m 221m 274m

External commissions Internal commissions

600

400
571m 561m 80m 98m 212m 108m 107m 506m 487m 376m 248m 380m 63m 59m 143m 99m

200

0 2005 2006 2005 2006 2005 2006 2005 2006 2005 2006 2005 2006

BBC1

BBC2

ITV1

Channel 4

Five

BBC Multichannel

Note: First run network commissions including news and sports rights. BBC Multichannels included in the chart: BBC Three, BBC Four, CBBC, CBeebies Source: Ofcom/Broadcasters

The majority of the investment by the PSBs was in London-based productions, of which 60% were commissions from independent production companies based within the M25 area. A total of 630m, (about a third of the total investment) went to the English regions, followed by 100m (5%) to Wales (including Welsh language production for S4C), 51m (2.6%) to Scotland, and 6.6m (less than 0.5%) to Northern Ireland.

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Figure 2.20
Investment (m)

Spend by nation and region by the PSB broadcasters: 2006

1200 1000 800 600 400 200 0

1177.5m

630.3m

External commissions Internal commissions

6.6m

51.1m

100.3m

London inside M25

English Regions

Scotland

Wales

N. Ireland

Source: Ofcom/Broadcasters

2.2.4.1 Independent production sector Pact 2007 Independent Production Census Pact is the UK trade association representing the commercial interests of independent companies in the feature film, television, animation and interactive media sectors. Its 2007 census of the UK production sector collected data between September and December 2006. All companies registered with Pact or TAC (Pact in Wales) as being involved with television production were approached, resulting in 138 companies taking part in the census and representing 73% of the revenue of the independent production sector. Respondents provided data for their most recent financial year which, in the majority of cases, fell between December 2005 and December 2006, with the later year-ends including forecasts of the last few months business. For companies with turnover greater than 1m, information from other published sources was used to supplement the census results. According to the Pact census, the total size of the independent production sector was 1.89bn in 2006, most of which consisted of revenue from TV-related activities, accounting for 1.69bn, equivalent to 90% of the total. The remaining 190m of revenue was generated by corporate and new media production, idents (short identity/branding sequences), commercials, music publishing, talent agencies, training, equipment hire and consulting fees. Of the total TV revenue, 1.35bn (80%) was from the UK and 334m (20%) was from international sources - the majority of which was from the US (87%). International commissions are a growing source of revenue, accounting for most of the growth between 2005 and 2006. Independents turnover shows healthy growth UK primary TV rights remain the predominant source of revenue for independent production companies. These are the fees paid by the broadcaster to the independent company in return for the primary rights package, which normally includes first showing of a programme for a defined period of time along with a specified number of linear TV repeats, and in some cases non-linear exploitation for a certain period after first transmission. Around 87% of the UK revenue or 1.1bn came from this source. Secondary rights relate to the sale of rights for

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transmission in overseas television markets and for linear TV or non-linear exploitation by another distributor once the primary rights entitlements have expired. Revenue from secondary rights remained at relatively low levels, accounting for only 10% of UK revenue and 21% of international revenue. Figure 2.21 Independents TV revenue 2006

International revenue 20.0% 334 m

(20%)

Secondary rights

Total TV Revenue 1.69 bn

Primary rights

UK TV revenue
1.35 bn (80%)

Source: Pact/Digital-i

The majority of independents UK revenue comes from the sale of primary TV rights. This amounted to 1,170m in 2006, a small increase from 1,131m the previous year. Secondary TV and ancillary rights, pre-production and other TV activities accounted for around 13% of total revenues in both 2005 and 2006. Figure 2.22
m

Sources of UK television revenue by independent producers

1170m

1200 1000 800 600 400 200

16m 31m

1131m

2005 Census 2006 Census

101m

135m 45m 15m

0 Pre-Production Primary TV Rights Secondary TV & Ancillary Rights Other TV

Source: Pact/Digital-i

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The independent production sectors total turnover grew by 17% from 1.60bn in 2005 to 1.89bn in 2006. In Figure 2.23 we group companies into turnover brackets to illustrate differences in performance. At the lower end, with less than 5m turnover per annum, are the lifestyle companies with a small number of commissions per year. These companies earned less in 2006 than in 2005. Mid-sized companies, in the 5m to 10m range, showed greater capacity for revenue growth, with turnover increasing on average by 16% year-onyear from 209m to 243m in 2006. But the strongest growth was concentrated at the higher end of the industry; companies with annual turnover in excess of 20m saw increases in revenue in 2006 of over 40%. This group includes medium to large companies which tend to specialise in Drama and Entertainment and are often commissioned to provide returning series, thereby bringing stability and security of revenue. At the top of the scale are the consolidated holding groups, some of which are listed on the stock market and which provide centralised resources for their independent company subsidiaries. Companies in this category, with revenue above 50m in 2006, accounted for 30% of the sectors total turnover in 2006 (26% in 2005). The apparent growth in turnover for these larger groups could be a function of the increase in consolidation in the sector in 2005 and 2006, given the number of mergers and acquisitions that have taken place, resulting in a small group of companies incorporating the revenues of their acquired companies and reporting significantly higher than average earnings. Figure 2.23
Turnover m

Independent production company turnover by revenue band

595m 579m

600 500

428m

400 300
211m

395m 356m 278m 243m 209m 166m 65m 53m

2005 2006

200 100 0 <1m

Source: Pact/Digital-i

1m-5m

5m-10m

10m-20m

20m-50m

>50m

Continued consolidation of independent companies The Broadcast Indies 2007 Survey confirms that consolidation was an ongoing market characteristic in 2006. Figure 2.24 lists the top 15 holding company groups or individual companies by turnover in 2006, as reported in this survey. Broadcast reported that the top ten groups achieved a combined turnover of 936m in 2006; IMG led the field with group turnover of 212m, followed by Endemol and All3Media both at 173m.

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Figure 2.24

Top holding companies and independents by revenue: 2006

1 IMG 2 Endemol UK 3 All3Media 4 HIT Entertainment 5 Talkback Thames 6 RDF Media Group 7 Shine 8 Tinopolis 9 Aardman Animation 10 Shed Productions 11 Ten Alps 12 Celador 13 Entertainment Rights 14 DCD Media 15 World Productions 212m 173m 173m 166m 146m 100m 100m 47m 44m 44m 38m 37m 31m 26m 26m

Source: Broadcast Indies 2007 Survey

The major groups are shown in Figure 2.25 below, along with their constituent companies, showing the extent of consolidation in the sector. In the last year IMG acquired Tiger Aspect and Darlow Smithson, RDF Media bought The Comedy Unit, Presentable and Foundation TV Productions, Shine acquired Kudos, Firefly and Princess Productions, and All3Media acquired Maverick. Figure 2.25
Holding Company All3Media

Consolidation in the independent production sector

Production Company South Pacific Pictures, North One TV, Lion TV, Lime Pictures, IDTV, Company Pictures, ARG TV, Cactus Films, All3Media International, Bentley Productions, Maverick Media TWI, Tigress Productions, Tiger Aspect, Darlow Smithson Productions Touchpaper Television, RDF Media, RDF International, Radar TV, IWC Media, The Comedy Unit, Presentable, Foundation TV Productions Oxford Scientific Films, Darrall Macqueen, Carnival Films & Television Venner TV, Mentorn, Folio, Sunset & Vine Productions, Music Box, Tinopolis Shed Productions, Ricochet, Outright Distribution 12 Yard Productions, Hat Trick Productions Endemol, Cheetah, Initial, Zeppotron, Brighter Pictures, Showrunner, Hawkshead, Victoria Real Fremantle Media, Talkback Thanes, Grundy Productions, Regent Productions Done and Dusted, Iambic Productions, Box TV Hit Entertainment, Gullane Entertainment, Hit USA Production, Guinness World Records Shine, Firefly, Kudos, Princess

IMG RDF Media Group Plc Southern Star Group Tinopolis Shed Productions Plc Hat Trick Holdings Ltd Endemol UK Fremantle Media (RTL Group) DCD Media Hit Entertainment Shine

Source: Pact

According to the Pact census, the BBC continues to play a significant role in supporting smaller independent producers, accounting for 44% of all commissions among indies with revenues of less than 1m. By contrast, at the top end, 43% of commissions to companies

126

with revenues of more than 50m were secured from ITV1. Medium to larger independents concentrated on commissions for Channel 4 with 36% of companies in the 10-20m and 31% in the 20-50m brackets selling to Channel 4. Figure 2.26 Commissions by size of independent producer: 2006

Proportion of commissions

100% 80% 60% 40% 20% 0%

3% 7% 14% 13% 9% 10%

14% 6% 15% 13% 6% 14%

12% 7% 11% 13% 4% 22%

5% 9% 5% 22% 2%

7% 11% 22% 7% 31%

4% 7%

43%

36%

10% 12%

44% 32% 31% 22% 22% 23%

Terrestrial Digital S4C Multichannels ITV1 Five Channel 4 BBC

<1m
Source: Pact/Digital-i

1-5m

5-10m

10-20m

20-50m

>50m

Independents strong in Factual hours Numbers of programme hours commissioned from independent producers varied by genre. The majority of commissions from ITV1 came in the Entertainment genre (56%), while Fives dominant genre was Sport (48%), and about a quarter of Channel 4 and Five commissions were in Entertainment. The strength of the sector in Factual output was again confirmed by the significant volumes of hours commissioned in Factual by all broadcasters the BBC, Five and ITV1 each devoting between 18 - 20% of volume to Factual programmes with Channel 4 commissioning 15%. Channel 4 also focused strongly on Factual Entertainment at 23% of volume. Figure 2.27 PSBs external commissioning patterns 2006

Proportion of independent hours

100% 80% 60% 40% 20% 0%

6% 20%

3% 7%
4% 5% 18%

6% 19%
4% 23%

6%

Other
48%

Sport Children's

18%
6% 11% 3% 11% 19% 5% 10% 56% 15% 8% 20% 0% 23%

Hobbies/Lifestyle Factual Entertainment Factual Drama Entertainment

25%

BBC
Source: Ofcom/Broadcasters

ITV1

Channel 4

Five

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Exports increase by 20% Global revenue from the sale of TV programmes and associated activities by the independent production sector totaled 593m in 2006, an increase of 20% on the 2005 figure of 494m, according to the annual Pact Exports Survey for 2006, conducted by the DCMS. The continuing importance of the US to international sales and commissions was underlined in 2006, contributing to half of all revenue growth. Sales to the US accounted for 36% of all UK TV export revenue in 2006, with Europe accounting for 33%. While finished programme sales were up by 21% from 242m in 2005 to 294m in 2006, proportionately speaking, the most substantial increases came from overseas licensing of programme formats and intellectual property, where revenue rose by 87%. Revenues from DVD and video sales were up 13% from 56m to 63m. Figure 2.28
Exports m

UK Television annual exports - independent company revenues

250
215m

200
166m

Total exports 2005 - 494 m 2006 - 593 m

150 100 50 0
Sc an di na vi a O th er W .E ur E. Eu ro pe Au st ra lia /N Z an ad a y Fr an ce er m an U As ia O th er SA

2005
78m 68m 37m 37m 33m 25m 30m 24m 26m 20m 60m 53m 53m 45m48m 37m 20m 13m

2006

Source: Pact UK TV Exports Survey 2006

2.2.5 TV industry output

The TV industry broadcast 1.8 million hours of output in 2006 1.8 million hours of television output were broadcast across all platforms in 2006. Those channels with little in the way of traditional broadcast schedules Shopping, Films, Music and Gaming for example - accounted for 826,030 of these hours. Figure 2.29 breaks down the remaining 1,019,978 hours, which includes output from the PSBs and the digital-only channels in the Entertainment, Factual, Childrens and Sports categories. The digital channels (excluding the BBC digital channels) accounted for 931,684 hours (91% of the total). The five main channels broadcast 42,620 hours (4.2%), the BBC digital channels 33,005 hours (3.2%) and programmes broadcast for the nations and English regions totalled 12,669 hours (1.2%). The figures for 2006 highlight the continuing role that the PSBs play in fuelling first-run originated output. Total hours of first-run originations came to 147,826 in 2006. Digital channels (excluding BBC digital channels) accounted for 68% (or 100,734 hours) of the total,

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the five main channels 14.6% (21,554 hours), BBC digital channels 9.2% (13,619 hours) and programmes for the nations and English regions 8.1% (11,919 hours) Figure 2.29
100% 80% 60% 40% 20% 0%
42,620 12,669 33,005 11,919 13,619 21,554 100,734 931,684

Total and first-run originated hours of output, 2006

Total hours = 1,019,978 First run = 147,826

Proportion of hours by operator (percent)

Other digital channels Programmes for Nations & Regions BBC digital channels Main five channels (network)

Total hours of output

Source: Ofcom/Broadcasters

Total hours of first-run originations

Spend on television output rose by 2.8% (or 130m) to 4,835m between 2005 and 2006. This rise was primarily attributable to a 109m increase in spend by the digital-only commercial channels. (This is partly explained by Ofcom receiving a larger number of television channel returns in time for the 2006 Communications Market Report than in 2005. This in turn allowed a larger number of non-PSB broadcasters costs, revenues and hours to be factored into the data.) The increase is also due to BBC One, Channel 4 and Five spending 41m, 18 and 1m more on content over the period (Figure 2.30). BBC Two, BBC digital channels and ITV1/GMTV1 all reduced their investment in programming by a total of 73m. The bulk of the reduction came from the BBCs channels. The BBC digital channels decreased their spend by 14% and BBC Two by 4.6%. Figure 2.30
m
4,705m 4,835m

Spend on network programmes

5,000 4,000 3,000 2,000 1,000 0 2005 2006

1,101m 1,088m

Movies/sport channels Digital-only commercial channels BBC digital channels Five Channel 4 ITV1 + GMTV1 BBC Two
841m

653m 262m 190m 492m 838m 368m 800m

762m 225m 191m 510m 868m 351m

BBC One

Source: Ofcom/Broadcasters Note: Figures in nominal terms

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2.2.6 The five mainstream channels output

Hours of first-run peak-time originated output fell, while non-peak rose Across the five main channels, hours of first-run originated output rose by 1.7% to 33,473 between 2005 and 2006. Non-peak network first-run originations rose 5.8% to 16,021 hours. However, peak-time (defined by the time interval 18:00 22:30) network first-run originated hours fell by 1.0% to 5,533 over the period, while regional first-run originated output continued its year-on-year reduction, falling by 2.1% to 11,919. This pattern of decline in regional output dates back at least to 2001 (Figure 2.31). Figure 2.31
Transmitted hours
40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 0 2001 2002 2003 2004 2005 2006
5,615 5,712 5,695 5,491 5,610 5,533 16,213 15,936 16,321 15,733 15,142 16,021 Peak-time network 14,933 14,496

Hours of first-run output on the five main channels

36,761

36,144

35,022

33,649 32,921

33,473
Regional

13,006

13,425

12,169

11,919

Non-peak network

Source: Ofcom/Broadcasters

Figure 2.32 shows the five main networks spend on originated hours in 2006, underpinning the preceding output figures. Total investment fell by 0.1% (or 4m) to 2,637m in 2006, the fourth consecutive year of decline. This fall was driven by a drop in spend on regional originations and non-peak network originations, down 4.7% and 5.1% respectively, partly offset by a 4.3% rise in spend on peak-time network originations. Figure 2.32
m

Spend on first-run originated output on the five main networks

2757m

3,000
2514m 2614m

2706m

2682m

2641m

2637m

2,500 2,000

357

374

388

369

359

342

324

Regional
953 975 1,022 989 995 950 906

1,500 1,000 500 0 2000 2001 2002 2003 2004 2005 2006
Source: Ofcom/Broadcasters Note: Figures in real prices for 2006.
1,203 1,265 1,347 1,348 1,328 1,349 1,407

Non-peak network Peak-time network

130

With spend on first-run originated peak-time network output rising and the number of hours falling, the cost per hour (CPH) to produce the content rose 5.4% to 254k over 2006. In non-peak time, spend declined while hours rose, which led to a 9.5% reduction in the CPH of content to 56k. The CPH of regional first-run originated output also declined (by 13% to 27k), reflecting a greater fall in spend than in hours (Figure 2.33). Figure 2.33
Cost per hour (k)

CPH for first-run originated content on the five main networks

300 250 200 150 100

58 60 24 25 64 27 61 28 63 28 63 31 56 27 225 236 237 242 241 254

225

Peak-time network

Non-peak network

Regional

50 0

2000

2001

2002

2003

2004

2005

2006

Source: Ofcom/Broadcasters

Figure 2.34 shows PSBs hours of output and cost per hour (CPH) for first-run originated hours (including the BBCs digital output) for peak time and for all day. In 2006, the average cost per hour of peak-time output was 172.2k, up 7.1% from 2005. The all-day CPH for first-run originated content was 71.5k, down 5.4% over the period. PSBs weekly hours of first-run originated all-day output have fallen by 22 hours (3.1%) in the four years since 2002. BBC Ones hours fell by 11% (all day) while the BBCs digital channels first-run originated output declined by 7.4% for all day and 8.8% for peak time over the period5. These reductions were offset somewhat by the rise in ITV1+GMTV1s all-day hours of first-run originated output, up 11% since 2002 to 105 hours per week. Its peak-time first-run originated output declined by 3.8% over the period.

For the BBC, which operates a portfolio of PSB channels, first run programmes represent the first transmission of a programme on any of its PSB channels. Therefore a programme shown first on, for example, BBC Three and subsequently on BBC One is considered a repeat on BBC One. This is the case whether it is a BBC Three commissioned programme or a BBC One commissioned programme which is premiered on BBC Three (e.g. turn over now for the next episode of Spooks).This is consistent with our reporting for Tier 2 and the Independent Production Order. The effect of this is: the value of programming spend on the digital channels is increased (sometimes significantly) above their actual commissioning budget; the value of programming spend on BBC One and BBC Two is similarly reduced; and repeat levels on BBC One and BBC Two are affected by premiering shows on the digital channels.

131

Figure 2.34
73.6

First-run originated output by the PSBs in peak time and all day
Peak cost/hour (k, 2006 prices)
162.2 161.0 170.7 160.8 172.2 72.6 75.4 75.6 71.5

All day real cost/hour (k, 2006 prices)

800

200

Hours per week

283

286

Hours per week

600
275 269 262
BBC digital channels Five

150

68

74

66

72

62
BBC digital channels Five Channel 4 ITV1+GMTV1

400

74 74

71 80 101 62 109
2003

69 69 101 64 104
2004

65 67 96 68 103
2005

74
Channel 4

100

16 23 26 19 26

16 25 26 18 25
2003

13 23 25 19 26
2004

14 21 25 21 26
2005

13 22 25

65
ITV1+GMTV1

200

95 62 112

105 71 100

BBC TWO BBC ONE

50

BBC TWO

21
BBC ONE

25
2006

0
2002 2006

0
2002

Source: Ofcom/Broadcasters

2.2.7 PSB hours of output by genre

General Factual and Drama account for over half of PSBs peak-time schedules In peak, General Factual and Drama filled over half of the PSB schedule in 2006, growing by 26% (to 2,149 hours) and 5.7% (to 1,954) respectively in the eight years to 2006. Hours of Light Entertainment and Music increased between 1998 and 2001, before declining 17.8% in 2002, only to remain steady since then (Figure 2.35). The genre that lost out most was Film, as hours fell by 44.7% since 1998. Care should be taken in interpreting this reduction between 2005 and 2006, as this is partly explained by a change in the composition of the genres; TV movies were included in Films until 2006 when they were moved into Drama. Figure 2.35
7956

PSB genre mix in peak time

8027 8056 8123 8153 8178 7933 7936 7929
Sport Light Entertainment & Modern Music Films Drama Education

Proportion of total hours

100%
500 1424 406 1472 1038 380 1580 428 1623 972 530 1334 947 362 1330 937 401 1395 757 341 1268 688 507 1362 579

80%
1047 1013

60%
1848 1748 1880 1854 2077 2070

1863

1935

1954
General Factual Religious

40%
1702 1972 1802 257 867 1824 246 925 1814 255 935 2015 2105 2253 2149

Children's Arts & Classical Music

20%
333 790 256 849 284 917 296 835 318 785 318 788

Current Affairs News

0% 1998 1999 2000 2001 2002 2003 2004 2005 2006

Source: Ofcom/Broadcasters Note: Includes five main channels plus GMTV1

132

Change in programme genre categories In consultation with broadcasters, Ofcom has introduced a revised structure for the allocation of programmes to genre categories, which became effective in 2006. This has been designed to allow broadcasters greater flexibility in the classification of programmes to particular genres and, in time, should permit more detailed analysis of programme output and genre mix. The new system is still bedding down and changes in the methodology applied in 2006 have been kept to a minimum to ensure that historical comparisons in the data presented in this section are still valid. However, there are a number of differences to note in the composition of the figures for 2006: Light Entertainment and Modern Music includes comedy, situation comedy, entertainment and contemporary music; General Factual includes factual, leisure and hobbies, science and technology, documentaries, nature and wildlife and other factual programmes; Factual Entertainment is included in General Factual whereas in previous years, some factual entertainment programmes were included within entertainment; Drama includes TV movies which were previously added to Feature Films; Education is reserved for formal education programmes, such as schools, open university and adult education. Programmes with an educational intention are now included in other genres but in previous years some of these have been included in Education.

In addition, it should be noted that the BBC allocated Parliamentary coverage to the Current Affairs genre in the data for 1998 to 2003. From 2004 onwards, it has been allocated to either News or Current Affairs as appropriate. In daytime, the mix of PSB output by genre is significantly different from that in peak time. Childrens and General Factual are the most widely broadcast genres, although hours of Childrens output have fallen by 5.3% since 2005, largely due to a reduction from ITV1. Conversely, hours of General Factual have increased by 6.6% over the period. Hours of Sport in daytime have fallen by 18.9% since 1998, as key sports rights increasingly move to pay-TV. Hours of Drama rose by 48.7% to 2,654 over the period, although as explained above, this is partly explained by the re-categorisation of TV films as Drama from 2006. This also reflects the 36.1% decline in hours of Film in 2006 (Figure 2.36). The volume of News steadily increased between 1999 and 2004, before declining by 7.8% to 3,041 hours in 2006. Light Entertainment and Modern Music similarly increased over the years, before peaking at 2,810 hours in 2004, then declining 11.4% to 2,491.

133

Figure 2.36
100%
2161 1782

PSB genre mix in daytime

Sport Light Entertainment & Modern Music Films Drama Education General Factual Religious

Proportion of total hours

2099 2038 1957 2236 1344 3911 2239 2250 2113 1863 1276 3658 1921 2352 2188 2135 1198 3189 2193 2448 1959 2294 918 2833 1832 2665 2069 2031 694 3165 1958 2810 2080 2056 738 3150 1837 2713 2464 1797 821 3512 1753 2491 1811 2654 816 3744

80%

1913 2292

60%

1331 3953

40%
4403 4422 671 2425 4392 692 2491 4613 756 2678 4856 807 2753 5055 830 2939 4906 379 3299 4575 384 3191 4333

Children's Arts & Classical Music

20%
764 2443

460 3041

Current Affairs News

0% 1998 1999 2000 2001 2002 2003 2004 2005 2006

Source: Ofcom/Broadcasters Note: Includes five main channels plus GMTV1

In addition to output from the five mainstream channels, a further 32,986 hours were broadcast by the BBCs digital services, up 0.4% on the 2005 figure. With 2006 programme spend rising 17% to 225m, the digital portfolio enjoyed an 11% boost to the cost per hour of content broadcast (Figure 2.37)6. To an extent, there is less genre diversity on digital channels than on the five mainstream channels, but this is explained by the targeted nature of much of the output they carry. Since the launch of CBeebies and CBBC, Childrens television output has generally increased, reaching 7,957 hours in 2006. News is a dominant genre with 16,661 digital hours over the year. The increase in hours of News after 2003 is due to the BBC allocating Parliamentary coverage to News rather than Current Affairs. In 2002 there was a reduction in hours of General Factual due to the replacement of BBC Knowledge for BBC Four.

6 The BBCs financial year operates from 1 April to 31 March. Reporting on a calendar year can therefore sometimes show dips or peaks in genre spend which are really caused by transmission phasing.

134

Figure 2.37
Investment (m)

The BBCs digital channels genre mix (all day)

19,051 83m 26,798 87m 27,278 102m 29,832 201m 31,421 235m 32,792 244m 32,839 271m 32,986 225m 54m

Output (hrs) 10,165

100%

1117 1435 1240 140 503 495 348906 98 2014 80% 4676 1878 964 115 568

1153 1462 1589 4540

1747 1203 1242 1656

1751 1306 1340 1615 7983

1738 1143 1478 2297 8021

1690 1260 1360 2482 8033

2191 1386 1077 2503 7957 1211

Other Light Entertainment & Modern Music Arts & Classical Music General Factual Children's

7990

60%

4647 5662 5916 6871

4759

40%
8125

5398

7494

8837 17890 17674

16661

Current Affairs News

20%

8296

8377

8500

8589

0% 1998 1999 2000 2001 2002 2003 2004 2005 2006

Source: Ofcom/Broadcasters

2.2.8 Multichannel output by genre

Multichannel television shows high levels of repeats In 2006, 701,259 hours of output were broadcast from six of the main multichannel genres. Entertainment accounted for 34% (240,960 hours), Childrens 16% (111,732), Factual 17% (116,741), Sport 16% (115,379), News 8% (53,302) and Leisure 9% (63,145). The share taken by Entertainment and Sport has fallen by three and two percentage points respectively since 2005 (Figure 2.38). Figure 2.38 Hours of output on channels available on multichannel platforms

Total broadcast hours in 2006 = 701,259

Leisure 9% News 8% Entertainment 34% Sport 16%

Factual 17%
Source: Ofcom/Broadcasters

Children's 16%

135

Eighty-six per cent of these total hours were repeats and 14% (100,734 hours) were first-run originations and acquisitions. Sport, with 35% (34,987 hours), Entertainment with 30% (30,156 hours), and News with 18% (18,262 hours) contributed the highest proportion of first-run originations (Figure 2.39). Although Factual, Childrens and Leisure accounted for 17%, 17% and 9% respectively of the total transmitted hours, they accounted for 4%, 10% and 3% of the total originated hours, indicating a high proportion of repeats (over 90%). Figure 2.39 Multichannel first-run originations and acquisitions

Hours of originated content in 2006 = 100,734

Leisure 3% Entertainment 30%

Children's 10%

Factual 4%

News 18%

Sport 35%

Source: Ofcom/Broadcasters Note: Includes first-run in-house, commissioned and acquired

Underpinning these hours of output was spend of 698m on content in 2006, up 7% from 2005 (this excludes 2006 spend of 794m on Sport and 298m on Film). This accounted for 21% of all content investment, while the terrestrial channels accounted for the remaining 79%. Of the 698m, Entertainment accounted for 435m or 62%, up 48m (11%) from 2005. Spend on Childrens output totalled 52m (down 8m or 13%) while News investment made up a further 58m (down 4m or 6%) (Figure 2.40). Figure 2.40
m
698m

Content spend by multichannel operators in key channel genres

700 600 500 400 300 200 100 0

36 38 58 25 54 52

Shopping Music News Leisure

435

Factual Children's Entertainment

2006

Source: Ofcom/Broadcasters

136

2.2.9 Compliance with regulatory obligations

What are the regulatory obligations? Ofcom must ensure that the output of television broadcasters is of high quality and that a broad range of programmes is provided, which are of interest to different types of audiences. Television broadcasters have to comply with a number of regulations, originating from UK or European legislation, and must also comply with the terms of their licences to broadcast, which are issued by Ofcom. The levels of regulatory intervention which Ofcom is required to apply depend on the category of broadcaster commercial public service broadcasters (ITV1, Channel 4 and Five) operate under much tighter regulations than cable and satellite broadcasters, while the BBC is regulated in a different way. Unlike the BBC, commercial public service broadcasters are regulated through licences issued by Ofcom which carry specific compliance obligations. Regulation of the BBC is shared by both Ofcom and the BBC Trust. In terms of the BBCs targets, the BBC Trust is responsible for monitoring and setting the majority of the BBCs targets, although it must consult and agree with Ofcom on particular commitments such as the quotas for news and current affairs and regional productions. The Communications Act 2003 Under the Act, Ofcom has a duty to carry out an annual statistical review on the communications market as a whole so BBC and S4C figures are included in this report, wherever relevant. The Act describes a range of obligations that are designed to make sure that certain types of programmes are produced and broadcast in sufficient quantity. It places a duty on Ofcom to agree quotas and monitor compliance for certain types of programmes. The quotas are set after consulting the broadcasters and different quota levels may be set for different broadcasters, depending on individual remits. Quotas are adjusted over time to allow for changing circumstances and apply to the following types of programmes: Original productions programmes commissioned by broadcasters from inhouse production resources or from independent producers; Regional productions programmes produced in the UK and made outside the M25; Independent productions programmes made by companies independent of broadcasters; National and international news and current affairs; Regional programmes programmes made specially for the nations and regions; and TV Access Services subtitling, signing and audio-description of programmes.

137

Television Without Frontiers In addition to the obligations set out by the Communications Act, the TVWF Directive sets minimum targets for the broadcasting of programmes produced in Europe (including the UK) and for independent European programmes. Which obligations apply to particular broadcasters? The public service requirements of the Communications Act apply to Public Service Broadcasters the BBC, ITV1, Channel 4, Five, S4C (in Wales) and the BBCs digital channels (BBC Three, BBC Four, CBBC, CBeebies, BBC News24 and BBC Parliament) but do not apply to the commercially-funded broadcasters digital-only services (for example ITV2, ITV3, ITV4, CITV, More4, E4, Five Life and Five US). The TV Access Services quotas apply to all PSB channels and to all other television services which achieve an average audience share over a 12-month period of 0.05% or more, subject to passing an affordability threshold and not facing technical difficulties that cannot be overcome, such as the audio-description of music and news programmes where there is little space within the dialogue or sound track to provide audio-description. A total of 74 channels were subject to the Access Services obligations in 2006. The TVWF Directive applies to all qualifying television broadcasters licensed in the UK a total of around 350 cable and satellite broadcasters. It also applies to all the public service broadcasters digital and analogue services.

2.2.10 Original productions

Most output is produced in-house or commissioned from independents Original productions are programmes produced in-house by broadcasters or commissioned from independent producers. The quotas, which include repeats as well as first-run programmes, are designed to make sure that the majority of broadcasting time on public service channels consists of programmes produced for that channel, primarily from UK production sources, rather than material bought in from elsewhere. Maintaining high levels of original productions benefits the UK TV production industry as well as UK viewers. Quotas are set at different levels for each of the PSBs, taking into account their individual channel remits, and separate quotas apply across the day as a whole and in peak time (6pm to 10.30pm). The figures for 2006 show that all channels met, and in most cases exceeded, their quotas for original productions. In 2005 Five failed to meet its all-day quota of 53%, achieving a figure of 52%, and agreed to make up the shortfall by exceeding the quota by an equivalent amount in 2006, which it has done (Figure 2.41). In peak time, almost all programmes on BBC One, BBC Two and ITV1 were originations 95% of the peak-time schedules on each of these channels were original productions and only 5% of programmes were acquired. The proportion of originations in peak time on S4C was even higher, at 98%.

138

Figure 2.41
% Hours

Broadcasters performance against original production quotas

Quota Achieved 2006

100% 80%
90% 98% 80% 98% 80% 95% 85% 95% 90% 98% 42% 46%

60%
90% 95% 70% 83% 70% 82% 80% 83% 80% 81% 70% 72%

20% 0%
T h re e B BC F o ur C BB C C Be e bie s B BC New s 24 B BC P a rli ame nt One Two

IT V 1 C ha n nel 4

T h re e B BC F o ur IT V 1 C ha n nel 4 F ive
Peak time

One

Two

F ive

50% 65%

60% 63%

53% 56%

70% 74%

70% 70%

40%

65% 82%

70% 80%

90% 95%

B BC

B BC

S 4C

B BC

B BC

B BC

All day

Source: Ofcom/Broadcasters Note: BBC figures include programmes made or commissioned for other BBC channels except for BBC Three and BBC Four where programmes first shown on another BBC PSB channel are excluded. BBC Three and Four peak-time hours are 19:00 22:30

2.2.11 Regional productions

ITV increases production outside M25 Regional productions are those made in the UK outside the London area. These include commissions from independents as well as programmes produced by the broadcasters themselves in the nations and regions. The quotas applying to productions outside London have two elements: a quota on the levels of expenditure; and on the proportion by volume of output (hours broadcast). The quotas are set at different levels for each broadcaster and in the BBCs case the quota applies across all the BBCs PSB channels as a whole. In 2006 all broadcasters exceeded their regional production quotas and in some cases there was evidence of increasing levels of production in the nations and regions, compared with previous years. In particular, the amounts delivered by Channel 4 in 2006 were at higher levels than previously seen 37% of the channels spend and 40% of programme hours were produced outside London, compared with quotas of 30%. Five also easily exceeded its 10% quota achieving 21% and 22% by value and volume, while ITV1 achieved 51% by spend and 58% by volume against an increased quota of 50% in 2006, raised from 40% by spend and 33% by volume in previous years. This was partly due to the introduction of phone-in quiz programmes which had high volumes of output and were made in Manchester.

B BC

S 4C

139

Figure 2.42

Broadcasters performance against regional production quotas

Achieved 2004 Achieved 2005 Achieved 2006

% of network production produced outside London, by value and by volume

Quota 2006 60% 50% 40%

50% 46% 45% 51%

30%
30% 34% 34% 32%

50% 41% 38% 58%

25% 32% 33% 30%

10% 0%

All BBC

ITV1

Channel 4

10% 15% 24% 21%

Five

All BBC

ITV1

Channel 4

By value
Source: Ofcom/Broadcasters Note: quota not applicable to S4C

By volume

Although there are no separate quotas for the amount or spend on programmes to be produced in particular regions or nations, it is nevertheless important to consider how the levels are distributed across the UK. The Communications Act 2003 places a responsibility on Ofcom to ensure that that there is a suitable range both of types of productions and of production centres outside London. Figure 2.43 shows how production spend breaks down by macro region and nation between 2004 and 2006 and Figure 2.44 shows the same breakdown for hours broadcast. In general, production - whether measured by spend or volume - continues to be concentrated in the English regions, with significantly less money spent on productions in Scotland, Wales and Northern Ireland. Figure 2.43 Expenditure on production, by macro-region outside London
South of England
3.5% 3.9% 3.2% 4.5% 2.0% 1.3% 6.6% 6.4% 8.8% 35.3% 34.6% 33.9% 16.9% 18.7% 19.3% 2.5%

% of production by value
Midlands & E. Anglia North of England
2.0%

Northern Ireland
1.8% 2.6%

100%
6.7% 5.7%

Wales 0.0%
4.0%

80% 60% 40%

3.1% 11.7%

10.0% 10.1% 10.2%

20%
5.4% 6.1% 5.2% 8.6% 7.0%

5.0% 8.7%

8.1% 8.6% 3.0%

12.7%

7.6% 7.1%

0%
2004 2005 2006 2004 2005 2006

1.1% 2.5%

2004 2005

2006

2004 2005 2006

BBC

ITV1

Channel 4

Source: Ofcom/Broadcasters Note: quota not applicable to S4C

140

10% 23% 30% 22%

20%

30% 30% 31% 37%

30% 35% 33% 40%

Five

Scotland
2.7% 3.7% 5.3%

12.8%

Five

Figure 2.44

Production volume, by macro-region outside London

South of England
2.9% 1.6% 2.1% 7.4% 8.9% 11.1% 7.3% 31.3% 24.3% 21.8% 8.7% 22.0% 22.5% 19.1%

% of production by volume
Midlands & E. Anglia North of England
1.1% 1.6%

Northern Ireland
1.5% 1.4%

Wales

Scotland

100%
5.3% 5.5% 2.4% 6.1%

80% 60%

1.6% 6.6%

9.5%

40% 10.1% 11.0% 9.4%

0.1%

11.5% 12.2% 6.5% 19.2% 6.3% 4.0% 9.7% 13.3% 6.4% 4.7% 1.3% 1.6% 1.8% 6.2%

20%
8.0% 7.3% 5.9% 10.4%

4.9%

0%
2004 2005 2006 2004

2005 2006

2004 2005

2006

2004 2005 2006

BBC

ITV1

Channel 4

Five

Source: Ofcom/Broadcasters Note: quota not applicable to S4C

2.2.12 Independent productions

All channels comfortably exceed quota The independent sector has grown from a relatively small number of companies producing programmes for the BBC, ITV and particularly for the newly-created Channel 4 in 1982, to a thriving production business, making significant contributions to all PSB channels. This has been achieved partly as a result of the regulations applying to broadcasters. The independent quota has been in place since 1993, applies to all PSBs, and stipulates that at least 25% of qualifying programmes must be commissioned from independent producers. Qualifying programmes are defined in the legislation but are essentially first-run original productions, excluding news programmes. Channel 4 and Five make hardly any programmes themselves, instead relying on independents to provide the majority of the original programming they broadcast. Figure 2.45 shows the very high proportions of independent productions achieved by Channel 4 and Five in the last three years. In 2006 84% of commissioned programmes on Channel 4 and 94% on Five were made by independent production companies, while S4C achieved a figure of 83%. By contrast, the BBC and ITV1 have long-established in-house production bases and a tradition of programme-making from within their own resources with a lower proportion of commissions from independents and external producers. However, the number of hours commissioned from independents has increased over the years and in 2006 the levels achieved have exceeded past performance. The BBC achieved a figure of 35% across all its PSB channels (including digital channels) with 30% on BBC One and 40% on BBC Two. ITV1 achieved 43%, partly as a result of the introduction of night-time dial-in quiz programmes, some of which were made by independent producers.

141

Figure 2.45
100%

Qualifying hours commissioned from independent producers

94% 88%

% of qualifying hours
87% 82% 84% 91%

84% 83%

80% 60% 40% 20% 0% All BBC BBC One BBC Two ITV1 Channel 4 Five S4C
43% 39% 39% 40% 35% 33% 33% 30% 31% 27% 28% 30% 59%

2004 2005 2006

Quota = 25%

Source: Ofcom/Broadcasters

The proportions of independent productions vary by programme genre. On ITV1 the majority of Entertainment, Comedy, Factual Entertainment, Religion and Childrens programmes were commissioned from independents. The BBC commissioned 56% of its Comedy programmes from indies but the majority of other programmes were produced in-house. However, 46% of Factual Entertainment, 40% of Factual and 34% of Childrens programmes came from independents in 2006. The proportions of Drama commissions by the BBC and ITV1 were lower, at 22% and 18% respectively, because the genre includes soaps which are all produced in-house. Other types of drama series and one-off dramas were wellrepresented by indies accounting for 44% of the BBCs drama output and 33% on ITV1. Other programme genres registering lower proportions of indie commissions were Arts and Religion on the BBC channels; and Arts and Current Affairs on ITV1. This was due to the fact that several high volume, well-established series, such as The Culture Show, BBC Proms, Songs of Praise, Tonight With Trevor McDonald and The South Bank Show, were almost entirely produced in-house, while indies were more likely to be commissioned to produce shorter series and one-off programmes in these genres. On Channel 4 and Five, almost all programmes were commissioned from independents; this applied across most genres. The main exception was Current Affairs on Channel 4 where the proportion was lower at 37% because ITN produced some of the Current Affairs output. (ITN does not qualify as an independent producer as it is partly owned by ITV). The proportions of Entertainment (68%) and Arts programmes (74%) commissioned by Channel 4 were also lower than achieved in other genres because some large volume commissions, such as Countdown and B4, were produced by broadcasters or non-qualifying independents.

142

Figure 2.46

Qualifying independent commissions by genre

% of qualifying hours

100% 80% 60%

Entertainment

Comedy

Drama

Sport

Current Affairs

Factual

Factual Ent

Arts

Religion

Childrens

66% 54% 18%

65%

56% 22% 32% 27% 40% 46% 18% 14% 34%

61%

68%

40%
33%

0%

All BBC

27% 12% 29%

20%

ITV1

Channel 4

37%

93% 99% 74% 97%

Source: Ofcom/Broadcasters

Figure 2.47 shows that the levels of independent commissions in the peak-time networked schedules on BBC One and ITV1 were significantly lower than during the rest of the day. Only 20% of ITV1s peak-time programming and 24% of BBC Ones output in peak time was produced by independents. This is partly because high volumes of soaps are shown in peak time, particularly on ITV1, and these are produced in-house rather than commissioned. However, no quotas are set for the proportion of independent commissions to be shown in peak time. Figure 2.47
100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% BBC One BBC Two ITV Channel 4 Five
21% 25% 24% 32% 31% 36% 18% 18% 20% 73% 81% 84% 73% 74%

Peak-time qualifying hours commissioned from independents

Proportion of peak-time hours

92%

Source: Ofcom/Broadcasters Note: excludes regional programmes

96% 100% 100% 94% 100% 92% 79% 100% 100% 78%

85%

92% 99% 99%

Five

2004 2005 2006

143

2.2.13 News and Current Affairs

All quotas exceeded The News quota is one of the few which applies to a specific programme genre. The quotas are agreed at different levels for each broadcaster and they set minimum levels for the volume of hours of national and international News programmes to be broadcast across the whole day and in peak time. In 2006 all broadcasters exceeded their quotas. BBC One has the highest targets - 1,572 hours (30 hours a week) were broadcast in 2006, comfortably exceeding the quota of 1,380 hours (26 hours a week). These figures include the BBC Breakfast service but exclude the simulcasting of News 24 in the BBC One nighttime schedule. The ITV1 quota is set at 365 hours (7 hours a week) and a total of 444 hours (8 hours a week) was achieved in 2006 (excluding GMTV). Channel 4 showed 315 hours (6 hours a week), against the quota of 208 hours (4 hours a week) while Five and S4C broadcast 459 hours and 248 hours respectively over the year. In peak time the quota for BBC One, at 275 hours, is higher than the quotas for other channels (208 hours for Channel 4, 150 hours for S4C, 125 hours for ITV1 and 100 hours for Five). All broadcasters met their peak-time quotas. Figure 2.48
Hours per year
Quota 2006 1,500 Achieved 2004 Achieved 2005 Achieved 2006

Performance against News quotas, all day and peak time

1,000
1,380 1,508 1,467 1,572

500
408 619 478 459 125 137 135 128 365 385 465 444 208 311 319 315 200 200 230 248 275 281 293 280 100 150 119 115 150 171 169 180 208 213 217 210

0 BBC One ITV1

Channel 4

Five

S4C

BBC One

ITV1

Channel 4

Five

S4C

All day
Source: Ofcom/Broadcasters

Peak time

The Current Affairs quotas are also set for all day and peak time and apply to all PSBs and, in the BBCs case, to the output on BBC One and BBC Two taken together. All broadcasters exceeded the requirements in 2006 (Figure 2.49).

144

Figure 2.49
Hours per year
450 400 350 300 250 200 150 100 50 0

Performance against Current Affairs quotas, all day and peak time
Quota Achieved 2004 Achieved 2005 Achieved 2006

365 434 433 456

208 212 215 219

238 248 336

130

35 44 45 59

78 90 93 87

60 77 71 81

105 117 110 113

80 117 126 119

BBC One & Two

ITV1

Channel 4

Five

S4C

All day

BBC One & Two

ITV1

Channel 4

10 10 14 15

Five

Peak time

Source: Ofcom/Broadcasters

2.2.14 Programmes made for viewers in the nations and regions

Small shortfalls against quota on ITV1 Regional or non-network programmes are those produced for broadcast in the nations and regions, rather than for wider networking across the UK as a whole. For ITV1, quotas apply to all regional licensees and in recent years have been standardised across most of the English regions, with higher levels in the nations. For the smaller companies, Border and Channel, slightly lower quotas apply. In 2006 the standard quota in the English regions was set at an average of seven hours a week, within which 5 hours of News and 1 hours of non-News programmes, including 26 minutes a week of Current Affairs, was specified. While the quotas for regional News and Current Affairs have been fixed at these levels since 2002, the quota for other regional programmes was reduced from just over 2 hours in 2004 to just over one hour in 2005, following the recommendations of the PSB Review Phase 3, with all the reductions occurring in off-peak hours. In September 2006 ITV1 made changes to its lunchtime schedule that resulted in a fairly small shortfall against the regional News quota of approximately 11 minutes per week in each region, averaged across the year. In addition, changes in Ofcoms methodology for calculating the durations of short programmes resulted in a further loss of about 10 minutes on average per week. Ofcom has agreed to vary downwards the regional News quota from 2007, purely to take account of changes in methodology in minutage calculations, and has reduced the standard regional News quota to 5 hours 20 minutes per week.

30 41 45 42

S4C

145

Figure 2.50

The ITV1 licensees performance in England

Average hours of regional programming per week hrs:mins

12
7:00 8:33 7:15 6:39 5:38 5:38 7:00 8:29 7:14 6:40 7:00 8:29 7:17 6:41 7:00 8:27 7:16 6:40 7:00 8:33 7:17 6:42 7:00 8:33 7:17 6:41 7:00 8:31 7:13 6:41 7:00 8:29 7:15 6:38 7:00 8:31 7:18 6:40
Quota 2006

6:14 6:25 6:03

5:45 5:38 5:29

Achieved 2004

Achieved 2005

Achieved 2006 0

try un tc o es
9:30

na da

rd e

en t

nd

ha n

An

id i

Te

Bo

Lo

G ra

er

ne

Ty

Source: Ofcom/Broadcasters

Although the minimum requirements in the nations have been maintained at a higher level than in the English regions, there have been some fairly modest reductions to the quotas in the nations over recent years. As in the English regions, there was a small under-delivery against the non-network quotas in the nations, due again to the lunchtime news scheduling changes at the ITV1 network level and changes in the methodology, as noted above. The shortfall in Wales was a little higher than in other nations and English regions, because the effect of the shorter durations of commercial breaks around non-network programmes was magnified in Wales, as a result of the higher volume of non-News programmes broadcast by ITV Wales. Figure 2.51
9:30 12:32

The ITV1 licensees performance in the nations

9:30 9:30 Quota 2006

Average hours of regional programming per week hrs:mins

10:23

9:57

9:59

9:41

12

10:16

9:09

9:09

8:59

9:17

Yo

rk s

hi re

ra l

gl ia

on

ne

es

an

es

7:03

7:29

Achieved 2004 Achieved 2005

4 Achieved 2006 0 Scotland Central

Source: Ofcom/Broadcasters

Scotland North

Wales

UTV

The BBC quota for non-network programming across all BBC One and BBC Two nations and regions is set at 6,580 hours annually. There are no separate quotas for individual nations or regions. The BBC exceeded its quota by a comfortable margin, achieving a total of 7,073 hours in 2006 a figure which has gradually increased over recent years. The

146

amount of non-network news broadcast by BBC One nations and regions was 4,622 hours in 2006, 702 hours above the quota of 3,920 hours. Additional requirements are set for the minimum amounts of regional news in peak time and other non-network programmes in peak time on BBC One. Both requirements were comfortably exceeded in 2006. Figure 2.52
Hours per year
6,580 6,815

The BBCs performance against regional programming quotas

Quota
7,048 7,073

Achieved 2004

Achieved 2005

Achieved 2006

8,000 6,000 4,000 2,000 0

4,656

3,920

4,400

4,622

2,010

2,156

2,217

2,245

All regional programming

BBC One regional news

BBC One regional news in peak

Regional programming in peak excl. news on BBC One

Source: BBC

2.2.15 Repeats
There are no quotas to constrain the volume of repeats on any UK television channel, and broadcasters are therefore free to decide the levels shown. In some cases, for example the BBCs digital channels, the policy is to use narrative repeats of programmes, re-transmitting them, often in the same week but at different times, to maximise overall audience levels. Consequently the proportion of repeats on BBC Three and BBC Four was very high at 82% and 76% respectively. The BBCs dedicated childrens channels also broadcast high levels of repeats 95% on CBeebies and 76% on CBBC. Programmes which were first shown on one PSB channel and subsequently repeated on another channel have been excluded from these figures. On three of the terrestrial channels just under half the programmes were repeats - BBC Two (46%), Channel 4 (44%) and Five (43%) while S4Cs repeat level was 54%. On BBC One, 28% of programmes had been shown before. ITV1 has historically broadcast relatively low levels of repeats - around a quarter of its output - and in 2006 the proportion was 23%. In peak time repeat levels are much lower. ITV1 and BBC One showed fewest repeats only 9% - with Channel 4 at 19%. On BBC Two and Five the figures were 23% and 29% while BBC Three broadcast 48% and BBC Four 32% repeats.

1,030

1,069

1,084

1,148

147

Figure 2.53
% Repeats
100

Proportion of repeats 2006

All day
95 82 76 76 54

Peak time

75 50
28 46 23 9 44 43 23 9 48 32 19 29 34

25 0

IT V1 *C ha nn el 4

S4 BB C C O ne BB C Tw BB o C Th re BB e* * C Fo ur **

O ne BB C Tw BB o C Th re e BB C Fo ur C BB C C be eb ie s

IT V1 C ha nn el 4

Source: Ofcom/Broadcasters Note: Excluding programmes first shown on another PSB channel * Excludes schools programmes ** BBC Three and Four peak time hours are 19:00 22:30

2.2.16 European programming

The Television Without Frontiers (TVWF) Directive, which applies to all broadcasters licensed within Europe, including cable and satellite channels, specifies three output quotas: Where practicable, at least 50% of programmes shown must be of European origin (including UK); At least 10% must be independent European programmes; and At least 50% of the independent European works must be recent (made within the last five years).

All PSB channels exceeded these quotas in 2006, as shown in Figure 2.54. Data on compliance with the TVWF Directive for all UK and European broadcasters are published every two years by the European Commission and the next report, due to be published later in 2007, will provide details for 2005 and 2006.

148

BB C

S4 C

Fi ve

Fi ve

Figure 2.54

Performance against European programming requirements, 2006

Proportion of transmitted programmes (%)

European programmes 100% 80%
100% 95% 100% 99% 99% 84% 76%
C S4

European independents

Recent works

98%

96%

91% 93%

92%

96%

89%

98%

60%
79%

50% 10% 50%

40%

27%

31%

21%

20%

0%
) rg et o Th re e TV 1 ne ur 24 4 BB C bi es Fo ew s Ta .G M Be e BB C BB C BB C ha n C ne l Fi ve Tw O

BB C

20%

21%

20%

BB C

Source: Ofcom/Broadcasters

Audiovisual Media Services Directive Later this year, significant amendments to the Television without Frontiers Directive are likely to be adopted, after which the UK and other EU member states will have two years to bring them into effect. The amended Directive, which becomes the Audiovisual Media Services (AVMS) Directive, will confirm the existing approach under which a service established in one member state may be transmitted without further regulation to any other member state. It will also provide for minimum regulation to be applied to certain non-linear TV-like services, provided that these meet criteria set out in the AVMS Directive. The Directive also allows (but does not compel) the UK and other member states to liberalise television advertising regulation. Ofcom will be considering whether, and if so, how and when to implement liberalised rules, and will be talking to stakeholders about the implications of various options.

2.2.17 Other compliance matters

Listed Events Listed events are defined as sports and other events of national interest which have been listed by the Secretary of State for Culture Media and Sport. The Communications Act prevents broadcasters from acquiring exclusive rights and broadcasting coverage of such events live on an exclusive basis without Ofcoms consent. Broadcasters must comply with the Code on Listed Events and in 2006 there were no instances of any broadcaster failing to comply. Code on Fairness The Fairness and Privacy sections of the Ofcom Broadcasting Code set out how broadcasters should treat individuals or organisations that are directly affected by a particular programme (that is people who have either appeared or been mentioned in a programme or who have a specific interest in the subject matter of a programme) rather than the generally accepted standards which should apply to programmes in order to avoid causing harm and offence to the general public.

IT V

(e xc l

33%

58% 53% 57%

40%

71% 50% 84%

84%

84%

77%

149

Ofcom received 184 Fairness and Privacy complaints in 2006. Of these 75 were adjudicated upon by Ofcom, with seven Upheld, 11 Upheld in Part and 57 Not Upheld. The vast majority of the remaining 109 complaints were not entertained (i.e. could not be considered by Ofcom because they did not full within its remit for Fairness and Privacy). However, in a small number of cases, complainants accepted an offer of Appropriate Resolution, volunteered, on a without prejudice basis, by the broadcaster concerned. TV Access Services During 2006, 74 channels were required to provide subtitling, signing and audio description (television access services) in accordance with Ofcoms Code on Television Access Services. These 74 channels accounted for an aggregate audience share of 91% and included all the public service channels, as well as digital channels featuring general Entertainment, Film, Sports, Documentaries, Childrens programmes, and popular Music. A full list of channels that provided television access services during 2006 can be found at http://www.ofcom.org.uk/tv/ifi/guidance/tv_access_serv/tv_access_statement06/. Most channels exceeded (in many cases substantially) their obligations to provide one or other of the access services, and almost all met their obligations in full. As a result, the aggregate amount of each access service delivered by channels as a whole is considerably in excess of the total minimum requirements. In a limited number of cases, broadcasters undershot their targets by a small amount, and committed to Ofcom to make up this shortfall during 2007. A report showing the performance of television channels against the targets applying in 2006 can be found at http://www.ofcom.org.uk/tv/ifi/guidance/tv_access_serv/tvaccessrep/q406/. Intellectual Property The Communications Act 2003 requires Ofcom to report on any issues relating to intellectual property in programmes that have arisen or been of significance. In 2006 no such issues were brought to Ofcoms attention. Training Training in television and radio is regulated on Ofcom's behalf by the Broadcast Training & Skills Regulator (BTSR) which began operating in September 2005. The system in place is co-regulatory and BTSR works closely with broadcasters, trade associations and Skillset (the Sector Skills Council for the Audio Visual Industries) to ensure broadcasters provide relevant, inclusive and cost-effective training and development opportunities which enhance the provision of high quality services to audiences. 2006 was the first full year of the BTSRs work in promoting, encouraging and evaluating training within the broadcast industry. It saw the publication of the first Annual Report which collected and analysed data on the training activities of the Broadcast industry during 2005. The approach used in the report was an inherited one and, while collecting evidence of a significant amount and range of development activity, the emphasis was on inputs and activity rather than impacts and outputs. The new approach for 2006 was designed to move away from gathering raw data on the volume and financial investment in training and towards broadcasters self appraisal of the impact training and development activity has on the performance of their businesses. This self evaluation system was developed throughout 2006 in collaboration with the industry. The questionnaire was drafted with industry representatives, followed by a period of consultation, and workshops were held to ensure that the industry was aware of the purpose and process of the new approach. It has the support of the industry and over time, the

150

information gathered will enable the BTSR to track training and development activities and judge whether they are meeting identified needs as well as contributing to the sustainability of the industry as a whole. In other areas, the BTSR worked with Ofcom and Skillset to agree the model for the funding for training of the freelance community. It also began working with UK Skills to develop a model for a sector-specific National Training Award (NTA), within the overall NTA programme. It is hoped this will raise the profile of training within the industry as well as the profile of the broadcast industry in the training world and reward excellence in broadcasting. As with any fledgling organisation, 2006 saw the continued establishment of internal governance processes with the development of a risk register and mapping out of future board rotation. In 2007, the BTSR will be consolidating what it does and working with its partners to take a more pro-active role in addressing gaps identified by the new self evaluation process and promoting excellence throughout the industry.

151

2.3 The Television Viewer

2.3.1 Availability of multichannel broadcast platforms
Viewers in the UK have a choice of four main platforms for receiving television; people in some parts of the country also have access to internet protocol (IPTV) operator Tiscali TV; and Channel 4, ITV and the BBC also stream their channels live over the internet. Analogue terrestrial television is available to almost all the UK population (99.4%) and, among digital television platforms, digital satellite reaches 98% of homes with digital terrestrial television extending to 73% (Figure 2.55). Digital cable is available to just under half the population (47%). Over the past year there has been little growth in availability and this will remain the case until October 2007 when DSO commences and the power of DTT transmitters increases. Growth is also likely to occur when cable starts to extend its franchise area through utilization of LLU. At the point when digital switchover begins, the availability of DTT will start to increase and it is expected to match analogue coverage levels by the time of full switchover. Figure 2.55 Availability of digital television platforms 2007

Proportion of population covered (percent)

100% 80% 60%
99% 98% 73% 47%

40% 20% 0% Analogue terrestrial television Digital satellite

Digital terrestrial television

Digital cable

Source: Ofcom

Although satellite signals can be received in most parts of the UK, the availability of digital terrestrial television and digital cable varies markedly by nation. DTT reaches 82% of the population in Scotland but only 57-58% in Wales and Northern Ireland. The figure is higher in Scotland because of a higher concentration of the population living in urban areas in this part of the UK. Access to digital cable, where network building economics means roll-out tends to be concentrated in built-up metropolitan areas, is lowest in Wales at 23% of the population, rising to 48% in England.

153

Figure 2.56
100% 80%

Availability of lower reach digital television platforms by nation

Proportion of population covered (percent)

DTT 60% 40% 20% 0% England

Source: Ofcom
73% 48% 82% 57% 37% 23% 58% 30%

Digital Cable

Scotland

Wales

N Ireland

Five operators offer digital platform services; the details of each are shown in Figure 2.57. The digital terrestrial and digital satellite (DSat) platforms both offer a free-to-view service (Freeview or Sky FreeSat) and a subscription service via Top Up TV on DTT or Sky on DSat. Top Up TV currently has 19 channels, offering 150 programmes but as at July 2007 only three of these were live broadcasts UK Gold, UK Style and Eurosport.

154

Figure 2.57

Services delivered over digital television platforms

DTT Freeview Top Up TV FreeSat DSat Sky Cable Virgin

Entry Level Up front cost Monthly cost 20 cheapest set-top box None Channels Radio Stations Basic Pay Cost n/a n/a n/a 21.00 including 2Mb broadband (where available) and Freetime calls3 200+1 20.50 XL DTV and Virgin phone 44 27 19 (3 live broadcasts) 120 94 40 - 139.99 set-top box 9.99 - 25.98 70-150 settop box & dish None 0-100 depending on package 15.00 including 2Mb broadband (where available) and Freetime calls 150+1 90+ 10-25 installation 11.00 Basic TV and Virgin phone

352 32

Channels

n/a

n/a

n/a

125+

Basic Pay + premium sports and movies Cost n/a n/a n/a 43.50 including 2Mb+ broadband and Freetime calls Sky+ box: 99 box, 0pm, installation 60 Sky HD box: 299 box, 10pm, installation 60 Multiroom: 49 box 10pm Broadband 40 equipment cost, plus installation 50 or self install free. Unlimited telephone calls 5 pm Notes: 44.00 Plus 11 with phone service V+ box (DVR) 150 for install and box; subscription of 0-5pm depending on TV package. 2nd V set-top box 9.50pm Additional subscription channels; Asian, sport, kids, adults, prices ranging from 5 -80 Broadband: 2Mb 10pm, or 20Mb 29 (first 12 months) then 37pm

Other services

Upgrade to TopUpTV possible for box with card slot

Setanta Sports 10.99 pm including Premier League football PictureBox 5 pm movie channel

150 for Sky FreeSat includes equipment and installation. Upgrade to other Sky services also possible. Other retailers also sell satellite equipment from around 70 upwards.

1. A choice of two from six genre channel packages. This represents the average number of channels. Satellite users also have access to 200+ free TV and radio channels. 2. The quoted price includes free basic TV with any phone service with a minimum cost of 11 per month 3. Freetime calls are free in the evenings and at the weekend.

Source: Freeview, Virgin Media, BSkyB, TUTV as at July 2007.

155

2.3.2 Digital TV take-up

Freeview passes Sky as the main platform for digital take-up As digital platforms have become more widely available, and the range of services on offer has increased, so consumer awareness and interest in digital television has risen. Fuelled largely by the continuing success of Freeview, the rate of growth of digital television households has remained steady over 2.8 million were added over the last year. By the end of March 2007, 20.4 million UK households (80.5% of TV homes) could receive digital television. A further 310,000 homes were receiving analogue cable, meaning that total multichannel homes had reached 81.7%. Figure 2.58 Take-up of multichannel television
% of homes
27.2% 34.0% 41.7% 44.7% 48.0% 56.7% 64.9% 71.8% 81.7%

Households (millions)
25 20 15 10 5 Analogue cable Digital cable Digital terrestrial Free-to-view digital satellite Analogue satellite Pay digital satellite

0 Q1 1999 Q1 2000 Q1 2001 Q1 2002 Q1 2003 Q1 2004 Q1 2005 Q1 2006 Q1 2007

Source: Ofcom

Although more people (54%) currently pay a subscription to receive digital television, much of the growth in take-up is coming from free services. By Q1 2007 Freeview passed Sky as the platform most widely used on the main set in the home and we estimate that, following 200,000 net additions over the year, around 900,000 homes were receiving free-to-view satellite services. By contrast, combined cable and satellite pay-TV net additions rose by just 0.4 million over the same period.

156

Figure 2.59

Drivers of digital television take-up in 2006/07

Primary sets connected to DTV (million) 21.0

20.0 19.0
2.0

0.3 0.3

0.2

18.0 17.0 16.0 15.0 Q1 2006

Source: Ofcom/Operators
17.6

20.4

Freeview

Pay satellite

Digital cable

Free satellite

Q1 2007

Most digitally-enabled sets are located in the primary viewing area in the home, typically the main living room. Less than one in five homes received analogue terrestrial signals on their main television set at the end of Q1 2007. Freeview accounted for 33% of main sets, digital satellite (including pay and free services) for 35% and digital cable for 13%. Figure 2.60 Market share of platforms primary set Q1 2007
Total TV homes = 25.4 million
Analogue terrestrial 18.3%

Pay satellite 31.6%

Digital terrestrial 33.0% ADSL 0.2% Cable 13.4%

Free-to-view satellite 3.5%

Source: Ofcom/Operators

However, when looking at the universe of total TV sets, approximately 60 million TV sets in the UK, analogue reception is still most common accounting for 49% of sets followed by Freeview at just under 28% and pay satellite at around 15%.

157

Figure 2.61

Market share of all TV sets Q1 2007 (inc FTV Dsat)

Total TV sets = 60 million
Pay satellite 15.5% Free-to-view satellite 1.5% Cable 6.2% Analogue terrestrial 49.0% ADSL 0.1%

Digital terrestrial 27.8%

Source: Ofcom/Operators

Access to digital terrestrial television has, until fairly recently, been predominantly via the set top box but sales of integrated digital television (IDTV) sets have taken off and now account for 45% of all digital television sales. Figure 2.62 illustrates the increase in IDTV sales over the last eighteen months and also the seasonal increase in DTT sales during the Christmas period each year. Figure 2.62 DTT sales Q4 2004 Q1 2007
Cumulative sales (millions)
IDTV sales Cumulative sales 20 18 16 14 12 10 0.8 0.6 0.4 0.2 0.0 Q4 04 Q1 2005 Q2 05 Q3 05 Q4 05 Q1 2006 Q2 06 Q3 06 Q4 06 Q1 2007 8 6 4 2 0

DTT STBs and IDTV sales (millions)

1.8 1.6 1.4 1.2 1.0 Set top boxes

Source: Ofcom, GfK

According to Ofcom research, subscribers to pay-TV services reported spending an average of just under 30 per month for their multichannel services with those in the lower income brackets spending less (25 or 27 per month), than higher earners (32 per month).

158

Satellite subscribers spend considerably more on their packages and pay-per-view services than cable subscribers (32 on satellite and 25 on cable). Figure 2.63 Estimated monthly spend on pay-TV

Approximately how much would you estimate your household pays each month for your multichannel TV service, including programme subscriptions and pay-per-view, but excluding installation, Internet or phone costs? (Mean value shown.)
40

29.92
30

31.61 27.36 24.99

32.33

32.18 24.74

20

10

TV

- 17 .5 K

- 29 .9 K

1 1. 5k

Sa te lli t e

3 0K +

Al lp ay -

to

1 1. 5K

Source: Ofcom research, Q1 2007 Base: All with multichannel TV excluding Freeview. Mean value shown.

2.3.3 Growth in multichannel homes

Ofcom research in Q1 2007 indicated that growth in multichannel television would continue of those homes without digital television,13% said that they intended to get multichannel TV in the next six months. The research found four attitudinal groupings among people who did not have digital television: those who intended to acquire it; those who had decided against it (voluntarily excluded); those who wanted to acquire it but were unable to get it (involuntarily excluded); and those who were unsure.

The voluntarily excluded group is defined as those without access to services, primarily due to a perceived lack of need for a service or satisfaction with using alternative services. The involuntarily excluded group is where potential consumers are without access to a service but not through choice. Involuntary non-ownership is primarily due to affordability although a lack of understanding of the benefits is a factor for a minority. In the results of the research, where both voluntary and involuntary reasons were stated, involuntary non-ownership is reported. This assumes that involuntary reasons take precedence over voluntary reasons (which may not always be the case). It should be noted that some consumers may give voluntary non-ownership reasons because they do not wish to discuss financial/affordability issues. The results of the research are shown in Figure 2.64, indicating that there was some variation by nation in the size of these groups. A slightly higher proportion of people in Wales and Scotland said that they intended to acquire digital (9% and 7%), compared with 4% in England. Whereas 16% of people in Northern Ireland and 10% in England stated that they did not want digital, only 4% in Wales and 6% in Scotland had come to that conclusion,

1 7. 5K

up

ab le

159

against a UK average of 9%. In all nations around 1-2% were unable to get digital, despite wanting to do so and about 1-3% were uncertain about acquiring it. Note that these results are not directly comparable with the figures shown in last years Communications Market which were based on Ofcoms Media Literacy research, rather than the Ofcom Consumer Tracking Survey. Figure 2.64 Exclusion and intention to acquire digital television

Proportion of respondents (percent)

Intend to acquire UK NI Wales Scotland England 0%

Source: Ofcom research Q1 2007 Base: All adults 15+
4% 7% 5% 6% 9%

Voluntarily excluded
9% 2% 16% 4% 6% 10% 1% 2% 2% 2% 2% 1%

Involuntarily excluded

Uncertain

2%

3%

3%

10%

20%

30%

When people were asked why they did not want digital television, less than 10% said it was too expensive or that they couldnt afford it (7%). Almost half of respondents did not see the need for digital and 28% were happy with their existing service (Figure 2.65). Figure 2.65 Reasons why those without digital television dont want it

Proportion of respondents without digital television (percent)

No need Happy to use existing service Happy to use terrestrial service Too expensive generally Can't afford it Don't know why I should Happy to use analogue cable Other 0%
Source: Ofcom research Q1 2007 Base: All respondents without Digital TV. Note: Multiple responses permitted
2% 8% 9% 9% 7% 5% 28%

49%

10%

20%

30%

40%

50%

60%

160

2.3.4 Consumption of television services

Viewing across the day Total viewing hours per day have reduced over the last few years. In 2003 the average amount of time viewed per person per day was 3 hours 44 minutes but by 2006 it had dropped by eight minutes a day to 3 hours 36 minutes. The pattern of television viewing varies across the day; Figure 2.66 shows the number of people viewing across the day during 2006, comparing weekdays with weekends. On weekdays there are small audience peaks at breakfast time and at lunchtime when 5.2 million and 6.9 million viewers respectively are watching. Following a plateau in the afternoon, viewers start to pick up from about 3.30pm and the audience builds to a peak of 23.3 million by 9.15pm in the evening before tailing off quite steeply from about 10pm. At the weekend there are no breakfast or lunchtime peaks and viewing increases gradually throughout the day, with about 50% more people watching in the afternoons than on weekdays. The evening peak-time audience peaks at 23.7 million a little higher than the weekday figure. Figure 2.66
24 20 16 12 8 4 0 6am
Source: BARB

Average audiences on weekdays and weekends 2006 by day part

Average audience (millions)

weekend

weekday

12pm

6pm

12am

6am

Figure 2.67 shows how the average audience on weekdays varies by age, with audience levels highest for those aged 65 and over across most of the day, with the noticeable exception of the breakfast slot when children predominate, particularly between 7.30 8.30am. In the afternoons before children come in from school, the audience profile is older, while the peak-time pattern from about 6pm to 10pm is similar for most age groups, apart from the child audience which peaks and tails off earlier than adults, as children go to bed.

161

Figure 2.67
6 5 4 3 2 1 0 6am
Source: BARB

Average audiences on weekdays by day part and by age

Average audience (millions)

Children 16-24 25-34 35-44 45-54 55-64 65+

12pm

6pm

12pm

6am

The weekend profile shows a peak during the morning for children with the rest of the day showing a similar pattern to the weekday profile. The 16-24 year old group watches less than any other age group during all day parts, except during the late evening and after midnight when the child audience declines. The maximum audience for 16-24 year olds is 1.8m at the weekend. Figure 2.68
6 5 4 3 2 1 0 6am
Source: BARB

Average audiences at the weekend by day part and by age

Average audience (millions)

Children 16-24 25-34 35-44 45-54 55-64 65+

12pm

6pm

12am

6am

2.3.5 Channel reach

Standard average industry measures of audience levels include a calculation of reach. The definition Ofcom applies calculates the number of viewers who watched a particular channel for at least fifteen minutes consecutively over a week. Figure 2.69 shows how the channels have fared over the last three years with the increasing importance of multichannels.

162

Weekly reach of all PSB channels declined over the last year, while the increase in reach of the multichannels continued to grow. By March 2007 they had exceeded the reach of BBC Two, Channel 4 and Five, achieving 67.9%. The equivalent figure for BBC One was 79.3% with ITV1 at 70.9% which represents a loss of eight percentage points over the last three years. By March 2007 BBC One ended 4.8 percentage points lower than three years ago. Figure 2.69 Average weekly TV reach in all homes by channel

15 minute consecutive weekly reach full weeks

100% 80% 60% 40% 20% 0% Mar May Jul Sep Nov Jan Mar May Jul Sep Nov Jan Mar May Jul Sep Nov Jan Mar 04 04 04 04 04 05 05 05 05 05 05 06 06 06 06 06 06 07 07
Source: BARB

BBC One BBC Two ITV1 C4 + S4C Five Multichannels

Figure 2.70 shows how the average weekly reach (15 minutes consecutive) in all TV homes, while demonstrating obvious seasonal variations, has remained relatively stable year-onyear in most age categories. The exceptions are the younger age groups. Reach among children fell from 95.4% in March 2004 to 91.3% in March 2007 while 16-24 year olds were down from 86.5% to 84.2%. Figure 2.70 Average weekly Total TV reach in all homes by age

15 minute consecutive weekly reach full weeks

100% 95% 90%

Children 16-24 25-34 35-44

85% 80% Mar May Jul Sep Nov Jan Mar May Jul Sep Nov Jan Mar May Jul Sep Nov Jan Mar 04 04 04 04 04 05 05 05 05 05 05 06 06 06 06 06 06 07 07
Source: BARB

45-54 55-64 65+

In multichannel homes the average weekly reach of the multichannels increased only marginally, by 0.6 percentage points, between March 2004 and March 2007. Channel 4 was the only PSB channel registering an increase in its reach - by 2.2 percentage points. By contrast, BBC One, BBC Two and Five saw their reach decrease by 3.0, 2.6 and 3.6 percentage points respectively, and ITV1 shed 6.8 percentage points over the period (Figure 2.71).

163

Figure 2.71

Average weekly TV reach in multichannel homes by channel

15 minute consecutive weekly reach full weeks

100% BBC One 80% 60% 40% 20% 0% Mar May Jul Sep Nov Jan Mar May Jul SepNov Jan Mar May Jul Sep Nov Jan Mar 04 04 04 04 04 05 05 05 05 05 05 06 06 06 06 06 06 07 07
Source: BARB

BBC Two ITV1 C4 + S4C Five Multichannels

A reduction in reach among the younger age groups is apparent in multichannel homes where the childrens reach figure fell by 3.9 percentage points between March 2004 and March 2007. In the same period, reach among 16-24 year olds dropped by 3.5 percentage points and among 25-34 year olds by 0.4 percentage points. Figure 2.72 Average weekly Total TV reach in multichannel homes by age

15 minute consecutive weekly reach full weeks

100% 95% 90%

Children 16-24 25-34 35-44

85% 80% Mar May Jul Sep Nov Jan Mar May Jul Sep Nov Jan Mar May Jul Sep Nov Jan Mar 04 04 04 04 04 05 05 05 05 05 05 06 06 06 06 06 06 07 07
Source: BARB

45-54 55-64 65+

2.3.6 Channel share

Figure 2.73 illustrates the way in which the introduction of new channels over the last 25 years has affected the share of audience on BBC One and ITV. In 1982 ITV took a 50% share with BBC One achieving 38%. Gradually these shares were eroded with the launch of new channels first BBC Two and Channel 4, then Five, followed by the cable and satellite channels. ITV maintained its lead over BBC One until 2002 when the impact of the growth in share of the multichannels, followed by the launch of Freeview, hit ITV1 more than BBC One. Over the last twenty years, ITVs share has fallen from 44% to 20% while BBC Ones share has fallen from 37% to 23%. Channel 4 and BBC Two have maintained their share, despite increasing competition. The combined share of the multichannels passed that of any of the main five channels individually in 2004, and now stands at 33%.

164

Figure 2.73
Audience share
70%

Channel shares in all homes since 1982

BBC One 60% BBC Two 50% 40% 30% 20% 10% 0% 1982 ITV 1 Channel 4 + S4C Five Others

1986

1990

1994

1998

2002

2006

Source: BARB, TAM JICTAR and Ofcom estimates

PSB channels continue to lose share in multichannel homes Figure 2.74 illustrates that the combined performance of the five main networks is greater on Freeview than on the cable and satellite platforms at 68% in March 2007 compared with 49% on cable and satellite. However the downward trend is more pronounced on Freeview, where the reduction over the last twelve months amounted to six percentage points from 74% in March 2006. The audience share for cable and satellite homes was relatively stable, although at a lower level of 49% in March 2007, down one percentage point over the year. Figure 2.74
Audience share

Five main networks shares by platform

100%

100% Terrestrial
77% 74% 75% 72% 68% 68%

84%

80%

Digital Terrestrial All homes

60%

65%

CabSat
50% 52% 50% 49%

40% Mar- Jun- Sep- Dec- Mar- Jun- Sep- Dec- Mar- Jun- Sep- Dec- Mar04 04 04 04 05 05 05 05 06 06 06 06 07
Source: BARB

For the second year running the five main networks lost three percentage points of viewing share in all homes, down to 65% - ten percentage points lower than three years ago as they face ever-growing competition for viewers in multichannel homes.

165

Within the overall loss in audience share, there are significant differences by network. BBC One and Two have lost share consistently year-on-year, down 1.1 percentage points in 2006. Over the five year period the share of the two BBC networks has fallen from 37.5% to 31.6% - almost six percentage points. ITV1 has experienced more significant losses than the other PSBs over the last five years, with audience share dropping 1.8 percentage points in 2006 down from 24.1% in 2002. Channel 4 has largely maintained its share over the last five years and continued to do so in 2006. However, in the first six months of 2007, its share fell one percentage point to 9.2%, compared with 10.2% in the first half of 2006. Five has lost share in the last two years, recording a fall from 6.4% in 2005 to 5.7% in 2006, despite improving its share performance in 2003 and 2004. PSBs audience share: All homes 2002 - 2006

Figure 2.75
Audience share
90% 80%
6.1% 77.7%

76.4% 6.5% 9.6%

73.8%

70.3%

66.8%

70% 60% 50% 40% 30% 20% 10% 0%

6.6% 9.8%

10.0%

6.4% 9.7%

5.7% 9.8%

Five

24.1%

23.7%

22.8%

21.5%

19.7%

Channel 4 + S4C ITV1

37.5%

36.6%

34.6%

32.7%

31.6%

BBC One and Two

2002

2003

2004

2005

2006

Source: BARB

Figure 2.76 illustrates how the changes in the five main networks share in multichannel homes between 2005 and 2006 are distributed by day part. It shows the proportionate changes in each of the networks share at different times of the day, averaged over the year. The most significant change took place during the afternoons on Channel 4 where the average proportionate gain in share in 2006 was 46.8%. This coincided with changes in the afternoon schedule, with the introduction of Deal or No Deal which began in November 2005 and the replacement of Richard & Judy with The New Paul OGrady Show in March 2006. Five also gained share in the mornings, possibly due to scheduling changes, moving Trisha Goddard into the 10.30 am slot and Home & Away to the midday slot vacated by Family Affairs which ended in December 2005. BBC Twos share in the mornings fell while BBC One gained share. This was driven by changes on Saturday mornings when Saturday Kitchen moved from BBC Two to BBC One in the summer, replacing childrens programmes. The three commercial networks all lost share after 10.30pm, while BBC Two gained and BBC One maintained its share.

166

Figure 2.76

Proportionate share increase of the five main networks in multichannel homes by day part 2005-2006
Day part All day 09:25 12:30 -1.1 -0.22 13.6 -21.5 1.8 -16.4 19.7 12:3015:25 0.1 -0.01 2.5 5.2 1.3 -17.4 0.0 15:2518:00 -2.1 0.41 0.5 -9.8 -8.7 46.8 -9.2 18:0022:30 0.4 -0.08 1.5 10.4 -4.4 2.4 -9.5 22:3006:00 2.9 -0.57 0.3 7.1 -10.7 -11.2 -12.0

Other channels absolute percentage point change in share Average absolute percentage point change in share for the five main channels BBC One Proportionate percentage point change in each of the five networks share BBC Two ITV1 Channel 4 + S4C Five

0.2 -0.04 3.5 1.2 -4.7 4.7 -8.3

Source: BARB

Figure 2.77 compares the audience share across the four main platforms: analogue terrestrial; digital terrestrial; digital satellite; and digital cable, showing the changes between 2005 and 2006. The chart shows the change in share across the multichannel platforms, comparing 2005 with 2006 and identifies the platforms which are presenting the strongest competition for viewers to the PSB channels, highlighting the reduction in PSB share on the digital terrestrial platform. The biggest loser was Five with a fall of 15%, followed by BBC Two and ITV1, each losing 7% of their audiences, while Channel 4 lost 5% and BBC Ones share of the audience on DTT remained stable. Multichannel operators however have benefited from increases in share on the DTT platform, showing a gain of four percentage points (up by 16%) to stand at 28.6%. Nevertheless, the PSBs still perform better in DTT homes than on other multichannel platforms. The increase in share of viewing to non-terrestrial channels, which was also apparent in 2005, may reflect the widening availability of channels on the Freeview platform and the introduction of E4 and Film 4 as free-to-air channels with Five introducing Five US and Five Life during the year.

167

Figure 2.77

Channel share by platform

Digital terrestrial Digital cable Digital satellite

Analogue terrestrial

Change in channel share by platform 2005-2006

BBC One BBC Two ITV1 -5% -7% -6% -5% Channel 4 + S4C 8% -5% -5% 9% Five -4% -15% -9% -7% Other 16% 3% -1%

1% 0% -2% 3% 1% -7% -4% 3%

60%
33.0%

24.8%

27.4%

40%

16.9%

17.2%

20.2%

16.5%

15.5%

15.7%

15.0%

9.6%

7.2%

7.0%

8.5%

5.6%

5.2%

6.7%

20%

10.2%

4.6%

0% BBC One
Source: BARB

BBC Two

ITV1

C4 + S4C

Five

3.6%

2.3.7 The five main networks spin-off channel share

PSB spin-off channels continue to grow Despite the losses in share suffered by the five main networks, they have been able to improve their overall position in recent years as a result of the performance of their spin-off channels, enabling them to maintain their portfolio share as a whole. The PSB spin-off channels attracted an increasing share of viewer hours across the multichannel platform, securing 11% of the audience by 2006, a rise from 6% in 2002. Channel 4 was a particular beneficiary of incremental share, following the free-to-air launches of both E4 (in 2005) and Film4 (in 2006). Non-PSB digital channels, meanwhile, struggled to maintain share in the face of competition from PSB spin-offs, decreasing by four percentage points from 2002 to 2006. Figure 2.78
Audience share
100%
35.3% 35.6% 35.1% 33.1% 31.2%

PSB and spin-off channel shares in multichannel homes

80%

Other digital channels PSB spin-off channels PSB Channels

60%

6.2%

7.3%

7.4%

9.2%

11.3%

40%
58.4% 57.2% 57.5% 57.7% 57.6%

20%

0% 2002
Source: BARB

2003

2004

2005

2006

168

28.6%

Other

49.1%

51.3%

Figure 2.79 compares the portfolio audience shares in multichannel homes for each of the major broadcasting groups, including their digital channels. The BSkyB group continued to lose share, dropping three percentage points - from 11.7% five years ago to 8.7% in 2006. Most of the other multichannels also lost ground, including Viacom and Discovery, although Disney group, and the UKTV channels gained share. The PSB channels aggregate share in 2006, including spin-off channels, was 68.9%, an increase from the 2002 figure of 64.7%. Figure 2.79
Audience share
100%
10.2% 3.5% 4.1% 11.7% 1.4% 2.0% 2.6% 10.1% 3.5% 4.1% 11.7% 4.7% 8.2% 1.3% 2.2% 2.6% 10.6% 1.4% 2.4% 2.8% 10.4% 3.1% 4.0% 9.3% 5.3% 9.6% 1.4% 2.3% 2.8% 9.6% 2.9% 4.0% 8.7% 5.1% 11.2% 1.5% 1.8% 2.6%

Broadcaster portfolio shares in multichannel homes

Other Disney Discovery Flextech Viacom UKTV

80%

3.4% 4.2% 10.4% 5.1% 8.6%

60%

4.6% 8.7%

40%

21.9%

22.1%

21.7%

22.1%

22.0%

BSkyB Five Channel 4

20%
29.5% 29.4% 29.5% 29.8% 30.6%

ITV BBC

0% 2002 2003 2004 2005 2006

Source: BARB

The BBCs portfolio share in multichannel homes has increased in each of the last five years, reaching 30.6% in 2006, compared with 29.5% in 2002. BBC One reversed its 2005 share loss, increasing by 0.7 percentage points to 20% in the last year. BBC Two has maintained its share and most of the BBCs digital channels have grown year-on-year with the exception of small reductions at CBBC and CBeebies .

169

Figure 2.80
Audience share
35%

BBC portfolio share in multichannel homes

29.5%
30% 25% 20% 15% 10% 5% 0% 2002
20.0%
1.1%

29.4%
0.5% 0.6% 0.1%
1.2%

29.5%
0.3% 0.7% 0.2%
1.3%

29.8%
0.5% 0.6% 0.2%
1.3%

30.6%
0.6% 0.6% 0.3%
1.2%

0.5% 7.1%

0.6% 7.0%

0.7% 6.7%

0.9% 6.9%

1.0% 6.9%

0.5% 0.6% 0.4%

Other CBeebies CBBC BBC News 24 BBC Four BBC Three

19.3%

19.5%

19.3%

20.0%

BBC Two BBC One

2003

2004

2005

2006

Note: Other includes BBC Parliament, Choice and Knowledge Source: BARB

Figure 2.81 illustrates the continuing trend on ITV1 of falling audience share over the last five years, falling to 17.5% in 2006, from 19.7% in 2002. However, its portfolio of channels has offset this loss, enabling it to maintain the ITV portfolio at around 22.0%. ITV2 contributed 2% in 2006, the same figure as in 2005, while ITV3 added a further 1.4% share in 2006, up 0.2 percentage points on the previous year. New entrants in 2006, ITV4 and CITV, contributed to the broadcasters overall share. Figure 2.81
Audience share 21.9% 25%
1.1% 1.1%

ITV portfolio share in multichannel homes

22.1% 21.7% 22.1% 22.0%
0.2% 0.5%

Other CITV ITV4 ITV3

20%

1.3% 1.6%

1.0% 1.7%

1.2% 2.0%

1.4% 2.0%

15%

10%

19.7%

19.3%

18.9%

18.4%

17.5%

ITV2

5%
ITV1

0% 2002 2003 2004 2005 2006

Note: Other includes ITV Play, Men & Motors, GMTV2, Granada Breeze, Plus, ITV News Source: BARB

Channel 4s portfolio share showed sustained growth over the period, increasing by 2.5 percentage points to 11.2% in 2006. The main channel also made gains, improving its share

170

from 7.1% in 2002 to 8.2% in 2006. E4 improved its share for a second year running, up from 1.6% in 2005 to 1.9% in 2006, continuing to benefit from an increase in audience levels as a result of moving from a pay channel to free-to-view in 2005. Similarly, Film4s share was also boosted after going free-to-view on Freeview in July 2006. The launch of More 4 in October 2005 contributed 0.6 percentage points to Channel 4s overall portfolio in 2006. Figure 2.82
Audience share

Channel 4 portfolio share in multichannel homes

8.2% 8.6% 9.6% 11.2%
0.6% 0.5% 1.9%

12% 10%

8.7%

0.1% 0.1% 0.1% 1.5% 1.3% 1.2% 1.6%

8% 6%

More4 Film4 E4 Total

4% 2% 0%

7.1%

6.9%

7.3%

7.9%

8.2%

C4 + S4C

2002

2003

2004

2005

2006

Source: BARB

Fives share in multichannel homes showed steady growth between 2002 and 2005, up from 4.6% to 5.3% but dropping to 4.9% in 2006. The introduction of its new digital channels Five Life and Five US during the year was not enough to compensate for the reduction on the main channel and the broadcasters overall portfolio share stood at 5.1% by the end of 2006, down 0.2 percentage points from 2005. Figure 2.83
Audience share 4.6% 6%

Five portfolio share in multichannel homes

4.7% 5.1% 5.3% 5.1%

5% 4% 3% 2% 1% 0% 2002
Source: BARB
4.6% 4.7% 5.1% 5.3% 4.9%

Five US

Five Life

Five

2003

2004

2005

2006

171

BSkyB channels generate the fourth largest audiences in UK multichannel homes. The broadcaster has seen its viewing share decline by three percentage points over the last five years, from 11.7% in 2002 to 8.7% in 2006, explained in part by the fact that only three of its channels are available on the rapidly growing Freeview platform, although its share has also fallen in digital satellite homes. The reductions have been across its Film, Entertainment, Sport and News channels but are particularly apparent on the Film channels, down 1.7 percentage points. Sky One, Two and Three combined dropped 1.1 percentage points over the five year period, faced with increasing competition from a growing number of channels in the Entertainment genre. Figure 2.84
Audience share 11.7%
12%
0.8%

BSkyB portfolio share in multichannel homes

11.7%
0.1% 1.1% 0.3% 0.6% 0.3% 0.6% 2.4% 0.1% 0.5% 2.7%

10.4%

9.2%

8.7%

10%
3.8% 3.3%

8% 6%
3.9%

2.9%

Sky Travel Sky News Sky One/Two/Three Sky movie channels

3.5%

3.1%

2.5%

4% 2% 0% 2002 2003 2004 2005

3.7% 3.6%

2.2%

3.2%

3.4%

3.2%

Sky sports channels

2006

Source: BARB

Figure 2.85 illustrates how audiences for the Sky portfolio have changed over the last five years. While Sky One and Sky Sports channels together continue to account for about two thirds of the audience to all BSkyB channels, the share taken by its movie channels has reduced from 33% in 2002 to 25% in 2006. The new channels Sky Two and Sky Three accounted for 5% and 6% of the total share in 2006, while Sky News decreased by one percentage point to 6%.

172

Figure 2.85

Comparison of BSkyB share by channel in 2002 and 2006

Portfolio share in 2006 = 8.7%
News Travel 1% Sky Three 6%
Movies 33%

Portfolio share in 2002 = 11.7%

News 7%

6% Sky Two 5%

Movies 25%

Sky One 32%

Sky One 20%

Sports 28%

Sports 37%

Source: BARB

UKTVs portfolio share has remained reasonably stable at around 4% over the last five years, although there have been changes in the mix of channels and their performance. The main loss has been in the share of UKTV Style, down from 1.1% to 0.4% over the period, and in UKTV Gold, which has lost 0.5 percentage points since 2002. This has been partly offset by growth for UKTV History, which has doubled its share from 0.3% in 2003 to to 0.6% in 2006. With the launch of new channels and better performance by UK Gold 2 and UK Drama, the broadcaster has maintained its overall portfolio share. Figure 2.86
Audience share

UKTV portfolio share in multichannel homes

5%
4.1% 4.1%
0.2% 0.3% 0.3% 0.3% 1.1%

4.2%
0.2% 0.2% 0.2% 0.3% 0.4% 0.8%

4.0%
0.3% 0.2% 0.2% 0.2% 0.3% 0.5% 0.7%

4.0%
0.3% 0.4% 0.5% 0.2% 0.2% 0.6% 0.4%

4%

0.2% 0.4% 0.2% 1.1%

Other UKTV Gold 2 UKTV Drama UKTV Documentary UKTV Food UKTV History

3%

2%

1%

1.9%

1.9%

1.9%

1.6%

1.4%

UKTV Style UKTV Gold

0% 2002
Source: BARB

2003

2004

2005

2006

Figure 2.87 illustrates the changing fortunes of the UKTV portfolio of channels, highlighting the reductions in UK Gold and UK Style shares. In 2002 UK Gold took 46% of the UKTV share but by 2006 that figure had gone down to 36%, with UK Gold 2 accounting for 11%, while UK Styles share went down from 27% to 11%. By contrast, a number of channels have increased their contributions, including UK History which expanded from 1% to 14%. It

173

had only just launched in October 2002 and grew to 14% over the four years, also benefiting from its availability on the DTT platform and because it is free-to-air. UK Drama increased its share from 3% to 12% as a result of an expansion in broadcasting hours the channel having moved to 24 hour broadcasting in May 2005. Figure 2.87 Comparison of UKTV share by channel in 2002 and 2006
Portfolio share in 2006 = 4.0%
Other 6% UK Gold 36%
UK Gold 46%

Portfolio share in 2002 = 4.1%

Other UK Gold 2 2% 6% UK Drama 3% UK Docum. 4% UK Food 5% UK History 1%

UK Gold 2 11%

UK Drama 12% UK Docum. 4% UK Food 6%

UK Style 27%

UK History 14%

UK Style 11%

Source: BARB

Growth in Entertainment channel share continues The Entertainment genre has performed strongly over the past five years, up from a 13.8% multichannel home share in March 2002 to 18.6% in March 2007 (Figure 2.88). This has been driven by an increase in the number of Entertainment channels as well as strong growth in the number of Freeview homes, where they are particularly well represented. All other genres have seen their audience share fall during this period, although Movies, Sport, News and Music channels have all risen during the past year. Figure 2.88
Audience share
20% 18% 16%
Factual

Aggregate share of channel genres in multichannel homes

No. of channels 2002 2007
Entertainment 15

31 35 20 21 17 27

14% 12% 10% 8% 6% 4% 2% 0% March 2002 March 2003 March 2004 March 2005 March 2006 March 2007
Sport Movies Children's Music

21 11 9 10 17

Source: BARB

174

Figure 2.89 shows how, within the Entertainment genre, many of the PSB spin-off digital channels, such as ITV2, ITV3, E4 and BBC Three, have managed to carve out a 1-2% share of the market. For the most part in so-doing, they have grown the overall Entertainment audience, although some of the longer-established channels have suffered, particularly Living TV, Sky One and UKTV Gold, which all lost share over the last five years, registering a collective reduction from 7.6% in 2002 to 3.4% in 2007. Figure 2.89
Audience share

Aggregate share of the most popular Entertainment channels

20% 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% Mar-02

Source: BARB
Other = 19 channels

Other Hallmark ITV4 Sky Three UKTV Drama E4 More4 ITV3 BBC THREE ITV2 UKTV Gold Sky One Living TV

Mar-03

Mar-04

Mar-05

Mar-06

Mar-07

The aggregate share of the most popular Childrens channels (based on audience share) stood at 5.8% in March 2002, falling slightly over the period to end in March 2007 at 5.1% (Figure 2.90). The share has been bolstered by new entrants to the childrens market notably CBBC, CBeebies and, more recently, CITV - which have taken share at the expense of the non-PSB digital channels. CBeebies achieved the highest share of all the childrens channels at 1.3% in March 2007; followed by CBBC at 0.5% and CITV at 0.3%; Disney and Nick Jr were the only other channels to improve their performance over the five year period, which could be partly due to increases in broadcasting hours. Figure 2.90
Audience share 7%

Aggregate share of the most popular Childrens channels

Other CITV Other = 11 channels Nicktoons CBBC Cbeebies Nick Jr.

6% 5% 4% 3% 2% 1% 0% Mar-02
Source: BARB

Boomerang Cartoon Network Nickelodeon Disney Channel

Mar-03

Mar-04

Mar-05

Mar-06

Mar-07

175

Figure 2.91 illustrates the decline in the aggregate share of Factual and Lifestyle channels over a five year period, reducing from a level of 5.3% in March 2002 to 4.0% by March 2007. Discovery and UKTV Style enjoyed the largest audience shares of this sector five years ago at 0.9% and 1.5% respectively but have lost ground gradually to end at 0.4% and 0.3%. Discovery Real Time improved its performance over the period to reach a peak in October 2004 at 0.9% but has declined since then and ended at 0.3% while Animal Planet, UKTV Food and National Geographic have largely maintained their positions. UKTV History has built share since its launch in October 2002 to reach 0.6% while The History Channel has suffered losses, with its share down from 0.4% to 0.2% by March 2007. The impact of Freeview on audience share is noticeable here as UKTV History, being part of the Freeview platform, benefits from its increased take-up and the fact that it is free-to-air while The History Channel does not have this advantage. Figure 2.91
Audience share

Aggregate share of the most popular Factual & Lifestyle channels

Other UKTV Bright Ideas

6% 5% 4% 3% 2% 1% 0% Mar-02
Source: BARB

National Geographic Discovery Home & Health Other = 25 channels UKTV Food The History Channel Animal Planet Discovery Real Time UKTV History UKTV Style Discovery

Mar-03

Mar-04

Mar-05

Mar-06

Mar-07

Music channels have lost ground over the last five years (Figure 2.92). MTV has the largest audience share but it has been eroded from almost one per cent, down to 0.4% by March 2007. All other channels have experienced significant reductions in their share since March 2002 with the exception of two new free-to-view channels, The Hits and TMF, which were launched in October and November 2002 and have built an audience of around 0.3% each, second only to MTV.

176

Figure 2.92
Audience share

Aggregate share of the most popular Music channels

4% Other Pop Tiny Pop Kiss The Box Magic The Hits TMF VH1 MTV Mar-03 Mar-04 Mar-05 Mar-06 Mar-07

3%
Other = 12 channels

2%

1%

0% Mar-02
Source: BARB

Shares in the film category had been gradually reducing, from a collective total of just over 5% in March 2002 to 2.3% by June 2006 but the decision to turn Film4 from a pay to a freeto-view channel, and securing carriage on Freeview in the summer of 2006, resulted in an immediate rise in its share from 0.01% to 1.3% and a growth in the collective shares of all film channels to 4.3%. By March 2007 the share of the Sky Movies and Turner Movie channels had levelled at around 0.2% at best, while FilmFour achieved 0.9%. (Figure 2.93) Figure 2.93
Audience share
5%
Other SM Indie(6)

Aggregate share of the most popular Movie channels

4%

Other = 17 channels

SM Modern Greats(7) SM Classics(5)

3%

True Movies TCM

2%

SM SciFi/Horror(4) SM Family(3)

1%

SM Action/Thriller (2) SM Comedy(1)

0%
Mar-02 Mar-03 Mar-04 Mar-05 Mar-06 Mar-07

Film4

Source: BARB

Seasonal variations are particularly pronounced in the audiences choice of sports viewing and noticeable peaks and troughs can be attributed to events in the sporting calendar such as the Olympics or the end of the football season. The most popular sports channel between March 2002 and 2007 was Sky Sports 1, traditionally used by BSkyB to showcase many of its top sporting rights, which maintained share of around 2% throughout the five year period. The other Sky Sports channels also largely maintained their combined shares, as did attheraces, while Eurosport suffered losses in share over the last year (Figure 2.94).

177

Figure 2.94
Audience share
6%

Aggregate share of the most popular sport channels

End of Premier League season Other = 9 Channels Other attheraces Eurosport Other Sky Sports Sky Sports 1

Athens Olympics

5% 4% 3% 2% 1% 0% Mar-02

Mar-03

Mar-04

Mar-05

Mar-06

Mar-07

Source: BARB

Comparison of share and reach by channel Figure 2.95 maps channel shares against their weekly reach in multichannel homes, illustrating the tendency for higher share PSB channels to enjoy higher reach too, with BBC One and ITV1 noticeably ahead of the pack. Figure 2.95 2006 Share vs Weekly TV reach in multichannel homes (15 mins, all day)

% Ave Weekly Reach

80% 70% 60% 50% 40% 30%
ITV2 Five Channel 4 & S4C BBC Two BBC One ITV1

20% 10% 0%
0%

Sky One

See Figure 2.96

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

% Share
Source: BARB

There are, however, some variations among the multichannels which paint an interesting picture. Figure 2.96 shows that ITV2 has both the highest reach and the highest share, followed by Sky One. However, Sky Sports One achieves a relatively smaller reach in comparison to its share perhaps due to the commitment of sports fans and the fact that it is a subscription channel. Similarly CBeebies also has a lower reach than share due to the 178

channels appeal being largely limited to the children and parent market, but being particularly popular within these groups. Conversely, BBC3 has a relatively high reach attracting a wider audience who watch less regularly. Figure 2.96 2006 detailed share vs. weekly TV reach in multichannel homes (15 mins, all day)

% Ave Weekly Reach

22% 20% 18%
BBC Three Sky One E4 ITV3 Sky Sports News Sky Movies 1 BBC News 24 Hallmark Living TV UKTV Gold CBeebies Sky Sports One ITV2

16% 14% 12% 10% 8% 6% 4% 2% 0% 0.0% 0.2% 0.4% 0.6% 0.8% 1.0% 1.2%

1.4%

1.6%

1.8%

2.0%

% Share
Source: BARB

Spin-off channels rank highly Figure 2.97 plots the ten channels in multichannel homes which gained the most share in percentage point terms in 2006, together with the ten channels losing the most share. Seven of the top ten gainers were from the PSB channel families, with only three from non-PSB channels. However, if we consider the change in proportionate terms, Sky Threes share increased more than six-fold and UKTV Dramas share more than doubled. Of the losers, apart from ITV1 and Five which lost the most share in 2006, all were non-PSB channels, including UKTV Gold, Hallmark and Toon Disney.

179

Figure 2.97

Audience winners and losers in multichannel homes 2006

Percentage point change in audience share

BBC One, 0.7% More4, 0.5% ITV 4, 0.5% Film4, 0.4% Sky Three, 0.4% Channel 4 + S4C, 0.4% UKTV, 0.3% ITV3, 0.2% E4, 0.2% UKTV G2, 0.2% UKTV Gold, -0.2% Sky One, -0.2% UKTV Style, -0.2% Toon Disney, -0.2% Sky Travel, -0.2% TCM, -0.2% Hallmark, -0.3% Discovery RT, -0.3% Five, -0.4% ITV1,-0.9%

-0.9% -0.8% -0.7% -0.6% -0.5% -0.4% -0.3% -0.2% -0.1%

0.0%

0.1%

0.2%

0.3%

0.4%

0.5%

0.6%

Source: BARB

The top five channels in 2006 by share were all PSBs, and appeared in the same order as in 2002. A number of PSB spin-off channels also ranked highly ITV2, E4, ITV3, CBeebies, BBC Three and More 4 - all appeared in the next ten slots. All but one of these were placed higher than in 2002, or were unplaced, having launched since 2002 - which seems to demonstrate the growing popularity of channels from established providers. Conversely, fewer non-PSB channels appeared in the top 24 in 2006 than five years ago.

180

Figure 2.98
Channel BBC One ITV1 Channel 4 BBC Two Five ITV2 E4 Sky One Sky Sports 1 UKTV Gold ITV3 CBeebies
Source: BARB

The top channels by share - 2002 to 2006

Rank 2006 2002 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 10 9 6 8 7 12 Channel Living BBC Three More4 BBC News 24 Sky Sports News UKTV History Disney Channel Discovery Hallmark ITV4 CBBC Sky Three Rank 2006 2002 13 14 15 16 17 18 19 20 21 22 23 24 11 22 27 87 26 16 19 71 -

Platform Demographics Figure 2.99 shows that multichannel viewers tend to be younger than average, with the majority of digital satellite and digital cable viewers coming from the two younger bands 15-24 and 25-44. By contrast, analogue-only viewers tend to be older and slightly less affluent than viewers of multichannel services as well as than the UK population as a whole. On average, 37% of analogue viewers were over 65 years old (compared with 18% of the population) and 36% were in the DE social grouping (compared with 27% of the total population). About 46% of digital terrestrial viewers are under the age of 45, slightly lower than the total population (52%) while the digital terrestrial profile, in terms of social class, is similar to the UK as a whole. Hours of viewing averaged 3.7 hours per day on digital satellite and 3.6 hours on digital cable platforms, compared with 3.4 hours in digital terrestrial homes - a lower viewing average per person than for any other platform. There are also differences in television platform access between households with and without children, as well as by socio economic group. The Ofcom residential tracker survey for Q1 2007 identified that households with children are significantly more likely to have cable or satellite television (65%) versus just under half (48%) of households without children. The difference in DTT access is minor at around one quarter for each group, whereas households without children are much more likely to have analogue terrestrial television (one fifth of households) compared to just 7% of households with children.

181

Figure 2.99
15-24 100%
18%

Platform demographics by age, social grade and viewing hours

25-44
21% 37%

% of average audience

45-64
12% 30% 9%

65+

AB
27%

C1

C2

DE
3.5 3.4 3.7

Hours per day 5

3.6

80% 60% 40% 20% 0%

15% 30%

27% 18%

36%

26% 25% 23% 18% 20% 21%

4 3 2 1 0

32% 29% 44%

16% 42% 33% 29% 23% 31% 30% 30% 24% 24% 24% 26% 26%

37% 24%

9% 13% 15% 20%

An U K al P og op ue o D nly TT D ig ita on l s ly D atel ig ita l ite lc ab le

An U K al P og op ue o D nly TT D ig ita on l s ly D atel ig ita l ite lc ab le

Source: Ofcom and BARB

Entertainment and Factual channels attract wide range of audience groups The age and demographic channel profiles for Figure 2.100 to Figure 2.103 are based on the TV population average (including children), whereas the equivalent profiles in the Communications Market 2006 were calculated relative to the UK population as a whole. The change in methodology has been made to enable channels to be compared against each other relative to the total viewing audience, as the TV population is slightly older and less affluent than the overall UK population. Figure 2.100 maps out the socio-demographic profiles of the largest general Entertainment channels (excluding +1 channels) in multichannel homes. The majority attract a youngerskewed audience, spread across both the ABC1 and C2DE groups. However, a number of Entertainment channels appeal to an older audience: BBC One and BBC Two, which have an ABC1-skew, and ITV1, Hallmark and ITV3, which have a slight C2DE bias, as well as UKTV drama. Channel 4s portfolio of Entertainment channels all appear in the younger ABC1 quadrant. Fives portfolio also has a younger audience, but the channels tend to appeal to the C2DE viewer. ITVs portfolio, on the other hand, reaches across both the young and older audiences but is also more appealing to C2DE viewers.

182

Te rre st D ri a ig l -o ita nl lt y er re D st ig ria ita ls l at el D li ig ita te lc ab le

Figure 2.100

Age and demographic profile of Entertainment channels in multichannel homes

ABC1 skew
BBC Four

Paramount More4 E4 BBC3 Sky Two ABC1 Sky One Living TV Channel 4 Challenge ITV4 Five ITV1 Hallmark BBC One UKTV Drama ITV3 BBC Two

Younger
Bravo

ITV2

UK Gold Sci-Fi

Older

Five Life Five US Sky Three

C2DE skew
Source: BARB Note: The profile of a channel is calculated relative to the television population in multichannel homes.

The Factual and Lifestyle channels are clustered closer to the TV viewing average than the Entertainment channels, appealing to all age and social groupings (Figure 2.101). However, they are slightly more popular with younger C2DE and older ABC1 audiences, with fewer channels appearing in the further reaches of the other two quadrants. Both the UKTV and Discovery portfolios are spread across the social groups, with the UKTV group appealing to the older viewer, and the Discovery channels to a younger audience. Figure 2.101 Age and demographic profile of Factual and Lifestyle channels in multichannel homes
ABC1 skew
UKTV Food

Discovery Turbo Nat. Geo Wild Discovery H&H UK Disc. Style RT

UK Document.

Discovery Civil. UK History

Younger

UK People Discovery Discovery Science

UK Gardens Biography The History Channel Nat. Channel UK Bright Geo Ideas Crime & Investigation

Older

Animal Planet

C2DE skew

Source: BARB Note: The profile of a channel is calculated relative to the television population in multichannel homes.

183

Music channels appeal to younger audiences In contrast to the Factual and Entertainment genres, the Music channels, perhaps unsurprisingly, appeal more strongly to a young audience (Figure 2.102). Viewers of these channels are spread across the social groups and this is also reflected across the MTV portfolio. The only channel which breaks away completely from the others is Classic FM TV, watched by an older, ABC1 audience. Figure 2.102 Age and demographic profile of Music channels in multichannel homes
ABC1 skew
Classic FM TV MTV Flux

MTV VH1 VH1 Classic

Younger

TMF

Older

Bliss

MTV Dance

Magic TV

C2DE skew

Source: BARB Note: The profile of a channel is calculated relative to the television population in multichannel homes.

Film4 channels tend to attract a more affluent audience Figure 2.103 shows the profiles of the most popular Film channels. (Sky film channels were known as Sky Movies 1-9 in 2006 but have since been renamed.) Film channels are represented in three of the four quadrants, with the exception of the younger, C2DE quadrant. Channel portfolios have remained quite closely knit within the Film genre with Sky Movies 1-9 all showing a skew towards a younger ABC1 audience, the two TCM channels appealing to an older audience and the Film4 channels attracting ABC1 viewers.

184

Figure 2.103

Age and demographic profile of Film channels in multichannel homes

ABC1 skew
Film4 Weekly Eat Cinema Film4 Sky Movies Premiere +1 Sky Movies Premiere Turner Classic Movies 2

Sky Movies (1-9)

Younger

Turner Classic Movies

Older

True Movies 2

Movies 24 True Movies

C2DE skew

Source: BARB Note: The profile of a channel is calculated relative to the television population in multichannel homes.

185