Insight Sector Report: TELEVISION – 21.11.01
Terrestrial:
Recent analyst forecasts suggest that in the coming months ITV revenues will not deteriorate further to any great degree, but nor will it improve sufficiently to pick up the full-year average. Despite this, the run up to Christmas is expected to be poor for ITV.
Analysts at ABN AMRO are sticking by their forecast of a 20% drop in ad revenue at ITV in November despite popular opinion within the trade press that 15% is a more likely figure. ABN ‘remains cautious’ about ITV, but says that if the general trends within the market continue to look ‘cyclical’ there is likely to be continued support for the ITV companies.
ABN forecasts that ITV revenue will fall by 20% in November and by 24% in December whilst trade press reports estimate that revenue drops will be more like 15% for November and 18% for December. The slightly more favourable estimates reflect a better outlook for the whole market in November and December and also a growth for ITV in market share against Channel 4. Nevertheless these percentage drops would equal £15.7m extra in revenue between Carlton and Granada.
| ITV quarterly growth forecasts 2000-2002 (September year end) | |||
| 2000 | 2001 | 2002 | |
| Q1 | 9.9 | -8.0 | -12.0 |
| Q2 | 18.3 | -20.9 | 3.9 |
| Q3 | -3.1 | -14.7 | 3.4 |
| Q4 | -3.5 | -14.3 | 4.0 |
| Full year | 5.0 | -14.7 | -0.4 |
| Source: MediaTel/ABN Amro estimates | |||
ABN believes it is too early to herald the beginning of a recovery for ITV although if the brighter outlook materialises it will be the first time for eleven months that ITV outperforms ABN AMRO’s forecasts.
| ITV Advertising Revenue Forecasts | ||||||||
| 1998A | 1999A | 2000A | 2001F | 2002F | 2003F | 2004F | 2005F | |
| Net ad revenue (£m) | 1,834 | 1,939 | 2,029 | 1,732 | 1,732 | 1,841 | 1,927 | 2,010 |
| Year on year growth (%) | 4.7 | 5.7 | 4.6 | -14.6 | 0.0 | 6.3 | 4.7 | 4.3 |
| Source: Merrill Lynch, 09/01 | ||||||||
Pay TV:
The latest Trends In Television report from the ITC casts gloom over already-troubled DTT provider ITV Digital. Trends since 1999 show that cable penetration amongst all UK TV households has started to flatten off, whilst satellite continues to grow, cable overtook terrestrial in the digital market at the beginning of this year – bad news for ITV digital.
| Cable Industry Position In Pay TV Marketplace | |||||||||
| 1999 | 2000 | 2001 | |||||||
| Q2 | Q3 | Q4 | Q1 | Q2 | Q3 | Q4 | Q1 | Q2 | |
| Pay TV Penetration – % TV Households | |||||||||
| Cable | 12.7 | 13 | 13.5 | 13.7 | 13.9 | 14.2 | 14.8 | 14.9 | 15 |
| Satellite | 14.1 | 14.5 | 16.1 | 16.8 | 18.3 | 19.1 | 20.4 | 21.3 | 21.9 |
| DTT | 1 | 1.7 | 2.3 | 2.8 | 3.2 | 3.6 | 4.2 | 4.5 | 4.7 |
| Total | 27.8 | 29.2 | 31.9 | 33.3 | 35.4 | 37 | 39.4 | 40.7 | 41.5 |
| Digital Penetration – % TV Households | |||||||||
| Cable | 0 | 0.1 | 0.4 | 1 | 1.7 | 2.2 | 3.7 | 5 | 6.2 |
| Satellite | 2.5 | 5.3 | 8.6 | 11.5 | 14.9 | 17 | 19.4 | 20.8 | 21.8 |
| DTT | 1 | 1.7 | 2.3 | 2.8 | 3.2 | 3.6 | 4.2 | 4.5 | 4.7 |
| Total | 3.5 | 7.1 | 11.3 | 15.3 | 19.8 | 22.8 | 27.3 | 30.3 | 32.7 |
| Share of Pay TV Market – % | |||||||||
| Cable | 45.7 | 44.4 | 42.5 | 41.1 | 39.3 | 38.5 | 37.5 | 36.5 | 36 |
| Satellite | 50.6 | 49.7 | 50.3 | 50.5 | 51.6 | 51.6 | 51.9 | 52.5 | 52.7 |
| DTT | 3.7 | 5.9 | 7.2 | 8.4 | 9.1 | 9.9 | 10.6 | 11 | 11.2 |
| Share of Digital TV Market – % | |||||||||
| Cable | 0 | 1.1 | 3.1 | 6.5 | 8.5 | 9.7 | 13.7 | 16.6 | 19.1 |
| Satellite | 70.8 | 74.8 | 76.5 | 75.1 | 75.3 | 74.4 | 70.9 | 68.7 | 66.7 |
| DTT | 29.2 | 24 | 20.4 | 18.4 | 16.3 | 16 | 15.4 | 14.7 | 14.3 |
| Share of Net Additions – % | |||||||||
| Cable | 26.6 | 21 | 21.8 | 10.4 | 12.6 | 21.1 | 22.1 | 13.1 | 13.5 |
| Satellite | 7 | 33.1 | 56.7 | 54.6 | 68.1 | 52.8 | 55.3 | 67 | 65.5 |
| DTT | 66.3 | 45.9 | 21.5 | 35 | 19.3 | 26.1 | 22.6 | 19.9 | 21 |
| Source: Independent Television Commission, 17/09/01 | |||||||||
Audiences
All the terrestrial channels are showing losses in viewing compared to last year (in terms of minutes watched, see below) with the exception of Channel 5, boosted by European football exclusives amongst other things.
In terms of viewing share BBC, ITV and Channel 4 have all lost ground over the past year, BBC2 has remained static and Channel 5 has once again pulled ahead slightly. It is no mystery where these viewers have gone, cable and satellite share of viewing is up from 16.5% in 2000 to 20.8% this year.
Football is a key factor in the success of pay-TV, something Rupert Murdoch caught on to very quickly, and may play a decisive role in the future of ITV Digital. Currently Sky subscribers are not able to access ITV Sport channels as a carriage deal with Sky has not been agreed. In order for ITV Digital to continue as a viable enterprise it is necessary for it to retain the rights to broadcast English football. Without a carriage deal on Sky Digital for its Nationwide League games, however, subscriber levels may not justify its heavy spending on broadcast rights.
Reports yesterday, however, suggest that ITV may now be close to sealing a deal with BSkyB which would see ITV paying a reported £15 million for carriage on Sky Digital. It is understood that the cost to ITV will be slightly offset by its fee to Sky for broadcasting ITV2; the net gain for BSkyB is reported to be £13 million.
Troubled digital terrestrial broadcaster, ITV Digital, gained 82,000 customers in the quarter to September 2001, pushing its total customer base to 1.2 million, up 36% year on year although churn – the proportion of customers leaving the service – came in at a worrying 23.1%. According to recent press, ITV Digital might be lucky to make it far into 2002 in it’s current incarnation. The Financial Times dramatically reported in October that ‘the endgame for ITV Digital has begun’ claiming that ITV Digital’s days as a standalone company were numbered and that, in private if not on record, executives at Carlton and Granada are now resigned to some substantial restructuring of the business.
Churn at Sky is better, although not good, at 10%. BSkyB now has 5.3 digital customers – an increase of 1.7 million across the year and is in line to meet the target of 7 million digital customers by 2003.
NTL revealed recently that subscribers to its digital TV services had grown by 20% to 1.14 million and that 79,000 customers now subscribe to its broadband internet service. This is on track to meet NTL’s target of 1.25 million digital TV subscribers and 100,000 broadband cable customers by the end of this year.
The FT reported recently that the government may soon act to abolish the media ownership laws brought into place in order to prevent Rupert Murdoch from expanding his media empire to include terrestrial TV in the UK.
Murdoch, who controls more than 30% of the UK newspaper market with his News International titles, was prevented by the ‘20%’ rule from buying into the terrestrial TV market. No one company owning 20% of the newspaper market may control more than 20% of the terrestrial UK TV market and vice versa.
Such a move may also pave the way for a single, unified ITV company although any merger between Carlton and Granada is likely to be a long way off and would require the approval of the competition authorities.