DTV Undermines Traditional Broadcasters’ Business, Says Datamonitor
In the week that Carlton Communications chairman, Michael Green, described ITV as a dysfunctional company that cannot compete effectively with its competitors (see Carlton Results Push Shares Up As Profits Return), a new report from Datamonitor claims that digital TV (DTV) – and particularly free-to-air – is undermining the businesses of existing broadcasters and channels.
Shifting audiences The group forecasts that more than half of western European households will have DTV by 2007, compared with 19% at the end of 2002. As the prevalence of digital increases, so does the number of channels available, ‘vastly’ increasing the competition for audiences. This has begun to shift the balance of power in the broadcast sector, according to the report.
The audience shift from mass channels like ITV1 and BBC1 toward the multi-channel offering has been inexorable over the last ten years or so. Recent INSIGHTanalysis explores this trend and its impact on ITV1 in greater detail (see INSIGHTanalysis: ITV1 Share Further Eroded In 2002).
The graph below clearly shows the inroad that multichannel viewing has made on the share of ITV1 and BBC1. If current trends continue, the combined multichannel sector is likely to overtake the mass channels once and for all. In fact, this is already starting to occur (see Multi-Channel TV Overtakes Terrestrial Rivals).
Datamonitor says the traditional free-to-air (FTA) channels like ITV1 in the UK and TF1 in France, now face an accelerating decline in viewing share as audiences disperse across the multichannel services.
It forecasts that the audience share of the five terrestrial channels in the UK will fall from 1998’s 87% to 66% by 2007. This will have serious consequences for these advertising-reliant business, it warns.
Share for analogue terrestrial broadcasts is forecast to fall to under one quarter of all TV viewing by 2007; multichannel stations will take over a third by this time.
Traditional free-to-air broadcasters threatened “Historically, the small number of channels granted analogue terrestrial licenses in markets such as the UK, France and Spain were in an extremely powerful position, with almost complete control over the TV environment due to the scarcity of bandwidth. Mass-market digital uptake dramatically changes this situation,” says the report.
It forecasts that advertising revenues for the FTA channels are likely to grow at an average rate of around 4% between 2002 and 2007. The combined multichannel market, by contrast, is set to grow by around 15% over the same period. Despite this, Datamonitor predicts that competition for audiences will drive up programme spend at a faster rate than advertising revenues, seriously affecting profitability.
To mitigate the effects of these developments, traditional FTA broadcasters are advised to launch new stations, such as ITV2 and TF6. But even if they can hold onto viewing share, competition for a finite amount of advertising revenue is still likely to affect broadcasters’ pricing policies. This will lower tariffs except for truly mass-audience events which will become increasingly rare, according to the Datamonitor.
The dilution of the audience and advertising revenue across an increasing number of channels is a worryingly potent combination for broadcasters. Datamonitor’s report says that they will have to move away from channel-focused businesses and increase the scale and scope of their offerings.
“By moving beyond channel-focused business models to operate as integrated content brands, they will benefit from more predictable cash flow, improved brand strength, greater operational efficiencies and the ability to cross-promote content and provide bundled packages to key advertisers,” reads the report.
A key element in this new approach is to concentrate on content brands. Datamonitor says that the BBC and Discovery are already taking this approach. As viewers become increasingly less attentive to a channel schedule and more concerned with individual programmes, even the larger channels cannot count on a captive audience.
“The development of content brand strategies will play an important role in enabling broadcasters to provide greater value to advertisers, helping them to run increasingly targeted and sophisticated campaigns. However, this will require that broadcasters improve their understanding of the behaviour and demographics of the audience,” it says.
INSIGHTanalysis Despite these trends, mass channels such as ITV1 still provide the only ‘one-stop shop’ for advertisers wanting to reach very large audiences in one go. Media planners have noted that whilst the combined multichannel sector continues to draw share away from the FTA stations, the multichannel sector itself does not yet command any one mass audience proposal.
For this reason, ITV1 will remain crucial to advertisers for some time yet, even though its pricing policies may start to become undermined by the shifts in both audiences and the marketplace. The question for ITV and its international equivalents is to what extent can the desirably large (but dwindling) audience they offer justify continued premium airtime pricing.
Advertisers and agencies will undoubtedly use ITV’s declining audience share as stick with which to beat down prices in negotiations. If such a trend escalates, as Datamonitor seems to think is likely, ITV’s position may grow weaker and weaker. In the meantime though, where else can advertisers go to reach over 14 million viewers in one go, other than to Coronation Street on ITV1?