In the year to 31 March 2010, BBC Worldwide once more produced excellent results. The company's financial performance accelerated across almost every single business and in almost every single territory. This was at a time when many of the world's economies were still very fragile - indeed many remain so today - and when the launch and take-up of new technologies and gadgets scarcely skipped a beat.
This set of results is not a one-off. We have been delivering increasing levels of profit since 2004/05 when the total result achieved in the previous year was £37m (UK GAAP). This year, three of our seven businesses - Home Entertainment, Channels and Sales & Distribution - each delivered more than that in profit on their own.
In the year, we also reinvested £151.1m back into the BBC, taking our total cash return from programme investments and dividends in the years since 2004/05 to £837m. Including payments to independent production companies, writers and actors, in that same period we have invested well over £1bn into the UK's thriving creative industries.
During the year, we continued to optimise performance from the established parts of our business, while at the same time investing in the newer growth businesses. Here are the highlights of that performance (right and below).
Our international network of TV channels has grown sales and profits by 16.4% and 34.2% respectively year on year. Broadcasting 41 channels across five continents, of which 29 are BBC-branded, demonstrates how successfully we have shifted our strategy from one of channel joint ventures that brought little brand recognition value to the BBC, to one where we have more direct engagement with audiences and real control of the brand, as well as higher
and more sustainable returns.
CONTENT & PRODUCTION
We continue to drive excellent profits from TV formats such as Dancing with the Stars (the international format of Strictly Come Dancing). In addition, the investments we made in start-up independent production companies in the last three years, in return for rights, have started to bear fruit. Commissions for Being Erica and the BAFTA-winning Misfits and Wallander illustrate the quality of content being produced by these talented companies.
Significant growth in revenues from BBC.com and continued rationalisation and improvements to our Global Websites brought losses in this business down from £29.0m to £20.8m. Also, this year we are no longer affected by the investment requirements of Project Kangaroo (a proposed TV download joint venture prohibited by the Competition Commission in 2009). In March 2010 our websites attracted more than 66m unique users globally.
Although only recently established, it is already clear this business has added significant value. The team takes a small number of properties and applies brand management disciplines to build them into major international brands, deriving revenue from a wide variety of media activities - from magazines to live events. Lonely Planet is one such brand. During the year, despite the extraordinarily difficult conditions for the travel industry, this travel information business moved strongly into profit following a period of significant digital investment. The business is managing the transition to digital extremely well. When we acquired our majority stake in Lonely Planet in 2007, 9% of its revenues came from non-print activity - now that figure is 22%.
SALES & DISTRIBUTION
In 2009/10 we have seen continuing strong growth from our Sales & Distribution business which licenses all programmes. Net profit (that is, excluding internal trading) is £57.9m, up 26.4% year on year. With digital customers swelling its customer base and an undiminishing demand for quality content, I see no reason why this business should not continue to deliver high returns for many years to come.
Our DVD operation, 2 entertain, contributed an impressive £38.2m to our profit this year. This business used to be a 60:40 joint venture with Woolworths Group plc, but following Woolworths' administration in January 2009, BBC Worldwide exercised its right to acquire Woolworths' 40% stake. The administrators challenged these rights, which were subsequently upheld by the High Court in August 2009 and the Court of Appeal in November 2009. In March 2010 we completed the acquisition of the 40% stake for an agreed sum of £17.0m. 2 entertain will now be able to develop both through physical products
and via online and mobile.
Conditions for consumer magazines in the UK were weak in 2009/10 with significant falls in advertising as a consequence of the overall economic recession. Nevertheless BBC Magazines held its sales steady at £168.3m (£170.6m 2008/09) and increased profits by 13.6% to £18.4m as a result of a significant cost-reduction programme early in the year. The key brands proved resilient on the newsstand and the business has now built its subscriber base to over 940,000 - an excellent achievement in difficult times. But the magazines market is changing. Circulation numbers and advertising patterns are all being affected significantly by digital, and future success will depend in part on a willingness to invest in new titles and online innovation. As BBC Worldwide is restricted by constraints in both its borrowing capability and editorial remit, as well as having other strategic priorities, we intend to explore possible partnership opportunities to help us ensure the business is properly funded for the task ahead.
A company's best foundation is the calibre and commitment of the people it employs. We currently have some 2700 staff, 1800 in the UK and 900 based in 23 offices around the world, who have to juggle market, format and brand objectives with intelligence and commercial flair. I am constantly impressed with their creativity and would like to thank them for their focus over what has been a very challenging year. I would particularly like to pay tribute to Garth Ancier, President, BBC Worldwide America, and David Abraham, Chief Executive of UKTV (our joint venture with Virgin Media), who have moved on to new opportunities. Herb Scannell has joined us as President, BBC Worldwide America.
Importantly, our people work within the framework of our company values and our commitment to protecting the BBC brand. Our values, outlined on p22 and p26, infuse how we conduct business and how we treat our colleagues - in short, how we get things done. As such they require constant effort, and early in 2010 we invested in a programme of training and development, centred on the values, that will continue in 2011.
Every company, of course, needs to be grounded in a culture of probity and awareness of the impact its operations have on people and the environment. But I would venture the claim that BBC Worldwide, though not a plc, needs to demonstrate particularly high standards of corporate responsibility. We are owned by a cherished UK broadcasting institution of international renown, and we promote and steward the BBC brand itself in markets from Iceland to Indonesia, as well as many much-loved programme brands. Ensuring we have the right systems and policies - whether it's in the area of editorial compliance or customer service - is essential to us.
We are currently embarking on an important new initiative called Futureworks. This is an in-depth upgrade of all our IT and back office processes, designed to ensure we meet the company's and our customers' future needs. More information is given about our governance initiatives and corporate responsibility on p46 and p53 respectively.
Being a well spread portfolio business, BBC Worldwide is able to offset the impact of pressures in one market by taking advantage of better conditions in others. This means we must keep abreast of a wide range of industry trends.
Undoubtedly 2009 was a very hard year for the media industry as a whole. Advertising income, in particular, was under pressure, falling up to 25% in some markets. That was compounded by the ongoing structural changes caused by the shift to digital. At BBC Worldwide, the fact that only about 15% of our income is directly derived from advertising helped us weather the storm, unlike - for example - commercial broadcasters operating in a single territory, where the vast majority of income can come from this source. Another 30% comes from the sale of content to business-to-business customers for their own services, whether broadcast, online or mobile. What we found is that in hard times these customers gravitated to our extensive catalogue. The remaining 55% is from the direct sale of consumer products and services, and this too has held up well around the world.
The market for quality television content remains strong - not least because the amount of TV watched in mature markets such as the US continues to increase. Pricewaterhouse- Coopers estimate that the global TV market is worth about $200bn annually. Critically, Ofcom data suggests that at least 80% of this stems from locally made content. The international production capability that BBC Worldwide has built up over the past two years allows us to target this substantial segment.
The recession seems to have done little to slow down growth of global multichannel pay-TV penetration, which increased by 8% in 2009 to 786m homes (Screen Digest), maintaining the rate of previous years. This has two positive impacts on us. Firstly, it allows us to reach more homes directly with our channels. And secondly, as more channels launch, it means increased demand for the programming that we license.
TV viewing figures in the US
Global Multichannel Pay-TV Homes
BBC Worldwide's investment in digital services also continues to pay off. We are ranked by comScore as the second largest European media company by unique users, and we have also created innovative content partnerships with leading-edge digital companies such as Apple, Google and Microsoft.
Unique Users per month - Europe
Perhaps the most exciting technological development currently unfolding is the rapid development of new digital devices - for example the iPad and Android mobile phone. BBC Worldwide is a pioneer in developing new products for these. Lonely Planet was a launch partner for the iPad and its 1000 Ultimate Experiences was the most popular app on the iPad app store in June 2010. Nokia launched its new 5800 mobile pre-installed with the entire second series of hit comedy Gavin & Stacey.
These pay-TV and digital trends have opened up much stronger business-to-consumer opportunities than in the past. Of course, the commercial returns from operating your own consumer services (instead of selling rights to others) tend to be much better. Control of your own services allows you to brand, commission, schedule and promote the programmes and services you choose. However, with so much consumer choice, ensuring that products, customer service and audience relationships are all first class is more important than ever. Only the best will prosper.
We are extremely proud of the role we play in supporting the UK's creative industries and exporting the best UK intellectual property around the world. Currently we account for around 10% of the sector's total (DCMS: Creative Industries Economic Estimates Statistical Bulletin 2009) and represent the BBC, over 300 independent production companies and literally thousands of rights holders.
As I look at the excellent new programming coming through the pipeline - from the BBC-produced factual series The Human Planet for BBC Two to Hartswood Films' crime series Sherlock for BBC One - my faith in the quality of UK content rises to an even higher level. I believe the technological changes happening in the global media industry can deliver important opportunities for our sector, and at BBC Worldwide we look forward to playing a significant part in developing these in the year ahead and beyond.
Chief Executive, BBC Worldwide