Annual Review 2010/11

Market context

The shift to digital

There can be no doubting the continuing impact of digital distribution methods on traditional media industries. The current decade seems destined to be the one where consumers make a real shift to mobile and connected devices. All kinds of content can now be enjoyed on smartphones, tablets and e-readers that are powerful, portable and, most importantly, a pleasure to use. The industry responded to this opportunity in 2010/11 by offering a huge range of applications and other forms of digital packaged media.

Mobile

In November 2010, 62m US subscribers owned smartphones - a full 10% higher than three months previously (comScore). In Singapore 70% of all mobile sales in the second half of 2010/11 were smartphones (Enterprise Innovation). As wireless broadband networks expand and improve, it seems highly likely that other countries will see similar rapid uptake. In that context, providing engaging material for those devices is a new opportunity.

Games are the most popular mobile activity in the USA with 23% of users engaging in this activity (comScore). Games may be pre-loaded on to phones, but now close to half of all apps downloaded globally are mobile games (NPD Group).

Apps are also driving an increase in magazine viewing on tablets since these devices lend themselves more to a "lean back" experience than a phone or PC, replicating better the experience of reading print magazines. Zinio^TM, for example, now offers titles as static-content app downloads, and more interactive versions are being developed by some publishers, including ourselves. In addition new e-readers like Kindle seem to have finally captured the hearts of bookworms (Amazon).

Importantly, mobile apps offer consumers not just recreation, but also a vast range of information to help them manage their lives better, from travel planning to price checking. Whether paid-for or ad-funded, they are an exciting development for our industry.

The other key area where better mobile capability is driving consumer behaviour is in video viewing. In Japan this activity is second only to search - 23% of mobile users (comScore). On smartphones, viewing is more about personal video or TV clips, but the newer tablets provide a much better full-programme viewing experience than earlier generations, which is doubtless helping drive up online viewing figures. The number of US subscribers watching video on their mobile devices rose more than 40% year on year in both the third and fourth quarters of 2010, ending the year at nearly 25m people (fig 1).

Online - Social media

The phenomenal growth in social media remains the biggest trend online and this brings both opportunities and concerns. For BBC Worldwide it is the popularity of social, or massively multiplayer online (MMO), games like Zynga's CityVille that is of particular interest. One forecaster estimates there will be 69m social gamers in the USA by 2012 (fig 2), with revenue hitting $1.32bn (up from $856m in 2010). This is all the more remarkable considering that this form of gaming took off in earnest less than two years ago. Another study suggests online and mobile games will comprise 50% of all games revenue by 2014 (Ibis Capital). As well as responding to this trend, TV brand owners need to ensure fans are getting a great experience online around their favourite shows on social media sites and make full use of sites such as Twitter to alert people to new developments.

The concern about social media for website owners is that it is now pulling advertising quite strongly away from other sites, even search engines - the biggest sector online. Global ad spending on social networks looks set to reach almost $6bn this year with Facebook predicted to receive a 68% share. Twitter is rapidly expanding its advertising capabilities, and analysts expect it to attract $150m in advertising this year and $250m in 2012 (eMarketer).

Online - TV viewing

Viewing programmes online is a major focus for the TV industry. eMarketer estimates that by 2015 three-quarters of US internet users, or 196m people, will watch video content online each month (fig 3). Overall revenue from online viewing is forecast to grow to well over $3bn across the USA and Western Europe by 2012 (fig 4).

This trend means distributors have to find ways of effectively managing the time frame in which content is made available across all platforms, whether linear broadcast, on-demand digital service, or physical DVD/Blu-ray. No longer can we rely on fans of our shows to wait till a series is shown on a local TV channel or released on disc. Instead the industry needs to provide managed options to suit all preferences and purses. For really popular series, this includes ensuring downloads are available near simultaneously with the first linear TV transmission and also creating well packaged DVD/Blu-ray discs with added-value features for those who like to own a hard copy.

It's worth noting that, although the DVD market is often perceived to be firmly in the "old media" camp, 2010 revenue remained stable in the UK, and fell only 3.5% in the USA. About 60% of the purchases in the UK market are made by collectors or those seeking a gift (Kantar). Another driver has been the surge in Blu-ray disc sales, which were up 55% in 2010 (BVA).

Pay-TV

Online and mobile TV viewing may be increasing, but the traditional pay-TV market is expanding too. BBC Worldwide is both a supplier to this market and an increasingly important player with 31 international channels and 10 in the UK (in a joint venture with Virgin Media).

Across the world, pay-TV subscription revenues were £120bn in 2010, a year-on-year increase of close to 12% (fig. 5). This was driven partly by increased household take-up of services, up 7%, and also by increased per-capita spending. Advertising revenue on mutichannel TV also rebounded strongly, outpacing the global TV advertising average by 3% (fig 6).

TV distribution

In terms of supplying both online and linear channel platforms, the US studios dominate the global TV sales market, but BBC Worldwide is the next largest distributor of finished television programmes.

The TV distribution market improved in 2010 as global TV advertising recovered, with digital channels and online experiencing the fastest growth. A boom in free digital terrestrial TV (DTT) opened the market to new players, while established broadcasters sought to strengthen their position by launching sister channels, particularly high definition (HD) and video-on-demand services. All of this increased demand for quality programming, particularly factual and drama.

TV content from the UK continues to be popular overseas and figures show exports of finished programmes were up 9% (PACT). Drama is the genre which powers the programme sales market worldwide (Eurodata/Médiamétrie) and the US studios are the main provider. However, in recent years both the BBC and independent producers have been developing faster-paced series with a more filmic quality that play well domestically, and also capture the interest of foreign audiences. Spooks (Kudos Film and Television) and Sherlock (Hartswood Films) are cases in point. In factual, the market is smaller but the UK fares well, especially in areas such as natural history. The BBC's long-standing investment in its Natural History Unit has resulted in a catalogue that is regarded by buyers as the best in the world.

The UK also currently leads the world in TV format exports, accounting for 39% globally in 2010 (PACT). The interesting trend in recent years has been the rise in popularity of "factual entertainment" formats. These are shows that focus on real people demonstrating a skill, but with the production values and approach of a light entertainment series. Production company Shine TV's reworked approach to MasterChef is a good example.

One final development to note is the continuing consolidation of the UK indie sector. The top five superindies now account for 50% of this sector by revenue (Televisual). What's more, the US majors are seeking to acquire UK production companies in order to add to their own slates - in 2010 Time Warner acquired Shed Media and earlier this year NewsCorp/Fox bought Shine Group. This means distributors must be ever more creative in working with producers at an early stage to support and lock down new projects or, as in BBC Worldwide's case, in developing their own production capability.

Summary

Every media player is focused on managing the transition from physical products to digital ones, but the pace of change varies from format to format and market to market and remains hard to predict. What's more, the reduction of per-unit pricing is a challenge (Ernst & Young).

However, TV viewing is continuing to rise across mobile, tablet, and PC. Internet connected TV will be the next innovation to watch. As a result, it is prudent to invest in new businesses for the future while still ensuring established contributors to the bottom line are appropriately supported through this transition period.