Annual Review 2011/12

 

Our company exists to generate investment for BBC programmes and services through commercial exploitation of the BBC's assets; to further the BBC's mission around the world; and to promote the UK's creative industries overseas. We made good progress on all three in the year, and are particularly pleased to deliver a record return to the BBC, increasing by 18.6% to £215.7m (2010/11: £181.9m).

• Headline sales grew 5.4% to £1,085.0m (2010/11: £1,029.8m), despite a volatile macro-economic environment and lower market growth rates in many countries.

• Headline profit increased 7.9% to £154.8m (2010/11: £143.5m).

• And profit before tax was up 13.0% to £103.5m (2010/11: £91.6m). This excludes gains on last year's disposal of Animal Planet Europe to give a like-for-like picture.

We sustained the high level of financial performance of recent years. Three of our five operating businesses - Channels and Sales & Distribution, respectively our largest by revenue and by profit, and Content & Production - grew revenue at double-digit rates and together generated over £90m of additional headline sales compared to last year.

BBC America performed in line with an ambitious investment plan, while in emerging markets we launched a new BBC HD channel in Latin America, and extended existing feeds such as Pan-Asia into more countries. Sales & Distribution achieved double-digit profit growth, with a trebling of programme sales to digital services. Advertising revenue grew in double-digits for our channels and BBC.com alike. Other highlights included continued success with the production of Dancing with the Stars; new live events from Doctor Who to CBeebies, reaching 1.5m visitors across 10 countries; and the start of production on the feature film Walking With Dinosaurs 3D.

Our strategic key performance indicators	2003/4	2010/11	2011/12
Headline sales from international1 (%)	38.7	55.5	64.3
Revenue from digital (excl JVs)2 (%)	0.5	8.1	12.8
Channels subscriber homes (m)	n/a	343	356
Investment in distribution rights (£m)	90.7	92.9*	98.6
Registered eCRM users (m)	n/a	2.3	4.6
1 61.1% on a continuing business basis in 2010/11. 2 9.3% on a continuing business basis in 2010/11. * Comparative figures have been restated to exclude co-production funding from third parties. See note 12 of the Summary Financial Statements for further details.

Transforming our portfolio

At the same time, we furthered our business transformation, parting company with BBC Magazines, a major and long-standing business. Along with the disposal of Animal Planet Europe in 2010, this is the second profit centre we have sold in two years. While these transactions have helped rebalance our portfolio for future growth, and provided a significant cash return to the BBC, they have also reduced our annual headline profit by some £35m. We made positive progress on all our strategic objectives, shown in the KPI table here and discussed in detail over our Strategic Objectives pages.

The decision to exit BBC Magazines came after careful thought. Our Board concluded that its long-term success lay with new owners, who could pursue sector consolidation and emerging format investment with fewer constraints. Therefore on 31 October 2011, we entered into a sale, licence and contract publishing agreement with Exponent Private Equity, which saw the majority of titles change hands. We also sold our shares in our Indian magazine publishing joint venture, Worldwide Media, to our partner Bennett, Coleman & Co. Together these transactions commanded a healthy consideration of £121.0m, generating a material profit on disposal and helping increase dividends to the BBC.

August saw a change in shareholder at our successful channels joint venture, UKTV. I would like to thank outgoing shareholder, Virgin Media, for a successful relationship over many years, and to welcome Scripps Networks Interactive, our new partner.

Innovation

It was also a year of enormous digital progress. This included a host of content licensing deals to digital services, such as urban science fiction drama Misfits to US video-on-demand service, Hulu, where each episode became the most-watched show that week, and which remains in its top 50 shows of all time. We have taken great strides with our two-year-old games business - releasing 11 games in the year, with a further 12 in development, resulting in 3.5m downloads. We have also had a total of 25m apps downloaded, while our programmes have now been downloaded over 31m times around the world. 12.8% of our revenue now comes from digital businesses.

Supporting the BBC

We are hugely proud of the contribution we make to the BBC, which is a unifying force throughout our business. Our financial support for the BBC mainly takes the form of direct investment and facilitating co-production deals, as well as cash dividends paid from profits and other sources of cash. Much loved programmes such as Frozen Planet and Doctor Who benefit hugely from this funding. Our total return to the BBC this year amounted to a record £215.7m, equivalent to over one pound in 10 spent by BBC Vision. This takes returns since 2004 to over £1.3bn. BBC direct rights and co-production investment totals £78.1m (2010/11: £78.5m) while dividends in respect of the year are £111.0m (2010/11: £76.4m).

UK creative industries

We licensed over 100,000 hours from our catalogue, exporting the best of the BBC's output and other high quality British content around the world. February saw the biggest ever BBC Worldwide Showcase, our annual international sales event. This year's Showcase generated an estimated £50m of TV sales. We represent content from over 200 independent producers, including output and development deals with 26 in the year, benefiting the wider UK creative sector. These are underpinned by our expertise as Europe's leading distributor for finished TV programme sales; we are the largest outside the US studios, according to a report by Attentional in September 2011, and have been rated top in the UK by independent production companies for the last two years.

People and society

As custodians of the BBC's brand in the commercial space, how we do things is as important as what we do. That is why we prioritise our values, embedding them in processes from recruitment to appraisals, and considering them above profit in our commercial decisions. Our corporate responsibility activity has four components: Environment, Ethical Sourcing, Outreach and People. We strive towards the highest standards in each, taking meaningful action to improve in each area. It is my aim to root corporate responsibility in all areas of our business and inspire engagement in all our staff and company practices.

Looking ahead

To ensure BBC Worldwide's continuing ability to supplement the licence fee in future years, and to promote the BBC and British creativity to international audiences, we need to stay abreast of developments in technology, market practice and consumer behaviour. With that in mind, we are refreshing our company strategy, and intend to invest more to increase our focus on fast-growing BBC-branded services, such as our wholly-owned and operated channels, around the world. This investment will be material in some places, but is justified by the long-term financial returns available.

To optimise delivery of our strategy internationally, we are also moving our organisation from global lines of business to an increasingly regional structure. This move to a regional focus will be balanced, in our headquarters by strong global accountability and expertise in content, brand and editorial. Implementation of these changes will be a primary focus in the year ahead. At the same time, we will remain firmly focused on delivery to our consumers and partners, and thereby provide another strong financial performance for our parent, the BBC.

Business Model

BBC Worldwide is in the business of commercialising TV properties in all kinds of ways, informed by our brand management expertise and by consumer insight. We invest in rights usually at the commissioning stage, sometimes having been involved in the development process, and always informed by our understanding of market dynamics and trends.

The majority of our catalogue are BBC commissions, produced both by BBC Vision Productions and by the independent sector. Rightsholders, including writers, performers and production companies, stand to benefit both from our upfront investment, and from a subsequent stream of royalties from successful commercialisation. We monetise rights across a variety of platforms and media around the world - bringing consumer insight, the power of the BBC brand and our local knowledge to bear. These include:

• selling finished programmes to broadcasters around the world;

• acquiring them for our own BBC-branded channels;

• publishing to consumers on DVD, download-to-own, or other forms of electronic ownership or access;

• building websites, applications and games around the content;

• licensing brands to third parties to turn into consumer products, such as toys, gifts or clothing;

• re-producing formats and related IP with a local flavour through international production;

• delivering live events and experiences to fans; and

• publishing as books and magazines, some through third-party relationships.

We actively apply brand management to our highest impact properties - our 'global brands' which have a presence across at least five of the areas above and revenue potential of £50m or more. These brands make up over a quarter of our total business. We also apply a focused brand management approach to our global channel portfolio and digital service brands. 47% of headline sales now comes from 12 brands. We are actively driving consumer connections and relationships across all our priority brands. Our challenge is to be best-in-class in all our major areas of rights exploitation.