Once again, the last 12 months have been exciting and
challenging in equal measure for the media industry. Indications of
potential long-term - or structural - changes in the industry have
become more prominent during the year. Adding to the challenge,
macroeconomic conditions have been volatile. And the outlook for
the coming year remains uncertain. BBC Worldwide is diversified
geographically, by format and by sources of income, which include
advertising, business-to-business and consumer. We believe this
diversification offers strength in uncertain trading
conditions.
Macroeconomic environment
Financial markets have been on edge all year with news on the
sovereign debt crisis sparking rapid changes in sentiment. In the
real economy, there are some indications of a more sustained
recovery in some parts of the world, notably the USA with real GDP
growth of 2.1% expected in 2012. But growth forecasts for the
Eurozone continue to weaken - the IMF's forecast in April 2012 was
for a contraction of 0.3% in real GDP for the year - and the
outlook for the UK is weak with growth of 0.8% expected for 2012.
Australia, an important market for BBC Worldwide, is forecast to
grow 3.0% thanks in part to its natural resources and economic
links with China. China and other developing countries, formerly
brighter spots on the economic horizon, are now seeing growth
moderate. According to IMF data, Brazil's growth rate in 2011
dipped to 2.7%, down from 7.5% in 2010. India's economy slowed from
10.6% growth in 2010 to 7.2% in 2011. China slowed from 10.4%
growth in 2010 to 9.2% in 2011, with 8.2% growth forecast for 2012
(see fig. 1).
Advertising
One of the results of macroeconomic uncertainty has been
uncertainty among advertisers. For much of 2011 advertising held up
well, but in recent months media companies have found it
increasingly difficult to predict advertising revenues. In an
uncertain environment, advertisers are shortening their buying
horizons. While many of the larger global advertising conglomerates
have continued to deliver reasonable growth, particular formats and
geographies are suffering within that global mix. While the big
winner continues to be online advertising, television advertising
also performed well during the year in most countries. Total
nominal advertising expenditure globally is forecast to increase by
4.8% in calendar 2012, up from 3.7% growth in 2011.
Consumers
Real disposable incomes have been squeezed in many high income
countries, including the USA (0.0%), UK (-1.2%) and many Eurozone
economies. The impact on the media industry has been mixed. In the
USA, the cable and satellite industry saw its first decline in
subscribers in Q2 2011 (IHS Screen Digest). This has been largely
attributed to economic conditions, with many of the subscribers
lost on lower-end packages, rather than seen as an indication of a
longer-term shift away from traditional pay television. In the UK,
the home video market held up reasonably well despite the long-term
trend away from physical product. Consumers continue to want small
treats and with restaurant visits now less frequent, nights in
watching the best films and television shows may, conversely, be
more frequent.
New media markets rising
Arguably, even more important for the industry's longer-term
health than the volatile economic environment are indications of
structural change during the year. One such trend, though far from
new, is the growing economic power of 'developing' markets.
Forecasts for media markets specifically show the rising importance
of countries like Brazil, China and India (see figs. 2 & 3).
While the USA and Japan will remain the two largest media markets
over the next five years, and the USA will deliver the largest
absolute growth, change is expected in the markets ranked 3-6.
While the proportion of BBC Worldwide's revenue from international
markets has risen over the past five years we are today
nonetheless comparatively small outside the mature UK, US and
Australian markets. We are seeking rapid growth in key markets in
Asia, in EMEA and in Latin America.
US majors expanding reach
The US media companies have continued their international
expansion, using the cash flows from their large domestic market to
build strong positions with faster growth prospects overseas.
Examples included Discovery launching its fifth European
free-to-air channel in Spain in January 2012, Disney agreeing a
joint venture for a free-to-air channel in Russia, and Disney
buying out its partner in Indian production venture UTV. Discovery
reported in February 2012 that a third of operating profit now
comes from non-US channels and Fox International Channels (FIC)
have been driving Fox's growth, with 58% of FIC's FY11 Q1 revenues
coming from emerging markets.
New entrants in pay television
New business models have continued to emerge in
internet-distributed video content. The big question is whether
internet-distributed services have the potential to subvert the
traditional cable and satellite-based distribution platforms.
Netflix, one such internet 'over-the-top' (OTT) service, had an
extraordinary year. It reported 26m streaming subscribers at the
end of March 2012, with its 23m in the USA making it the largest
pay TV platform in the world's largest pay TV market. YouTube
launched its channels strategy, seeking to add premium content to
its large base of user-generated clips. The traditional cable and
satellite-based platforms are responding with authenticated
video-on-demand services.
Evidence so far suggests that traditional cable and OTT services
can co-exist and indeed be complementary, at least for now. Two
questions for the future are whether the subscribers lost to
traditional pay TV in the downturn will return when their
disposable income recovers, and whether there is a generational
effect where younger viewers do not sign up to pay TV in the same
way as their parents did. Faster wireline and wireless broadband
will add to the potential for internet distribution of video. The
development of easier and more seamless access to internet
distributed programming on television screens, which we have begun
to see this year, could be the catalyst for bigger change.
The entire media industry keeps an active watching brief on the
long-term challenge to traditional pay TV. But for now traditional
pay television continues to be the dominant business model in many
parts of the world and is seeing strong growth. We expect
traditional pay TV to remain dominant for the next five to ten
years at least. Global pay TV subscription revenues are forecast to
grow at 5% p.a. over the next four years and pay television
advertising by 6% p.a.
Digital opportunities abound
Internet distribution of long-form video is coming of age. It
allows audiences to view video across multiple devices: television
(often via a games console) alongside PC, tablet and
smartphone.
This was another year of strong smartphone and tablet sales.
Smartphone penetration (see fig. 4) continues to rise and in some
markets, particularly in Asia, laptop, tablet or smartphone is the
'first screen', not television. The proportion of the population
using smartphones in urban China is now 35%, higher than in the USA
at 31%, and in the UK at 30%. In tablets, the year included the
launch of the Amazon Kindle Fire and Apple's new iPad. New devices
are not just offering new routes for distributing traditional
media. They are also contributing to the apps explosion - the 25
billionth iOS app was downloaded in March 2012 - and they are
changing the way audiences consume media. Multi-screen consumption
is increasingly the norm. In the US, Nielsen estimates 42% of
tablet owners use them daily at the same time as watching
television.
For publishers, in-app purchasing has become an established
business model, generating almost as much revenue as paid-for apps
and forecast to become the dominant business model over the next
few years. Advertising on mobile devices continues to grow
strongly, topping $4.6bn in 2012, a 28% increase on 2011, with
growth forecast to drop only slightly to 20% in 2015. However,
mobile poses challenges as well as opportunities for many media
companies. Facebook's initial IPO filing highlighted the challenge
it faces in monetising mobile users. Facebook had 425m monthly
users on mobile platforms in December 2011 but admitted it did not
have a business model for monetising them. It has since launched a
mobile marketing solution.
Very social
Social media continues to mature, with companies such as
LinkedIn, Zynga, RenRen and Groupon all going public in the year on
the back of social media business models. Despite the challenges of
mobile, Facebook's ad revenue is forecast to exceed $5bn in 2012,
representing a 6.5% share of all US online advertising. This brings
increasing competitive pressure for all ad-funded media, including
other digital outlets.
As the size of Facebook's user base has grown, it has rapidly
become a major source of traffic for many sites, including a number
of BBC Worldwide's properties. The increasing number of Facebook
apps is also having a major impact on the digital media landscape.
Companies such as Spotify and Zynga have used Facebook apps as a
key pillar for their business and more traditional media titles
such as The Guardian and The Wall Street Journal are following
suit, releasing apps which allow viewers to engage with their
content within the Facebook environment.
New digital ecosystems are increasing the value of content,
especially video, to users and advertisers - a trend content owners
must capitalise on. However, this also poses challenges for content
owners, both financial in terms of revenue sharing and in
maintaining relationships with consumers, around the ability to
access consumer information and to provide a seamless experience
across multiple ecosystems and platforms. Regardless of the ongoing
negotiation between content owners and technology platforms,
consumers will continue to benefit from rapid innovation.
The battle for content
The increasing number of outlets for media content, enabled by
the growth of digital distribution and new devices, has increased
the demand for quality content.
This battle for content has fuelled yet more interest in content
creation. ITV has identified ITV Studios as key to rebalancing its
revenue sources away from advertising. And the UK independent
production sector remains a popular route for international media
companies to acquire both content rights and the companies that
create them. The flow of deals has continued this year including,
for example, the acquisition of UK indie Betty by Discovery -
Discovery's first acquisition of an independent production
company.
Access to quality content is a major battleground for the
industry and at BBC Worldwide we work hard to remain the
distributor of choice for independent producers.
What the consumer wants
Ultimately, structural changes in the industry are driven by a
combination of new technology and what consumers want from their
media experiences. Consumer choice is proliferating. Despite this,
for now, time spent watching television is stable (on average 146
hours 45 minutes per month in the USA). Time spent watching video
on the internet grew 7% year on year, but remained relatively low
by comparison at 4 hours 31 minutes per month.
Change is the only constant in the media industry and, only by
understanding and responding to consumer needs can media companies
grow. At BBC Worldwide, we have a strong content catalogue, we
believe our diversified portfolio is a strength, and we are
enhancing our ability to understand what consumers want and deliver
our content in the right way and at the right time. We continue to
invest in building new businesses, particularly
consumer-facing, but balance this with continued investment in the
best content to offer to our partners around the world. We believe
this positions us well for the excitement and challenges
ahead.
- Multi-screen consumption is increasingly becoming the norm and
BBC Worldwide is ensuring its content is available on multiple
platforms to suit consumers' desires