Should Traditional UK Broadcasters Fear Their New Competition?

Paul Robson from Medialease discusses recent developments in broadcasting...

With the rise of the mega-successful Amazon, Netflix, Facebook and – just announced – Snapchat television broadcasters, it may seem that the traditional UK broadcasters' big profit might be at risk. Video – especially mobile video – is big business, with large technology companies all wanting a piece of the action.

What does the research say?
The way in which British television consumers watch TV has been changing for a few years now as we know, with more and more younger people watching online content only and some only ever watching YouTube or Facebook footage. According to recently-published research by OC&C Strategy Consultants, this disruption to the norm could cost established players, such as Sky and ITV, as much as £1bn in lost profits – not just revenue.

The research from OC&C revealed the potential disruption to revenues for traditional UK broadcasters. With service providers such as Facebook, Netflix and Amazon making original programme content, consumers have too much choice in what they can watch, creating the need for aggregation services to serve content.

OC&C's latest report, 'To Platform, or not to Platform?', examines the risk to the broadcast industry and the speed that this change is already happening. The report warns that traditional terrestrial broadcasters are effectively giving profits to new channel aggregation services, such as Amazon or Facebook; something that's already commonplace in other business areas such as news and financial services. If traditional broadcasters don't act quickly, then their very profitable existence could be threatened.

These new channels – known as 'super-aggregators' since they allow other content owners and broadcasters to share their TV services – are growing in number and their content library is vast. A friend of mine has recently left Deluxe in London to re-home his family in LA and has started work for Facebook; he says that the number of staff is growing exponentially, plus the sheer amount of original commissioned content is off the scale.

It is anticipated that these new TV providers will shortly take 15-20% revenue market share, at which point the UK broadcast industry's estimated profit margin of £1bn on £15bn of annual revenues could be at risk. This figure will double to £2bn if these companies also distribute their programming content over the internet; they would own the relationship with the viewer and therefore be able to control distribution and marketing.

Too much choice?
The research from OC&C showed that viewers feel overwhelmed by the number of services available, with over 1,000 new viewing platforms currently in existence globally. 40% of the UK's under-35-year-olds, who represent the key audience to these new broadcasters, say the amount of choice is confusing, and this increases to nearly 50% among over-55s. On average over the last year, most people have used four or more different online TV services, with 20% of under-35s using more than seven online TV services. This is a very confusing way to access content.

According to Mostyn Goodwin, Partner at OC&C Strategy Consultants, these developments may give rise to "the need for a super-aggregator service that provides a universal access point to content, a better search function and single point of billing. As we have already seen with the newspaper industry, however great for consumers, these platforms have caused significant problems for the industries they disrupt and aggregate. If this also happens in TV, the UK broadcast industry's £1 billion profit could be put at risk."

What's the future?
Times are certainly changing in broadcast. These new television platforms have grown from being simply a programme customer into a rival content provider, and traditional broadcasters must look to their own roles in the future to keep pace. Broadcasters have many different options, including opening their own online services or syndicating their channels to independent platforms; OC&C suggests they perhaps look at strategic partnerships to keep their offerings relevant to the viewer.

With probably only a couple of traditional broadcasters producing enough content to launch their own online branded service, others will need to work closely alongside these new kids on the block. Whether by sharing their services or selling finished programmes to them, broadcasters need to decide how to cooperate with the 'enemy' in order to have any control over their own future.

If you need advice on finance for the broadcast and live events industries – confidential or otherwise – please contact the team at Medialease on 01327 872531 or visit www.medialease.com.

This article also features in the September edition of Broadcast Film & Video.

(JP)