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Television industry is experiencing significant growth in the UK. During the past decade it went through some major changes, that have reshaped the whole picture in the industry. These changes will most certainly continue in future. There are a number of questions that are important to answer, such as where all these changes will lead to? Will they make the industry more profitable or will they cause losses? Which companies will more likely fall into each of these categories? Is the industry worth investing? Can it bring any good return on the investments made today?
If it can, then where in particular and in what particular way these investments should be made? The authors of this report aim to analyze the current situation in the UK TV industry and suggest the forecast for its future, taking into account the various trends of development, present today in the industry. A significant part of this report is devoted to the overview of the industry and SWOT analyses of the main companies and industry sectors. This kind of analysis gives an extensive information about the current situation in the industry as it provides a detailed list of the strengths and weaknesses of the main companies.
It also outlines their opportunities and threats, which gives the base for the future forecast. The information found in the SWOT analyses is summed up in the sections: “The current situation in the UK TV industry” and “The main trends in the UK TV industry”. The report moves on to forecasting the future and on the basis of its findings gives recommendations to an investment bank. THE PAST GROWTH AND THE FORECAST FOR THE FUTURE. The UK television is experiencing a period of significant change with continuing developments in broadcasting via cable satellite and digital terrestrial platform.
According to the information, presented in the Key Note 2002 report on cable and satellite broadcasting in the UK, in nominal revenue terms, the total UK television market grew from i?? 4. 21bn. in 1995 to i?? 7. 19bn. in 2000, which is approximately a 71% growth. Now its total value is approximately i?? 10. 14bn. , which is a further 41% growth comparing with the year 2000. The growth in the industry, however, is not homogeneous. Since 1998, the popularity of the digital television service has been constantly increasing, while analog television has been steadily declining.
The high growth rate of the digital television service was due to subscription and pay-television operators, while the share of commercial terrestrial television had been constantly declining until the May 2002, when ITV Digital (the digital terrestrial television provider) ceased its operation. The failure of ITV Digital shows just how far behind the established pay-TV operators the traditional free-to-air broadcasters are. Although ITV has later been reestablished and there have been additional investments made for strengthening the signal (DTG Press release.
May, 2002), the successful future of it remains doubtful. In 1995, commercial terrestrial accounted for 53% of total UK television revenue, but by 2000 its share had fallen to 39%. Today it only provides services to 7. 2% of the UK households, comparing with the 29. 4% figure for the satellite broadcasting and the 8. 8% figure for the cable television (ITC. The UK TV market overview, September 2003). According to the Independent Television Commission Forecast for the future of digital television, its growth between the years 2003 and 2007 should be from 58% to 78%. THE OVERVIEW OF THE UK TELEVISION INDUSTRY.
Until 1955, when the commercial television (ITV) was introduced, the BBC had been a monopoly in the UK television industry. The major changes in the UK television industry began in 1979, when the UK government was reelected. Two major changes have occurred in the television sector. The first one was the launch of Channel four in 1981, which was supposed to get its content from independent producers. The other one was the introduction of a minimum 40% quota of independent content suppliers on BBC and ITV (later this figure was reduced to 25% by the Broadcasting Act 1990).
These changes led to a rapid growth in the UK independent TV programs production sector (Briggs & Cobley 1998 p. 127-128). The development of new technology and increased competition from foreign companies in the last decade of the previous century largely underpinned the further changes in the industry. BSkyB, formed in 1990 form the merger of the US Sky and British Satellite Broadcasting, steadily took the leading position in the UK television industry. The importance to compete has led to a large number of mergers and the overall consolidation of the industry.
In 1993 the 15 ITV franchises were owned by 15 companies. By 2002 this number decreased to only two companies: Granada Media plc. and Carlton Communications plc. , each owning 50% of ITV. Today ITV is jointly owned by 6 companies, among which Carlton Group and Granada Group control 12 of the 16 ITV franchises. The other four are controlled by Scottish Media Group, Channel and Ulster (ITC 2003). The need to compete has also influenced the UK cable operators. In 1992 there were 29 cable companies (19 from the US or Canada). In 1997 this number decreased to 13 companies controlling 155 regional franchises.
Today there are two major operators (NTL and Telewest Broadband) and two small operators (OMNE communications, operating in NW England and SW Scotland; and Wight Cable, operating in the Isle of Wight). There is a possibility for even further consolidation of the industry. The smaller cable operators can be acquired by major cable operators in order to extend their services to a larger audience. The merger between Carlton and Granada is currently in process. In the beginning of October 2003 it was backed up by the Trade & Industry Secretary Patricia Hewitt.
The pair’s i?? 4 billion merger is on course to complete in January 2004. There has also been the movement of terrestrial television companies into the non-terrestrial market. THE MAIN COMPANIES IN THE UK TV INDUSTRY AND THEIR SWOT ANALYSIS. SATELLITE TV OPERATORS. British Sky Broadcasting Group Plc. BSkyB claims to be the world’s most successful satellite pay-television operator. The total number of subscribers to Sky’s channels on all platforms steadily increases (representing approximately 44% of all TV households in the UK and the Republic of Ireland).
This is largely due to the successful strategy applied by the company in the UK TV market. Another reason which has largely underpinned the success of BSkyB was that in the eighties the competition in the UK TV market wasn’t big. Before satellite became available, cable didn’t offer a great program choice (four channels). The investments in the cable industry were not big, as it was seen as being ‘as supplementary, and not as an alternative or rival, to public service broadcasting’. Thus many people didn’t have the option and went for Sky (Martin 2000 p. 25-36). Strengths.
– BSkyB controls the encryption technology and is currently the ‘gatekeeper’ of the satellite broadcasting in the UK. For any channel operator, getting through the gate requires the payment of significant fees. Bypassing the gatekeeper requires any new channel establishing of its own encryption and marketing system. Apart from the high investment and running costs, this would require viewers to buy a new decoder box to sit on top of their television sets. As a result BskyB now distributes the program channels of other media companies via a series of joint ventures (Johnson and Scholes 2002, p.815-816).
– It has the largest revenues in the industry, which means that the sums it can afford to pay for films and sporting events are considerable. – It has increasingly attractive content. BskyB offers more than 300 channels and cable companies, not being able to offer any service of the same versatility, buy content from BskyB. Thus each new cable subscriber is a potential subscriber for BskyB. – BSkyB’s programming consists of its own content and the content of other channel operators, who pay BSkyB for distribution.
Thus BSkyB is able to offer prices for its service, which are up to 30% cheaper than those of cable operators. – While many rural areas of the UK are not cabled, as the cost of cabling in the UK is very high, and some households also experience problems with digital terrestrial service, the satellite television is available everywhere and its service is of a high quality. Weaknesses: – Subscribing to the satellite TV service means buying the necessary equipment, including attaching the satellite dish to the wall of a house. This may be inconvenient and costly, comparing with cable TV.
However BSkyB has been extremely successful in convincing the customer so far. BSkyB often introduces new offers, such as free equipment for those who sign up for a more expensive package. – Most of its profits BSkyB receives from subscription fees, thus it has to constantly improve and develop its service in order to retain the existing customers and attract new ones. Opportunities: – In the light of the increasing popularity of the satellite broadcasting service and taking into account the high quality of BSkyB’s programming, it becomes more and more appealing for advertisers.
– The further expansion of the UK television market means the development of new programming. This will bring in the fragmentation of the audience, as the number of people watching each particular channel will reduce. This means that on one hand the competition for advertising revenue will increase, while the demand for TV advertising will reduce. In this situation BSkyB has a big advantage, as, being the most financially healthy company in the UK TV market, it will be able to offer the most attractive prices. Threats: – The recent trends in the development of interactive television, present some threats for BSkyB.
In 2001 it has launched its Sky Active program, an interactive service through a channel interface, including messaging facilities, such as e-mail and SMS; information services, such as cinema listings. However any further development of this program by BSkyB is very doubtful, as satellite technology has significant limitations in comparison with cable in terms of the possibilities for new interactive services. Satellite technology only allows for a one-way information flow. This means, that in order to offer these additional services BSkyB has to use BT cable networks and pay fees for that.
This doesn’t completely solve the problem, however, as the networks offered by BT only allow for a limited information flow, comparing with those, offered by the UK cable operators. – According to the Key Note 2002 report on cable and satellite broadcasting in the UK, the competition authorities in the UK and Europe have always paid close attention to BSkyB’s commercial activities. Changes in the regulatory environment could yet pose a serious threat to BSkyB’s dominant position in the UK pay-TV market. – The merger between Granada and Carlton, which is currently in process, may present increased competition for BSkyB.