Final Report for Department for Business, Innovation and Skills and Department for Culture, Media and Sport
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- Expenditure on content
- Trends in the number of TV households
- Employment
RevenueWe have calculated the total revenue attributable to TV broadcasting as being the sum of the BBC’s income, subscription fees (for example from BSkyB), advertising revenue, other revenue and the revenue from equipment retailers. This gives a total of £16.1 billion in 2011. In the following, we discuss the various elements making up this total. According to Ofcom, in 2011 there were 515 TV channels broadcasting in the UK (up from 510 in 2010), with a total TV revenue of £12.3 billion (up from £11.7 billion in 2010). As Figure 4 .22 shows, the main sources of revenue are subscriptions to pay-TV services, advertising revenue for commercial channels and licence fee revenue for the BBC. Subscription revenue has grown steadily in the last few years, net advertising revenue has returned to its 2008 level after a decline in 2009 due to the economic slowdown, and the amount of licence fee revenue allocated to TV has stayed fairly constant. Average viewing per head per day across all households decreased slightly from 4.04 hours in 2010 to 4.03 hours in 2011, although the share of viewing of the five main channels reduced from 56% to 53% over the same period.28 Below, we consider the revenue of the main players in turn: the BBC, the commercial broadcasters, BSkyB, and equipment retailers.
The BBC is a semi-autonomous public service broadcaster, providing two of the five main TV channels, a number of other digital channels and an extensive selection of radio services (discussed in Section 4.3.4). The BBC’s total turnover in 2011 was £5.0 billion, a 4.2% increase on the previous year (see Figure 4 .23). The UK Public Service Broadcasting (PSB) Group is the unit whose activities are primarily associated with the use of radio spectrum in the UK (for TV and radio broadcasting). The UK PSB Group accounted for 72% of the BBC’s total turnover in 2011. However, UK PSB’s turnover has been relatively flat since 2009. A breakdown of the BBC’s revenue for 2011 is provided in Figure 4 .23 below.
The BBC’s licence fee has been frozen at its current level of £145.50 per household until the year 2015/16, and the BBC has agreed to take on a number of additional financial commitments which are not directly linked to the use of radio spectrum in the UK, including the funding of: the World Service (which is primarily aimed at non-UK listeners) from 2014/15 BBC Monitoring (which monitors and compiles information from mass media worldwide for UK Government and other commercial and non-commercial customers) from 2013/1429 rural broadband projects from 2013/14, at an estimated cost of around £150 million per year, mostly using funds that were ring-fenced to meet digital switchover costs in previous years.30 We estimate that the resulting impact on the BBC’s turnover will be a reduction of around £165 million in 2013, rising to £400 million by 2015/2016. In terms of costs, the shares of expenditure in each area of UK PSB’s activity have remained fairly constant for the last three years. TV expenditure accounts for approximately two-thirds of total expenditure (£2.4 billion in 2011): content accounts for nearly 80% of TV expenditure; distribution accounts for around 5%; and the remaining amount is spent on infrastructure and support. Commercial broadcasters typically break their revenue into two major categories: Net advertising revenue (NAR) is the amount received by the broadcaster as payment for spot advertising, net of any commission paid to agencies (historically, advertising and media agencies were paid by means of these commissions from media owners, although many clients now pay their agencies on a fee basis instead) Non-NAR is the remaining revenue from all other sources, including sponsorship, content sales and phone-in revenue. In 2011, Ofcom reported that total commercial TV revenue in the UK was £4.2 billion, of which £2.4 billion (56%) was earned by the main commercial PSB channels and their regional variants, and the remainder by commercial multi-channels (including those owned by ITV, Channel 4, Five and UKTV). This situation, shown in Figure 4 .24 below, represents a 3% increase on the 2010 total.31
Ofcom reported NAR of £3.6 billion across the sector in 2011, up 2% on 2010, meaning that advertising accounted for 83% of total revenue. As shown in Figure 4 .25, ITV1 earns the most advertising revenue (nearly 35% of the total), followed by Channel 4/S4C and Channel 5. The PSB portfolio channels collectively account for 15.8% of NAR, and other commercial multi-channels account for 23.5%.
BSkyB, as well as being a commercial broadcaster, operates the largest pay-TV platform in the UK, offers satellite TV services distributing its own content and content provided by third parties, and is a significant player in the fixed broadband market (an activity which does not involve the use of radio spectrum). Consequently, while the commercial broadcasting sector as a whole earns 85% of its revenue from advertising, BSkyB only earns around 6% of its revenue from advertising, with 88% coming from subscription fees (both retail and wholesale). Overall, BSkyB revenue increased from £5.7 billion in 2010 to £6.6 billion in 2011,32 a rise of 16% (see Figure 4 .26). Revenue from subscription fees increased from £5.0 billion in 2010 to £5.8 billion in 2011. NAR increased by nearly 35% from £340 million in 2010 to £458 million in 2011, while other revenue decreased slightly from £370 million in 2010 to £361 million in 2011.
Equipment retailers are the final type of player in the TV value chain which we have considered. According to the European Information Technology Observatory (EITO), total sales of TV equipment in the UK were £3.8 billion in 2011, down 6% on 2010. The largest component was non-hybrid flat-screen TVs (58% of total), followed by hybrid flat-screen TVs33 (38% of total). This revenue does not include subsidies on the set-top boxes which BSkyB and Virgin Media provide to their customers. Expenditure on contentAccording to Ofcom, broadcasters spent £6.1 billion on network content in 2011, up 12% from £5.5 billion in 2010.34 Film and sports channels accounted for 32% of the total amount spent, the BBC accounted for a further 32%, while the other PSBs collectively accounted for 28% of the total. £2.5 billion (41%) was spent on first-run originated output on the five main PSB channels.
The UK has a thriving independent production sector which contributed over £2 billion to the UK economy in 2011 according to a member survey undertaken by Pact (the trade association representing the sector).35 Independent UK production companies earned £1.3 billion in revenue from primary UK commissions in 2011 (down 8% from £1.4 billion in 2010) and an additional £165 million in UK rights income (up 7% from £154 million in 2010). They also earned £119 million from international sales of UK finished programmes (up 37% from £87 million in 2010) and £652 million in other international income (revenue from companies’ overseas operations and primary commissions received from non-UK broadcasters, up 32% from £495 million in 2009).Error: Reference source not found
It is worth noting that the UK TV industry as a whole is a significant exporter. PACT and UK Trade & Investment estimate that total revenue from the international sale of UK TV programmes and associated activities in 2010 (the most recent year for which data is available) was £1.4 billion, a 13% increase from £1.3 billion in 2009.36 BBC Worldwide is the largest exporter, reporting exports of £643 million in the year to 31 March 2011, up 9% from £589 million in the previous year. Almost every household in the UK has at least one TV set. Consequently there are around 26 million TV households. Around 35% have satellite pay-TV and 12% have cable, while a further 8% have free-to-view satellite. Only a small number of households take IPTV (i.e. TV service delivered exclusively via an internet connection and thus not relying directly on the use of spectrum).37 This leaves over 40% of households with Freeview DTT as their main means of reception (of course, many of the households with cable or satellite also have Freeview on secondary sets). While we expect the number of TV households to grow in line with the growth in the overall number of households over the next decade (which is driven by a rising population and a large proportion of people living alone), we do not foresee any major changes in the share of TV households relying on different technologies. Figure 4.29: Split of TV households by technology (primary TV set) – historical values and forecast [Source: Ofcom (historical) and Analysys Mason (forecast), 2012] 
EmploymentWe estimate that the TV broadcasting sector employs at least 40 000 people in the UK. The BBC’s TV PSB Group, ITV, Channel 4 and Channel 5 collectively employed around 16 000 people in 2011. BSkyB also employed around 16 000, although this figure includes those working in the telephony and broadband part of the business (and around 9400 working in customer service, sales and marketing, which is a shared function for the broadcasting and the telephony and broadband parts of BSkyB’s business). In addition, we believe that the independent production sector continues to employ in excess of 20 000 people, although the most recently available data is for the start of 2010.38 The breakdown of employment across the main broadcasters is shown in Figure 4 .30 below.
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