The Provision And Consumption Of Online News –current And .

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BBCThe provision and consumption of online news – current and futureDecember 2014 Mediatique Ltd 2014 This document is confidential and intended solely for the use and information of the addressee

Contents1. Executive summary2. Key dynamics in the provision of news3. The provision and consumption of online news4. The online news market in the UK5. The future of online news provision6. AppendicesThis report was commissioned by the BBC to analyse the most recent trends in the provision and consumption of online news inthe UK, with reference to international market developments; further details on the background to this report, and otherimportant information, are provided in the appendix Mediatique Ltd 2014 2

Key findings at a glance: broad dynamicsKey evidence The UK is home to one of the world’s leading online news sectors – in theform of successful global champions such as Mail Online, the Guardian, theTelegraph, the Financial Times and the BBCThese players between them (excluding the FT) have c460m visitors amonth, with nearly two-thirds coming from outside the UKThe number of online news sources used on average in the UK has risenfrom just over three to just over five in the past two years, with youngercohorts more likely to use multiple sources and online users morepromiscuous than those using traditional platforms only UK news consumers have a wide array of online choices via multipleplatforms (PCs, tablets and smartphones), using a growing range of sourcesin combination The UK’s top-10 providers of online news come from broadcasting,newspapers and online-only providers, offering increasingly video-rich newscontent spanning multiple genres (global, national, local) Journalistic, marketing, technical and commercial skills are highly developed,feeding a vibrant ecology characterised by a range of business modelsThe UK sustains more journalists per capita than the US, and has takena lead among international markets of re-skilling of journalists for theonline world New entrants are investing in granular online news and re-skilling has seenhundreds of new jobs filled in the online space by journalists migrating fromprint and TVOf c 700m in revenues generated globally by online-only newsproviders in 2013, roughly 90m is estimated to have been generated inthe UK, supporting significant investment in editorial These new entrants are growing quickly, reaching critical revenue massmuch faster than did legacy operators when moving online – testament tolower barriers to entry and resultant service innovation As a result of these factors, the UK market for online news is large andcompetitive, characterised by a mix of legacy and new entrant playerspursuing various business models – from paid-for access to payments formobile apps, “freemium” hybrid pricing and free (ad funded) Mediatique Ltd 2014 With the BBC, newspaper brands and digital natives round out the top20, which between them generate 75% of all usage (by time spent)Buzzfeed took just four years (in its current iteration) to reach 50m ofrevenues and Huffington Post just eight; newspaper sites Guardian,DMGT took considerably longer“Free” is the favourite model in all key jurisdictions, whether or notthere is a publicly funded provider of scale: willingness to pay for newstrends between 7-15% of users in all major markets3

Key findings at a glance: the prospects for legacy providersKey evidence While print is facing significant challenges in the UK as in every other majormarket – the result of shifting consumer behaviour enabled by technology –print titles are developing digital strategies that mitigate declines in corerevenues; the newspaper sector as a whole remains profitable in the UK The prospects for generating incremental revenues from online news havebeen enhanced by increasing international opportunities for UK mediacompanies, targeted advertising, data collection and monetisation The UK news sector is in transition, but it is not alone; in particular, thechallenges facing the newspaper industry as it re-structures are similar inevery market, whether or not there is a publicly funded, at-scale provider oftraditional and/or online news The market is developing in the UK and internationally in line with dynamicsthat are not in any demonstrable way distorted by the BBC and its fundingmodel.for example, publicly funded news providers in other territories have notsecured equivalent traction to the BBC, whose position in the marketplacehas been effectively earnedMoreover, while it remains the market leader, the BBC has seen its sharemoderate, as the market becomes more competitive, as the BBC’s externallinking policy accelerates and as new entrants secure bigger audiences.Recent data suggests that usage of BBC online news does not prevent – andindeed can encourage – consumption on other news sites Mediatique Ltd 2014 UK newspapers have seen circulation and advertising revenue declines(sector wide down by 1.5bn since 2009), owing to fragmenting anddeclining print audiences; digital income has risen in mitigation (nownearing 500m excluding specialist financial news), but held back bylower dwell times, increased competition and commoditising ad pricesBoth the FT and the Economist generate significant internationalrevenues (behind a pay wall), with the FT Group securing 55% of its 450m revenues in 2013 from outside the UK; the Guardian and MailOnline have begun to derive (modest) ad revenues from outside the UKThe newspaper market is facing declines in its core revenue segments ofcirculation and press advertising in every major market reviewed in thisreport – irrespective of the presence in the market of a PSB online newsplayer of scalePSB players have not managed to build a leading online news presencein France, Germany, Italy or the US. Among PSBs in key Europeancountries where public funded providers are active, only the BBC is adomestic leaderThe BBC’s share of online engagement (PC only) has declined to 27%from 36% over two years, with significant growth in the BBC’s linking tothird parties; BBC News online users are more than twice as likely thanthe average to consume content on newspaper sites4

Key findings at a glance: the role of the BBCKey evidence Despite the degree of multiple sourcing in the UK, the BBC continues to bethe most trusted news source in survey results: the BBC’s online news outputis regarded as “up-to-date”, “accurate” and “trustworthy” and is a majordestination when users look for in-depth coverage These characteristics are also associated with the major newspaper titles,which are also regarded as offering expert analysis However, the BBC and the established newspaper groups score far lowerwhen consumers are seeking entertaining stories, the ability to comment orto catch up on gossip This underlines the degree to which consumers of online news use differentservices for different reasons, as fresh survey data from the BBC shows.More broadly, the BBC provides a trusted source of online news that isrecognised as accurate and without any corporate agenda The future of the online news market in the UK will be determined by theinterplay of technology, consumer behaviour and economic factors – theBBC’s role will likely evolve with the grain of market change, and the BBC isset to become more important in ensuring a vibrant and plural news marketThe BBC is five times more likely to be chosen as a source to “checkwhether something is true” than the next closest provider.The BBC is five times less likely than Facebook to be chosen byconsumers when they seek to learn the “latest gossip”Recent survey data confirms a high degree of sophistication amongusers when sourcing online news, who profess to use different sourcesto achieve different objectivesIn the key future scenarios explored in this report, the BBC’s rolecontinues to be critical to the delivery of plurality given the reliance ofUK consumers on the BBC for impartiality, accuracy and in-depthcoverage, for which attributes other suppliers are less notedThe most likely market direction in the medium term is evolutionary, with growing displacement of broadcast and print news by online propositions, a greateravailability of content on-the-move, an increasing market share for new entrants, a growing role for social media in generating online news engagement, acontinuation of hybrid funding models (including pay walls for certain content and functionality) and further re-structuring of the newspaper industry – in thisscenario, the BBC plays a critical role in maintaining plurality, impartiality, reliability and trust; it is also a crucial supplier of news to that minority of online newsusers that does not consume via multiple suppliers Mediatique Ltd 2014 5

1. Executive summary2. Key dynamics in the provision of news3. The provision and consumption of online news4. The online news market in the UK5. The future of online news provision6. Appendices Mediatique Ltd 2014 6

The provision and consumption of news is highly valued in major media markets throughout the world, and themarket for news remains robust and competitive spanning multiple platformsPlatforms used for consuming news (internet users, 2013)* TV remains the single most used platform to access news across allmajor territories: more than three-quarters of UK adults identify TV asone of their news sources79%59%37%Even among internet users, TV leads as the primary source of news inall the key markets we review except Italy, following by online andthen print (see at right)Newspapers are named as the most important source news by just13% of online news consumers surveyed in the UK by Ofcom – 35% ofinternet users name online as their primary source of national newsThe shift toward online has been accelerated in recent years by thegrowth in penetration of tablets and smartphones, which have growntheir share of overall online consumption, by the rise of social mediaand by the inexorable growth in broadband connectivity – now 70% orabove in every country we reviewed bar Italy (see overleaf)74%UKFurther details on the share of news consumption via traditional anddigital platforms are provided in the Appendix, page 5582%68%46%44%FranceTV63% lyUSAOnlinePrimary source of national news content (% of internet users, 2013)**47%40%44%38%35%39%36%29%28%22%13%7% o11%4%USAOnline* Source: Reuters Institute Digital News Report 2013. Survey asked to internet users only, leading topossible overstatement of online news usage** Source: Ofcom International Communications Report 2013, TS (Sweden) Mediatique Ltd 2014 7

The provision of news has been deeply affected by increasing technological enablement, allowing “online” toemerge as a viable distribution media for newsBroadband penetration (% households) A chief driver of online consumption has been the growth first ofbroadband penetration and latterly of smartphone and tablet take-up –these have rendered the online news space viable in terms of thenumber of consumers providers are able to addressMore than half of the adult population now own smartphones in theUK, Sweden, the USA and Australia; tablet sales have increasedexponentially in all markets, with Australia currently the market ySwedenUSAAustraliaSources: OECD, Akamai (local market estimates may differ)Smartphone penetration (% adults) It is worth noting that in the UK, roughly 80% of all tablets in use donot have a SIM-card, limiting use to the home, office and WiFi hotspotsThe relative penetration of tablets, smartphones and PCs in partdetermines the scale of online news consumption, as user sessions forPCs and tablets are typically longer than for smartphones62%51%30%Broadband speeds are increasing throughout the markets reviewed:the average speed in the UK is now 9.1 Mbps (see Appendix page 51for market comparisons) and high 3G and 4G take up means thatonline news is increasingly quick to access and view on any %201120122013UK e: Google Think insights: Our mobile planet 2013Tablet penetration (% lySwedenUSAAustraliaSource: eMarketer Mediatique Ltd 2014 8

The rapid growth of online news consumption and shifting consumer preferences (immediacy, brevity) have ledto a convergence of propositions from previously distinct mediaConvergence within the online space The growth of online capability for the mass market has inevitably hadan effect on the business models of legacy operators, withbroadcasters and newspaper publishers obliged to migrate to onlineproposition in line with market demandBroadcastPrint What had therefore been quite distinct routes to market in the pastare now converging, with newspaper groups and broadcastersinvesting to make their content available on PCs and mobile devicesOnlineMeanwhile, digital “native” propositions have mushroomed, takingadvantage of the lower costs of production and distribution and thelack of any significant barrier to market entry (see Appendix, page 56)There has also been a convergence in content, with online and Apppropositions more likely to offer video and user-friendly graphics andnavigation tools (although text still dominates; see Appendix, page 57) Even websites for news look more like mobile Apps, with a trendtoward thumbnail portraits, tiles, and emphasis on short-form video In very broad terms, the greater use of graphics, video and short textheadings favours a skills set different to those previously associatedwith in-depth news and reporting Meanwhile, discoverability has been transformed by the role of socialmedia in driving traffic directly to specific content rather than tobranded home pages Mediatique Ltd 2014 NewentrantsAttributes ofbroadcast market: Simple themes Visually rich bydefinition Emphasis onvideo and afavouring ofbrevity The convergence of multipleplayers towards“greenfield” online newsensures that no player has alegacy “right” to marketshare online Print operators mustcompete with broadcastersand new entrants on equalterms – market share isultimately gained bysuccessful strategy andinvestment in journalismAttributes of printmarket: Still key sourceof in-depthreporting anddeep analysis Aimed atelucidating“why” not just“what” and“when”Attributes of onlinemarket: Immediacy andrelevance arefavoured Deeplyintertwined withsocial media andcitizenjournalism9

A direct impact of the emergence of online news has been a major decline in press circulation and readershipChanges in paid national newspaper circulation (2009-2013) The growth of online usage generally (not just for news consumption)has had a very direct impact on the newspaper industry in alljurisdictions, compounding challenges faced by the sector that werealready apparent before the advent of the internet1.000.920.88Initially owing to the easy substitution of newspapers for online in theclassified arena, readership has declined sharply as readers moved toonline sources of information and data (e.g., for property, recruitment,travel, automotive) – this has led to two sources of revenueimpairment: circulation revenue for those newspapers distributed on apaid basis and denUSAAustralia The loss of advertising revenues has been compounded by the inabilityof newspaper groups to offset lost classified income from their ownonline propositions – not only do they face competition from digitalnatives in that space, but confront search and navigation giants able tocharge small per-unit prices on vast inventories0.3920092010201120122013Rebased to 1.00 The rout has been compounded now in display advertising as well –where online and particularly mobile have taken share, as onlinepropositions become more visual, and as mobile propositions begin tosecure advertising in line with their growing share of consumer usage;newspapers have sought to shift to online and mobile distribution butface increase competition from new entrants as they do so In the UK, paid for circulation has declined by 25% in the past five years Mediatique Ltd 2014 Sources: BDZV, ADS, ABC, ABC Australia, IFABC10

An indication of the degree of substitution between print media and online propositions can be seen in therelevant advertising market shares of the twoTotal newspaper NAR (national and regional, 2009-2013) The impact on revenues has been significant – with a spiralling cycle oflower readership, declining classified and display advertising incomeUK1.00 FranceWhile there has been a broadly similar increase in the share of totalonline (excluding search) compared to the decline in newspaperadvertising income in major markets in the past five years (see atright), the online income has been shared among a number of players,not just the newspaper groups with online propositionsThus, legacy newspaper groups have seen “traditional” advertisingincome decline by more than their digital propositions couldcompensate – with online competition for consumer eyeballs comingfrom a host of sources, including social media, gaming, entertainmentand with the compelling tailoring and targeting possible via ySwedenUSAAustralia2013Rebased to 1.00Source: ZenithOptimediaOnline NAR (excluding search, 2009-2013)Looking specifically at the UK, online advertising (excluding search) hasrisen from 1.2bn in 2009 to 2.1bn in 2013; in the same period,newspaper advertising in the UK (across national and regional titles)has declined to 2.1bn from 2.8bnIn that same period, online advertising income accruing to newspapers(excluding the Financial Times) has gone from just over 100m tonearly 300m (over a period when legacy advertising revenuesdeclined by c 13Rebased to 1.00 Mediatique Ltd 2014 Source: ZenithOptimedia11

Newspaper publishers have responded to the structural challenges in two ways – cost cutting and digitaldiversification – and now play a major role in the online news marketExamples of newspaper groups’ diversification in cohort markets Globally, newspaper publishers have responded on various fronts toaddress challenges in their core marketsNearly everywhere, format sizes have been reduced, paginationdecreased and frequency changed (for example, daily to weekly); thesecost-cutting measures have been amplified by outright closures oftitles, consolidation of print operations and staff reductions, includingof frontline journalistsNewspaper publishers have experimented with a range of newproducts and services, including loyalty clubs, specialist retail offerings(wine, music, books) and more recently online propositions rangingfrom websites to mobile AppsFor their online propositions, publishers have increasingly tested arange of business models, from full-blown pay walls around newspapercontent online, to payments for portability (via tablets in particular) toad-funded accessSome (notably in the UK and Scandinavia) are developing datacollection and monetisation projectsIn addition, publishers are introducing more video content, specificallyto compete with new entrants and to secure advertising premiaassociated with video ad insertion Mediatique Ltd 2014 Newspaper/PublisherDiversification strategyJohnston PressAs part of Sky’s investment, Sky's AdSmart will be made availableto parts of Johnston Press' sales networkNews UKPaid 20m for premier league highlights in order to drivesubscriptions in their pay-wall propositionsLe MondeShareholder in Le Huffington Post, providing local editorialresources in retur

The provision and consumption of news is highly valued in major media markets throughout the world, and the market for news remains robust and competitive spanning multiple platforms TV remains the single most used platform to access news across all major territories: more than three-quarters of UK adults identify TV as one of their news sources

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