Broadcasting Sector Report - Parliament

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Broadcasting Sector Report1. This is a report for the House of Commons Committee on Exiting the EuropeanUnion following the motion passed at the Opposition Day debate on 1 November,which called on the Government to provide the Committee with impact assessmentsarising from the sectoral analysis it has conducted with regards to the list of 58sectors referred to in the answer of 26 June 2017 to Question 239.2. As the Government has already made clear, it is not the case that 58 sectoral impactassessments exist. The Government’s sectoral analysis is a wide mix of qualitativeand quantitative analysis contained in a range of documents developed at differenttimes since the referendum. This report brings together information about the sectorin a way that is accessible and informative. Some reports aggregate some sectors inorder to either avoid repetition of information or because of the strong interlinkagesbetween some of these sectors.3. This report covers: a description of the sector, the current EU regulatory regime,existing frameworks for how trade is facilitated between countries in this sector, andsector views. It does not contain commercially-, market- or negotiation-sensitiveinformation.Description of sectorScope4. The broadcasting sector covers the production of audiovisual or audio (radio) contentand its distribution, which is subject to the framework of regulation overseen byOfcom (or, for TV stations based elsewhere in the European Economic Area (EEA),by another EEA regulator).5. This report primarily covers linear (or live) visual broadcasting services (digital TV,live streaming, webcasting, near video-on-demand) and non-linear services (video ondemand services such as the BBC iPlayer, All4, etc, or subscription video on demandservices such as Netflix). Radio is part of the broadcasting sector and is apredominantly domestic-focused industry subject to national licensing. Though themain focus of this document is on visual content, radio is discussed where relevant.6. There is a significant overlap with the creative industries (television and radioproduction and distribution is designated as a creative industry) as well as with thetelecommunications, manufacturing and technology sectors.7. This report does not cover video games (discussed in the Creative Industries report)or social media such as Facebook or Snapchat.1

8. The provision of equipment to receive television or radio services (e.g. manufactureand sale of television sets and radios, set-top boxes, satellite dishes etc.) are notcovered by this report. Equipment used to distribute content (which mostbroadcasters lease or contract for) is covered as this is a sectoral cost, but theimplications of the specialist equipment suppliers for this market - the majority ofwhom are based overseas - are not considered in any detail.Sector Overview9. Broadcasting can be roughly broken down into three phases: Production, Contentarrangement and packaging, and Distribution.10. Production (which overlaps with the Creative Industries sectoral report) refers to theproduction of TV, TV-like and audio content itself. This includes not only theproduction of television shows and news but also the presentation of sportsprogrammes where the underlying rights are not owned by the broadcasters (e.g.Premier League, Olympic Games). There are a large number and range of producersand creative content companies (all part of the creative industries), of a range ofsizes. Sectoral regulation has contributed towards creating a dynamic market ofindependents and non-independents (i.e. integrated with broadcasters).11. This market is driven by strong commissioning from public service broadcasters(PSBs), but in recent years there has been an increase in commissioning and coproduction deals involving UK-based commercial broadcasters and internationalbroadcasters. Alongside this investment ‘over the top’ (OTT) services such asAmazon Prime and Netflix which have now entered the commissioning market withlarge budgets. This broader, international market is key if the sector is to continue togrow, particularly as PSB commissioning budgets have fallen by nearly a quarter inreal terms since 2005.112. Content arrangement and packaging: Service companies include TV broadcasters,catch-up services and video on demand (VoD) services. The role here is to packageand aggregate content whether by traditional channels or OTT portals. The main subsectors are: 1PSBs: These organisations each have certain obligations regarding broadcastcontent and how it is delivered. PSBs include: the BBC (including the BBCWorld Service), which is licence fee-funded but generates a commercialreturn from post-broadcast content via BBC Worldwide; Channel 4 (stateowned but commercially-funded); ITV and Channel 5 (commercially-ownedand funded but meeting certain public service broadcasting requirements)and S4C in Wales (mostly funded by the BBC). All bar Channel 4, which is a‘publisher broadcaster’, have production businesses. There are also smallerchannels which serve a public service purpose, such as BBC Alba in Scotland(funded by the BBC and Scottish Government), and local TV services(commercially owned but benefiting from BBC funding for distribution andPSB Annual Research Report Ofcom - July 20162

news content). All the major PSBs have both live broadcast channels andcatch-up ‘players’ such as iPlayer; Commercial non-PSB broadcasters: including businesses with a specificfocus on the UK (e.g. Sky and UKTV) and international broadcasters usingthe UK as their European hub. The UK has become the biggest Europeanbroadcasting hub, with approximately 150 companies transmitting 7582channels into the EU. Revenue for commercial multichannels was 2.5bn in2016, having grown at an average of 5% each year since 2011.3 Furtheranalysis from the Commercial Broadcasters Association (COBA) shows thatbroadcasters invested 725m in UK content, including 597m in first-runcontent in 2013.4 Some of these broadcasters have catch-up players (e.g.UKTV Player) but most are currently individual or suites of live broadcastchannels; Subscription Video on Demand: Under a subscription contract, consumerspay a fee (usually monthly) in order to access these OTT services. Paid ondemand services have registered a steady growth; Netflix has a reportedyear-on-year growth of 17%, whilst Amazon more than doubled itssubscription base over 2016.5 These emerging players are generally notbased in the UK (for example, Netflix is based in the Netherlands6); Small International broadcasters: Ofcom licensee data suggests that thereare a number of small international broadcasters established in the UK (someof which target the UK and some of which exclusively target Europe,generally either aimed at diaspora groups, providing religious broadcasting orsome special interest).7 These small companies benefit from the resourcescreated by the hub of the larger broadcasters such as availability of skilledfreelance staff, and competitive pricing for production, post production anddistribution; and Radio: For radio, there is the BBC (funded by the licence fee) and commercialradio services (national and local) - local commercial radio has requirementsto provide news and locally produced content and is funded primarily byadvertising. There is also a community radio sector providing mainly localcommunity services with a smaller overall share of the market.813. Distribution, which includes free-to-view, subscription, and online. Pay platforms mayprovide equipment as part of the overall service. Radio operates separate distributionarrangements on analogue (FM, Medium Wave or Long Wave) or digital (DAB) as2Data from European Audiovisual Observatory: Audiovisual Service in Europe; this number includes 82 Ofcombroadcasting licences aimed at services both in the UK and Ireland3Communications Market Report Ofcom - August 201742014 Census: Multichannel Investment in TV Production COBA 2014 and Coba sector statistics5Communications Market Report Ofcom - August anoriginal-series7List of cable and satellite broadcasters Ofcom8Communications Market 2016: Radio and Audio Ofcom3

well as broadcasting online. For television broadcasting, the main free-to-airplatforms are: Freeview - digital terrestrial television received via an aerial provides free-toair TV to over 98.5%9 of UK households. Used by around 40% UK TV homesfor primary sets (this excludes DTT hybrid services - see below ),10 andavailable in up to 75% of homes (this includes secondary sets); and11FreeSat - via a satellite without a subscription. Effective coverage is around93%. Used by around 7% of UK TV homes.1214. The main pay TV platforms are: Sky - via satellite and generally bundled with internet services including ondemand services. Subscription service. Effective coverage is estimated to bearound 93%. Used by around 31% of UK TV homes; 13Virgin - cable based subscription service also offering high speed broadbandas well as pay TV and on demand services. Effective coverage is around 50%of UK homes passed14 (with plans to expand coverage ). Used by around15% of UK TV homes;15IPTV/ Freeview Hybrid services - offered by BT, Talk Talk, Now TV (Sky) andEE - these services also provide access to Freeview services. Coverageextends to around more than 90% of homes which now have sufficientbroadband speeds. Used by around 6% of TV homes; and16Non linear pay services - for example Netflix, Now TV (non-Freeview offer) orAmazon Prime. According to research carried out by Ofcom, Netflix in 2016had around 6.0 million UK subscribers whilst Amazon Prime have 3.8 millionUK subscribers.1715. The characteristics of TV platforms are changing to offer increasing access to ondemand services, which viewers can access in a large number of different ways.Supporting this is an increased amount of content production, including UKoriginated content supported by investment/co-production funding from the US butalso from European broadcasters, for example the BBC’s ‘Blue Planet II’ and ‘TheNight Manager’, which were jointly funded by international partners.9OFCOM, 2007, “Predicted coverage of public service and commercial digital television multiplexes nce/tech-guidance/dttcoverage10OfCom, CSV data file for Figure 2.37 - CSV, part of Communications Market Report - Ofcom - August 2017 Figure 2.3711Freeview estimates 2012: aX.9712OfCom, CSV data file for Figure 2.37 - CSV, part of Communications Market Report - Ofcom - August 2017 Figure 2.3713OfCom, CSV data file for Figure 2.37 - CSV, part of Communications Market Report - Ofcom - August 2017 Figure 2.3714Annual Report Liberty Global Annual Report - 201615OfCom, CSV data file for Figure 2.37 - CSV, part of Communications Market Report - Ofcom - August 2017 Figure 2.3716OfCom, CSV data file for Figure 2.37 - CSV, part of Communications Market Report - Ofcom - August 2017 Figure 2.3717OfCom, CSV data file for Figure 2.3 - CSV, part of Communications Market Report - Ofcom - August 2017 Figure 2.34

16. Some large businesses combine one or more elements of the chain (i.e. are verticallyintegrated). Examples of different business models are set out in the following tablewhich also illustrates the range of ownership models, the location of their majorbusinesses and the breadth of their operations.17. This description of the sector illustrates the variety of different business models thatwill have implications for the way the sector might develop. For example, integratedbroadcasters, platform-led businesses and those offering hybrid Freeview/IPTVservices.18. The production sector generates revenues from a range of sources (see Table 1).Table 1: Production sector revenues18Concentration of sector16. In terms of broadcasters’ audience share, the Ofcom table below shows how this haschanged over the last 30 years. In spite of the emergence of multi-channel TV andthe completion of TV switchover in 2012, the PSB family of channels still account for70% of audience share. This is connected to the change in platforms used to accesstelevision, while pay and free satellite begin to decline.18Oliver & Ohlbaum research for Ofcom Ofcom - December 20155

Figure 1: Audience share - 1988-20161917. Ofcom also estimate the reach of selected VoD platforms. BBC iPlayer is the mostused service (63% of adults used this service for watching TV programmes/films,with other platforms used by fewer people ITV (used by 40% of adults), Netflix (31%)and All4 (26%).2018. In terms of production, the four PSBs remain the main commissioners of new UK TVprogrammes. In 2001 the BBC, ITV, Channel 4 and Channel 5 accounted for 90% ofall programme commissions in the UK in terms of investment.21 In 2014, the PSBsremained the largest buyers of UK TV programmes, still accounting for around 85%of all UK non-sport new TV programme investment, a figure that has remainedbroadly flat over the past five years.2219. The PSBs all use external independent production companies - indeed Channel 4 isprohibited by legislation from building its own production business for its mainchannel, though it is permitted to take a minority share in independent producers.The figure below shows how production revenues are distributed across PSBs andthe independent production sector. Industry estimates suggest that the independentsector’s revenues are likely to rise further in future years as the BBC’s in-houseproduction guarantee is removed.2319Communications Market Report Figure 2.45 -Ofcom - August 2017Communications Market Report Ofcom - August 2017 p. 1321Review of the operation of the television production sector Ofcom - November 201722TV Production Sector Evolution and Impact on PSBs - Mediatique - December 201523TV Production Sector Evolution and Impact on PSBs - Mediatique - December 2015206

Figure 2: UK internal and external production, 2007-20142420. Both the size and structure of the independent (external) supply sector in the UKhave evolved over recent decades. There has been consolidation of smallerindependent producers and talent into large holding companies typically runningmultiple production brands.25 This has been driven by easy access to capital ,enabling investment, expansion and acquisition. This consolidation has led to aconcentration of supply at the top end of the market,26 and improvements inefficiency and the costs of production. However, a long tail of small independentproducers remains – in part reflecting the fluidity of the market, in which productiontalent can establish new start-up operations with relative ease.27Size of business in the sector2821. In 2014, 99.8% of firms in the sector (inc. film) were SMEs. Of these, 95% weremicro firms with fewer than 10 employees - this is much higher than the UK economyaverage of 88.3% micro firms (see Table 2).29 These data would suggest that thebroadcasting sector is not concentrated and is dominated by small firms. However,further analysis shows that the largest companies (those with more than 70m inturnover), represented 46% of UK sector revenues in 2014.3024TV Production Sector Evolution and Impact on PSBs Mediatique- December 2015TV Production Sector Evolution and Impact on PSBs Mediatique- December 201526TV Production Sector Evolution and Impact on PSBs Mediatique- December 201527TV Production Sector Evolution and Impact on PSBs Mediatique- December 201528Sector Economic Estimates, Audiovisual ad-hoc release- DCMS- October 201629‘DCMS Sectors Economic Estimates: Audio Visual tables’, DCMS, August 2016 (table 4b)30Trends in TV Production, Ofcom -2015257

% of firms in each size band(by number of 0 Audio-visual sector89.8%5.2%4.1%0.8%0.2%UK Total75.7%12.6%9.6%1.7%0.4%Table 2: Percentage of firms in each size band31Summary statistics22. GVA of the audiovisual sector (inc. film) was 18.3bn in 2015, growth of 39% since2010, compared with overall UK growth of 17.4%. The sector has also grown andnow represents 1.1% of total UK GVA.32Audiovisualsector201020112012201320142015% change2010-2015GVA ( bn)13.113.714.114.915.318.339.1Table 3: GVA of the audiovisual sector, 2010-2015 (DCMS economic estimates)23. According to DCMS estimates, the audio-visual sector employed 186,000 people in2015.33Breakdown of growth24. As explained above, the broadcasting sector is made of different sub-sectors, suchas production, content aggregation/packaging and distribution which form the basisof the broadcasting sector. The official statistics do not disaggregate between filmproduction and television production, for example.25. The annual Ofcom Communications Report gives estimates of revenues fromspecific sub sectors within the sector. These estimates show that, for example, onlineTV industry revenue has grown by over 466% since 2011, while traditional TVbroadcast revenues have grown by 10%. The main driver of revenue, according toOfcom, is an increase in pay-TV subscription revenue, up by 2.8% year on year toreach 6.4bn.31‘DCMS Sectors Economic Estimates: Audio Visual tables’, DCMS, August 2016 (table 4b)‘DCMS Sectors Economic Estimates: Audio Visual tables’, DCMS, August 2016 (table 1)33‘DCMS Sectors Economic Estimates: Audio Visual tables’, DCMS, August 2016 (table 5a)328

201120122013201420152016Total TV industry revenue ( bn)13.313.113.113.313.713.8Total online TV industryrevenue ( bn) 4: Broadcast TV industry revenue, 2010-20163426. These estimates from Ofcom also show that television broadcast revenue accountsfor a large part of UK TV industry revenue (89% of revenue generated in 2016). Thisshows that traditional broadcast revenue is still the dominant part of the sector.Trade with the EU28. The UK is currently one of the biggest European broadcasting hubs. A surveypublished in 2014 by the Commercial Broadcasters Association (COBA) states thatover eight out of ten multi-territory commercial broadcasters surveyed stated thatLondon was their European or global headquarters.35 Currently, 55% of the TVchannels (758 channels) based in the UK mainly target the European market.36Similarly, 53% of the UK-based video-on-demand services (152 video-on-demandservices) primarily target EU audiences. Overall, a third of the available TV channelsestablished in the EU are based in the UK (1,389 out of the 4,063 channels availablein the EU). Germany and France host 262 and 356 channels respectively.3729. DCMS economic estimates38 suggest that the EU is the most significant market forthe for the UK’s AV sector. Total UK exports to the EU of AV services was 3.0 billionin 2015. - 40.9% of total UK AV services exports. The UK imported 1.4bn ofservices from the EU in the same year - 36.9% of total UK AV sector servicesimports.30. Ofcom estimates that the EU TV industry was worth 59bn39 in revenue in 2015, 14.3bn of which is generated from the UK market. The UK also provides 34% of theavailable TV channels and VoD services in the EU.EU nationals in the broadcasting sector31. 194,000 people were employed in the audiovisual sector in 2015, including 11,000EU nationals. They account for 5.7% of the total audiovisual workforce.4034Communications Market Report Ofcom - August 2017 p. 39Building a Global TV Hub COBA - 201436Audiovisual Service in Europe European Audiovisual Observatory 201737Audiovisual Service in Europe European Audiovisual Observatory 201738DCMS Economic Estimates - DCMS - 201739International communications report Ofcom - December 201640Sector Economic Estimates: Audiovisual - DCMS - 2017359

AV sectorUK% UKEU% EUnon-EU% non-EU194,00087.6%11,0005.7%13,0006.7%Table 5: Employment in the UK broadcasting sector by nationalityDevolved administrations, crown dependencies and overseas terr

12 OfCom, CSV data file for Figure 2.37 - CSV, part of Communications Market Report - Ofcom - August 2017 - Figure 2.37 13 OfCom, CSV data file for Figure 2.37 - CSV, part of Communications Market Report - Ofcom - August 2017 - Figure 2.37 14 Annual Report Liberty Global Annual Report - 2016

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