Executive Summary
The commercial television market includes any terrestrially-broadcast, free-to-home television service, that derives all, or a major part, of its revenue from the sale of advertising airtime. The market is segmented by channel, of which there are four.
Channel 3 is provided by 15 regional ITV (Independent Television) companies and GMTV. Channel 4 is a statutory non-profit-making body, licensed and regulated by the Independent Television Commission (ITC). S4C is a national broadcasting service transmitted on the fourth channel in Wales, and funded by an annual budget from HM Treasury. Channel 5 is the newest of the commercial terrestrial services, having been awarded a licence by the ITC in October 1995.
The commercial television operators are almost totally dependent on advertising revenue for their income. Between 1996 and 2000, total commercial television revenue grew by 27.2%, to £2.84bn. A number of factors served to depress growth over this period. The most significant of these was the increased competition for advertising revenue, as a result of the development of commercial radio, and the increasing consumer penetration of non-terrestrial television. This newly competitive environment for advertising airtime, essentially caused by the increasing fragmentation of television audiences, has affected Channel 3 revenues particularly severely. Key Note estimates that commercial television broadcasters' total revenues will decline in 2001.
Since the late 1980s, penetration levels for all kinds of television and television-related equipment have shown steady growth. The changeover from black and white to colour television is now virtually complete, while the number of households containing more than one television set continues to increase. A high proportion of television sets are connected to video cassette recorders (VCRs), which enable more selective viewing. Perhaps the most interesting development over the period has been the growing consumer acceptance of teletext-equipped televisions.
Since 1991, the huge growth in the number of programme hours transmitted on non-terrestrial television has served to fragment the television audience. As audiences become more fragmented, so advertising revenues decline. This places a huge burden on the commercial broadcasters to replace falling advertising revenues with new streams of income. Ultimately, the financial survival of the market depends on the success or otherwise of the new sources of revenue — in particular, subscription and pay-per-view services.
Key Note believes that declining revenues in 2001 reflect the changing structure of the industry, rather than any cyclical effect of economic slowdown. With the whole television industry in a state of flux, it is impossible to be certain of the final outcome of current trends. However, Key Note anticipates that total revenue will begin to pick up again, albeit very slowly, around 2003, with wide variations in performance between individual sectors.
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