Select Committee on Culture, Media and Sport Written Evidence


Memorandum submitted by Mediatique Ltd

1.  INTRODUCTION

  The Culture, Media and Sport Committee ("the Committee") is undertaking an inquiry into call TV quiz shows ("call TV"). Mediatique has been asked by the committee to submit evidence to the enquiry. It should be noted that Mediatique has no specific experience with the regulatory aspects of the DCMS review and therefore, with the agreement of the DCMS, is restricting its submission to the company's previously published views on the strategic and commercial aspects of call TV.

  This submission is an amended written summary of a presentation given by Janet Goldsmith, Joint Managing Director of Mediatique, to a conference organised by Broadcast magazine entitled Transactional Television on 28 September 2006.

2.  ABOUT MEDIATIQUE

  Mediatique is a strategic advisory, corporate finance and research firm specialising in the media industries in the UK, the rest of Europe and the US. Now in its fourth year of operation, Mediatique advises a number of media clients, providing strategic advice, fund-raising advice, deal negotiation services and general market intelligence. Regulated by the Financial Services Authority (FSA), the business has three main operations:

    —  Consultancy. Mediatique works with a number of media companies in broadcasting (both TV and radio), publishing, new media (broadband, mobile and interactive TV), Intellectual Property Rights and digital channels, providing a range of services on a project and retained basis.

    —  Corporate Finance. Strategic advice, fund-raising, deal negotiation, commercial market due diligence, business planning, sector analysis, mergers & acquisitions advice, and valuations.

    —  Independent Research. This currently extends to a bespoke model covering the broadcasting industry (TV and radio), emerging media (including channels and platforms), the independent television sector, new revenue models and mobile content developments.

3.  DEFINITIONS AND CONTEXT

  The operation of call TV services is typically seen in the context of a broader market for a wide range of transactional television opportunities. So defined, these refer to any interaction generated in response to the television window which uses an increasing number of return paths including fixed line telephony, mobile telephone and red-button services on television remote controls.

  Call TV is often used as a generic term to define any telephony-based interaction with the television screen. Within call TV specifically, there are an increasing number of sub-formats, including:

    —    Competitions and quizzes.

    —    Voting.

    —    Lifestyle services (horoscopes, dating, chat, etc).

  Call TV operators generate revenues through a margin on telephone calls. Typically, call TV users are required to dial premium-rate telephony lines in order to interact or play along; call TV operators will have agreed a share of such revenue with the telephony operator—including both fixed line and mobile operators. [13]

  The focus of the Committee's inquiry is specifically quiz shows offered by broadcasters within the call TV market. This report analyses the call TV market more generally, although addresses the key issues within this specific format.

4.  STRUCTURE OF THE INDUSTRY

  Call TV services are a relatively new revenue stream for broadcasters, in comparison with, for example, traditional revenue streams such as advertising or subscription.

  The call TV market effectively finds its roots in the traditional "call-in" format used by broadcasters for decades. With the development of mobile and fixed-line premium telephony billing, and the growth in digital networks led by BSkyB, the market has matured rapidly. The first "call-TV" format that made full use of the interactive button on Sky Digital was Avago, now owned by Gala. Shortly thereafter, new companies such as Yoomedia and Optimistic Media launched competing services. Sky itself is now a major player.

  More recently, the main terrestrial broadcasters, ITV, Channel 4 and Five have all entered the market, and are responsible for the huge growth in recent years. Owing to their strong brands and ability to cross promote across their core channels and digital extensions, they have rapidly overtaken the "start-up" channels such as Quiz Nation. While C4 is retiring from its call TV stand-alone operation, it continues to make use of "call-in" techniques on major programmes such as Big Brother, The New Paul O'Grady Show and Deal or No Deal. Five has a leading call TV brand in the form of Brainteaser and ITV has a dedicated channel, ITV Play, which features significant call TV output. All the channels have experimented or continue to experiment with call TV propositions on their core channels, particularly at night. Increasingly, commissioners are looking at interactive revenues as a central part of their decisions on making certain types of programmes, particularly in the light entertainment field (I'm A Celebrity, etc).

  Thus market growth has been driven by three main developments:

    —    Increasing proliferation of multi-channel services, expanding the depth and range of telephony-based services from quizzes to niche channels (at a time when digital platform operators are unwilling to pay subscription fees to new channels, thus ensuring that the latter look to new revenue streams such as call TV).

    —    Launch of dedicated call TV services by terrestrial broadcasters. These consist predominantly of specific call TV channels on digital platforms, but the terrestrial broadcasters have also sought to schedule some programming from these channels on late-night (or non-peak) slots on their core channels.

    —    Incorporation of call TV formats into programming, across a wide range of genres and channels. This includes specific call TV programmes (such as Brainteaser on Five) and the use of call TV opportunities within linear programmes (including a huge array of competitions for prizes offered at the end of programmes).

Figure 1

EXAMPLES OF CALL TV SERVICES


Source:  Mediatique.

  The market for call TV services has become increasingly crowded and competition for viewers has intensified; consequently, services are increasingly associated with known brands and are the subject of significant promotion to ensure competitive advantage. The main winners of this market competition are the terrestrial broadcasters which have leveraged their valuable television brands and reach to deliver larger audiences. This has led to a marked shift in revenue from smaller niche players to the commercial terrestrial broadcasters.

5.  THE VALUE TO BROADCASTERS

  Call TV services are increasingly viewed as a mainstream offering for broadcasters, who have sought to enter the market for both monetary and strategic reasons.

  In the light of increasingly tough trading conditions for free-to-air broadcasters in their core advertising market, the role of non-core television services as potential revenue drivers has discernibly gained in prominence. New services such as call TV are being harnessed to offset some of the pressures that traditional broadcasters face; in monetary terms, the revenues generated by broadcasters from call TV, though small, are beginning, to help offset declines in core advertising and subscription revenues.

  Further, the cost of producing call TV programmes is generally lower than the cost of other formats such as drama or news, by some significant margin. Some operators spend less than £1,000 for an hour of call TV programming. By contrast, a call TV channel may generate more than 20,000 calls in 10 or 12 hours of broadcasting per day. Accordingly, the margins on call TV services can be considerable.

  Having said that, call TV services typically generate lower margins than other transactional television services, and consequently are most effective where broadcasters can generate a high volume of calls from larger audiences. This works to the advantage of terrestrial broadcasters which have utilised the significant cross-promotional opportunities afforded by owning a portfolio of channels, and heavily promoted call TV opportunities to large audiences on their other channels (eg ITV Play sits within the ITV portfolio of ITV1, ITV2, ITV3 and ITV4).

  Indeed, terrestrial broadcasters have sought to leverage programme brands typically seen on their core linear channels on new call TV channels. Further, many broadcasters are now incorporating call TV opportunities into their commissioning process. Access to programme brands is a key driver of trust between viewers and call TV shows, and in that respect represents a major revenue driver.

  Even in the absence of direct revenue (or profitability), call TV opportunities can provide broadcasters with a testing ground for experimentation and innovation in broadcasting services. This extends both to programming and to gaining insight into audience behaviour.

  Calculating the precise financial impact of call TV services on broadcasters is particularly difficult given the dearth of publicly available data. We provide below an example of the role of call TV services for ITV, within the context of its overall business.

Case study: ITV Play

  ITV launched its ITV Play channel in April 2006 on all multi-channel platforms, including Freeview. The channel broadcasts 24 hours per day, offering a number of call TV quiz formats across a wide range of distinct programming brands. These brands consist of standalone ITV Play brands (such as Quizmania and The Mint) and extensions of programming brands from its main channel (such as The Rover's Return, which is a reversioned quiz TV format based on Coronation Street).

  For the six month interim period to 30 June 2006, ITV announced that ITV Play had generated £9 million of operating profit from £27 million of revenues. The company expects ITV Play to generate operating profits of £20 million for the full year.

Figure 2

FINANCIAL PERFORMANCE OF ITV PLAY
ChannelRevenue (£m) % of totalOperating profit (£m) % of total
ITV Play272.4 95.5
ITV plc1,110 163

Figure 2: Financial performance of ITV Play. Data relates tot he first six months of 2006.

Source: ITV plc.

  In the context of ITV's overall business, the call TV channel represents a small part of the business model. Note, however, that these results do exclude revenues from call TV formats offered on other ITV channels; market intelligence suggests, for example, that ITV's call TV revenues from GMTV are considerable (in the context of GMTV's total revenues). Indeed, such revenues are on a par with GMTV's advertising revenues.

  In addition, ITV Play is still less than one year old and operates in a market that is forecast to grow at a significantly higher rate than ITV's other revenue streams. The relative immaturity of ITV Play is demonstrated in its audience figures which, although in comparison to other call TV channels are significant, are marginal when compared to mainstream terrestrial channels. This does provide the channel with a small base on which to grow revenues further.

Figure 3

RELATIVE REACH OF ITV PLAY VS TERRESTRIAL UNIVERSE
ChannelAverage daily reach 000s% Weekly reach 000s%
ITV Play720.2 3870.9
ITV1 (including GMTV)18,376 41.534,71578.5
Total terrestrial28,014 63.339,51489.3
Total non-terrestrial24,702 55.937,49384.8

Figure 3: Relative reach of ITV Play vs terrestrial universe.

Note: That figures relate to the week ending 5 November 2006.

Reach measures the net number (or percentage) of the TV universe who have seen a particular piece of broadcast output. BARB defines a viewer as being "reached" if they see such broadcast output for more than three consecutive minutes.

Source: BARB.

6.  SIZE OF THE MARKET

  The market for call TV services in the UK has grown significantly from a marginal base to reach revenues of approximately £80 million in 2005. Mediatique forecasts compound growth of 33% per year until 2010 when the industry is expected to generate approximately £320 million of revenues.

  Note that there is no standard auditing practice in place within the call TV sector. Only publicly-listed companies typically disclose financial information, and the figures presented here are based on limited available information and market intelligence.

  In the context of the overall market for transactional television services, the size of the call TV market—despite its high profile and surfeit of publicity—is relatively small. We set out below our forecasts for the total transactional television market.

Figure 4

TRANSACTIONAL TELEVISION REVENUES (2005-10, £ MILLION)


Note: That revenues are reported gross (ie excluding payments to third party operators and excluding the cost of goods sold).

Source:   Mediatique

  We estimate that the television industry will generate approximately £2.8 billion of revenues through direct interaction with the viewer by 2010. Within this, call TV represents a 13% share of the market by 2010. Growth in call TV services is forecast to be marginally higher than that of other transactional categories and, as such, will gain share of the market over the forecast period; however, such growth is not considerable in the context of growth in the overall market and continuing competition from other formats.

Figure 5

SHARE OF TOTAL MARKET REVENUES, BY INTERACTIVE CATEGORY (2005-10, %)



Source:

7.  MARKET DRIVERS

  The growth in interactive television services, including call TV, reflects change in the structure of the television industry. The increasing proliferation of digital television has afforded significant growth in the number of television channels and services available. Increased capacity afforded by digital technology has allowed greater functionality for the viewer and, coupled with increased storage and deeper technology in set-top boxes, has strengthened opportunities for interactivity between channels and viewers.

  Such trends have led to increasing competition for viewers and, as a result, broadcasters have sought to commercialise interactive applications. Channels have invested heavily in interactive and participation programming, and interactive services are now seen as an intrinsic part of the TV industry. Indeed, the slump in television advertising revenues in 2006 has placed non-core revenue streams closer to the heart of commercial broadcasters.

  Increasing entry into the interactive television market is a reflection of a number of drivers, both commercial and consumer, that we set out below.

Figure 6

DRIVERS OF INTERACTIVE TELEVISION SERVICES


Source: Mediatique

8.  CONCLUSIONS AND FUTURE DEVELOPMENTS

  Transactional television services, including call TV formats, have become a rapidly developing revenue source for broadcasters. The terrestrial window is a major driver of audience for interactive services and, as such, the role of call TV in raising revenue for broadcasters has increased in importance.

  All call TV operators are facing competition from the accelerating volume of new entrants and the market is likely to become increasingly crowded and consolidate over time. Indeed, the recent shift in power from niche to mass-market players is likely to intensify; opportunistic entrants will struggle to drive traffic sufficiently and terrestrial channels will secure growing influence and share in the market.

  In order to secure revenues, broadcasters are likely to improve the quality of their interactive services, in terms of customer service, production values and technology. This will intensify competition further and, moreover, competition for call TV brands and formats will begin to shape market dynamics.

  Over time, broadcasters may see their positions in the call TV market threatened by increasing distribution on, and audience interactivity with, with non-broadcast media such as broadband and mobile. Call TV opportunities will increasingly become crossplatform and, ultimately, the distinction between "TV" and "non-TV" distribution may become irrelevant.

16 November 2006






13   Viewers Who choose to take part in quiz shows must ring a premium-rate telephone number, typically costing between 60p and £1 a call, and are charged whether or not they make it to the quiz. The call TV operator will keep the cost of the call, after paying revenue shares with third-party operators. Back


 
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