The British Film and Television Industries - Communications Committee Contents

Memorandum by ITV


  1.  The advent of the digital age has seen rapid changes to the way media, including television, is consumed. 90% of UK households now have access to digital TV and catch-up TV on the internet is growing in popularity. However, contrary to some expectations, the digital transformation of the media sector has not resulted in significant investment in content from the new operators. The public service channels (BBC1, BBC2, ITV1, Channel 4 and Five) continue to represent over 90% of all spend on original UK TV programming.[1]

  2.  ITV is both the largest commercial broadcaster and the largest advertising funded media owner in the UK. We make more hours of network television than any other UK commercial producer.

  3.  However our continued investment of over £800 million a year in original content is under massive pressure due to structural change combined with the economic downturn. Unless there is an urgent programme of deregulation and a funding solution for regional news, we will have no option but to reduce this investment.


  4.  ITV is the most significant commercial broadcast investor in the UK creative economy with an unrivalled investment in original, high quality UK content. ITV spends more than double the amount in original content of our nearest commercial competitor, Channel 4, and has the highest proportion of original content spend of any public service broadcaster outside the M25 (concentrated particularly in the north of England). ITV's investment in television content helps support the wider artistic and creative community by providing work for writers, actors, musicians, designers, directors and editors.

  5.  Television is an increasingly important sector for the UK economy as a whole with the most recent figures showing that UK TV exports grew by 23% in 2007 to nearly £663 million. ITV's contribution to these export figures is significant. In 2008 ITV Global Content external revenues were £306 million—up 25% from 2007. To put it another way, over 40,000 hours of content are sold by ITV Global Content every year; Inspector Morse appears in 200 countries.

  6.  In addition to our existing production business—ITV Studios—we have already invested in a number of new production businesses such as the entertainment specialist 12 Yard as well as investing in production businesses in Scandinavia and Germany and concluding partnerships with other production companies such as Shine and Fox. We are also currently growing our US business very substantially and in 2008 our revenue from international production rose by 56%.


  7.  Television is still enormously significant in the lives of people in the UK. Hours of television viewing across all channels are over 3.5 per person per day. Two thirds of which is viewing of public service broadcast channels.

  8.  In quantitative research for Ofcom's recent PSB Review, 83% of respondents felt that it was important that programmes made in the UK and reflecting life in the UK are shown on the main television channels. Ofcom's annual PSB reports and audience research show that the majority of UK viewers regard ITV1's key contribution as the provision of high quality original and engaging UK produced programming, particularly in drama, entertainment and the coverage of big national events. Through a rich mix of some of the UK's most popular entertainment, drama, sport, factual, and comedy programming, ITV1 makes a vital contribution to reflecting and strengthening the UK's cultural identity bringing a substantial part of the UK together. For example, the X Factor and Britain's Got Talent finals were the two most watched Saturday night shows on 2008 on any channel.

  9.  The first quarter of 2009 has been no exception either and we have seen some excellent ratings for ITV1 programmes. For example:

    — The Dancing on Ice final averaged 10.8m and an audience share of 43.2%

    — The average live audience for our new drama series Unforgiven was 6.2 million and a 26% share of viewing.

    — The average live audience for Whitechapel, a new thriller, was 7.6 million and a 29% share of viewing (from three transmissions).

    — Our four-part documentary series, Billy Connolly: Journey to the Edge of the World attracted a series average of 4.7 million viewers and an 18.4% share.


  10.  ITV delivers significant public value through the provision for free to the whole of the UK of high quality, accurate and impartial regional, national and international news. ITV will spend over £90 million on regional, national and international news in 2009. Regional news accounts for around £55 million of this expenditure.

  11.  Our news programmes reach more people than Channel 4 and Five news combined and attract many viewers who do not otherwise engage with high quality news. ITV news also provides a vital source of plurality and competition to the BBC and Sky.


  12.  With the digital transformation of the media sector, ITV is also developing new businesses across different platforms and media. We have launched the UK's two most popular digital-only channels, ITV2 and ITV3, thereby making a key contribution to the attractiveness of digital television.

  13.  We have also committed to fund a substantial part of the investment in the digital television infrastructure, and have been at the forefront of consumer and technical innovation in UK television—through Freeview, Freesat, the proposed project Canvas.

  14.  Furthermore, the reach and impact of ITV's content can provide the same broad incentive for audiences to go online as it has provided for audiences to take up digital TV. ITV is particularly well placed to do this given both the scale of our reach and in particular our ability to reach those viewers who are light consumers of BBC services. In this context, ITV is building a compelling online presence in leveraging key ITV brands such as Coronation Street or X Factor to grow user numbers very rapidly as ITV migrates audiences online. recorded rapid growth in 2008 with a 546% increase in video views compared to 2007.


  15.  ITV has refocused its corporate strategy to meet the challenges of technology and increased competition over the last decade. The objective has been to transform ITV into a content-led business: that is, to own the most attractive mass-appeal content, to make it famous on the biggest family of broadcast channels in the UK, and then to exploit that content globally and on digital platforms. This is a virtuous circle and promises a huge potential prize for both UK audiences and the creative economy.

  16.  At the operational level, this strategy is working well for ITV. Our investment in the best of British programming is drawing viewers back to ITV1 after years of declining audiences. In 2008, for instance:

    — share of viewing held for the second year running

    — share of UK TV advertising held for first time in 25 years

    — digital channels grew revenues and profits ahead of plan

    — Global Content revenues (including internal) increased by 10%

    — Online users and video views continued to grow exponentially.

  17.  We continue to believe that this is the right strategy for ITV as the old analogue broadcast only model becomes unsustainable. However, the structural and cyclical pressures that we face today are unprecedented and there is an urgent need for the UK's broadcasting policy and regulation to change at the same speed as we are having to change ourselves.


  18.  The need for regulatory change arises primarily from structural factors, though it is clearly compounded by the severity of the current recession. The structural factors affecting the viability of the UK's commercial PSBs are well known: greater competition, fragmentation and an inexorable decline in the historic analogue business model.

  19.  In the analogue age in which ITV held a monopoly of commercial revenues, the Government was able to set a regulatory framework for ITV which extracted extensive public benefits in return for the monopoly of television advertising. ITV is no longer a monopoly but the burden of this legacy regulation remains and adds to the structural and cyclical pressures we are facing.

  20.  We are seeing a sharp drop in the price of television airtime as a result of the increasing number of advertising impacts in the market. ITV1's airtime is around one third cheaper than in 2000. This oversupply of advertising impacts in the market is impacting on the ability of broadcasters to invest in original content—a point acknowledged in the Digital Britain report, which noted that:

    "The huge growth of advertising inventory has produced a parallel reduction in the value of advertising impacts and their ability to fund professional long-form content."[2]

  21.  Therefore the analogue TV model which enabled PSBs to make a commercial return from a single broadcast on terrestrial TV of expensive UK originated content (as well as costly PSB obligations) is broken.

  22.  The impact of these broad structural factors has been compounded by the more recent and very severe cyclical decline in the UK television advertising market. We note the current market consensus that the UK TV advertising market will be down—12.5% year on year in 2009 following a 5% fall in 2008.

  23.  ITV has taken its own urgent steps in response. On 4 March 2009, we announced a three year plan to increase the efficiency of our business. Savings of £155 million will be delivered in 2009 rising to £175 million in 2010. While we have attempted to protect our programme budget as much as possible, we have had to make a small reduction this investment. Our concern is that, unless the pace of change in broadcasting policy and regulation catches up with the changes we are making to our business, we will have no choice but to reduce our investment in content even further.

  24.  This point is particularly clear when we examine the costs and benefits of ITV's PSB licences—reflecting the changes to ITV's PSB obligations following Ofcom's PSB Review, and incorporating the latest assumptions on the key drivers of the costs and benefits of our licences. Even after incorporating the impact of Ofcom's regulatory changes, ITV's licence costs already outweigh the benefits by over £30 million (in 2008)—and this gap is forecast to grow to £123 million by 2014.


  25.  ITV does not want to reduce its programme budget. As outlined above, we believe that our future lies in the continued investment in great British content. ITV is doing everything we can to help ourselves. But, our capacity to maintain investment in originated content, thereby sustaining our contribution to the UK creative industries, is simply not sustainable unless urgent action is taken by Government.

  26.  In particular, the following actions are essential to help secure ITV's future contribution to the UK creative economy:

    — The removal of legacy regulation that was appropriate to a monopoly, analogue age but is a serious impediment to investment today

    — A sustainable solution being implemented for regional news from 2010, ITV's greatest PSB cost, based on Ofcom's contestable funding model as set out in its PSB Review


  27.  The legacy regulation on ITV must be removed if ITV is to be able to develop a content led business model. The figure below shows the wide range of legacy regulations ITV is still subject to—many of which were designed for an analogue age in which ITV held a monopoly of commercial revenues.

Figure 1


  28.  Our priorities for action are:

    The removal of CRR remains a pre-condition for ITV continuing securely as a public service broadcaster. Although we recognise that this is outside the Government's control, the removal of CRR is essential in order to allow ITV1 to earn a fair commercial return on its investment in UK content.

    Reforming the Channel 3 Networking arrangements in order to place ITV's relationship with the non-consolidated Channel 3 licencees on a normal commercial footing. This should eliminate the subsidy from ITV to the NCL's (currently estimated to be £33 million per annum) and allow ITV to integrate production, broadcasting and secondary exploitation.

    End the payment of licence fees by ITV to Government this year. Given the rapidly declining television advertising market, and in the face of PSB licences that are already unsustainable, there is no justification for ITV to continue paying tens of millions of pounds to Government for its PSB licences.

    Repealing UK protections for independent producers working for ITV. Protections for indies are based on the assumption that broadcasters earn a viable rate of return from the broadcast of a commissioned programme. This assumption no longer holds in the case of commercial PSB in the UK. ITV and the other free to air broadcasters bear the risk in commissioning and funding original UK programming. However, if we are precluded from accessing a material amount of content revenue as a result of an independent production guarantee, and cannot assume any secondary benefits from the success of a programme, it is hard to see how ITV1 can maintain its level of investment in original UK content. We therefore support the Digital Britain proposal for a review of the terms of trade between broadcasters and independent producers.

    Freedom to develop profitable revenue streams currently restricted by regulation. The Government's recent decision not to allow product placement in UK-originated TV programmes is unhelpful. It rules out an important new revenue stream for those who are committed to investing in and making UK content, putting the UK production sector at a competitive disadvantage. While other EU member states are going ahead and liberalising, UK producers will not be able benefit from this potential source of revenue. Furthermore, this decision flies in the face of the Government's own analysis in the Interim Digital Britain report, which highlighted the huge challenges facing commercial media in the UK. UK viewers will continue to see product placement in programmes made outside the UK, while domestic producers and broadcasters are prevented from doing the same. Furthermore, it is simply not in ITV's interest to "contaminate" programmes with product placement which would irritate viewers and prompt them to switch over. We fully supported the robust regulatory framework proposed in the AVMS Directive and the voluntary industry Code which goes further by setting out a clear process separating creative and commercial activity in the production process. We urge the Government to reconsider this decision.


  29.  Regional news remains the most significant cost of ITV's PSB status. ITV currently invests around £55 million per annum to deliver regional news and we do not earn a return on that investment. At the same time, we are aware of the value placed on regional news by many viewers and by the Government and Ofcom.

  30.  To this end, we have had very detailed discussions with the BBC in order to establish the possible savings to ITV from a regional news partnership with the BBC. We have now reached the conclusion that such a partnership would offer valuable but modest cost savings to ITV's regional news: the partnership proposed by the BBC would generate a maximum of £7.1 million of annual savings to ITV by 2016, with savings starting from a very low level (around £1 million to £2 million per year) in 2011 and 2012. The partnership would also raise serious editorial concerns around the scheduling of ITV's regional news bulletins.

  31.  We have therefore reached the conclusion that the benefits of a BBC partnership will not be sufficient in itself to provide a viable, guaranteed future for news in the nations and English regions. A new mechanism is therefore needed to reflect the market reality that ITV cannot guarantee a regional news service for the longer-term.

  32.  Government therefore faces a choice. If it wishes to secure a guaranteed future for regional news, we believe that a publicly-funded model is the best option to deliver this guarantee. We have noted with interest Ofcom's proposal for a new contestable funding arrangement for regional news from 2011. ITV could provide the slots for regional news within its schedule, with the news service itself to be provided by one or more third party news organisations. We believe that this proposal is viable and that Government should take rapid steps to implement it so that ITV can maintain its investment in other areas of the schedule.


  33.  The digital transformation of the media sector has not opened up significant new sources of investment in original UK content. The public service channels continue to represent over 90% of all spend on original UK TV programming. However the investment made by the commercial public service broadcasters is under huge pressure as a result of the proliferation of digital TV channels and the migration of advertising spend to the internet. In order for ITV to sustain its investment in UK original content, an urgent programme of deregulation is required, including a funding solution for regional news.

  34.  Despite the significant challenges we currently face, we believe that ITV can be strengthened as a successful broad-based media company. The prize for viewers is continued investment in the best of British programming and support for the creative fabric of the UK.

27 March 2009

1   Ofcom's 2nd Public Service Broadcasting Review Phase One: The Digital Opportunity-April 2008. Back

2   Digital Britain report, Section 3.3. Back

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