Home > Consultations > Consultation Documents > PSB > Ofcom review of PSB > 3. A changing environment

124. The trends that we have observed in terrestrial television over the last five years are symptomatic of changes that will unfold more fully in the future. Phase 2 of this review will examine in more detail how the UK television environment will change over the next five to ten years, but in Phase 1 we have sought evidence of the emerging trends. This section examines key market and technology developments in terms of viewing behaviour. More detailed analysis is available in one of the supporting documents to this report, What people watch: television viewing behaviour.

Market developments

125. New technology is increasing the scale of competition that terrestrial broadcasters face. As a consequence, commercial channels need to fight harder to gain the sorts of audiences that advertisers will pay for. The BBC has to join the battle for audiences in order to justify a universal, compulsory licence fee.

126. Fifty per cent of households already have digital television, and take-up has been extremely rapid (twice as fast as that of colour TV in its first five years). Take-up looks set to continue whatever date is set for switchover. At the same time, people are buying new and better televisions more frequently. The average age of a set dropped from five years in 1996 to 4.5 years in 2003. Other digital technology is increasingly competing for viewers' attention. Ownership of DVD players has exploded - reaching 45% of households in 2003 from a near standing start in 2000. A similar number of UK homes now have internet access and broadband connections are rising rapidly.

127. The growth in the number of channels (see Figure 37) and the competition between the different digital platforms has brought substantial new revenues into the television sector: for instance, BSkyB's subscription revenues now exceed the total amount raised by the BBC licence fee. The established terrestrial channels face ever-increasing competition for audiences and advertising revenue. As total revenues in the television industry rose by 11% between 1998 and 2002, their share of that funding declined from 65% to 57%. Figure 38 shows that it was subscription television that saw the real surge over the period, while advertising suffered in 2001 and 2002.

Figure 37

The Growth In Television Channels In The UK, 1950 - 2002

Click here to view large scale

Source: David Graham Associates; Ofcom

Figure 38: Figure 38: Sources of UK Television Revenue (2002 Real Prices)

Click here to view large scale

Note: The subscription figure represents net carriage fees receivable by channels. Total subscriptions received by the television platform operators (Sky, NTL and Telewest) were approximately £2,700m in 2002.

Source: ITC data, based on returns from broadcasters

128. Even newer technology, in the form of personal video recorders (PVRs) and broadband, threatens to completely transform the viewing experience, towards a more fragmented, interactive and personalised model. Television may potentially
be transformed from a passive schedule-led experience to an active consumer-led activity, where viewers are able to skip through adverts or buy their programmes directly over the internet, by-passing the broadcaster completely.

129. A key factor will be the future development of the DTT platform, which at present more closely resembles the traditional analogue experience than either cable or satellite. DTT is by far the fastest-growing digital platform at present, in the form
of Freeview, with around one million households adopting it in the last quarter of 2003 alone. As Figure 39 shows, Ofcom's analysis suggests that DTT take-up is expected to be the major driver of future digital penetration.

Figure 39

Ofcom central projection of digital television adoption, 2003-2012

Click here to view large scale

Source: Ofcom
Note: the projection makes no assumptions about switchover. For more information, see the Ofcom report Driving Digital Switchover: A Report to the Secretary of State.

Audience behaviour

130. In Section 2, we described how multichannel TV had affected the viewing share of the terrestrial channels. In fact, the change is more substantial than that; new technology is also affecting the way people use television. In multichannel homes, viewing habits have changed.

131. Cable and satellite viewers in particular watch more TV and they watch it in a more fragmented fashion. Older age-groups are reliant upon a relatively small number of channels for the bulk of their viewing: for over-55s, the five terrestrial channels account for 70% of total viewing even in multichannel households. For younger viewers, however, channel fragmentation is more advanced: under-34s in multichannel households now devote less than half their viewing to the main terrestrial channels.

132. Younger Sky viewers in particular are beginning to exploit digital technology to dictate their own schedules. Children in multichannel homes show little loyalty to discrete channels. In general, viewing habits are becoming polarised - different groups tend to watch different sorts of programmes and it is becoming ever more difficult for any one broadcaster to reach a large proportion of the total audience. Figure 40 shows the variety of viewing patterns adopted by different age groups with different multichannel options.

Figure 40

Composition Of Viewing To Non-Terrestrial Channels, Sky (DSAT) vs Freeview (DTT)

Click here to view large scale

Source: BARB

133. Peak-hours represent the best opportunity for terrestrial broadcasters to build an audience, but Figure 41 suggests they still find it difficult to maintain their share as the evening goes on. In this climate, the traditional practice of 'hammocking', whereby a serious programme was scheduled after more a popular offering in order that it could inherit a significant audience, is less viable.

Figure 41

Audience Flow From Multi-channel Channels to Terrestrial Channels, Peak-Time 2003 (% of audience)

Source: BARB

134. DTT is emerging as a very different environment from satellite or cable. Figure 42 shows that the traditional terrestrial channels do far better. However, it remains to be seen whether this is a form of conscious consumer choice (DTT consumers at present tend to be older, from higher social groups and more pro-PSB), or simply a reflection of the smaller number of channels on offer and the lack of premium content.

135. Changing consumer attitudes are also evident alongside changing viewing habits. People in cable and satellite homes plan their viewing less, flick around the channels more and (unsurprisingly) see more of a role for specialist channels. Overall, as Figures 43 and 44 illustrate, they are more likely to be satisfied with their TV but less likely to support the licence fee. It is not clear, however, whether their opinion directs their choice of TV package or the other way around.

The implications of change

Figure 42

Channel Viewing Shares On Multi-channel Platforms, 2003

Click here to view large scale

Source: BARB

Figure 43

Satisfaction with TV

Question: Thinking about television in the UK as a whole, across the main channels such as BBC1/2, ITV1, Channel 4 and Five, as well as cable, satellite and digital channels...how satisfied are you with television available to you at the moment?

Source: Ofcom

Figure 44

The principle of the licence fee

Question: Do you support the general idea of the licence fee?

Click here to view large scale

Source: Ofcom

For the commercial channels, regulatory requirements may begin to weigh much heavier as the market becomes more competitive and advertising funding is squeezed. The licence fee may become harder to justify as fewer people watch the programmes it pays for, and over time licence fee funding may struggle to fund programmes sufficiently to satisfy viewers' expectations in a competitive market. Some of television's traditional strengths - its ability to provide a common reference point for society, or to bring people challenging content that they might not encounter elsewhere - become harder and harder to sustain as individuals begin to create their own schedules. The increasingly populist approach that was noted in Section 2 is a direct consequence of the commercial pressures that broadcasters now face, and those pressures will intensify as time goes on.

136. New technology has changed viewing patterns. Future technology threatens to do so in more dramatic fashion. In this context, the existing main terrestrial networks face an uncertain future.

137. This review has two objectives: first, to report on the effectiveness of the main terrestrial TV channels in meeting the requirements of the Communications Act; and second, to report on how the quality of PSB could be maintained and strengthened in the future. The latter objective provides an opportunity to consider alternative options for PSB.

138. This section puts forward what we think is a sustainable rationale for PSB. It also sets the scene for our Phase 2 work by outlining some of the important issues that we believe need to be considered in more depth. One of the supporting documents we have published, A conceptual review of public service broadcasting, sets out the analysis in this section in full.

next

Back to top