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Key points: converging communications markets

• The availability of broadband to more than half of UK households has driven the development of converged services and devices.
• Convergence has opened up major revenue opportunities for the producers of many content types. Over the first half of 2007 90% of UK singles sales by volume came from digital downloads to the computer or a mobile handset. The market for computer game playing has also been transformed, with millions of consumers worldwide now engaging in shared online gaming experiences.
• Audiovisual content, by contrast, continues to be largely broadcaster-funded, although independent producer revenue from new media rights more than doubled to £42m in 2006.
• The traditional advertiser-funded model of broadcast audiovisual output faces pressures both from the growing popularity of online advertising (it rose by nearly half in 2006 to £2bn) and from the multichannels (which attracted advertising revenue of over £1bn in 2006).
• The terrestrial broadcasters have in turn embraced the internet as a new distribution platform with Channel 4, ITV and the BBC all launching internet-based on-demand and/or live access to their content.
• Increasingly sophisticated devices are beginning to influence consumer behaviour. Fifteen percent of individuals now have a digital video recorder (DVR) and up to 78% of adults who own them say they always, or almost always, fast-forward through the adverts when watching recorded programmes.
• Access to communications devices is widespread among children, with more than three quarters of 11 year olds claiming ownership of a TV set, a games console and a mobile phone.
• Bundled communications services are increasingly popular with consumers, with 40% of households now taking more than one communications service from the same provider (up a third on last year). A majority of broadband customers take it as part of a bundle.
• Each person now consumes more than seven hours of media and communications services cumulatively per day. However, the tendency to consume some media simultaneously means that the actual time spent on media is likely to be less than this.
• The alarm is the mobile handset feature which has the highest substitutional impact on stand-alone devices, followed by the camera. A significant minority of people also say their mobile is substituting for their stand-alone portable music player or games console.

Key points: television

• Total television industry revenue stood at nearly £10.8bn in 2006, up 1.4% on 2005. The gap between subscription and advertising revenue widened further during the year; subscriptions rose by 3.5% to over £4bn while advertising fell by 2.2% to £3.5bn.
• The industry as a whole broadcast 1.8 million hours of output in 2006. Together, hours of output from channels in the genres of Entertainment, Factual, News, Leisure, Children’s, Sport and Ethnic output grew to just over one million – 15% of these were first-run originated content.
• In-house production fell 8.7% over the year to £1,430m, while spend on independent production and acquisitions grew 6.8% to £3,077m. All of the public service broadcasters exceeded their independent programme quota of 25% by at least five percentage points.
• Hours of first-run originated regional output have fallen by 20% since 2001 to total 11,919 in 2006; spend has fallen by 9.2% to £324m over the same period.
• Digital television penetration broke through the 80% barrier in Q1 2007, taking the total number of homes with multichannel television to 20.4 million (80.5% of the total).
• There are now more Freeview devices connected to the main television set in the home than pay satellite set top boxes. By Q1 2007, 8.4 million homes had Freeview, up 33.3% on the year, while 8.0 million households took pay satellite, up 8.3%.
• When all television sets in the UK are taken into account, 49% have yet to be converted to digital.
• Ofcom awarded 109 licences to broadcast in the UK in 2006; 29% of these were for Entertainment channels, 28% for Ethnic genre channels and 17% for Factual. The number of ethnic channel licences awarded grew by 20% over the year.
• The five main networks have been losing audience share but have been able to offset this to some extent by the strong performance of their spin-off channels; Film4, More4, E4, ITV3 and ITV4 were among the top ten gainers in share in the year to December 2006.
• The combined audience share of the five terrestrial channels is greater on Freeview (68%) than on cable and satellite platforms (49%). However, the downward trend is more pronounced on Freeview (which lost six percentage points in the year to March 2007).
• Nearly 450,000 households now subscribe to high-definition television services (HDTV) (1.7% of total TV homes). Forty-three per cent of HDTV subscribers claim to watch more television overall since taking the service but 77% say that they watch fewer hours of non-HD channels.

Key points: radio

• Total funding for the UK’s radio industry stood at £1.15bn in 2006, down 0.6% on 2005. We estimate that BBC radio expenditure reached £637m or 55% of the total. National commercial radio earned around £270m from net advertising revenue (23%), while local commercial radio added a further £153m (13%). Commercial sponsorship made up the final £91m (7.9%).
• Radio reach has been stable over the last five years at around 90%. However, total listening hours fell by 1.4% in the year to Q1 2007, and are down 4.0% on five years ago. Listening hours have fallen furthest among 25-34 year olds, down by 17.3% over five years, and among children, down 8.7%. However, the over-55’s are now listening to more radio, with hours up by 5.5%.
• The fall in hours has mainly affected local radio, with BBC local radio listening down by 6.7% over the year and local commercial radio down by 4.1%. By contrast, national stations have increased their listening hours, with national commercial radio, in particular, increasing share across all age groups, up by 1% over the year. BBC network stations also gained hours, up by 0.5%.
• The BBC’s share of radio listening rose to 56% in Q1 2007, up three percentage points since 2002, while the share of commercial radio fell to 42%, down by four percentage points. BBC network stations’ share at 45.4% was higher than all commercial radio. However, national commercial share (10.7%) overtook BBC local and nations’ listening (10.6%) for the first time.
• Three main groups accounted for 67% of all commercial radio listening by Q1 2007. GCap Media had a 31% share (34% in Q1 2006), Emap 24% (up by 1%) and Chrysalis (now Global Radio) 12%, (up by 0.4%).
• DAB digital radio will develop further in 2008, with the launch of the second national commercial DAB multiplex. The new national licence was awarded to the 4Digital Group Limited in July 2007 and the new network will carry ten national digital radio services as well as text and data services.
• Ofcom is licensing further local DAB multiplexes during 2007, with seven advertised and two awarded by July. A further three multiplex licences are scheduled to be advertised later in the year.
• Cumulative DAB digital radio set sales passed 5 million during Q1 2007 with 1.8 million sales in the previous 12 months. RAJAR estimates that 19.5% of UK adults now own a DAB set, up eight percentage points on last year. There are currently over 300 DAB radio set models on the market, with the average price for a portable set now around £70.
• Some 58% of listeners say they have accessed radio through one of the digital platforms (up seven percentage points on last year); 41% have listened via DTV, 24% over the internet, and 8% via mobile phone. Twenty seven per cent of UK adults now own an MP3 player, with 5% using them to listen to radio podcasts.
• Fifteen new FM licences were awarded by Ofcom during 2006, with a further four awarded by May 2007. FM licensing has now come to a close with the latest round of awards. Ofcom had awarded a total of 140 community radio licences by July 2007.

Key points: telecoms

• Average household spend on telecoms services fell by nearly a pound in 2006 to £64.73 per month. For the first time, average mobile spend fell (by 70p to £31.72) as falling prices more than compensated for an increase in the total number of connections and in the average number of voice calls and text messages per subscriber. Like-for-like prices (based on a basket of services with average usage at 2006 levels) fell by nearly 9%.
• Total industry revenue in 2006 was £47.0bn, of which £38.5bn was retail revenue (i.e. revenue from end-users). This was an increase of 1.4% on 2005 but represents significantly slower growth than the previous five years as fixed-line revenues declined and growth in mobile and broadband revenues slowed.
• More than half of UK households had broadband by March 2007. The average (blended) headline speed in June 2007 was 4.6Mbit/s, although actual speeds experienced are often considerably lower, varying according to the quality and length of line from premises to exchange and the number of simultaneous users.
• Households with a mobile connection (93%) exceeded households with a fixed connection (90%) for the first time in 2006. Average calls per mobile connection rose above 100 minutes a month for the first time, while average calls per fixed-line connection fell below 300 minutes.
• At the end of 2006 there were nearly 70 million active mobile phone subscriptions in the UK, with further growth being driven by multiple handset or SIM ownership. Of these, 35% were contract connections (1% higher than a year previously).
• 3G moved into the mainstream in 2006 with connections growing by 70% to reach 7.8 million. The combined total of 3G customers on O2, Orange, T-Mobile and Vodafone networks is now higher than those on 3G-only operator 3UK.
• Local loop unbundling accelerated through 2006 so that by the end of March 2007, 72% of UK premises were connected to an unbundled exchange (an increase from 45% in March 2006). The proportion of premises in unbundled areas taking LLU services rose from 3% in March 2006 to 9% in March 2007.
• BT’s share of fixed voice volumes fell below 50% in 2006, for the first time. Indirect operators (those offering services over another provider’s infrastructure) were the main beneficiaries as their share of fixed-line voice calls rose from 25% in 2005 to 28% in 2006.
• Analysis of time spent online reveals that Britain is a nation of shoppers and social networkers. More time was spent on eBay than on any other web site, and social networking sites Bebo, MySpace, Facebook and YouTube are all in the top ten sites by time spent.
• Women aged 25-34 spend over 20% more time online than their male counterparts. ‘Silver surfers’ also account for an increasing amount of internet use with nearly 30% of total time spent on the internet accounted for by over-50s (although, as over-50s account for 41% of the UK population, their internet usage remains significantly lower than average).

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