Last year there was a flurry of positive stories about the health of TV. Thinkbox’s Tess Alps pointed out that the much-feared time-shift technology had actually led to 14% increases in viewing in those homes with the boxes, while James Appleby of Mediaedge:cia declared: “Television is not – as some pundits have suggested – dead or dying.”
I do not want to spoil any positive thinking in the middle of a tough recession, but this ignores the basic fact that they are businesses and not just channels for ads.
How are these businesses doing? Virgin has £6bn of debt, it lost £50m last year and its rate of customer acquisition has slowed dramatically. It has done a U-turn and put its content division up for sale. This includes its 50/50 joint venture with the BBC, UKTV and sales house IDS. Both of these divestments will have knock-on effects in the market as and when they happen.
ITV’s status has been well covered – a £2.7bn loss after write-downs last year and rapidly declining advertising revenue. The cuts continue but, fundamentally, is ITV hanging on to a business model that is out of tune with the times? More of this later.
Channel 4, from being widely admired and lauded, is now in terrible trouble – its chief executive has been telling everyone for a long time: “We’re going to go broke, you have to do something!” Although this would have led to his sacking in any conventional company, his ploy will probably work. After all, his is a single-minded pursuit of the government sympathy vote, not that of any other stakeholder.
Five’s position from launch has been to offer a mini version of ITV’s audience – but generally more mass market – at a lower cost. Add some agility in its acquisition of programmes and in a bull market it has thrived, but being so undifferentiated and without the big audiences of ITV has put Five’s strategy in question.
Sky, meanwhile, must be smiling at all this. It had a mixed economy from day one and this has accelerated recently. As its role as gatekeeper has strengthened and the range of services increases (broadband/telephony), advertising has now decreased to about 10% of all revenue. At the same time, Setanta seemed to misjudge the bidding for the all-important Premier League football rights and has emerged significantly weakened. Sky’s is a model that is becoming increasingly robust at a time when others are fighting for their lives.
The BBC continues to march on during this market mayhem. Its colossal guaranteed revenues give it an unprecedented advantage and it can apparently go where it wants (as long as it moves five departments to Salford).
In many respects the above picture is not unusual in any downturn. Those with debt get into trouble and are unable to concentrate on anything else. Those with undifferentiated, smaller products suffer disproportionately and either hang on grimly and emerge from the recession much weakened or don’t survive.
What is unusual is that the TV advertising sector is offering incredible value with supply (commercial minutes) well up yet demand (ad spend) is dramatically down.
If you offer great value in a recession when everyone is highly price conscious, you are supposed to do well; yet demand for airtime just keeps going down. Market leader ITV is 17% down in the first quarter and April is predicted to be worse.
There are two reasons for this: one is a fundamental market shift and the other is self-inflicted, which we’ll cover next time.
Everyone in key positions in commercial TV has grown up secure in the knowledge that TV was the most powerful ad medium invented. They enjoyed government-authorised regional monopolies with an artificial restriction of supply, which inevitably took away the normal hunger and alertness you expect to find in successful organisations. So, in the past four years, when their share of revenue has steadily eroded, they appear not to have seen the writing on the wall.
The internet is the most efficient ad medium invented and although very different from TV, it’s every bit as powerful and sexy as TV was for 30 years. It is a very unfair fight because the internet isn’t just an ad medium – it’s a retailer, a distribution channel, a social club… And the savvy advertiser is building it into the heart of the organisation.
In this recession, a raft of marketing executives are discovering that TV is not as essential as they thought. They like the apparent security of the measurable digital world, but additionally, they can see the power of community on the internet and may well be experiencing it themselves. This is a very different game from traditional marketing and it’s not going away.
This isn’t the “death of TV”, but it probably is “the death of commercial TV as we know it”. Commercial TV will rebound after the recession – it is always going to be a great medium for launching products with a bang, and “big event TV” will also remain a major attraction for advertisers.
However, TV is going to be used more sparingly and that means substantially less revenue to go round. So there will be mergers and failures among those players over-reliant on advertising. The winners that emerge will be smaller, leaner, more agile and with well-diversified revenue streams.