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17 August 2019

Commercial Television

Tag(s): Business, Marketing, Languages & Culture
In 1954 Parliament passed the Television Act, designed to break the monopoly on television held by the BBC Television Service. The Act created the Independent Television Authority to heavily regulate the industry and to award franchises. These were awarded to cover regions and were initially separated for Weekdays and Weekends. The process was not completed until 1962 and the resulting network has been modified several times with franchise reviews. Lord Thomson of Fleet, a Canadian entrepreneur, successfully bid for the franchise for Central Scotland and famously described it as a “permit to print money”. Only one service operator has ever been declared bankrupt, WWN in 1963.

Over time this network of television companies has consolidated and now there are only two operating companies. Since 2016 thirteen of the 15 licences are held by ITV Broadcasting Limited and the other two by Scottish TV. While these changes are of interest to those of us who read the financial pages they have not really mattered to the ordinary viewer. He or she has enjoyed a variety of programmes, some of high quality, some of low but consistent quality. The viewers have implicitly understood that they pay a licence fee to watch television and otherwise it is free to view. The BBC is funded by the licence fee. ITV is funded by advertising. This binary model lasted well for over thirty years until in the late 1980s satellite television was born.

After a slow start in which two companies competed for subscriptions, they were successfully merged into one, Sky, which has been an outstandingly successful operator. Led by the acquisition of major sports rights, particularly football, and the earlier screening of films, it has been profitable and a major force in television. It has introduced a new model, one where consumers both pay a monthly subscription, several times the cost of the BBC licence fee, and watch commercial advertising.

But for the viewer, leaving aside the costs, the experience is much the same, except there is considerably more choice. From just one channel in 1954, to two in 1955, to three in 1964 with the introduction of the more highbrow BBC2, to four with the launch in 1982 of Channel 4, a free-to-air public service channel financed by advertising, there are now hundreds of channels available by conventional broadcasting, by satellite or by cable in some parts of the country.

This structure which has evolved over sixty years or so has provided entertainment, information and education to the general public, financed by the compulsory collection of a licence fee, by advertising and latterly by subscription. It has been heavily regulated throughout to ensure that standards are maintained both in entertainment, but crucially in information. Both ITV and Channel 4 have maintained high standards of news coverage and Sky has also delivered well on that front, perhaps because its founders were also owners of The Times and came from a strong journalistic background.

And crucially for me, as a marketing man, this structure has provided through its commercial channels the most successful of all communication media in advertising. There are several different media channels, Press, Outdoor, Direct Mail, Radio and Cinema but for most of this time the most successful in building brands has been Television. All the major consumer brands without exception would have allocated the largest part of their above the line budgets to television. Some viewers even came to think that the ads were the most entertaining part of the viewing experience.

It seems to me that that is now at risk. The threats come from two sides. Google has now overtaken ITV in the UK as the largest advertising revenue earner with Facebook not far behind. As an individual I admit to using Google but I also admit to having an advertising block on my PC so I never see any of their ads.  This year, 12.2 million people in the UK will block ads on a personal computer or smartphone, which is 22% of internet users according to eMarketer’s Ad Blocking in the UK 2018 report. That compares to 28.7% in France, 32% in Germany and 25.2% in the US, though I have seen another estimate that it is as high as 40% in the US. I also admit that I have never even looked at a page on Facebook so this commercial channel is closed to me.

At this stage in my life I remain a heavy consumer of stuff: food, drink, holidays, entertainment etc so if you want to advertise to me don’t use Google or Facebook. Use Commercial Television or Classic FM or Outdoor or Press. Please don’t use Direct Mail; that just goes straight in the recycling box.

But the other threat is a bunch of new kids on the television block, led by Netflix. These are new forms of Pay TV delivering content over the internet and so in the process vastly increasing the carbon footprint of TV which was previously quite low. They charge a monthly subscription fee like satellite TV but unlike satellite TV do not earn revenue from advertising. This may be because they are offering a world- wide service and so would be a very inefficient medium for advertising purposes.

As a consumer I imagine you might welcome this. Certainly some of the content is outstanding and Netflix is spending far more than the BBC or ITV on their productions. The fact that they are not profitable doing this should be a cause for concern. But my fear is that their success will put ITV in jeopardy and that advertisers will lose a significant part of their available channels. That will affect their business and in the longer term will affect the economy.

Though I don’t think anyone has done the academic research I believe there is a direct link between advertising and economic prosperity. Those countries, led by the USA, that have well-developed advertising media channels have high levels of prosperity. Those countries that banned or limited advertising like the Soviet Union and Cuba have extremely low levels of prosperity. This link in my view is not coincidental but causational.

As Google, whose ads I block, and Facebook, whose ads I never see, and Netflix, who never show ads, take over how will consumer goods marketers in the future reach audiences like me? Or you?

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The Spring Statement
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