Lessons from the UK TV Market: inflexion point reached

Following our Online Video Market Study, and in preparation for the brainstorm in May, we're continuing to analyse the video and TV markets on a regular basis. This note, based on a rewiew of latest data from OFCOM, looks at the current state of play in the UK TV market to draw out the key challenges for new entrants to this specific market and also to draw more general conclusions for new entrants in any country. [Ed. - note, the full article is available to subcribers of the Telco 2.0 Exec Briefing Service].

The structure of TV markets and competition within them vary greatly by country. Essentially they are local, national markets. The structure is highly dependent upon the historical context - the strength of the state broadcaster, the degree of regulation with wildly different rules for local content creation and distribution, the penetration and financial strength of payTV (both cable and satellite) and the transition from analogue to digital terrestrial switch-over.

Unsurprisingly, this means the size of the opportunity for both telcos and "over-the-top" internet companies to find a profitable place in the value chain varies greatly by country. We are firm believers that the technological economies of scale that the global internet offers are more than counter-acted by the complexities of national regulation and content acquisition. TV will remain national market-driven in the internet era.

UK Distribution Market

According to Q4 2008 data released by OFCOM here, one of the major inflection points in the UK TV market is finally happening - it looks as if free-to-air digital TV adoption is grinding to a halt. There are still 2.9m homes watching analogue TV who have yet to adopt digital, but these are very much at the back-end of the adoption curve and will need economic incentives to swap. Cue lots of tax-payer-subsidised advertising raising awareness of the need to swap for the 11% of UK homes still residing in analogue land.

The inflection point will mean that the focus may once again return to the indefatigable trend of slow-but-sure transition from Free-to-Air TV towards Pay TV. With 13m homes still Free to Air (9.5m DTT, 0.6m Satellite and 2.9m Analogue) there is plenty of growth left for the payTV companies. There are currently 12.7m payTV homes (8.9m Satellite - Sky, 3.3m Cable - Virgin Media and 0.5m Others) and we expect, even in the credit crunch, that payTV homes will exceed Free for the first time ever sometime in 2009. We have discussed the problems the UK free-to-air advertising funded business before, here.

The UK TV distribution adoption ratio of 1: 0.7: 0.26 (free: cable: satellite) is almost certainly unique across the world.

The weirdest aspect of the OFCOM DTV report is that it exposes the failings of the one subscription-DTT provider, Top-Up-TV (down 9.4% to 0.4m), and the IPTV sector - Tiscali's service is down 16.7% to 0.1m homes. The data on BT and its Vision service is not disclosed directly, because the BT numbers are included in the DTT section - BT have a DTT tuner in their Vision box. BT separately disclosed that they only had 336k subscribers in their December 2008 figures.

This apparent lack of success for IPTV in the UK is in sharp contrast to great success in France and the growing success in the USA.

To read the rest of the article, with more analysis and summary of the lessons for telcos and others, you will need to join the Telco 2.0 Exec Briefing service. Click here for more information...