UK: Deloitte TMT Predictions 2014. Media – Doubling Up On Pay TV (Video Content)

1. Doubling Up On Pay TV

By year-end 2014 between 50 and 100 million homes around the world will have access to, two or more separate pay TV subscriptions – generating about £3 billion in revenues.

Over the course of the coming years, the number of households with multiple subscriptions should continue to rise, as more content owners and aggregators, including platform owners such as cable and satellite providers, make their content portfolios available via subscription video-on-demand. A further stimulus to the market will be the increasing availability of inexpensive HDMI dongles, which connect TV sets to the Web.

Most of the two million households will have just two pay-TV providers, typically one platform-based service and a secondary SVOD service, but about 10% of homes may have three or more providers.

By the end of 2015, 20% of homes in selected markets will have three or more pay-TV subscriptions, as more rights owners make their content available via video-on-demand (VOD), as broadband speeds increase, and as premium programing is increasingly used as a customer retention tool.

In markets where there are multiple platform-based providers of pay-TV, some of the players – be they satellite, cable or IPTV-based – are beginning to offer elements of their program portfolio on a SVOD basis to customers of other platform providers.

A cable TV customer may want both the high broadband speeds available via digital cable and also some of the content only available from a satellite provider; this customer could access the provider's content via an additional SVOD subscription, rather than purchasing a more expensive platform-based subscription.

It might seem extravagant for a household to double up on pay-television providers. However it reflects a longer-term trend to add to existing packages: rather than sourcing additional packages from other platform providers, thanks to high-speed broadband services customers are now able to source from other content services, often at a price (about £5-£10 per month in the UK) equivalent to adding a minor bundle. So while households may have two providers of video content, the second subscription is at a far lower cost.

Another medium-term development which lessens the financial impact of a second subscription is that households adding SVOD while maintaining existing pay-TV are substituting spend that would have gone on DVD rental and purchase. Indeed in in the UK, declines in spend on DVD box sets of TV programmes are similar to the emerging, rising spend on SVOD.

2. Television measurement: for better and worse

The measurement of television viewing should become more accurate in the UK, following the introduction of hybrid measurement, which integrates TV viewing on PCs, tablets and smartphones into overall viewing numbers. Accurate measurement is fundamental to the largest ad product in the world: TV advertising, worth £3.9 billion per annum in UK. Hybrid measurement is expected to increase viewing figures for younger age groups – which have the greatest tendency to watch online – by 5%.

Accurate measurement is fundamental to the largest ad product in the world: TV advertising, worth £130 billion per annum globally, which is priced by ratings. Measurement has been critical to the continued TV ad spend against a background of increasing hours spent online and declining spend on other traditional media. Further, share of viewing audience is a key performance indicator for any license-fee funded channel.

Audience size still matters for pay TV operators, for advertisers, and for on-screen talent looking to understand the potential exposure that a television appearance would offer. Subscription video-on-demand providers wanting to show advertisements are also likely to offer their usage data for including on core TV viewing data.

In the UK, as in most of the largest TV markets, television viewing volume is monitored via viewer panels. When panel members start watching, they press a button, and a device in the home notes which program is being watched at that time, and who is watching it. Viewing data from each household is uploaded and analysed, and typically published the day after. These panels are considered highly accurate at measuring live and catch-up viewing on TV sets.

But monitoring has not kept pace with some of the recent changes in viewing behaviours and devices. For example, TV viewing is no longer restricted to television sets. In recent years, about 1% of viewing has been via on-demand services, typically with laptops, tablets, and smartphones, but also connected TVs. On-demand viewing in the UK is growing at about 25% year on year.

We estimate that viewing on non-TV devices in the UK is about one to 2% of all viewing. But among younger viewers, the proportion is typically higher, at up to 5%, and crucially this is the age group that watches traditional television least. Under-counting this group would affect the perception of television's relevance and impact.

Hybrid measurement will not however reflect consumption of TV schedules of other countries, delivered via broadband. In the UK, as of the 2011 census, 12.3% of the population (42% in inner London) was foreign born and 8% were foreign citizens: many of these would like to be able to watch that country's TV schedule. Satellite is one way of addressing this demand, either via subscription from domestic satellite-based broadcasters or by installing larger dishes. However this approach can be expensive and limited: the international channels of foreign broadcasters may not show the programs that friends and family of the foreign-born individuals are talking about.

3. Broadcast sports rights: premium plus

The value of premium sports broadcast rights worldwide will increase to about £16 billion, a 14% rise, or £1.9 billion increase on 2013. The double digit growth compares to average growth of 5% between 2009 and 2013, and is likely to exceed forecast increases in global pay TV revenues for 2014. About three quarters of all premium broadcast rights fees will be generated by 10 competitions, including the English Premier League.

Television and premium sports are well matched for each other: at the highest level, sport is great unscripted live drama, and constant advances in technology lead to ever more sophisticated, compelling ways in which sports can be portrayed. In 2014, premium live sport will continue to deliver large audiences, typically characterized by an attractive demographic profile. It will continue to drive subscriptions and/or generates advertising for broadcasters, particularly important in an increasingly altered media landscape.

While many commentators continue to ask when the sports rights bubble will burst, leading to stagnating or declining fees, our view is that rights fees for premium sports properties overall will continue to grow. The Premier League enjoyed a 71% increase in the value of its domestic live rights from 2013/14, while the amount paid for UK rights to UEFA's top club competitions should double in value from 2015/16.

While many commentators continue to ask when the sports rights bubble will burst, leading to stagnating or declining fees, our view is that rights fees for premium sports properties overall will continue to grow. The Premier League enjoyed a 71% increase in the value of its domestic live rights from 2013/14, while the amount paid for UK rights to UEFA's top club competitions should double in value from 2015/16.

Premium live sport continues to deliver large audiences, typically characterized by an attractive demographic profile. It drives subscriptions and/or generates advertising for broadcasters, particularly in an increasingly altered media landscape. In some cases, premium sports broadcast rights fees seem to have been insulated from wider economic pressures by multi-year contracts.

The development of pay TV in particular has transformed the broadcasting of premium sports leagues. Live content is a key subscription driver for those leagues and underpins pay-TV business models. As the pay-TV subscriber base rises and revenue per user grows, operators are investing increasing sums to secure this key content.

New market entrants looking for attractive differentiating sports content have intensified competition driving substantial uplifts in rights fees. For example, BT's entry into the UK sports rights market, acquiring sports content to help retain and build its telephony, broadband, and Pay-TV services, has resulted in substantial revenue uplifts.

4. Performance rights lift recorded music revenues

Revenues from performance rights, a license payable for music played in public, should exceed £600 million for the first time. This may seem insignificant relative to smartphone sales or apps revenues, but for the £10 billion recorded music industry, this is material. The UK public listens to billions of music tracks every year on TV, in the hairdresser, in dance classes and elsewhere: in 2014 the global daily license fee for use of music in public will be about £2 million.

Music is everywhere. But its ubiquity is arguably under-monetized. There are few of us who go a day without being exposed to music in some form, be this a song played on the radio, a tune in a shopping mall or an elevator melody. For millions of businesses, music adds value. It relaxes passengers when entering a plane, it sets the mood in movies and TV programs and it exhilarates younger shoppers. Collectively we listen to broadcast music trillions of times a year, on the car radio, in the hairdresser and elsewhere: in 2014 the global collective license fee for this is likely to be under £2 million per day.

Growth in performance rights revenues, recent and anticipated, has been driven principally by three mechanistic developments.

First, in countries where a license is obligatory, there has been a steady growth in the number of businesses paying a license. Typically collection societies would contact companies currently not paying a license, but in some markets growing awareness of the legal requirement to pay a fee has driven pro-active payment, which has reduced the cost of collection. In other markets, there is plenty of scope for payments to increase, as the current degree of under-collection is notable. For example, the Netherlands currently collects more performance rights revenues than Spain, despite having a third of the population.

Second, the fee paid by larger entities, such as television and radio broadcasters, has been increasing year-on-year on a sustained basis in major markets. Historically, the quantity of some licenses has been agreed on an ability-to-pay basis. So a small radio station may claim that its profits would only permit a modest fee. But increasingly fees are being agreed on the basis of value. Fees paid by small businesses have also increased in some markets.

Third, a growing number of countries which formerly did not collect revenues on a formalized basis have introduced, or are in discussions to introduce a licensing process. The most significant of these markets is China whose inclusion could add tens of millions of dollars per year.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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