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| MAPS : Pay Television: April 2004 |
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This report covers: pay, TV, television, BSkyB, support platform operators, content providers, and, right owners,operational and production services, satellite, direct-to-home, cable,global, trends, US,Europe, UK, Asia-Pacific, Latin America,
companies covered include: Analogue, single cable operator, NTL, Kingston Interactive, BBC, Channel 4, Group, Flextech, Granada, Viacom, Walt Disney Company,
EXECUTIVE SUMMARY
| Executive Summary |
| The UK pay-TV market was worth £4.41bn in 2003. The market has grown by 80.8% since 1999 on the back of strong growth in subscriber numbers and a constant push by the pay-TV platform operators to raise the average revenue per subscriber unit (APRU). |
| The UK market is dominated by the satellite platform and one key player, BSkyB, which is both the leading platform operator and a leading content provider. Its nearest rival is Telewest, which also acts as both a platform provider and content provider. The only other significant player is NTL, which although larger than Telewest in terms of its platform operations does not supply content. |
| The market has shown over its 20-year history that scale is a key driver of commercial success. Today, the industry is effectively a duopoly within each cable-TV franchise area and the proposed merger of Telewest and NTL will create an actual duopoly for most customers. |
| Despite the consolidation of the industry, competition remains intense and the introduction of a digital free-to-air (FTA) competitor to the pay-TV market — i.e. Freeview — has made the competitive pressures in the market stronger. |
| The key characteristics of the market today are as follows: |
| Satellite services dominate cable. |
| Revenue from subscribers (covering monthly service fees, pay-per-view payments, payment for hardware and installation charges) continues to represent the vast bulk of industry revenue. |
| Revenue from interactive services is relatively low but fast growing and this area represents a still largely untapped target opportunity for the major players. |
| Customers are largely reactive, watching the programme schedules as laid down by the major channel operators. |
| The platform operators continue to carry high levels of debt. |
| The market is currently at a crossroads. A number of factors could lead to a radical change in the market over the 2003 to 2008 period, which will affect both the overall size of the market and the competitive landscape. |
| The proposed switch-off of the analogue-TV signal between 2006 and 2010 will create a competitive battle to sign up the remaining 53% of TV households that do not currently access digital TV. Currently, Freeview appears to have an edge in this regard, as it is appealing to households that have been sceptical about subscribing to digital pay TV. However, the pay-TV operators need to seriously penetrate this market if they are to continue to enjoy rising subscriber numbers. This will call for a major rethink in their marketing plans, tariff structures and service packages. |
| By 2008, the market will take on a different complexion to the one seen today. In particular, interactive services, more broadly based family entertainment programmes and greater customer control over programme scheduling and start times will be commonplace. The market will also effectively split into two halves: |
| Full-strength segment — these are customers that access the bulk of the premium services available and pay a relatively high monthly subscription package for the privilege. These will be mid- to high-income earners. |
| The Lite segment — these are customers that access a restricted set of services and pay a relatively low monthly subscription package as a result. These will be high- and mid-income earners that do not want a large number of channels and low-income earners that cannot afford the |
| full-strength tariffs. |
| The competitive landscape of the market may also change in the next 5 years for three reasons: |
| If BSkyB's rights for the broadcasting of Premier League football are seriously undermined after 2007, either the cable pay-TV operators could improve their competitive position against the company or FTA terrestrial TV could become a stronger competitor against pay TV generally. |
| The cable companies will be financially stronger. Both NTL and Telewest will have completed financial restructuring, both are set to merge (with each other), and should benefit more than BSkyB from the convergence of broadband Internet and pay-TV services. |
| Freeview could take up to 40% of UK TV households by 2008. |
| By 2008, Key Note expects just under 60% of TV households to be signed up to pay-TV services. By this time, the multidigital TV home will be firmly established; homes will subscribe to both Freeview and a digital pay-TV service. |
TABLE OF CONTENTS
| Executive Summary | |
| 1. Introduction | |
| OVERVIEW | 3 |
| DEFINITION | 3 |
| Market Sectors | 4 |
| 2. Strategic Overview | |
| MARKET DYNAMICS | 5 |
| Pay TV Heading for Half of the TV Market | 5 |
| Table 1: The Total TV Market by Sector by Value and Market Share | |
| (£m and %), 2001 and 2002 | 5 |
| Growing Demand for Quality Viewing | 5 |
| The Rise of the Multichannel TV Household | 6 |
| Market Size | 7 |
| Table 2: The Pay-TV Market by Value at End User Prices (£m), 1999-2003 | 7 |
| A Satellite-Dominated Market | 7 |
| Table 3: The Pay-TV Market by Sector by Value at End User Prices (£m), 1999-2003 | 8 |
| Table 4: The Number of Pay TV Households in the UK by Type (million), Third Quarter 2002 to Fourth Quarter 2003 | 8 |
| Subscription Revenues Remain the Bedrock of the Market | 9 |
| Table 5: The Pay-TV Market by Source of Revenue at End User Prices (£m), 1999-2003 | 10 |
| The Next Phase of Pay-TV Development | 10 |
| The Traditional Business Model — Making the Pips Squeak | 10 |
| Lite Services — The New Business Model | 10 |
| Murdoch the Satellite Kingmaker | 11 |
| Bill Huff — Cable TV Kingmaker? | 12 |
| COMPETITIVE STRUCTURE | 12 |
| An Effective Duopoly | 12 |
| Table 6: Average Financial Performance of Companies Engaged in TV Activities | |
| (£000, % and £), 2002 | 13 |
| BSkyB — The Pivotal Player | 14 |
| Table 7: The Pay-TV Market by Leading Providers’ Share of Total Revenue, Households, and Subscriber and Interactive Revenue (%), 2003 | 14 |
| A More Competitive Environment | 15 |
| BSkyB/Premier League Football Deal | 15 |
| More Competition in Production than the Platform | 16 |
| Table 8: The Number of Pay-TV Platform Operators and Outside Suppliers | |
| by Type in the UK, 2003 | 17 |
| Support Platform Operators | 17 |
| Content Providers and Rights Owners | 18 |
| Software Applications and Developers | 18 |
| Hardware | 18 |
| Operational and Production Services | 19 |
| BSkyB Still Important in the Content Industry | 19 |
| ADVERTISING | 20 |
| Table 9: Main Media Advertising Expenditure by Satellite and Cable TV Companies (£000 and %), Years Ending September 2002 and 2003 | 21 |
| THE CONSUMER | 22 |
| Table 10: Penetration of Pay-TV Services in the UK by Number and Market Share (million and %), Third Quarter 2002 to Fourth Quarter 2003 | 22 |
| Table 11: The Use of Cable, Satellite and Digital Pay-TV Services (%), 2002 and 2003 | 23 |
| MARKET FORECASTS | 23 |
| 3. Satellite | |
| Direct-To-Home | |
| BACKGROUND | 24 |
| MARKET SIZE | 24 |
| Table 12: The Satellite Direct-to-Home Sector by Revenue Source by Value at End User Prices | |
| (£m and %), 1999-2003 | 24 |
| Table 13: Operating Statistics for BSkyB Group PLC (million, £, % and £m), Third Quarter 2002 to Fourth Quarter 2003 | 25 |
| CONSUMER TRENDS | 25 |
| Table 14: Sky Digital TV Services Received by Sex, Age, Social Grade, Income and Region (% of households), 2003 | 26 |
| MARKETING ACTIVITY | 27 |
| 4. Cable TV | |
| BACKGROUND | 28 |
| MARKET SIZE | 28 |
| Table 15: The Cable-TV Sector by Revenue Source by Value at End User Prices (£m and %), | |
| 1999-2003 | 28 |
| Sector Shares | 29 |
| Table 16: Operating Statistics for NTL Inc. and Telewest Communications Group | |
| (million, % and £), Third Quarter 2002 to Fourth Quarter 2003 | 29 |
| CONSUMER TRENDS | 30 |
| Table 17: Cable TV Services Received by Sex, Age, Social Grade and Region (% of households), 2003 | 31 |
| MARKETING ACTIVITY | 32 |
| 5. TV Over ADSL | |
| BACKGROUND | 33 |
| MARKET SIZE | 33 |
| Table 18: The Sector for TV Over ADSL by Value at End User Prices (£m and %), 1999-2003 | 33 |
| Sector Share | 33 |
| Table 19: Operating Statistics for Homechoice and Kingston Interactive (000 and %), Third Quarter 2002 to Fourth Quarter 2003 | 34 |
| MARKETING ACTIVITY | 35 |
| 6. An International Perspective | |
| GLOBAL TRENDS | 36 |
| EUROPE | 37 |
| THE US | 37 |
| ASIA-PACIFIC | 38 |
| LATIN AMERICA | 38 |
| 7. PEST Analysis | |
| POLITICAL FACTORS | 40 |
| The End of Analogue | 40 |
| A Single Cable Operator | 40 |
| Changes in Industry Regulation | 41 |
| Office of Communications | 41 |
| ECONOMIC FACTORS | 42 |
| Economic Cycles Affect the Timing of Purchases | 42 |
| Economic Cycles Affect the Attractiveness of Competitive Products | 43 |
| SOCIAL FACTORS | 43 |
| The Home as a Leisure Centre | 43 |
| Too Much to See? | 44 |
| Fashion-Led Market | 44 |
| Multiple Ownership of Hardware | 44 |
| The Search for Quality | 44 |
| TECHNOLOGICAL FACTORS | 45 |
| Technology Drives | 45 |
| Market Trends of New Technology | 45 |
| Recent Developments | 45 |
| Integration with Computer Technology | 46 |
| The Internet — A Major Threat or an Opportunity? | 46 |
| New Services | 46 |
| 8. Consumer Dynamics | |
| OVERVIEW | 47 |
| TV the Most Popular Leisure Activity | 47 |
| Table 20: The Most Popular Evening and Weekend Leisure Activities (% of adults), 2003 | 47 |
| PENETRATION OF PAY-TV SERVICES | 48 |
| Table 21: Penetration of Satellite, Cable and Digital TV at Home and Length of Subscription by Sex, Age, Social Grade and Region (% of households), 2003 | 49 |
| TYPE OF SERVICE | 50 |
| Table 22: Satellite and Cable TV Services Received (% of households), 2003 | 51 |
| Pay-per-View Services | 51 |
| Table 23: Penetration of Pay-TV Service for Watching Films, Sports and Other Events by Sex, Age, Social Grade and Region | |
| (% of households), 2003 | 52 |
| INTERACTIVE TV | 53 |
| Table 24: Penetration of Sky Digital Interactive by Sex, Age, Social Grade and Region (% of households), 2003 | 54 |
| 9. Supplier Profiles | |
| OVERVIEW | 55 |
| Table 25: The Key Pay-TV Service Packages, December 2003 | 55 |
| PLATFORM AND SERVICE PROVIDERS | 56 |
| British Sky Broadcasting Group PLC | 56 |
| Company Structure | 56 |
| Strengths and Weaknesses | 56 |
| Brand Development | 57 |
| Innovations | 58 |
| Appointments | 58 |
| Advertising | 58 |
| Table 26: Main Media Advertising by British Sky Broadcasting Group PLC (£000), | |
| Year Ending September 2003 | 59 |
| Profitability | 60 |
| Table 27: Financial Results for British Sky Broadcasting Group PLC (£000), Years Ending 30th June 2001-2003 | 60 |
| Future Company Developments | 60 |
| NTL Group Ltd/NTL Inc. | 60 |
| Company Structure | 60 |
| Strengths and Weaknesses | 60 |
| Brand Development | 61 |
| Advertising | 61 |
| Table 28: Main Media Advertising by NTL Inc. (£000), Year Ending September 2003 | 62 |
| Profitability | 62 |
| Future Company Developments. | 62 |
| Telewest Communications PLC | 63 |
| Company Structure | 63 |
| Strengths and Weaknesses | 63 |
| Advertising | 63 |
| Table 29: Main Media Advertising by Telewest Communications PLC (£000), | |
| Year Ending September 2003 | 64 |
| Profitability | 64 |
| Table 30: Financial Results for Telewest Communications PLC (£000), Years Ending 31st December 2000-2002 | 64 |
| Future Company Developments | 64 |
| Other Platform Providers | 65 |
| Kingston Interactive TV/Kingston Communications | 65 |
| Video Networks Ltd | 65 |
| Content Providers | 66 |
| British Broadcasting Corporation | 66 |
| Financial Results | 66 |
| Channel Four Group | 66 |
| Financial Results | 67 |
| Discovery Networks International | 67 |
| Flextech TV | 67 |
| Granada PLC | 68 |
| Financial Results | 68 |
| Viacom UK Ltd | 69 |
| Financial Results | 69 |
| The Walt Disney Company | 69 |
| 10. The Future | |
| MAXIMUM PENETRATION OF 60% | 70 |
| Table 31: Penetration of Households That Do Not Currently Have Cable, Satellite or Digital TV, 2003 | 71 |
| A NEW STRATEGY | 72 |
| OPPORTUNITIES AND THREATS | 72 |
| More Family-Orientated Programmes and Schedules | 72 |
| Interactive Services | 73 |
| More Customisation and Personal Control | 73 |
| Targeting Poorer Households | 73 |
| Premier League Football | 73 |
| FORECASTS 2003 TO 2008 | 73 |
| Table 32: The Forecast Pay-TV Market by Sector by Revenue at End User Prices, Number of Households and Penetration (£m, million and %), 2004-2008 | 74 |
| 11. Further Sources | |
| General Sources | 75 |
| Government Sources | 75 |
| Other Sources | 75 |
| Bonnier Information Sources | 76 |
| Understanding TGI Data | |
| Number, Profile, Penetration | 78 |
| Social Grade | 79 |
| Standard Region | 79 |
Text © 2004 Key Note
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Last updated by Amanda Porteous September
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