The market environment in which we operate is dynamic and constantly changing.
Consolidation of media and telecoms companies and the increasing influence of technology brings both challenges and opportunities that we believe we are able to respond to with pace and confidence.
Key market trends
Global demand for content continues to grow, with more channels, more platforms and new entrants increasing spend on high-quality programming. We estimate that the global content market is growing at around 5% per annum, with some genres such as drama growing faster than others.
This growth can be attributed to a number of factors, including: a larger international pay television market; convergence in the television market, where telecom and new media companies are increasingly competing with traditional media companies for content and viewers; online players such as Netflix and Amazon have continued to invest heavily in archive and new content; and online advertising driven platforms like YouTube and Facebook are creating a new market for short form and digital content.
The US is by far the largest content market in the world, dominating the global production sector, with the UK the second largest market. This represents a significant opportunity for ITV Studios, which has a strong presence in both regions.
Demand for drama, particularly US drama, has increased significantly in the last few years. Original scripted content becomes brand defining for broadcasters and OTT players in an increasingly competitive global environment. US studios continue to dominate the market for drama in the US and internationally, however the emergence of Netflix and Amazon in creating high-quality original scripted content has increased competition in the market. ITV America has developed a number of scripted programmes including Aquarius, The Good Witch and Texas Rising. Leveraging our network relationships and international distribution network, we are looking to expand our global scripted business and develop a strong portfolio of international and returning drama.
In the UK, there is stronger demand and higher viewing figures for UK content over imported series. We are a major producer of scripted content and have further reinforced this position through acquiring Mammoth Screen and Twofour Group. Our 2015 scripted deliveries included Poldark, Unforgotten and Home Fires.
While not growing as quickly as scripted content, demand for non-scripted content remains strong as networks continue to require lower cost, high volume popular series. The UK remains the dominant producer of unique non-scripted formats, producing almost twice as many as the US. ITV has significantly strengthened its capability in this area with the acquisition of Talpa Media. Along with the established entertainment and factual entertainment genres, scripted reality programming, where we have focused our US acquisitions, has grown quickly with formats such as Pawn Stars, Real Housewives and Duck Dynasty.
ITV is now a genuine global player in non-scripted content, being the largest unscripted independent producer in the US, as well as the largest commercial production company in the UK. The large independent production companies, such as Endemol Shine Group and Fremantle Media, continue to be ITV Studios’ main competitors in non-scripted content.
Over recent years the number of ways to watch TV has greatly increased with viewers able to choose a variety of platforms, both free and pay. Linear viewing remains dominant although viewing habits vary by demographic with younger viewers watching more non-linear content than older demographics. Non-linear viewing, while currently only a small proportion of total viewing, is growing fast and we continue to invest in ITV’s online offering, for example the ITV Hub, to compete successfully in this market.
ITV competes for viewers with the BBC and commercial broadcasters including Channel 4, Sky and Channel 5. Since the digital switchover, the number of available channels has grown which has impacted the SOV of the traditional broadcasters. However, despite an increase in the number of channels, ITV and BBC1 continue to be the only channels consistently able to deliver mass audiences as well as targeted demographics, and in 2015 ITV delivered 98% of all commercial audiences over five million viewers. In 2015 the ITV family of channels delivered a 21.2% SOV, second only to the BBC’s family of channels.
Although broadcast television has seen significant change over the last few years overall television viewing levels around the world have remained high.
Average television viewing in the UK in 2015 was down 2% compared to 2014. However, over a longer-term basis viewing has been resilient despite year-on-year fluctuations and remains the most popular form of media entertainment. UK average television viewing in 2015 was 216 minutes per day which is a similar level to ten years ago. (source: BARB).
Share of viewing by broadcaster
Free-to-air television is delivered through the services Freeview, YouView and Freesat, while pay television is delivered through the satellite operator Sky and cable operators Virgin and BT. Pay television revenue continues to grow in aggregate but the market dynamics are changing rapidly as established pay television providers such as Sky and Virgin come under pressure from relatively new entrants to the market such as BT, Netflix and Amazon.
Increasingly homes are supplementing their free television with other forms of paid content including subscription VOD such as Netflix, or by purchasing additional channels from providers such as BT or Now TV.
ITV participates in the pay television market, earning revenue from various third parties, including Sky and Virgin, through the licensing of channels and content. ITV also has its pay only television channel, ITV Encore, on the Sky platform along with our other pay channels, ITV2 HD, ITV3 HD and ITV4 HD.
The platform mix in the UK is roughly 50% free-to-air and 50% pay.
Non-linear viewing of long-form content is mostly recorded, or timeshifted viewing and catch-up of live television (linear television). It also encompasses VOD or Over The Top (OTT) delivery of other long-form content such as box sets and movies.
While non-linear viewing has grown fast it still accounts for a small proportion of total viewing time. In the UK we estimate 81% of all viewing of legal long-form content is live (including simulcast), with a further 12% timeshifted via a Personal Video Recorder (PVR) and watched within 28 days of the original broadcast date. Of the estimated 7% of content viewed on demand, 3% is catch-up viewing of broadcaster content via the television set or to other devices such as tablets and mobiles. The remaining 4% of content is other VOD viewing, where viewing of box sets via services such as Netflix is replacing viewing of DVDs. This is growing quickly driven by increased availability of devices such as smartphones, tablets and connected televisions.
Long-form content viewing
ITV generates revenues from advertising through traditional broadcast and online, and competes with commercial broadcasters and other advertising media, for its advertising revenues. In the UK, television has broadly held its share of the overall advertising market over the last five years, with a share of 27.5% in 2015 (2010: 29.2%). Internet advertising has grown its share from 29.3% in 2010 to 47.1% in 2015, making the UK one of the most developed markets for online advertising. This growth is at the expense of print advertising, which declined to 15.2% in 2015, down from 30.8% in 2010.
The UK television advertising market is getting increasingly hard to measure as all broadcasters have different definitions, but we estimate ITV’s share of broadcast was 46.1% in 2015, up from 44.7% in 2009. This is because of ITV’s unique ability to deliver mass audiences across key demographics.
Within online advertising, display accounts for 16.9% of the total online advertising spend, with the remaining 30.2% spent on search and classified. ITV competes within the display section of this market, providing an advertising platform around our online video content.
Television’s share of the advertising market