Understanding the Scale

of the Industry Dick Hobbs, Editorial Consultant, IABM

Any businessman will want to know, from the start, the scale of the industry in which they work. What is the annual spend by potential customers, how is it distributed geographically, and how many competitors are pitching for it?

In many business sectors this information is relatively easy to obtain or calculate. But up until recently this was not the case for broadcast and related electronic media. Indeed, the nature of the industry made it very difficult to derive.

Not the least of the issues is the very diverse scope of the sector. A typical IBC will attract well in excess of 1000 exhibitors, some occupying just a few square metres, some taking several hundred.

In 2006 the IABM, as the body which represents the interests of manufacturers and suppliers in the industry, launched a research programme with the aim of providing a definitive model of the industry, with the current scale and future forecasts down to the level of product groups where practical.

The success of the study was due to the way it was implemented. Leading media market research company Screen Digest was commissioned by IABM to gather the data from vendors, under the guidance of a group of IABM members. From this original research they were able to produce a detailed analysis.

The accuracy of the report is down to the remarkable co-operation of a very large number of vendors in the industry who were willing to provide IABM with extensive commercially confidential data. The involvement of Screen Digest ensured absolute security. The independence of IABM, and the importance of using verifiable conclusions, meant that vendors were prepared to invest the considerable amount of time required. Without them the project could not have succeeded.

The first edition of the study was published in 2006, to general acclaim. A substantial body of work, it provided a detailed measure of the industry, together with forecasts to 2010. It also detailed in the extensive commentary that accompanied the numbers what factors would affect the future of the business.

The intention was to repeat the intelligence gathering at regular intervals, updating the market sizing information and validating and refining the forecast models. The study would thus continue to grow in stature, making it invaluable for boards establishing future business plans and negotiating for further finance.

The second edition was published in September 2008: on reflection unfortunate timing. It revealed that the forecasts for the 2006 edition had been really quite accurate. The scope was extended to include service providers as well as vendors of products so the headline numbers were

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rather higher, but the underlying data was proved to be sound. The publication did coincide with the start of the recession, though, which meant that the forecasts had to be viewed with a degree of care. By the first quarter of 2009 there were those who thought the whole industry was doomed, which clearly has not proved to be the case.

To put the effects of the global economic downturn into context, an update to the market study was commissioned for publication towards the end of 2009. It found that while the initial impact had been very severe, there were already signs of recovery, and that for those vendors able to recognise the shifts in the market, prospects were good.

The study found that overall revenues would fall by 9.5% in 2009. Subsequent modest growth will see revenues return to their 2008 level by the calendar year 2012.

The first important point to make here is the significance of those two key years 2008 and 2012. Broadcasting tends to have a natural cycle of four years with the high point seen in those years which combine the summer Olympics, the European football championships, and the US election. 2008 was always going to be a bumper year at the top of the four year cycle, exaggerated still further because of the Chinese broadcasters’ use of Olympic momentum to modernise the national broadcast infrastructure. 2012 will see the Olympics in London and Obama defend his presidency, both of which in their different ways will drive forward new developments – and therefore new purchases – of media technology.

What the 2009 study showed – and this is continuing to be reflected in the IABM’s other market research exercises – is that the pace of recovery is not uniform. To the economic shifts brought about by recession we must add structural shifts in the industry, some of which are highly significant. As the chart shows, the commercial television industry now gains its revenues from advertising and from direct payment (subscriptions or pay per view) in about equal measure. There remain a number of national broadcasters funded by licence fees or from general taxation, at about 11% of the total.

The research shows that direct payments are holding up remarkably well. It may be that viewers have decided that they cannot afford to go out so will have good television when they stay in. Licence fees are stable in the short to medium term, particularly in a time of low inflation, although they are subject to political pressures in the longer term.

But advertising is under huge pressure. We are all familiar with the instinct to slash the advertising budget at the first sign of financial trouble. This time it comes at the same time as a fragmentation of advertising revenues, as spending is diverted into new platforms and particularly online.

The US television advertising market contracted by more than 10% in

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