Audiences are warming to the idea of watching content when they want, where they want

2009, and is expected to shrink – not recover – year on year in the future. In the big five Western European economies advertising shrunk by 3.3% in 2008 and fully 16% in 2009, and by 2012 will still be 10% below the 2004 figure.

It is not all bad news in advertising. China is currently the third largest advertising market in the world and in 2011 it will take second spot from Japan. It, too, received a major setback in 2009 but will now revert to 10% growth a year.

Television industry revenue streams

Licence Fees 11%

Advertising 45%

Pay TV 44%

Content, whatever its origination, also has to be delivered online, but as yet there is no clear way of maintaining a revenue stream to pay for it. In retrospect, broadcasters may regret having tempted their viewers with free online catch-up services, because they now find it impossible to shift them to a pay model, and at the same time the viewer has got used to choosing the time and place to watch, which greatly weakens the value of the commercial break.

This is at the heart of the structural shift in the industry. Audiences are warming to the idea of watching content when they want, where they want, on the device that happens to be convenient to them at the time. Large-screen televisions with ethernet ports for direct access to online content are now in stores and likely to be highly popular.

Apple is selling its iPad, a perfect catch-up TV device, at a rate of a million units a month, and could probably sell more if supply could match demand.

Routine viewing is now likely to be on the viewer’s schedule not the broadcaster’s. Appointment to view programming – chiefly sport and reality entertainment – is ever more expensive to produce. Advertising revenues are drifting away from broadcasters, many of whom have proved unwilling or unable to earn significant income from online services which are where advertisers are currently looking.

Source: Screen Digest

What is interesting to bear in mind is that much of this advertising growth comes from international businesses looking to build new markets in China. If those multinationals are concentrating on emerging markets like China – and others, like Brazil, India and Russia – then they could reduce still further their spend in established territories.

And if revenues are under threat, there is still upward pressure on costs. To take just a simple illustration, the 2006 Fifa World Cup in Germany, the first to be covered in HD, used 24 cameras at each stadium, with most individual broadcasters using standard definition for their unilateral content. The 2010 World Cup in South Africa used more than 30 cameras for each game, with most rights holders needing HD unilateral feeds. In addition 25 matches were covered in 3D. This increases the costs of the event – in expensive hardware and skilled operators – but it also resets expectations for future coverage.

3D has suddenly shot to the forefront of broadcasters’ attentions. Just at the moment when they thought that the completion of HD readiness meant a break from investing in infrastructure, now systems need to be re-plumbed to cope with matched pairs of channels, despite the fact that there is little evidence that audiences actually want 3D or can afford to re-invest in new home receivers.

This is the structural change in the industry. Content creators will look to multiple outlets for their programmes, which may be on air or online. Broadcasters will find ways to deliver across multiple platforms quickly and cost effectively, using their trusted brand status to find audiences wherever they are.

Everyone will need to find new business models. If “workflow” was the mantra of the last decade, the next will be marked out by “business process automation”. The actual technology will be hidden and decisions will be made on the basis of commercial aims and how much they will cost to implement. The manager of the future will want to know, at the click of a mouse, how much an idea – from setting up a regional channel to commissioning a global wildlife series – will cost, how long it will take and whether it can make a profit.

We are seeing a structural reset of the industry, characterised by a sharp downward shock, rather than an endemic decline. Smart vendors need to use this period to see what the future really means for their sector, and realign their businesses to meet the demands of the new style of customer: lean, mean and focussed entirely on value.

The current edition of the IABM market study is available in a number of packages, from individual market segments to the full report. For more information and to get involved in future editions, go to: www.theiabm.org/research.

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