21 JAN 2022

Is the UK television sector facing a perfect storm?

Although it is one of the largest television markets globally, the UK faces a series of shake-ups which could dent its primacy in the industry, Ampere Analysis assured in its latest report.

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The UK government’s plan to freeze the BBC licence fee for two years — and to look at the abolition of the fee in 2027 — is just the latest in a number of major structural and political challenges facing the UK television sector, Ampere Analysis assured in its latest report.

The UK is one of the largest television markets globally. In 2021, the UK’s broadcast TV sector turned over $18 billion, and represented nearly 5% of global industry revenue — smaller only than the United States, China, Japan and Germany. That revenue, combined with export opportunities for UK content, supports an extensive content production sector. In 2021, more brand new TV shows were commissioned in the UK than in any other territory outside the United States.

However, the UK faces a series of shake-ups which could dent its primacy in the global TV market, Ampere Analysis noted:

❶  CHANGES TO THE BBC FUNDING MODEL

The current UK government has committed to freezing the BBC licence fee, through which it derives the bulk of its revenue, for the next two years (until April 2024), after which point the fee will rise with inflation. The current BBC Charter concludes in December 2027, and the UK’s Culture Secretary has called for the potential abolition of the licence fee, and its replacement with alternative funding mechanisms.

Ampere Analysis examined a number of potential alternatives in a 2020 report on the subject, concluding that only a tax-based system would be a viable replacement that would not risk causing damage to the wider TV or communications sector. BBC funding is vital to many independent production companies, and supports the development of the talent, skills and infrastructure which underpins the UK’s role as a global content hub attractive to international groups such as Netflix, Amazon, Disney and Discovery. Just 15% of the more than 300 new TV shows commissioned by the BBC in 2021 were produced in-house. The remaining titles were worked on by external, independent, producers.

“Reviewing the funding and structure of the BBC is an entirely reasonable project for policymakers, but in order to avoid fatally undermining these independent companies which rely on the BBC as an income stream, any major changes to the scale of the BBC’s publicly-funded income should at the very least be supported by bridge funding to avoid cliff-edge scenarios,”  said Richard Broughton, Research Director at Ampere Analysis and the author of the report.

❷  PRIVATIZATION OF CHANNEL 4

The UK government is simultaneously reviewing the role and public ownership of ad-supported public broadcaster Channel 4, with a view to potentially privatizing the entity. A decision on the sale of the broadcaster has been pushed back until later in 2022.

In a 2021 report, Ampere’s modelling indicated that as many as 50-60 independent production companies in the UK could be put at risk through the privatization of the group, as a new buyer would seek to improve margins and bring content production in-house.

❸  ALTERATIONS TO EU CONTENT QUOTA ELIGIBILITY

Talent, skills and infrastructure are important factors in the choice of the UK as a production center for many international groups. In fact, 7% of Netflix’s new TV show commissions in 2021, and 13% of Amazon and Disney+’s 2021 projects, are being produced in the UK.

But UK-sourced content is also important for many international streaming groups due to its current eligibility towards EU content quotas. Streaming services operational in EU markets are required to devote at least 30% of their catalogues to “European Works” — titles produced in a set of EU and a small number of non-EU markets, including the UK. The combination of this eligibility, plus the strong exportability of UK productions to international markets, makes the UK a solid base both for diversifying slate and fulfilling regulatory rules on content origin in Europe. UK productions can account for as much as a fifth to a third (depending on service and market) of content quotas in EU countries.

However, the European Union is reviewing the role of UK content and its contribution to catalogues. Should the UK’s eligibility be rescinded, it would undermine the UK’s position as a production hub supporting contributions to the quotas. International streaming service providers would be incentivized to find alternative locations in Europe to base more of their projects.

“None of the above risks to the UK TV market are yet locked in. The current instability at the top of the UK political administration, and possibility of imminent switch in premiership, means that pending policy changes are subject to even more uncertainty than normal. But were they to occur in quick succession in the next five years — combined with wider economic headwinds and structural pressures stemming from changes in viewing patterns and media preferences — the UK’s hitherto successful TV sector could very well face a perfect storm,”  Broughton concluded.