Investors
Broadcast Digital conference
06/06/2007
BROADCAST DIGITAL CONFERENCE: 6th June 2007
Carolyn Fairbairn, Director of Group Development and Strategy,
ITV
Good Morning everyone.
It’s a real pleasure to be here with you today to talk about
ITV’s digital strategy.
There was a time, only a few years ago, when only the bravest
executive would stand up and make a speech which put the words
‘ITV’ and ‘digital’ into the same sentence.
Those days have, thankfully, faded into history.
Today, ITV has a strong digital story to tell, and there are three
main areas I want to cover this morning:
- First, ITV’s ongoing commitment to original UK production in a digital world
- Second, our digital channels strategy - the challenges as well as the successes
- And third, some of the bigger convergence issues we’re facing. In particular, how we’re planning to develop ITV.com, and our thoughts on the current important debate around high definition television.
CONTENT
So, starting with content. Always the right place to begin.
The late broadcaster Alastair Cooke used to tell a story about the
birth of television in the UK. He said that, just after World War
2, a survey was conducted in schools asking children which they
preferred, television or radio. For one 7 year-old boy the answer
was simple - he preferred radio “because the pictures were
better.”
You can see what he meant.
Back then, TV was pretty basic and no match for a child’s vivid
imagination. But 60 years later, we’re in rather better
shape.
British programme makers are producing the best television to be
found anywhere in the world.
And at ITV we believe passionately in the power of television to
capture the imagination of our viewers - whether they are 7 years
old or 70.
With a billion pound investment each year in UK broadcasting, we
have a bigger commitment to production than any other commercial
broadcaster.
The vast bulk of this investment is spent on our flagship channel,
ITV1. It is this investment that ensures that ITV1 remains, despite
all the challenges of fragmentation, a channel of massive
scale.
And scale matters, all the more so now that it is getting harder to
achieve. It’s what advertisers want from ITV1. It’s what makes it
unique.
ITV1 is still able to attract audiences of 10 million or more on a regular basis. No other commercial channel comes close.
But like all successful channels, ITV1 has to continually reinvent itself to maintain its popularity and relevance.
That’s why we have made it clear that the reinvigoration of ITV1 is our top priority. Already the impact is being felt. With Simon Shaps and his new commissioning team now shaping the schedule, there’s a lot of confidence around ITV.
And it’s showing in the programmes - from Jane Austen, Kingdom,
and Mobile, to Fallen Angel, Primeval and Benidorm - to name just a
few of the highlights of ITV’s spring schedule.
And if you judge the success of a channel by its ability to make
and break new shows, then ITV1 is in pretty rude health. ITV1 has
launched 12 new programme titles attracting more than 5 million
viewers so far this year. That’s more than any other channel and
streets ahead of our nearest commercial rivals.
We’ve got a fair way still to go, but the renewal of ITV is
clearly underway.
But ITV1 is just a part - if a crucial part - of the story. It’s a
story of creative and financial stabilisation of a mature channel
in mature market. The second part of our plan is about new services
in new markets. It’s about growth.
We believe ITV is uniquely well-placed for growth. The value chain for content in a digital world is lengthening, and, as the UK’s only commercial integrated producer/broadcaster, no-one is better placed to take advantage of the opportunities.
Take our hit properties like I’m A Celebrity…or Dancing on Ice.
- We make the programme in-house
- We can broadcast it on ITV1 to many millions of people
- We can schedule a companion show immediately following it on ITV2
- We will soon be able to provide streaming, catch-up, exclusives and interactive games on ITV.com
- And produce a ‘best of’ DVD when the series finishes
And then there’s the international market. Fans of ‘Stars auf Eis’ in Germany or ‘Hviezdy na lade’ in Slovakia will know that our sales teams have great success selling and producing our biggest formats around the world.
(In case you’re having problems with the translation, they are
both version of Dancing on Ice).
No other commercial broadcaster in the UK can match this fleet of
assets.
High quality content, along with the ability to produce, exploit,
distribute and monetise it, has been at the root of ITV’s success
for over 50 years. It’s also at the heart of our plans for
growth.
DIGITAL CHANNELS
Nowhere is this more apparent than in our digital channels
strategy.
As everyone knows, one of the consequences of the growth of digital
channels is that mainstream terrestrial broadcasters lose audience
share. More channels mean greater choice, and that means lost
viewing share for the incumbents.
All the UK’s terrestrial broadcasters have responded to this challenge in the same way. We’ve all launched our own new channels. The aim is clear - to recapture viewers who are leaving the main channels, and compensate for the losses.
So far so good. But while the principle is simple enough, it can
be much harder in practice.
In a competitive and overcrowded digital channel market, even well
established broadcasters can have a tough time launching and
growing new channels.
The fact is that any major brand seeking to expand their range of services risks damaging their core brands - reputationally, financially or both.
So for anyone brave enough to try it, I think there are three main challenges facing broadcasters wanting to launch and grow new digital channels.
First, differentiation. With a market of hundreds of digital channels, what makes yours stand out and how are you promoting it? You can’t rely on the ‘build it and they will come’ philosophy.
Second, cannibalisation. The good news is that your channels are winning large audiences - but are you sure you’re not simply stealing your own viewers away from your other services, and doing more harm than good?
And third, content and commissioning. You’ve bought some rather expensive capacity on Freeview or satellite, but can you afford decent, original content on a shoestring budget?
There can be a real pain barrier in the early years. Not enough differentiation. Too much cannibalisation. And shoestring economics that don’t allow you to invest in the content needed to put things right.
We’ve been through some of this ITV, but I’m think we can honestly say we’re through the pain barrier.
Our early research showed that ITV’s new digital channels tended to attract primarily heartland ITV1 viewers. The ITV1 brand was so strong that it drowned out the differentiation we tried to introduce through content and branding. We split our own audience and cannibalisation was a problem.
But over the past couple of years we believe we’ve created a family of channels that are truly distinct from each other. Yet at the same time they are not straying too far from ITV’s core values of accessible, friendly, family entertainment.
- There’s ITV2 - our younger, entertainment channel attracting valuable 16-34 year olds with popular shows like Katie and Peter, American Idol and Supernatural
- There’s ITV3 - the home of much-loved UK drama attracting a heartland ITV audience to modern classics like Poirot, Marple and Morse.
- And there’s ITV4 - our newest channel which is unashamedly male. It’s a rich mix of world class sports, cool films and quirky comedy.
To minimise cannibalisation, we’ve got smarter about scheduling. Schedules need to complement, not duplicate. That way, if people are going to move around in a digital environment, we have a good chance of keeping it in the family.
In practice, this means that once The X Factor, or I’m A Celebrity…has finished on ITV1, viewers can turn to ITV2 for brand extensions like TheXtra Factor or I’m A Celebrity Get Me Out Of Here Now.
Meanwhile, we will broadcast Who Wants to Be a Millionaire, which attracts a different demographic, back on ITV1.
Of course you can never take for granted that your viewers go where you want them to. And it takes time for channels to establish themselves.
But if you can get through the pain barrier you can reach a new equilibrium - where the newer channels can stand on their own two feet.
Out in the wider broadcast landscape, BBC 3 has done this, so
has E4. There are examples in the newspaper world too of
‘pain-free’ digital services - Guardian Online is a terrific
example of a successful digital brand extension enhancing the core
Guardian brand.
In our own portfolio, ITV2 and ITV3 are now well into this more
settled state.
- ITV 2 is the UK’s largest digital channel.
- We have the most popular family of commercial channels in the UK.
- And, as this chart shows, they are all growing year on year. In fact, last year ITV’s channels accounted for half of all revenue growth for the multichannel marketplace - quite an achievement.
The next step for us is to commission more original UK content. We believe this is the most effective route to winning viewer loyalty and driving further growth. But it’s a luxury few can afford.
We’re now in the exciting position that ITV2 has become one of the very few commercial digital channels that can break original UK programming successfully.
Take ITV2’s top programme of the year so far, Katie and Peter:
The Next Chapter - an original programme commissioned expressly for
ITV2. Its performance means it ranks as the second best performing
series this year among 16-34 year olds on a digital channel -
beaten only by Lost.
And it’s a sign of our confidence and ambition for ITV2 that we’ve
commissioned Belle De Jour, an original piece of drama starring
Billie Piper, exclusively for the channel.
We’ve been able to do this because our network team now
commission around genres, not channels.
This means that the entire ITV channel family can benefit from the
expertise of some of the best commissioners in the business. Brash,
contemporary, and confident. We’re really proud of ITV2.
Creatively, it’s come a very long way. Strategically, it’s also
pretty significant. It means ITV now has two strong channels with
original commissions. It’s a model you are more likely to find on
the continent, where the leading commercial players, such as RTL in
Germany and Mediaset in Italy, have major second channels.
As a result, the competitive landscape is beginning to change. ITV2 is starting to make serious inroads into the viewing of some its bigger rivals.
Last year ITV2 successfully challenged Channel 4 and Five on a number of occasions, beating Four three times and Five nine times. And among the critical 16-34 demographic ITV2 beat Channel 4 twelve times and Five a massive fifty four times.
These are small but significant numbers. Just a few years ago it was unthinkable that a digital-only channel could challenge Four or Five.
Today ITV2 has shown it can win against terrestrial channels in key slots and among the most valuable demographics. Our ambition is to occupy more of this territory, and on a more permanent basis.
If ITV2 is the UK’s top digital channel, ITV3 is just behind as number two. Last year ITV3 had its biggest ever programme with 860,000 viewers tuning into A Touch of Frost- helping it to become the largest digital channel in Freeview homes.
So if 2006 was the year of ITV3, we think 2007 will be the year
of ITV4.
With its share of viewing growing in all key audiences, ITV4 is
poised to take off. Over a million viewers tuned in to watch
Champions League football at the launch of ITV4 in 2005, and since
then top-level sport has become a bedrock of the schedule.
In fact, the season average for Champions League football on ITV4 this year was well over 700,000, and 50 per cent up on last year.
We are immensely proud of all our channels and their success
over the last few years.
And, as Michael said earlier this year, we’ll continue to give them
the investment they need to grow even faster.
ITV.COM
I want to talk briefly about latest addition to the ITV family -
our new broadband service, ITV.com.
We see ITV.com as the next generation of ITV’s mainstream
services.
It will be, we believe, the most comprehensive commercial broadband
television service anywhere in the world.
We’re bringing the best of TV together with the best of the web
to create a free broadband entertainment service. And We’re on
track for a consumer launch of ITV.com later this summer.
The timing is, we think, just about right. ITV is a mass market
broadcaster and broadband has now only just reached mass market
penetration. Reality has finally caught up with the rhetoric. As we
speak, the technology is there, the audience is ready, and the
advertising spend is on its way.
Online display and classified revenues grew by 40% last year and
now account for over 40% of the total £2 billion UK advertising
market. At the same time, online video advertising is growing fast.
We think we can win a good share of it. So we’re working closely
with our advertisers to develop the online advertising models of
the future.
The signs are very promising. Recent US research into pre-roll video advertising - those are the ads that would come up before you watch an online full length programme - has shown that this type of ad is exceptionally effective compared with normal linear TV advertising. It suggests that recall of the ad is four times higher, brand awareness is significantly increased, and people are less likely to be doing something else while the ad is playing.
I’m a recent arrival at ITV, but I’ve discovered there was quite
an internal debate within ITV about whether to go a free or pay
route for ITV.com. I’m convinced free is the right way to go.
ITV.com has the potential to be a major new mass entertainment
service, with huge benefits for advertisers, at a national and
local level. Martin Sorrell may be right about the torrent of ad
money moving online. For ITV, it’s an opportunity, not a
threat.
All in all, this adds up to an exciting year for broadband television. With ITV.com launching later this summer, the BBC launching in the autumn and Channel Four already there, the broadcasters are really going to be making their mark.
But there is one fly in the ointment - and that is how impact is measured. You can only monetise what you can measure, and online measurement is lagging badly behind the needs of advertisers and service providers.
25 years ago we helped establish BARB as the industry gold
standard for audience measurement. Today we are working with BARB
to develop the audience measurement tools for this century.
With intense interest from advertisers and rising consumer usage,
it’s surely not beyond our collective will to start measuring this
properly.
Our guiding principle will be that if it looks like TV, we should measure it. And if we can measure it, we can monetise it.
If our commercial models fail to keep pace with convergence we risk losing out on this emerging digital market from the outset.
It’s a mistake we’re not prepared to make.
HD
I want to end by saying a few words about High Definition
television and the need for it to be available on Freeview.
HD is coming. We only need to look at the US to see its unstoppable progress. All the networks are broadcasting in HD; Discovery and HBO are ramping up their HD production, and the US studios are doing the same.
The world is moving to HD just as it did from black and white to
colour 40 years ago.
Our real concern is that, with current government policy to auction
off spectrum to the highest bidder, UK audiences risk being left
behind in this next wave of technological development.
Unless some capacity can be reserved for digital terrestrial
television, HD is not going to happen in any meaningful way on
Freeview - the biggest digital platform in the UK.
There’s a real risk that the UK - historically the envy of the
world in digital television - will start to slip. The wrong
decision now would irreversibly weaken the UK’s position as a
digital leader.
As seriously, Freeview viewers would be locked into a standard
definition world while the rest of the market moved to HD. We have
a long and time-tested tradition in the UK of ensuring everyone has
access to the same quality of broadcasting and the PSB channels.
This is what digital switchover is designed to achieve.
Closing the door on HD on Freeview would undermine that principle precisely at the point we finally achieve digital universality with the completion of switchover.
This is why we are asking Ofcom and the Government to loan the PSBs a little over a multiplex of capacity and by broadcasting in HD we will help create a more efficient transmission standard on DTT.
This in turn will help increase the capacity of the platform and bring original UK produced content in HD to everyone in the UK. And, in due course, once HD compatible boxes are sufficiently widespread, we will return the loaned spectrum and it can be auctioned.
It’s a simple solution which will deliver revenues back to the Treasury and ensure that Freeview is fit for the digital future.
CONCLUSIONS
So to conclude. As always, there are huge opportunities but also
many challenges ahead of us.
The wide range of speakers here today is a fair snapshot of the
expanding market we’re all now operating in - BT, Virgin and Joost
to name a few. It’s nice to see a few broadcasters in the mix
too.
For so many years the biggest challenge facing us as broadcasters
has been our ability to move successfully from analogue to the
digital world. Now, it feels like the opportunities are beginning
to win over the challenges. Mainstream broadcasters can be growth
businesses - the US networks are proving that. ITV too can be a
growth business. But we need to anticipate the future and be bold
in seizing the opportunities of this unexplored digital world. As
I’ve tried to set out this morning, this is exactly what ITV is
aiming to do, and I look forward to working with many of you here
as we explore the opportunities together.