The Communications Market Report 2016 4 August 2016 Agenda - PowerPoint PPT Presentation

Ofcom analyst briefing The Communications Market Report 2016 4 August 2016

Agenda Introduction Jane Rumble, Director of Market Intelligence Market overview Jessica Rees, Researcher, Market Research The audio-visual industries Stefan Webster, Media Analyst, Market Intelligence The telecoms industries Max Fernando, Telecoms Analyst, Market Intelligence Internet and online content Post Steven Cape, Senior Analyst, Market Intelligence 1

Market overview Jessica Rees, Researcher, Market Research 2

2015 UK communications revenues £56.5bn £bn Annual 5 year 80 change CAGR Total 0.9% -0.4% 57.6 57.1 57.3 56.5 56.5 56.1 60 4.1 4.1 4.2 4.2 4.2 4.3 Post -2.0% 0.4% 11.8 12.4 12.5 12.8 13.6 13.2 40 Radio 0.0% N/A TV 2.8% 2.9% 20 40.6 39.5 39.4 38.2 37.5 37.3 Telecoms 0.5% -1.5% 0 2010 2011 2012 2013 2014 2015 Page 9 Figure 1.1 Source: Ofcom/ operators 3

Average household spend grew in 2015 £ per month (2015 prices) Post 6% 5.3% 5.1% 5.1% 5.0% 4.9% 4.8% Radio 150 5% 121.30 121.15 118.90 117.41 116.02 116.07 Television 4% 30.34 100 31.87 29.39 31.44 30.31 31.10 Fixed internet 3% 11.15 11.51 11.85 12.26 15.05 13.44 Mobile voice & 2% data 50 49.64 48.93 48.37 45.68 44.47 44.08 Fixed voice 1% 25.28 23.69 22.94 22.49 22.14 22.66 % of total spend 0 0% 2010 2011 2012 2013 2014 2015 Page 10 Figure 1.2 Source: Ofcom / operators/ ONS 4

Increase in take-up of tablets, smartphones and smart TVs continues 80% Proportion of individuals (%) 71% DVR 61% 60% 59% Smartphone Smart TV 40% Tablet 27% 20% Smart Watch 5% Internet- 0% connected dongle 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 or set-top box* Page 13 Figure 1.5 Source: Ofcom Technology Tracker 5

Two-thirds of adults access the internet on their phone 100 Proportion of households/ adults (%) Mobile telephony 95 86 86 Fixed telephony 81 80 79 Internet connection 66 60 Total broadband 40 Fixed broadband Internet on mobile 20 (personal) Mobile broadband 4 dongle or datacard 0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Page 12 Figure 1.4 Source: Ofcom Technology Tracker 6

Surge in IM and on-demand viewing Page 16 Source: Ofcom Digital Day 2016 7

16-24s prefer recorded, on demand and online content to live broadcast TV Proportion of time spent watching by activity (%) 100% 2% 3% 3% 2% 4% 6% 14% Short online video 6% 12% clips 12% 6% 6% 80% Physical video 10% 17% 20% 60% 20% Paid On-Demand 13% TV or films Free On-Demand 83% 12% 40% TV or films 63% Recorded TV 48% 20% 36% Live TV 0% Adults 16+ 16-24 25-34 65+ Page 58 Figure 2.4 Source: Ofcom Digital Day 2016 8

The audio-visual industries Stefan Webster, Media Analyst, Market Intelligence 9

Broadcast TV revenues up 3% YoY Growth 1 year 5 year CAGR £11.8bn £12.4bn £12.5bn £12.8bn £13.2bn £13.6bn 3% 3% £bn 7 £6.2bn £6.0bn £5.9bn 3% 4% 6 £5.5bn Subscription £5.4bn revenue £5.0bn 5 £4.1bn £3.8bn 7% 3% £3.7bn Net advertising £3.6bn 4 £3.5bn £3.5bn revenue £2.7bn £2.7bn £2.6bn £2.6bn £2.6bn 3 £2.6bn -4% 0% BBC income 2 allocated to TV £0.7bn £0.7bn £0.7bn £0.7bn £0.7bn £0.7bn 1 3% 0% Other revenue 0 2010 2011 2012 2013 2014 2015 Page 67 Source: Ofcom/broadcasters. Note: Figures expressed in nominal terms. Figure 2.12 10

TV advertising revenues up 7% YoY Growth £bn 1 year 5 year 5 CAGR £4.1bn 7% 3% Total £3.8bn 4 £3.7bn £3.6bn £3.5bn £3.5bn Commercial 15% 8% £1.2bn £1.0bn multichannels £1.0bn £0.9bn £0.9bn £0.8bn 3 £0.7bn £0.7bn £0.5bn £0.5bn £0.6bn 12% 7% Commercial £0.6bn PSB portfolio 2 channels Commercial 2% 0% £2.2bn £2.2bn £2.1bn £2.1bn £2.1bn £2.1bn 1 PSB channels 0 2010 2011 2012 2013 2014 2015 Page 70 Source: Ofcom/broadcasters. Note: Figures expressed in nominal terms. Figure 2.15 11

Online TV revenues grew 23% YoY Annual Growth £m £976m 23% Total 1,000 £795m £283m 800 FTV Ad 18% revenues £241m £574m 600 42% Subscriptions £190m £451m £379m 400 £318m PPV 3% £145m £238m £207m transactions £180m 200 £81m £83m £113m £104m £57m £74m £38m £159m DTO £156m £121m 2% £92m £75m £66m transactions 0 2010 2011 2012 2013 2014 2015 Page 68 Source: IHS Figure 2.13 12

Sports rights boost programme spend 1 year £m change 7,000 3% £6,528m £6,368m £188m £181m 4% Channel 5 £299m 6,000 £269m £215m £236m £316m £311m 11% Commercial PSB portfolio channels £507m £492m 5,000 -9% BBC portfolio channels £819m £800m 4,000 2% BBC Two £820m £818m 3% Channel 4 3,000 £763m £813m 2% Other multichannels 2,000 0% ITV ITV/Breakfast £2,601m £2,448m 1,000 -6% BBC One 0 6% Film/sport channels 2014 2015 Page 73 Source: Ofcom/broadcasters. Note: Figures expressed in nominal prices Figure 2.19 13

Broadcast TV viewing fell for the third consecutive year Average minutes per person per day of broadcast TV viewing: Total TV, individuals 4+ 242 242 241 232 220 216 250 200 150 100 50 0 2010 2011 2012 2013 2014 2015 Page 93 Figure 2.38 Source: BARB 14

Traditional live TV drives the decline Average minutes of viewing per day by activity: Total TV, Individuals 4+ 242 242 241 232 220 216 250 17 22 24 26 27 Timeshift 29 200 150 Traditional 225 219 216 206 100 TV 193 188 viewing (Live) 50 0 2010 2011 2012 2013 2014 2015 Page 94 Figure 2.40 Source: BARB 15

Fall most pronounced among under-45s Average minutes per day of broadcast TV viewing by age group: Total TV Adults 65+ Adults 55-64 Adults 45-54 Individuals Adults 35-44 Adults 25-34 Adults 16-24 Children 350 342 300 297 250 239 216 200 194 162 150 124 100 111 50 0 2010 2011 2012 2013 2014 2015 Page 98 Figure 2.44 Source: BARB 16

PSB channels retain half of viewing Main five PSB share: 55% 54% 52% 51% 51% 51% 100% All other channels 26% 27% 27% 28% 28% 29% PSB 80% portfolios Channel 5 18% 20% 21% 21% 21% 20% 60% 5% Channel 4 4% 4% 4% 4% 4% 6% 6% 6% 5% 5% 5% 40% ITV 17% 16% 15% 15% 14% 15% 6% 6% 7% 6% 7% 6% BBC Two 20% 22% 21% 21% 22% 21% 21% BBC One 0% 2010 2011 2012 2013 2014 2015 Page 101 Source: BARB Figure 2.47 17

Younger viewers most likely to use their connected TV Respondents (%) 80 All 16-34 35-54 55-64 65+ 59 60 54 47 45 42 37 37 40 35 35 32 29 28 25 25 23 22 21 21 20 20 19 17 20 15 15 13 13 12 11 10 7 5 5 4 3 2 0 ANY OF Broadcaster Clips through Free VOD Browse online Online Paid VOD THESE catch-up websites (FB, content subscription content services YouTube) through TV services through TV service (Netflix, (PPV) Amazon etc) Page 91 Source: Ofcom Media Tracker 2015. Figure 2.37 18

BBC iPlayer remains the most popular VoD service Proportion watching VoD services in past 12 months (%) 30 BBC iPlayer 32 Sky (all) 16 16 H1 2014 15 All4 14 ITV Hub 15 H2 2014 13 10 My5 10 H1 2015 7 Virgin (all) 6 H2 2015 BT TV 2 3 1 TalkTalk TV 2 0 5 10 15 20 25 30 35 Page 60 Figure 2.6 Source: Kantar Media – TGI Base: GB adults 15+, all devices. 19

Netflix is the most used paid-for VoD service Proportion watching paid-for services in the last week (%) 30% 26% 25% 23% 20% 18% 2014 15% 13% 2016 10% 7% 5% 5% 4% 4% 5% 1% 0% All paid-for services Netflix Amazon Instant Video Now TV iTunes Source: Ofcom Digital Day 2016 Page 62 Figure 2.8 20

Subscribers most interested in back catalogue Reasons for using Amazon Prime Instant Video / Netflix 39% To access back catalogue of TV programmes 28% 23% 38% To access back catalogue of movies 27% 23% Netflix 31% Amazon Prime Video To watch original series made by provider 19% 9% Now TV 27% To watch at a time that suits 20% 18% 15% Cheaper than Pay TV subscription 12% 22% Page 63 Figure 2.9 Source: GfK SVoD Tracker. Base: All Amazon / Netflix / Now TV subscribers 21

The telecoms industries Max Fernando, Telecoms Analyst, Market Intelligence 22

Fixed voice

Fixed voice call volumes fell by 9% in 2015 Billions of minutes 150 Other calls 123.0 111.1 21.7 102.2 92.5 100 19.7 Calls to mobiles 11.8 17.9 81.6 6.7 10.3 17.2 74.2 9.4 6.5 14.6 5.9 8.6 13.4 5.0 7.6 4.4 7.2 International calls 4.0 50 82.8 74.6 69.0 61.7 55.0 49.5 UK geographic calls 0 2010 2011 2012 2013 2014 2015 Page 146 Source: Ofcom / operators Figure 4.10 24

Usage of non-traditional communication services continues to increase Proportion of respondents 100% 82% 83% 83% 80% 79% 78% 80% 2014 58% 60% 55% 53% 2015 42% 44% 40% 37% 40% 35% 32% 2016 22% 17% 20% 14% 0% Mobile Email Social VoIP (voice call Mobile instant Video calls messaging networking only) messaging sites Page 167 Source: Ofcom Technology Tracker Figure 4.36 25