Ofcom warns broadcasters could go the way of high street retailers

Netflix stock image Credit: PA

The shift online is accelerating.

The media watchdog Ofcom has just finished its latest assessment of our viewing and listening habits and decided that the popularity of online streaming services like Netflix and Amazon is increasing at a pace that poses an existential threat to the BBC, ITV, Channel 4 and Channel 5.

The Chief Executive of Ofcom told ITV News that she was "worried about the future of public services broadcasting".

“You only have to look at the high street to see the impact of Amazon and other online retailers and it’s the case that British TV and British broadcasters now need to do more to tackle head-on the threat of their own online competition," Sharon White continued.

Ofcom’s latest Media Nations Report highlights how the trend towards online streaming is gathering pace and underlines the disruption it’s causing.

There are now more UK subscribers to television streaming services like Netflix and Amazon than to traditional pay TV services (of which Sky is the biggest).

Online revenues continued to soar last year while Pay TV revenues declined for the first time and TV advertising income - on which ITV depends - continued to fall.

Online video revenues grew by 28% to £2.3 billion in 2017. Credit: Ofcom

Viewing of traditional television is steadily waning.

Average daily broadcast viewing on a “television set” fell to three hours and 22 minutes a day in 2017. Still an extraordinary amount, you might argue, but it’s 38 minute less than in 2012.

TV subscription revenue fell by 2.7% to £6.4 billion in 2017. Credit: Ofcom

Viewing by people under the age of 35 has almost halved over the same period - a statistic which will terrify the average TV executive.

For younger audiences, streaming online isn’t niche, it’s how you consume TV.

According to Ofcom the average person under the age of 35 spends almost one hour a day on You Tube.

TV advertising income fell by 7% to £3.9 billion in 2017. Credit: Ofcom

So far, so fascinating, but what has clearly unsettled Ofcom is the squeeze this is putting on public service broadcasters.

Spending by the BBC, ITV, Channel 4 and Channel 5 on new UK-made television programmes fell to £2.5 billion in 2017 - its lowest level in 20 years.

That’s £1 billion less than they were spending in 2004 (the peak year), which is a significant fall in cash terms.

Factor in inflation and, in real-terms, broadcasters are getting less Blue Planet for their buck.

By contrast, Netflix is on course to spend more than £9 billion on original programs - belting out more films than a Hollywood studio.

The rise of Netflix - which began life as a DVD rental company in 1997 - is mirrored by the fall in traditional television viewing.

The BBC, ITV, Channel 4 and Channel 5 are out-gunned and look vulnerable.

In a sense it’s little wonder Ofcom is concerned.

“If Netflix and Amazon have a fundamental challenge that puts British broadcasting out of business, that’s a huge gap in the best loved shows that we know audiences want to watch,” Ms White said.

“British broadcasters produce the best shows in the world, we know that from Blue Planet 2 on the BBC and Broadchurch on ITV.

"If Netflix and Amazon challenge the broadcasters and they fail to respond it’s the viewer who is going to lose out."

Ms White believes traditional broadcasters could be making better use of the internet.

She wants to see them scale rather than shrink their budgets, but she also seems persuaded that they need help to make it easier for them to compete with the likes of Netflix.

“We recognise the importance of choice,” Ms White said.

“We think it’s important that Parliament considers levelling the playing field between Netflix and Amazon and British broadcasters so that British TV is just as easy to find on internet TV as it is on traditional TV.”

Ofcom has identified what it believes to be a problem and intends to spend the summer intriguing a series of possible remedies which it will set out in the autumn for the Government to ponder.

The remedies may include obliging the manufacturers of Smart TVs to promote the content made by public service broadcasters on their homepages in the way they are required to in France.

They may include obliging Netflix and Amazon to make more UK-originated programs and distinctive content, perhaps even news.

The key findings of the report in the UK. Credit: Ofcom

There may also be a willingness to think the previously unthinkable.

In 2009 the Competition Commission blocked Project Kangaroo - a joint venture between ITV, Channel 4 and BBC Worldwide - because of the fear it might have killed interest in video on-demand.

The world has since moved on, the balance of power has shifted.

Until recently the BBC, ITV and Channel 4 have tended to scoff at the idea that Netflix poses a threat, referring to it as the “frenemy” - a rival but, ultimately, another outlet for their programs.

That position is changing.

In March, the Director General of the BBC, Tony Hall, said public service broadcasters are locked in a “David versus Goliath” fight with online streaming services.

In a speech to staff at the BBC, Hall warned that the success of the “west coast giants” - Facebook, Google, Netflix and Amazon - threatened to undermine British values unless reform keeps with what he called “breath-taking, seismic change”.

Ofcom agrees, intervention is now inevitable.