A Risk Too Far: Why UK Terrestrial TV Shouldn't Switch Off in 2034

Speaker 0 · 0:00

Hello. Welcome to the Media Unfiltered podcast. Today's gonna focus on a paper recently published by Ian Whittaker to do with terrestrial television switch off. The UK faces a couple of choices, complete switch off at 2034 or the continuation to 2044 with the promise of lower costs and other issues solved. But before that, let's have a quick update from our previous podcast around lawsuits. Meta, last week, settled for 17,000,000,000. Google, today, just escaped having to break up their business by a judge in Virginia rejecting The US antitrust enforcer's bid to force a sale due to monopolistic behavior. This is about, harming consumers and their publisher customers. The judge awarded in favor, declining to force Google to sell their tech businesses. Meanwhile, more recently, Amazon are currently being sued in Seattle for allegedly pushing up prices within their programmatic environments. Look, our view here is that as these three companies become more and more powerful, we're gonna see more of these cases. And my view is that some of these are the sort of the last stand because as these companies control so much advertising, or so few companies control so much advertising, I think you'll get more and more of these issues, and none of these are new. But, anyway, let's go back to the report and reflect on The UK market. So, Ian, the report is titled a risk too far. You know, 2034 appears to be too soon despite, as illustrated in your report, it is technically possible to switch off digital terrestrials. So there's a lot of reasons to push this date around national security, which we'll discuss impact of ad spend and, of course, reaching consumers. So let's start off. Why why is this report out now? What is happening? And, what's what's the sort of the time crunch here?

Speaker 1 · 1:54

Sure. So, I mean, this report I mean, it was commissioned by Arkeva, who obviously has a direct interest in this. They operated through us through a network. But what we'd say on that is that that was my idea. I approached them. I said, look. I think there's a number of arguments that have been missed here entirely when it comes to the whole conversation around DTT switch off. And Mhmm. You know, my view sort of really before this was commissioned was that people were focusing too narrowly on the cost arguments and also as well related issues, and they weren't actually looking at the wider aspects. And it's not just to do with households' sort of availability to television as, although that is an important issue. But particularly sort of around the national resilience case and really the fact that the terrestrial network, it is a sovereign asset. And also as well, unlike IPTV, yeah, arguably, it has got sort of, potentially in the future, even more sort of important boundaries there for for national resilience, than the IPTV network. And so the report goes into that in detail. It also looks as as well at the potential commercial impact, on the broadcasters. And that so my argument here is that, really, when you look at the second and third order effects, they're unlikely to come through. One of the things that I think particularly the commercial broadcasters haven't sort of taken fully into account is how the announcement of a switch off is likely to change behaviors at the advertising sort of, level, at the board level in particular. And I don't think these would be favorable to advertisers. I think, you know, in a nutshell, what it would do is really sort of, consolidate the idea that all video spend, whether it's YouTube, TikTok, and TV, could be thrown into one bucket. So as as you said, the report came out sort of, last week. It's been well received, on that, certainly in terms of of the arguments made around national resilience, the commercial aspect, and also as well, the impacts on households. I think there are a number of concerns here, and what they all point to is that 2034 is too early a switch update. The report argues that, actually, the terrestrial network should be kept to at least 2044.

Speaker 0 · 4:16

So is is there a debate at the moment amongst the the sort of industries, sort of our side, the sort of B2B side and the government at the moment, and and is there a conflict there? Does the government want to do this, yet there's an argument from our side, which is the industry side, saying this is too soon, It may be technically feasible, but this is gonna be damaging to the domestic commercial broadcasters. It's gonna be damaging for consumers as well. Is that where the is that where the sort of the butting of heads is, is happening?

Speaker 1 · 4:48

Not not really. I mean, if you actually look at the situation in The UK, what's happened is that the the commercial broadcasters broadly have been pushing for this. So particularly around, you know, BBC has made some strong arguments in favor of switching over to to IP delivered television, same with Sky, and broadly, you could say the other commercial broadcasters would be vocal. This is one of the things that the report argues. Essentially, how this has been viewed is a cost story. Yeah. Certainly for the the broadcasters, the view is there. If we can switch off the terrestrial network, we will say save ourselves transmission costs. And, you know, that is something that the argument goes can be recycled into extra programming spend and so forth. The problem with that, as the report sort of delves into, is that, essentially, when sort of, when you do get the announcement and switch off, If you look at the thing that one of the key sort of protections for commercial television has been the board perception that television is its own special category. Advertising spend, by and large, is actually still siloed. And while the industry, you know, the industry, you know, likes to think that, actually, it's the agencies who drive this decision, often the agencies are taking their instruction from the clients. And this sort of feeling that television is still its own separate platform, it's still very strong amongst those clients. Now the moment you announced that there was a switch upcoming and all spend will be delivered over IP rather than over terrestrial network, then in many advertisers' minds, my view is but what you're going to get is they they just view everything as the same sort of bucket of spend. Now the problem for television there is that in that sort of market, particularly where advertising is seen as a cost, what's very likely to happen first of all, there's likely to be spend that goes to traditional platforms that was TV spend. It just gets put within the same bucket. The second thing also as well that when it comes to the commercial rates, the cost of thousand rates, you know, what's very likely to happen is there will be a race at the bottom in terms of rates. And so at the moment, yeah, if you look at the broadcasters, you know, in terms of their, your, AVOD product, it's probably pricing around 15 to £20 CPM on an average level. Obviously, there'd be variations by age, category, and so forth. Terrestrial, and we we had this in the podcast a few months back, probably is more around the £5 level, which is where YouTube, again, wide variations depending on the demographic and the the audience. It's very unlikely that the ABOD premium will really survive in that environment. What's likely to happen is, as I say, there will be this race at the bottom in terms of pricing. And in terms of the impact that we see there, yeah, on my estimates, you look at the public service broadcasters combined advertising revenues. If you continue to have to rest you until 2044, my view is that probably you will have around 3,650,000,000 of total advertising revenues sort of in 2034. If it's actually a sort of 2034 switch off, then I think what will happen is the figure is more likely to be £3,100,000,000. And that's a 16% reduction in forecast. One of the points to add, in terms of who gets hit the hardest, normally, in these sorts of markets, and you saw it with these papers as well, what tends to happen is it's the second and third tier players who get impacted more by the market leaders. So I think somebody like an ITV, you know, they will still get significantly impacted. So that I estimate around the 12% reduction between the two scenarios. For someone like a channel four, the reduction could be something like 20%.

Speaker 0 · 8:48

Okay. But the the thing that goes against your argument is that in b volt environments, the CPMs are higher than what you've just stated there. The other thing that they can do in in IP environments is provide an addressable product, which is very attractive to many advertisers. So you can apply data to it, which they can actually charge a premium for, which is what they're doing currently. So why do you think that number will go down? Because what's really attractive to the broadcasters here is a clearly viewership has has held. Right? I just had a look at the stats. It's around 55% of viewing is is linear. You had about 10 for DVR payback, and the rest is 35% is is digital. So you're sort of SVODs, AVODs, and all the rest of it. So clearly viewership is holding up, but if they can supercharge their linear viewership with an addressable product, surely they can make more money. That 5 doll that five that £5 CPM can go up to the to the bVOD rate.

Speaker 1 · 9:49

No. I think I I think this is and that's an argument that the broadcasting industry would say, but I think what that fundamentally doesn't understand is the dynamics of how advertising spend it is is decided. Yeah. It's very much again, coming back to this point, it's very much gonna be driven by the decision of boards. If you look, there's an article around six, seven months ago in the Wall Street Journal that pointed out that one of the big issues that YouTube is facing in terms of being seen as TV is that many company CFOs have used to see it as such, and therefore, they're not actually switching advertising budgets out of TV into YouTube. Now I think there's two things there. One is it shows that in terms of actually where money sort of is spent, actually, the decision at the board level is probably a lot more important than what many people in the industry think. So it's this feeling that the decisions are very much made at the agency and the broadcaster level, But, actually, agencies get paid by advertisers. And if advertisers turn by and say, look. This is something that we this is a particular category that we want to spend in, agencies will follow. And so when you get this sort of switch off and everything delivered over IPTV, what's very likely to happen is that, essentially, at the board level, the distinction between television and online goes. That may seem as though it's quite a a a sort of academic prospect. But bear in mind that the way the boards make decisions is not necessarily that sophisticated, particularly when it comes to something like marketing. It's not a category that is particularly understood that well, and also as well in terms of the at the board level, I I'd argue. And also as well, yeah, in terms of the data around audience and advertising and so forth, and this leads on to the second point, for many boards, it's actually irrelevant. Because from the accounting standards and I disagree with this, and I think yeah. I've said it many times. Marketing should be seen as an investment, not a cost. But to many boards, it seems a cost. And what happens when you get a product that is seen as a cost, what essentially boards will try to do is because they see it as a commodity, they will try to push it down to the lower level lowest level. So the idea that in a bucket full of total video spend where you have everything chipped in, television, AVOD, YouTube, TikTok, into one entire digital bucket instead of being siloed. The idea that to rest your TV will see, as it were, price inflation and significant price inflation, that's very unlikely to happen. What's more likely to happen is that the BBOD premium will get eroded over time, and probably more quickly than people expect.

Speaker 0 · 12:34

I think I think one thing that goes against your argument, though, is what, the market is doing to sort of ring fence the the sort of premium nature of television. So they're changing their measurement to go second by second so they can measure b VOD, CTV, whatever it is, the same way as linear. So you have that sort of quality angle that it's third party measured by by Barb, and then your audiences are, sort of confirmed, right, by by an independent auditorium, if you like. So there's that element, so it will be measured in the same way. And, of course, I think providing that they have the audiences, I think that they will I think they'll be still okay. But it's interesting, you got a quote here from Steve King within the report, who's the ex, chairman of Publicis Europe, isn't he? That, TV has the threat of killing their premium product. I haven't quoted him directly here. This is close to it. Kills their premium product, and they have to be careful because once it's done, I e, once DTT is switched off, they cannot go back. But I I don't see it as killing their premium product at all. But what could you explain what he means by that and,

Speaker 1 · 13:41

whether you agree or disagree with what he's saying? Well, I mean, I I agree with what he's saying. And, again, it comes back to this point that what happens is yeah. And take the arguments about measurements, you know, also as well, you know, the TV seen as a premium product. But, again, look at what's happened in terms of online spending. We've had for a number of years issues of antitrust, issues around the whole idea that, yeah, if you look at, you know, video ads, they're they're viewed for two seconds, you know, even less, you know, in some cases, the candidate's view, have the idea that essentially the percent of viewers, whether they're fake bots, etcetera. It doesn't change at the broad level that they're still putting money on these platforms. And, again, sort of it really comes back to this point that I think all those are important points of what you said. I I definitely would say from a industry standpoint, TV has got very significant advantages over online. But the simple fact is is that sort of decisions around where our spending goes will be sort of there is a very significant driver of this that comes from the board. And the way that boards will look at this and, again, this is just a incentivization and and what boards are thinking in terms of what their priorities are. Boards are thinking we need to maintain profit growth. You can see in terms of your profit growth that the S and P five hundred has been very strong. We've had another very strong quarter, but the market's demand continues strong growth. One of the categories that they can look for in order to improve their earnings growth is marketing spend because the accounting treatment. And when it comes to this sort of spend, let's imagine a scenario where you've got a board where their CMO goes in and says, well, look. We can either buy a a Facebook at, let's say, £5 of CPM, or, actually, look. Why do we put more money into Linea TV? But you know what? Actually, because Linea TV is trust on a measurement angle, and it's got all these better things. They're raising the price from £5 CPN to, let's say, 10 or £15. So but we should put more money on there because it it's more trusted source. I could tell you this now that most boards will not accept that. They will turn around and say, actually, because of the cost element and because of the way this is actually accounted for, that what we need to do is actually put money into the cheaper medium. And what that therefore means is either let's take that scenario where Linear TV tries to actually increase its pricing because of addressable. Either Linear TV tries to maintain that and go for the quality angle, and there will no doubt be some advertisers who will actually say it's very much worth the premium. Or what will happen is that for many ports, many finance directors, what they will say is, well, there is a significant gap here in terms of of the two products pricing. We don't really understand the dynamics behind this. We're hearing the story from the likes of Meta that we don't really know the details, but we can certainly see from our numbers in this quarter's need to meet estimates that it is advantageous for us to actually sort of, move more money into the online bucket. And this is why I say that I think in terms of of, you know, this whole and this by the way, this is not just for the debate around DTT switch off. This is the biggest sort of debate about how advertising doesn't get its fair share of budget. The problem is is that, essentially, a lot of the debate is dominated by what we can call technical aspects, measurement, reach, etcetera. Boards, by and large, don't care. What they want is they want their marketing spend to deliver. And that's if the industry yeah. And, again, this is the more general point. It's not just related to the switch off. If the industry wants to actually be seen as, you know, sort of state its case in the boardroom, yes, issues such as trust measurement, etcetera, they're all important, but that's not gonna change the argument, and it's not gonna change the dynamic. What there's gotta be is a more robust effort to actually show how television actually feeds in to boards and companies' top priorities, whether that's financial, whether that's share price, whether that's valuation, whether that's in terms of risk reduction.

Speaker 0 · 18:16

I'm gonna slightly disagree with you here. I think as TV becomes more IP enabled and addressable, it actually opens up a wider market for TV to go after different advertisers. So there's many advertisers out there who actually buy addressable products, audiences, basically, audience based buying, and they see linear as old fashioned because they don't believe that the mass reach and and buying GRPs or whatever it is in the different markets is actually efficient, which is insane in my opinion, but that's just what goes on. And I think if they had huge mass reach with the ability to apply data to it, I think that actually brings them new advertisers or advertisers that have avoided them, and, I actually think it helps them. So it it basically with your argument, I see what you're saying, they they no longer become a line item, and I think that's changed anyway, but they're in a bit of a rock and a hard place here because they have to evolve their product to go after these audience based buyers, which there are plenty of who are just ignoring television, and at the same time, you know, maintain their position, which is very challenging indeed. Just a quick question. When you did your report, is it, is it actually technically possible to switch off DTT and still have the whole country, have access to television today in The UK?

Speaker 1 · 19:35

Well, just I'll answer that in a moment. I just wanna come back to your last point. I absolutely totally get into the the disagreement and and so forth. The one thing I I'd actually say here, there's another factor that also needs to consider. We've talked about the advertisers. Bear in mind with agencies. The agency's main driver of profits is the media businesses. Increasingly for the agency groups, what makes up a a large part of their profit base in media is proprietary. Right. And, you know, the the agencies would love a switch over to IPTV.

Speaker 0 · 20:09

They would. This is Yeah. This is supporting my argument, Ian.

Speaker 1 · 20:13

But it but it's not because because, actually, from that standpoint, again, what happens in that sort of environment? It won't support price inflation in the television market. What's more likely to happen is, essentially, you get run down to the lowest cost, And where the agency makes its money is on the margin between what it charges the clients and actually what it it sort of buys the products at. And if you're buying the product, let's say, £15, are you gonna go to a client and say, you know what? Actually, you gotta pay 20 for this? Very unlikely. Yeah. What's more likely to happen in that sort of environment is you claim, and may may may in many cases, you do. You provide you say that you are providing a premium product, but what you really need to go for when you're making garbage charge is that one of the key sort of, in terms of the spread, one of the key factors in terms of spread is actually pushing down the product as much as you can, particularly, again, for something like advertising. Again, it comes to this view. It seems a cost, not an investment. That's the wrong view. But in that sort of with that sort of mindset, costs are seen as inherently negative and something to be minimized. Mhmm. Very hard to actually go back to a client and say, you know what? We're gonna charge you £20 for your linear c p CV product. But, actually, you should do that because we've got addressable and all these things. Now on the second thing, going to to your question about, you know, is this possible, There's very you know, look. There's a lot of issues here. I mean, if you take the I think it was Mediatek, so it's their numbers. It's around 5,400,000 preview main sets still expected to be used in 2034. So a significant amount of the population, you know, probably roughly 20% of households, that will be overly concentrated amongst older, poorer, and rural viewers. And if you look in terms of of you've got a difference here in terms of, let's call it broadband availability and broadband take up. Yeah. If you look at gigabit networks, they now pass around 89% of premises. But, actually, in terms of the households that that can get full fiber, I think it's 47% who've taken it. Because, you know, what this is, it it's not actually whether you've got broadband supply that determines it. It's whether your household can, order. And what you do get with the switch offs, switch over from terrestrial to IPTV is, terrestrial is egalitarian. Your access to TV doesn't depend on how much income you have. But when it comes to IPTV, the quality of the TV that you'll receive very much does depend on your household income. And if you look essentially at yeah. You've only got to look at The UK broadband market, the different tiering levels that you've got, the different pricing levels. You had it was uSwitch talking about inflation for broadband. I think it was back in January. Then, you know, depending on the plan, and this is, again, is something that has has crept through. We've moved from RPI plus to bonus depending on which plan you get. In some cases, it's been double digit inflation. Now broadband operations are gonna have a very strong incentive when they know that people have to watch TV through the a broadband connection to make the most of that. And even if they in the best if even if they were, you know, you know, the best souls in the world, the financial markets would be saying, well, surely, this is an opportunity for you here to actually make significant returns. So I think there is this sort of, whole issue. Look. It doesn't change that my sports would legally sort of, be free under the listed events regime, but it does change how you can access it. Mhmm. And this is the whole thing. For the first time, you would have to pay effectively, you would have to pay to watch TV. Okay. You have to pay the the license fee. But in terms of the distribution network, you would have to pay to watch TV because you would require a sufficiently high quality of broadband capability to watch what you want, particularly when it comes to live sports.

Speaker 0 · 24:34

Yeah. I I going back to the board stuff, the CFO stuff, I'll I'll I'll I'll I'll say that you're the expert on there and the whisperer to to that level. However, I do disagree that it's all about cost and quality doesn't come into it because, ultimately, they don't deliver the same, and I think a lot of marketers around the world realize that. And I think quality in a world of unlimited ad impressions does come into the fact does come into play when you're looking at, picking your media outlets. And you can see it across the board. There is a reason why ads for the Super Bowl is going for, like, 10 to 15,000,000. And, and I think that that's that might be an outlier, but it does illustrate the point that large concurrent audiences,

Speaker 1 · 25:17

are very, very valuable within premium environments. So I do think I do think very senior people understand that. Now one of these points you made Actually, sorry. Could just go back on on that point. I I just don't think all marketing is cost based. I just don't believe that. No. No. No. No. But that's not what I said. Mhmm. I didn't say all marketing was cost cost based. And, actually, sort of what I said was the incentive for firms is that when they're looking at the numbers, because the accounting standards and because in terms of marketing, then, essentially, there is a strong incentive if they have to meet their financial numbers Mhmm. To delve into the marketing line as the first, the first reserve. And within that sort of environment, the temptation, if you have to meet your numbers and you haven't got a ring fenced pot of broadcast money, instead it's now shuts into the total pot, is to say, one of the ways that we can actually save on this cost and boost our earnings is to actually sort of, go and go for the cheapest medium. And boards deal on risk. They deal on risk. And what they will be doing is they will totally get that television is the premium product. No doubt about it. But what they are balancing that risk against as it were, if they're balancing against the risk of, we're not gonna meet our numbers this quarter, or we've gotta show the markets that we can do better than expected. So they've got two sort of, they've got two conflicting ideas. And in their minds, for many boards, it'll be the second one that will come all waiting. So it's not saying this is all about cost, and it's not about quality. Quality very much comes into it. The problem is that when it comes in terms of priorities for many companies Mhmm. Quality in many cases actually takes second place to the need to meet earnings.

Speaker 0 · 27:10

Absolutely. And if cost comes into it and people believe that they can get the same with cheap than over quality, then I guess as an industry and what we talk about, we're all kind of screwed. I don't believe that to be the case, and I think these companies will suffer if they make decisions on that basis. Now you mentioned something in the in the report, which is that of every pound that leaves UK Linear, around 15p of that. So 15% comes back to broadcast streaming. Where did that number come from? And, how can we trust that number? Because it's a difficult one, isn't it? Because it's it's I don't believe 15% is is being lost within the TV ecosystem, so it's going to s mods and other areas of television. So where'd you get that from, and, how can we rely on that number?

Speaker 1 · 27:54

Well, funny enough, that was on one of our podcast several several months ago with Sean Wright from Guideline. He was talking about that. Yeah. That figure. So, I mean, I guess it all starts right, actually. Yeah. Whether whether you'll actually just what Sean said. And, look, I mean, you know, from my side, and I think from your side as well, but correct me if I'm wrong. I mean, I I would trust what what Sean says. I think with all these things, of course, yeah, what happens in the advertising industry and, yeah, certainly when it comes to, you you know, how spend is measured, yet in many ways, there are you know, when it comes to visibility, there are very much shades of gray on this. So it's not total transparency when it comes to when it comes to the market. And I do think look. You know, things will potentially change here with what happens with SME advertising. If the broadcasters can really drive into that space, then, you know, certainly for smaller advertisers, you know, they don't necessarily silo spend in the same way as larger advertisers. So, potentially, that could be, you know, a very big opportunity. But I think, look, you've only got to look at what's happening in terms of the AM in terms of advertising numbers over the past ten years to see the podcast actually has held up pretty well in terms of its numbers. And it goes back to the point that we said before. You know? It's a quality product. It's trusted. It's still got mass market audiences. You know? There are very, very many things that with television, you know, should actually elevate it in the eyes of advertisers. However, there is no doubt that when advertisers do take money out of television, then, you know, irrevocably, some of it is lost, and it doesn't really come back into the into the ecosystem.

Speaker 0 · 29:42

Yes. Okay. So, that was the silliest question I ever asked because since, since it was based on our podcast now, Guideline Data is obviously looking at spend from the major holcos and not the long tail advertising. So when we say that money is left, that money is left from those major groups rather than the entire industry. So I should just clear that up. So let's wrap this up. What is, what's the future of this? Because, there's obviously some major decisions to be made. Will it be switched off entirely in 2034, or will we be going on another ten years? Just a quick sort of yes, no, maybe, and, what's the likely outcome there, and then we'll wrap this up.

Speaker 1 · 30:25

Well, look. We're we're in a consultation period at the moment, so nobody knows sort of, the decision that the government's going to make and so forth. There was a very interesting comment, though, from, the new prime minister, Andy Burnham, yesterday on this that that essentially said, look. You know? And there was a difference between the previous prime minister. Previous prime minister represented a Central London constituency, yeah, with a sort of, you could say, a an a significant level of people who work in the media industry and, you know, whereas new prime minister comes, his seat is from northern working class territory, and perhaps it it sort of more represents those voters we were talking about before, older, poorer, potentially more rural as well. You know, I think where things stand I mean, my view is that where things stand at the moment, this will really come down to a debate on on, you know, the questions of national resilience in terms of but also as well politically sort of what the government's thinking about and the potential risk. There's already a strong sort of movement there to say that this is a risk too far, that you're taking television away from poor households. I do think the recent government changes where DSIT, the Department of Science and Innovation Technology, that was abolished. I would argue that they were probably a stronger backer of of the move to digital, than, it's sort of within the government. So, arguably, that helps the latest switch update. Of course, a lot of these decisions are also driven by the treasury as well. So very much, the treasury will have their their their sort of views. I go back to the main thesis of the of this report. I, you know, I think that 2034 is very much a missed two part. And, actually, by, you know, really accelerating the switch off of terrestrial, it's gonna have quite wide range of implications, many of which haven't really been brought through properly. And my feeling is and, you know, obviously, you know, with the report, I have a a an interest in this. But my feeling is is that that argument is starting to gain ground, in government, yeah, and also as well at other levels. So I think it's very much as insightful of the green paper size, watch this space.

Speaker 0 · 32:39

That's very interesting, and, thank you very much for that. And we'll we'll add a couple of graphs to the to the article that we post on this and, access to the paper too that's available for download. Ian, thank you very much for putting that together and discussing it. As usual, this is definitely not investment advice.

Speaker 1 · 32:56

It is not investment advice. Bye bye, everyone. Take care.