The Communications Market 2008 (August)
Yn yr adran hon
This year’s Communications Market Report builds on the structure we adopted in the 2007 edition to capture developments in the communications landscape through a blend of converged and sector analysis.
The report is arranged into six sections which provide a summary of the key points, a broad context for the changes which are taking place in the market, and an examination of convergence based on content, distribution and consumption, followed by a look at each of the television, radio and telecoms sectors.
The key points provide a bulleted summary of the main findings of the analysis within this report, and can be treated as an executive summary.
This section begins with an overview of key trends in the UK’s communications market which shows how changes in availability, take-up, and consumer use of key services translate into household spend, and from there into industry revenue.
We then move on to examine three market themes, areas of particular topical interest in the communications sector this year. These are:
- The impact of the environment on the purchase, use and disposal of communications devices; we show the results of a survey we commissioned into the role the environment plays in consumer attitudes and behaviour;
- The changing use of communications services by older people; we show how take-up of key communications services remains lower among older people - particularly the over-75s – but it is faster growing than the rest of the population. Older people also spend more time using television, radio and the internet; and
- The changing advertising market; we examine how the advertising-led business models of free-to-view commercial broadcasters are coming under threat, as advertisers shift their focus to the internet, take-up of pay television platforms grows, and technologies such as digital video recorders emerge which facilitate fast-forwarding through advertising.
We move on to set out three emerging trends among converging communications markets.
- Content on demand – consumers of all ages are showing a growing interest in accessing audio-visual content online; 17% of those with broadband watched TV over the internet, up by eight percentage points on 2006 – and this is particularly apparent among younger people.
- Growing interest in mobile broadband – PCs and laptops that connect to the internet using a third-generation mobile network are growing in popularity, with over 500k sales of new connections via cards and ‘dongles’ that support this connectivity in the five months from February 2008. As a result, while the base of consumers adopting this means of connectivity is small, it is growing fast.
- The converging capabilities of games consoles – six in ten adults aged 16-24 said in the first quarter of 2008 that they had access to a games console. These devices are emerging as an exemplar of convergence and thirty-nine per cent of all adult users say they use them to watch DVDs, while 26% use them to listen to CDs.
The remainder of the section uses a simplified breakdown of the convergence value chain to outline a range of trends among converging markets:
- Content and aggregation: examining the creation of content (music, gaming, audio-visual, press), the way it is packaged by content aggregators and their underlying business models;
- Distribution: the networks over which content is carried; and
- Consumption:the devices that consumers use to access content and their patterns of navigation and consumption
This section begins by examining some of the most significant developments in the UK’s television market during 2007. These include:
- The continued growth in digital television penetration, which reached 87% in Q1 2008, primarily due to growth in take-up of digital terrestrial television;
- The emergence of the internet as an important distribution platform, both for the television industry, with access to online content now offered by all of the major broadcasters, and for consumers, with, for example, 700,000 video streams served daily in May by the BBC iPlayer;
- The widening divergence between subscriptions and advertising as sources of revenue for broadcasters, with subscriptions rising 6.4% to £4.3bn and advertising growing 2.2% to £3.5bn;
- An increased focus on reaching certain consumer groups, with a range of new channels aimed at younger audiences and the award of new broadcast licences aiming to reach ethnic groups; and
- The fines levied on broadcasters found to have misled viewers over premium rate telephony services (PRTS), and the steps taken to make them more accountable for their PRTS activities.
We then look at the industry’s sources and distribution of revenue, and the broadcasters’ hours of output and spend on content. The characteristics of the UK’s television production industry are described, followed by a report on public service broadcasters’ compliance with production quotas.
The section concludes by examining the availability and take-up of digital television services along with viewers’ consumption of television and channel audience shares.
The opening section provides an overview of key stories in the radio sector over the year. These include:
- A rise in commercial radio revenue in 2007, up by almost 2% to £522m, despite a 2.6% fall in commercial listening hours in the year. This drop was a result of a fall in local commercial radio listening (-4.5%) which was partly offset by gains for the national commercial stations (+3.2%), following the growth of digital radio platforms;
- Younger people are listening to less radio, with listening among 4-24 year olds down by 7.8% in 2007 and by 10.6% over five years. The only age group in which listening has increased since 2002 is the over 55s, up by 2.3%;
- Digital radio continued to grow in the year, with 27% of adults now having access to a DAB set in the home, up by 7 percentage points in the year to Q1 2008. Digital radio accounted for 17.8% of all radio listening in Q1 2008, up from 12.8% in Q2 2007 (when RAJAR first started measuring digital listening). A majority of digital listening was via DAB, which accounted for 11% of all listening, but digital television (3%) and the internet (2%) also featured. In addition, RAJAR estimates that 6.0 million people have now listened to at least one podcast; and 14.5m had listened to radio via the internet by May 2008; and
- Three leading radio groups were sold during the year, with the largest commercial operator, GCap, being sold to Global Radio in June 2008. This followed the sale of the second largest group, Emap, to Bauer Radio in January 2008, while in May 2008 SMG sold its Virgin Radio portfolio to TIML.
The section then examines the sector from an industry perspective, in terms of financial and audience performance, along with a review of the main commercial operators’ activities over the year and a round-up of licences awarded by Ofcom during 2007/08.
We conclude by looking at the changing patterns in radio listening over the past five years, incorporating audience data to analyse listening by age group. This section draws on consumer research which monitors the changing trends in the adoption of digital radio platforms.
This section begins by examining five key themes emerging in the telecoms market:
- Mobiles in the home.We look at the relationship between fixed and mobile consumption in the voice market and find that although 70% of mobile users use their mobile phone to make calls within the home, fixed-line use remains resilient; 60% of outbound calls were from fixed lines in 2007, and 88% of households have a fixed line;
- The value of flat-rate pricing. We examine the rise of ‘all-you-can-eat’ tariffs in fixed-line and mobile. We find that only 16% of pay-monthly mobile users claim to usually exceed their inclusive minutes, and that this de facto ‘flat-rate pricing’ has enabled operators to maintain average revenues per user, as users pay more for monthly line rental in return for the value offered by inclusive minutes;
- Broadband on the move. In the past year mobile operators have entered the broadband supply market, with USB dongle-based consumer services. We find that two-thirds of mobile broadband users also have a fixed-line connection, and look at the relationship between fixed and mobile broadband;
- UK moves towards super-fast broadband network. Both BT and Virgin have announced investment in fibre-based next-generation access networks which could offer speeds in excess of 30 Mbit/s; and
- The rise and rise of text messaging. We identify some of the factors behind the increasing use of SMS, which is used by more UK consumers than the internet.
A section on the telecoms industry then looks at major market trends from an operator viewpoint, identifying the drivers of an overall 4% growth in service revenues in 2007 and examining how the industry structure is changing - through trends such as the growth of the mobile sector, the increasing take-up of broadband and the continued growth in services based on local-loop unbundling.
This is followed by a section that examines trends from a user perspective. We use consumer research data to look at take-up of, and satisfaction with, different communications services, and include analyses of multiple-SIM use, and children’s use of mobile phones and the internet.
Data in this report cover the 2007 calendar year, with additional Q1 2008 figures where available. We show trends using a five-year historical time series where possible and use nominal figures unless otherwise stated.
This report fulfils the requirements of s358 of the Communications Act. The information set out in this report does not represent any proposal or conclusion by Ofcom in respect of the current or future definition of markets and/or the assessment of significant market power for the purposes of the Communications Act 2003, the Competition Act 1998 or other relevant legislation.
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