In what some perceive as a rare opportunity for industry-wide change, British TV’s top commercial broadcasters – Channel 4, ITV and STV – are preparing for a changing of the guard that could see the traditional players further diversify broadcasting away from a perishable ad-funded model, and beef up their ability to fight the good fight against new media’s might.
The next round of chief executives will have to face up to industry-wide advertising tensions. While TV’s predicted death knell is far from ringing true, ad spend to the medium is slowing as the digital duopoly of Google and Facebook commands an ever-increasing share of total media spend.
Internet ad spend is expected to surpass that of traditional television for the first time this year, according to the Advertising Expenditure Forecast released by Zenith. And according to the latest Advertising Association/WARC Expenditure Report, TV ad spend fell nearly 2.1% in the final quarter of 2016, and is predicted to decrease by a further 0.5% in 2017.
Yet while the industry might be hoping that the newly appointed chief executives will lead a digital revolution in the way TV advertising is traded, professionally made content and the ability to sell it across borders is still the medium's greatest asset and should be the key requirement for the incoming bosses, analysts believe.
“Broadcasting is still very much about content, there might be different players in the market than you had a few years ago but it is still very much a content business," said Gill Hind, chief operating officer at Enders Analysis. "An incumbent would need to understand that and how content can be exploited.”
Speculation is rife over who will become the next bosses at ITV, Channel 4 and STV, after the chief executives at each broadcaster announced they were abdicating their thrones within months of each other.
In March, Channel 4’s David Abraham said he would be stepping down by the end of the year. A month on, STV announced it was looking for a chief executive after Rob Woodward confirmed he would depart within a year and then just weeks later, ITV’s Adam Crozier followed suit and revealed his departure would come within weeks.
The next round of bosses aren’t expected to be radical appointments, as Crozier – a former Royal Mail executive with no experience in broadcasting – was in 2010. That’s because the three executives have steered their respective ships at ITV, Channel 4 and STV through times of sweeping change in TV.
“They have been there for donkey’s years, they have all come in and left the companies in better positions than they inherited them in, especially if you look at STV which was a complete mish-mash when it was originally Scottish Media Group. So we are not looking at monumental change at all,” added Hind.
Channel 4 is expected to look no further than its own chief creative officer Jay Hunt for Abraham’s successor. Hunt negotiated the broadcaster’s poaching of The Great British Bake Off from the BBC and is credited with sparking its creative renaissance since her arrival in 2011, the Guardian reports.
Hunt certainly fits the mold of being an expert in TV programming and has been described as having strong business acumen, but perhaps at the cost of alienating younger viewers. Channel 4’s share of 16-to-34 year olds has been slipping since Hunt joined in 2010. Last year, it commanded a 15.6% share of younger viewers in the UK, compared to ITV’s 19.7% share and the BBC’s 22.05% share.
Whoever takes the helm at Channel 4 may have to prepare for a move outside of London. The Conservatives have vowed to relocate the public broadcaster should they win office in the upcoming general election.
Despite having just over a month to recruit Crozier’s replacement at ITV, the broadcaster has not lined up a successor and many candidates are thought to still be in the running.
This includes Simon Fox, chief executive of Trinity Mirror, Erik Huggers, chief executive of music video service Vevo, Dame Carolyn McCall, the former Guardian Media Group chief executive now running EasyJet, and Joe Garner, chief executive of Nationwide Building Society. All business candidates with little experience in broadcasting, a trend ITV appears to be carrying over from Crozier’s appointment.
ITV’s own director of television Kevin Lygo, who previously bid for Abraham’s role, could also be contender, while ITV’s finance director Ian Griffiths, thought to be an ideal candidate, is understood to have pulled himself out of the running, the Telegraph reports.
Little is known as to who will succeed Woodward at STV, but given Woodward’s background in broadcasting and finance, the Scottish media company will likely be looking to internal candidates or rival broadcasters.
A time of sweeping change
Throughout Crozier and Abraham’s seven year tenures, and Woodward’s decade at the helm of STV, Netflix has shifted from a dwindling DVD-by-Mail service to the highly lucrative world of online streaming, while Amazon has more than tripled its investment in video in three years, and catch-up services such as the BBC's iPlayer have changed the way consumers watch TV.
Perhaps most alarmingly for the incoming TV bosses is how Netflix and Amazon’s well-financed commitment to original content in recent years have caught the eye of awards institutions as well as viewers.
Netflix scooped best drama TV series at this year’s Golden Globes for its biographical royal series The Crown, star Claire Foy won best actress in a drama, while the Stranger Things cast swept the board at the SAG awards. Meanwhile, Amazon's original movie Manchester by the Sea and foreign language film The Salesman scored the first Oscar wins for a video streaming service.
Other digital players have also been gunning for a piece of TV’s success, including Facebook, Snapchat, Apple, YouTube and Twitter, all of which have unveiled in some shape or form an online video offering that arguably rivals that of traditional linear TV. Apple now owns the rights to James Corden’s hit YouTube show Carpool Karaoke, Snapchat has been building ties with major TV networks in the US to produce short-form shows while Facebook plans to launch two dozen original shows in June this year.
Meanwhile, the growth of TV advertising has slowed in recent years, as tightening economic strains have forced advertisers to find cheaper alternatives online. ITV blamed political and economic uncertainty as the reason why in March it reported that advertising spend slid 3% in 2016 - the first annual fall in advertising revenue since the 2009 recession. It forecast a further 6% drop in ad spend for the first four months of 2017.
Such a volatile advertising market explains why Crozier has spent his seven-year tenure implementing a transformation plan at ITV that shifts emphasis from TV ad revenue to other revenue streams, including an international production powerhouse, ITV Studios. ITV Studios, which has cost over £1bn to build, makes hit shows for ITV’s own channels and also sells shows to other major broadcasters.
To carry on this legacy, ITV might prioritise candidates with a creative background and commercial know-how, putting ITV’s Lygo in good stead for the top job.
“The long-term model for TV advertising could be in decline,” suggested one media executive who wished to remain anonymous. “When you look at the longer-term picture the broadcasters need to diversify.”
The media executive went on to suggest that ITV, Channel 4 and STV should be looking outside the broadcast sphere for their next chief executives to candidates that come from backgrounds rooted in technology.
While the three broadcasters have invested in online players, revenue generated from their digital operations still remain a small part of the businesses. As of November 2016, online and pay revenues at ITV only accounted for 6% of the broadcaster’s total revenues; at STV digital revenue accounted for 7% of total revenue in 2016; while Channel 4 had the best digital ratio at 8% of total revenue in 2015.
Fighting tech with tech
But even Britain’s biggest broadcasters know they can’t compete on the financial scale of Netflix and Amazon. The BBC, the UK’s biggest public service broadcaster (PSB), spent a total of £2.2bn on its TV division in 2016, while Channel 4 spent a total of £629m on content. ITV had a £1bn programme budget in 2016 and this is set to reduce by £25m this year as it will not have to pay the rights cost for a major sports event. Add those up and they don’t even come close to Netflix’s predicted $6bn spend on content this year, or Amazon’s $4.5bn video budget.
Where the broadcasters can win in this fight is offering advertisers the ability to serve targeted, personalised ads programmatically. It’s something Sky and Channel 4 have been working towards - with Channel 4’s interactive ad formats on All4 and Sky’s Audio Visual Exchange (AVX) that allows advertisers to buy ads programmatically via its mobile app Sky Go - but the UK TV market is far from adopting a programmatic solution that resembles the efficiency of digital ad-serving.
Addressable TV on the other hand, which allows advertisers to target TV ads on a household-by-household basis, is much closer to reaching ubiquity in the UK market. Sky's addressable solution AdSmart launched in 2014 and currently reaches seven million homes and includes 100 channels. ITV has vowed to launch its own version of this solution across its on-demand and linear inventory within 12 months.
With this in mind, it will be incumbent on the next wave of chief executives to understand the world of addressable TV “as much as they do the 30-second spot” said MacCallum. “They will without doubt need to be more diversely skilled than ever before, as well as fluent in understanding and investing in technology that enhances the experience of both consumer and advertiser alike.”
“The challenge is for the broadcasters to remain ahead of the curve in terms of what content their audiences want to watch, on whatever platform, whenever they choose – and that requires leaders who are as competent in leading technological advances as they are in ensuring the quality and commercial appeal of the specific TV programming content they are commissioning,” he added.
For others who believe TV will maintain the status quo for the time being, the next leaders should ensure that TV’s heritage of commissioning, curating and producing shows that have the ability to bring audiences back week after week, is protected. This, after all, is what separates broadcasters with a 60-year heritage of creating broadcast-quality shows from new players that rely on the lure of big paychecks.
“Let’s not forget that the vast majority of TV content is still watched live and, as long as that remains the case, the CEOs of some of these businesses for the next decade should still be expert in knowing how to run an organisation that can produce TV content that audiences want – and expert in selling that content to other networks around the world,” said Ali MacCallum, chief executive of m/six.