Talk of job cuts took the place of the usual toasts and chatter about bonuses at the UK’s biggest broadcasters over Christmas as the industry faces the worst decline in traditional TV advertising in 15 years.
The slump in the sector’s main source of income – down 12.5% over the past year – prompted the Channel 4 chief executive, Alex Mahon, to declare that TV broadcasters were in “market shock territory”.
“People are worried,” says one TV employee. “We have seen cuts to commissioning budgets and other cost-saving tactics. This year it feels like jobs will be next.”
The unexpectedly severe drought in the revenue stream is forcing cuts to the production and development of new shows and an increasing embrace of digital streaming to bridge the income gap.
ITV slashed £10m from its programming budget last year, which it says will be spent this year, as it seeks to make £50m of cost savings by 2026.
Channel 4, which has paused, cancelled and phased the release and commissioning of a number shows to stretch budgets, faces losses in each of the next two years, Mahon told MPs in November.
Shows the broadcaster has cancelled include the daytime chatshow Steph’s Packed Lunch, SAS: Who Dares Wins and The Big Narstie Show. Other shows to go include Four Weddings, Scared of the Dark, Five Dates a Week and the medical documentary Rescue: Extreme Medics.
The broadcaster, which still relies on traditional TV advertising for two-thirds of total income, is also considering submitting a request to tap a £75m credit facility in meetings with officials from the Department for Culture, Media and Sport and the Treasury in the coming months.
While last year was not the first annus horribilis that broadcasters have weathered – traditional TV ad spend fell 11% after the global financial crisis and 12.5% in 2020 as the pandemic raged – the market had always recovered. But not this time, it seems.
The numbers are in and annual declines are predicted until at least 2028, which is as far as anyone is willing to forecast. That would be an unprecedented seven years of continuous contraction.
“Traditional TV advertising is not recovering,” says Kate Scott-Dawkins, the global president of business intelligence at Group M, the media arm of the ad group WPP. “Not in mature markets. I think what we are looking at is where the print sector was not long ago, digital eats the world in a sense – now it’s TV. We have hit an inflection point and that is now the decline of linear TV, and we expect an ongoing decline.”
Traditional TV advertising has been the bedrock of free-to-air commercial TV since Gibbs SR toothpaste became the first brand to advertise more than 68 years ago with a slot on ITV, underpinning the sustainability of broadcasters’ models ever since.
However, in the past two decades broadcasters have been under assault as audiences and ad budgets have continued a seemingly inexorable shift to digital platforms such as Google, Facebook, Instagram and TikTok as well as deep-pocketed global film and TV machines such as Netflix, Disney+ and Amazon Prime Video.
Digital advertising now accounts for 80% of the total £43bn UK ad market.
“More clients are dispersing their budgets across a broader range of media channels,” says James Murphy, the co-founder of the ad agency New Creative Arts, who has worked with clients including John Lewis, Sainsbury’s and Nationwide. “Marketing spend is being atomised across more and more channels and media. They are not saving all of their creative energy for broadcast marketing.”
Traditional TV viewing declined by 2.6% year on year in the first nine months of 2023, according to official figures from the Broadcasters’ Audience Research Board, which Netflix has signed up to in a move to win traditional TV advertising revenue for its new ad-funded subscription packages.
The battle in the attention economy has become so intense that Reed Hastings, the founder of Netflix, once quipped that he considered “sleep” as a competitor.
However, TV companies still have a potential ace up their sleeve – if they can win the race to re-engineer their business models for the digital age – with almost two-thirds of the time spent viewing all TV and video content remaining with traditional broadcasters.
Broadcasters are pouring their resources into building Netflix-challenging streaming services, ITV is committing more than £800m into making ITVX a national streaming champion, and it is starting to pay off.
“Old models are creaking, no one had a good year in 2023 and the outlook is undoubtedly tough,” says Simon Davis, the founder of the agency Walk-In Media. “However, there are bright areas, the growth of video-on-demand and the tech behind it is core to where future growth is going to come from. Audience numbers, revenues, advertising yield and the level of targeting is getting better and better.”
Nevertheless, there is a long way to go to digital salvation: broadcasters’ streaming ad revenues are forecast to be worth less than a third of the £3.5bn traditional linear TV ad market by the end of the year.
However, revenues from broadcaster video-on-demand services will have more than doubled between 2020 and the end of this year, from £522m to £1.08bn, according to Warc/Advertising Association figures. And revenue growth clocked in at a nippy 16% in 2023, and will remain high-rate at a forecast 12.4% this year.
Promisingly, analysts at Enders, Group M and Warc put the combined growth of streaming and traditional TV advertising at between 0.5% and 3% this year.
Broadcasters may have just managed to harness the digital future in time to deliver the commercial returns necessary to manage the decline of their legacy businesses.
“Things looking better is all relative, but I don’t think broadcasters will be growing their traditional viewership any time soon,” says Scott-Dawkins. “But the faster broadcasters can wholeheartedly transfer to streaming and invest in that growth is the best shot they have to compete.”
