Goodbye Netflix… Hello British subscription streaming service?

In recent news, we’ve heard that the BBC and Discovery TV Network are planning a split of their joint venture, UKTV. For the BBC, this could be a move to accelerate the launch of a British subscription service to rival the two global leaders, Netflix and Amazon Prime Video, as well as marking a dramatic shift in the tactics of British broadcasters. So, I decided to get clued up on the topic and pre-empt their plan of attack.

What is UKTV?

UKTV is a multi-channel broadcaster owned by Discovery TV network and BBC Studios; the commercial arm of the BBC. This consists of Alibi, Dave, Drama, Yesterday, Goodfood, Home, Really, W, Eden and Gold. This features several archived BBC programmes such as Top Gear, Dad’s Army, Only Fools & Horses and many more. Currently Channel 4 holds the contract for commercial airtime sales worth £250m per year.

Why are the BBC looking to split up one of the nation’s favourite channel sets, and what does this have to do with subscription streaming services?

The BBC have, by their own admission, been struggling to keep up with global broadcasters. Despite government funding cuts, they’re still tasked with producing the same level and quality of entertainment. Indeed, BBC Director-General Tony Hall has warned that their current level of programming is not sustainable without more money.

The BBC’s Latest Hit…

The Bodyguard has been extremely popular, with the season finale on Sunday 23rd September reaching 10.4m live viewers. Other than World Cup matches, this is the most watched programme of the year – so successful in fact that Netflix have bought the rights to broadcast the programme to the rest of the world. The only other non-World Cup content to beat The Bodyguard this year, was the live broadcast of the Royal Wedding, which was watched by 18m people in the UK.

Suggested solutions to this problem have so far been to either increase commercial cooperation or enforce a long-term increase of the cost of license fees, if they are to avoid further cuts to budgets at their disposal.

But there is an alternative to these rather bleak options – to increase revenue being made from their content by launching a British subscription streaming platform, possibly in combination with other British broadcasters (most likely Channel 4 and ITV).

Splitting UKTV would go some way to provide the BBC with the cash boost required to do this, whilst also removing archived BBC content from free, accessible channels and moving it to a more premium and income generating platform.

Why is a subscription streaming service a potential answer?

Despite what has been touted by certain tech companies, TV is certainly not dead. However, the way video is being consumed has developed somewhat and the past 5-10 years has seen the market dilute from purely linear TV, to include rising forms such as Broadcast VOD (BBC iPlayer, All 4, and ITV Hub) as well as subscription streaming services (Netflix and Amazon Prime Video).

The chart below shows the average number of hours per day spent watching different types of video, and as you can see, TV still takes a significant lead. Broadcast VOD used to be a bigger player than Subscription VOD, but from around 2015, the tables turned, and Subscription VOD has not only taken a larger market share but is growing more rapidly too.

When breaking viewing habits down by audience age in the chart below, we can see that Subscription VOD is extremely popular with younger generations but remains far less popular amongst older audiences. While Subscription VOD will remain popular with this younger audience, popularity amongst older audiences is likely to grow in the future. Subscription VOD is a powerful medium that is here to stay.

The success of Subscription VOD is clear in Netflix and Amazon Prime Video’s exponential growth across the globe. Netflix has reached a global tally of 130m; 57m in the US and 8.2m in the UK. Netflix’s global subscribers rose by 42% in 2017, continuing to spread its presence worldwide. Equally, Amazon is no slouch, having reached the 100m global subscribers milestone earlier this year – 4.3m of which are from the UK.

Sizeable budgets have unarguably been a contributing factor to the success of Netflix, allowing them to offer their customers a huge choice of programmes, films and original content whenever and wherever they want to watch it, whilst not compromising on the quality of production. Netflix Original show House of Cards, for example, spent £76m on the first season alone and Altered Carbon is rumoured to be the most expensive first season of a TV show in history.

While the BBC has recently produced large-budget programmes of its own, such as 2016 spy thriller The Night Manager, and recent hit Killing Eve, British broadcasters cannot compete with the spending power of Netflix and Amazon, who the Economist suggests have spent £9.8bn and £3bn respectively this year.

There is clearly a huge demand for this kind of content, and it’s something that could be worthwhile for British broadcasters to tap into. But if it’s such a lucrative market, why has it not been done before? Well, British broadcasters have attempted it before and they weren’t so successful.

British subscription services to date

Back in 2007 (long before Netflix), the BBC, Channel 4 and ITV sought to launch a collaborative project called Project Kangaroo. This was an innovative move that could have established these broadcasters long before Netflix and Amazon became the entertainment giants that they are today. But this project was blocked by industry regulators before it could get off the ground as it was seen to be a hindrance to these broadcasters’ existing on-demand services. Fast forward a few years, and the growth of Netflix and Amazon suggests that this was probably the wrong decision!

Since this attempt, the problem has not been with industry regulators, but the broadcasters themselves who have failed to reach an agreement on how rights would be distributed. In latest talks to launch a collaborative project, communications between the BBC, Channel 4 and ITV have reportedly become strained due to the BBC’s move to breakup UKTV.

Whilst the split would work in favour for the BBC, there are a number of disadvantages for Channel 4. Firstly, Channel 4 holds the advertising sales contract for UKTV on behalf of Discovery and the BBC, generating a revenue of £250m per year. If UKTV ceases to operate on linear TV and these programmes move into a subscription streaming service, the lack of advertising would see Channel 4 lose income from this contract. Furthermore, a subscription streaming service would likely require Channel 4 to remove all BBC produced shows from All 4 to encourage viewers to buy into their new streaming service, which would contribute to a further loss of revenue.

So where does this leave them?

Negotiations between the broadcasters to launch a collaborative subscription package would be pretty complicated. But if they could set aside their differences, a British subscription service could turn out to be a huge success and bring in extra cash for broadcasters to continue producing the high level of entertainment that is now expected by viewers. Of course, this new subscription streaming service would be up against some fierce competition – competition that has been in this space for far longer and with far larger budgets, however it would make an interesting change in tact for these three broadcasters and could represent the first real move to challenge American entertainment giants.

Stay tuned to find out what comes next in the subscription streaming space and tweet us your thoughts to @homeagencyuk.