1. THE UK TELEVISION MARKET: AN OVERVIEW September 2003

2. 2 Contents Industry revenues and expenditure Multichannel platforms and digital TV Broadcasters and channels Programming and audiences

3. 3 Sources of revenue to UK broadcasters Source: ITC Components of television revenue in 2002 (12 months to end September) Trend in share of main components, 1997-2002 Net Advertising Revenue 44%£3.1 billion Sponsorship1%£82 million Sale of goods3%£248 million Other4%£319 million BBC licence fee spent on TV 26%£1.8 billion Subscription Revenue* 21%£1.5 billion NAR Sponsorship Subscription Sale of goods Other BBC licence fee spent on TV 0% 10% 20% 30% 40% 50% 60% 199719981999200020012002 * defined as subscription revenue to pay-TV channels, not platform revenue

4. 4 UK TV Net Advertising Revenue by channel over time Source: ITC, figures for 12 months to September of relevant year Channel 3 incl GMTV Channel 4 incl S4C Five Cable and Satellite and other 0% 10% 20% 30% 40% 50% 60% 70% 80% 19971998199920002001 2002 ChannelNAR 2002 Five£221m ITV1£1,727m Channel 4£623m Cabsat and Other £575m

5. 5 PQR Cash Bids Tender payments by Channel 3, Five and Additional Services licensees, 1997-2002 Note: The drop in total tender payment in 1999 reflects the renewal of some Channel 3 licences. The increase in PQR in this year reflects the policy decision that more emphasis be given to the PQR component of tender payments. The Broadcasting Acts 1990 and 1996 require that certain kinds of licence are awarded by the ITC after a process of competitive tender. Licences awarded in this way are required to make additional payments to the Treasury (via the ITC). Additional payments are in two parts. The first is a percentage, set by the ITC, of qualifying revenue (PQR). The second part is the cash bid, which on renewal is set by the ITC. This is index-linked and payable annually. Source: ITC, calendar year figures £ million, nominal prices 0 50 100 150 200 250 300 350 400 450 500 19971998199920002001 2002

6. 6 Programme budgets for the terrestrial channels, 2001-2003 0 200 400 600 800 1,000 1,200 BBC1 (Network) BBC2ITV1 (Network) C4Five 2001 2002 2003 Source: Company reports, press reports and ITC estimates (for the BBC in 2003)

7. 7 The UK programme supply market Source: ITC At the Secretary of State’s request, the ITC conducted a comprehensive review of the programme supply market in autumn 2002. The ITC made a series of recommendations which were accepted and incorporated into the Communications Bill. Among the actions proposed by the ITC were measures to strengthen the growth potential of the independent production sector, including the requirement that public service broadcasters develop Codes of Practice to provide a clear framework for their dealings with independent producers. Size composition of UK production market by share of turnover 2001 BBCGranada Carlton SMG Fremantle Media Endemol TV Corporation Other independents

8. 8 International trade by UK TV companies Source: ONS (2002 figures available in late 2003) International transactions of TV companies,1999-2001 Others North America Other Europe European Union 0 200 400 600 800 1,000 1,200 199920002001199920002001 ExportsImports £m

9. 9 Contents Industry revenues and expenditure Multichannel platforms and digital TV Broadcasters and channels Programming and audiences

10. 10 Range of available digital basic pay-TV packages (Satellite & Cable) NTL Sky £12.50  Please note: prices for NTL and Telewest packages include phone line rental; installation charges are applicable for all three platforms 102 channels incl. some 90 free to air Cost: Channels included: £18.00 £15.50 More than 30 channels, incl. some 25 ‘free to air’ 4 ‘themed’ packs (Popular, Knowledge, Kids/music, Lifestyle), each offering some 113 channels (incl. FTA) £18.50 187 channels (incl. FTA) Source: Company literature, 30 September 2003 £28.00 Some 100 channels (incl. ‘free to air’) Telewest Cost: Channels included: £13.50 More than 30 channels, incl. some 20 ‘free to air’ £25.50 More than 100 channels (incl. ‘free to air’)

11. 11 Source: ITC Multichannel Quarterly. (Please note that these figures do not currently take into consideration platform overlap, therefore all households are considered to be discrete multichannel units. However, the ITC is currently working on a methodology to report more accurately on multi-platform households.) Multichannel TV take-up by platform FTA satellite Digital terrestrial Analogue satellite Analogue cable Pay digital satellite Digital cable UK multichannel TV growth, 2000 - 2003 2000200120022003 Millions of subscribers 0 2 4 6 8 10 12 14 Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2 UK Digital TV Penetration, Quarter 2, 2003 Platform Households (‘000s) % of UK TV households Digital Cable 2,1888.8% Pay Digital Satellite 6,55926.4% ADSL110.0% FTA Digital Satellite* 7393.0% Digital Terrestrial* 1,7907.2% Total11,28745.5% * ITC estimates

12. 12 How people are watching free-to-air digital television, Q2 2003 FTA DTT Adaptors 797,000 (32%) Following the launch of Freeview the number of set-top boxes in use (from manufacturers such as Pace) is increasing rapidly Ex-ITV Digital 600,000 (24%) We estimate that 600,000 of ITV Digital’s ex-subscribers now use the set-top box to receive Freeview services Sky FTA 738,900 (29%) Sky’s FTA set-top box offer has been re- introduced at £120, although it is not actively marketed. This figure also includes estimates of ex-Sky subscribers who continue to use their set-top box for FTA services iDTV 393,000 (16%) The number of iDTV sets is beginning to show significant growth Source: ITC estimates

13. 13 Share of multichannel television homes by platform, Q2 2003 Share of multichannel homes in the UK Source: ITC Satellite 59% Cable 26% Digital Terrestrial TV 14% ADSL 0%

14. 14 The cable industry has seen significant consolidation in the last decade Major Cable Operators Atlantic Telecom BT Cable & Telecoms Cable & Wireless CableTel Comcast Europe ComTel Convergence Group Diamond Cable Eurobell General Cable Telecential Telewest 1997 13 companies controlling 155 regional franchises Today 2 major operators 1992 29 companies (19 from the US or Canada) Bruncor; Coastal/ Leonard; Diamond Cable; IVS; N-Com; Scotcable; United Artists/US West; Yorcan; BT; Comcast; English Cable; Jones Intercable; Nynex; Starstream; US Cable Corp; Cable Corporation; CUC; General Cable; Leicester/Fundy; PacTel; Southwestern Bell; Vento/Wash Post; Cable London; Devanha Group; Insight; Maclean Hunter; Alan Robinson; Telecable; Videotron; There are also two smaller operators: (Isle of Wight) (NW England and SW Scotland) Source: Cable Yearbook and ITC

15. 15 BT Openworld and BT Broadband accounted for 51% of all ADSL connections in Q2 2003 Source: Company data Growth in broadband internet subscribers 2001-2003 Note: most broadband internet connections do not currently support TV broadcast services ADSL NTL Telewest Households (million) 200120022003 147,000 222,000 330,000 479,000 748,000 1,047,000 1,334,000 1,760,000 - 0.2 0.4 0.6 0.8 1.0 1.2 1.4 1.6 1.8 2.0 2.2 Q2Q3Q4Q1Q2Q3Q4Q1Q2 2,152,000

16. 16 Take-up of digital television compared with other home technologies Source: ITC Digital TV’s strong initial growth is, in part, a result of the move to switch existing subscribers from analogue to digital packages - by 1998 analogue multichannel TV had already achieved penetration of some 25% of households Colour TV Sets 1969-1978 VCR 1980-1989 PC 1984-1993 Satellite 1987-1996 Digital TV 1998-Q2 2003 0 10 20 30 40 50 60 70 80 0123456789 Year after launch Penetration (% of households)

17. 17 Forecast take-up of digital TV Source: ITC / BBC Digital television take-up, 1998-2007 Total UK households 95% of households Upper scenario Average of City analysts Lower scenario 0 5 10 15 20 25 30 98990001020304050607 Year-end UK households (millions) 58% 78% In 2002, the Secretary of State asked the ITC and BBC jointly to examine what the future growth of digital penetration might be in the UK. Given the particular difficulty of generating projections at that time, we considered two possible scenarios for the market’s development. The “upper” scenario is generated by a generally favourable set of market conditions for the three main digital platforms (satellite, cable and DTT). The “lower” scenario arises if conditions prove more negative and / or operators adopt more limited strategies. In the upper scenario, digital penetration roughly doubles over the next five years, from 10 million households at the end of 2002 to around 20 million by the end of 2007, a 78% penetration rate. Growth is more modest in the lower scenario, with take-up rising to just under 15 million (58% penetration) by the end of 2007.

18. 18 Contents Industry revenues and expenditure Multichannel platforms and digital TV Broadcasters and channels Programming and audiences

19. 19 Key milestones in the history of commercial television in the UK 1955: ITV launches - regulated by the Independent Television Authority (ITA) 1969: ITV goes colour 1972: ITA becomes the Independent Broadcasting Authority (IBA) 1981: First subscription service, Starview, begins 1982: Channel 4 and S4C launch 1984: First cable service is licensed 1989: Sky television launches a four-channel service on satellite 1990: BSB launches on satellite - Sky and BSB merge to form BSkyB Source: ITC 1991: Independent Television Commission (ITC) is successor to IBA; the first competitive tender is held for Channel 3 licences 1997: Channel 5 (now Five) launches 1998: Digital TV launches 2002: ITV Digital goes into administration; Freeview launches in November; number of channels available in the UK now exceeds 200

20. 20 Performance of the terrestrial channels and their subsidiaries Source: ITC and BARB * Share figures for terrestrial channels are for all homes in August 2003; figures for the subsidiary channels are for multichannel homes in August 2003 and are only available for those channels with 0.1% share and above. BBC1 BBC2 ITV1 Channel 4 Five 24.5% 11.5% 22.9% 9.7% 6.3% BBC See next slide Channel 4 RTL (65%); UBM (35%) ChannelShare*Owner BBC3 (0.7%); BBC4 (0.2%); CBBC (0.6%); CBeebies (1.2%); BBC News 24 (0.6%); BBC Parliament (n.a.) See BBC1 ITV2 (1.8%); ITV News (0.2%) E4 (0.7%); FilmFour (0.1%) n.a. ‘Subsidiary’ channels (share*)Logo

21. 21 The ITV licensees - ownership structure ITV Scottish Media Group Carlton GroupGranada Group Anglia Border Granada LWT Meridian Tyne Tees Yorkshire Central Carlton HTV Grampian Westcountry Scottish Ulster Channel GMTV* * Owned jointly by Carlton, Granada, SMG and Disney

22. 22 Terrestrial licensees must meet targets for original programming... Source: ITC; Channel 4 Annual Report ITV, Channel 4 and Five all have requirements in their licences to produce a set amount of original programming each year. Note: Channel 4’s original programming target was only introduced as a licence requirement in 1998; prior to this the figures were reported in Channel 4’s Annual Report. Original programmes as a percentage of total output, 1997-2002 ITC Licence Requirement for original programmes and actual performance, 2002 Achieved in 2002 ITC Licence Requirement Five 55% 58% Channel 4 60% 67% ITV 65% 81% % ITV Channel 4 Five 0 10 20 30 40 50 60 70 80 90 100 199719981999200020012002

23. 23 Source: ITC ITV, GMTV, Channel 4 and Five all have requirements in their licences to commission a set amount of programming from independent producers each year. ITC Licence Requirement for independently produced programmes and actual performance, 2002 Qualifying independents as a percentage of total qualifying output, 1997-2002 …for qualifying hours commissioned from independent producers... Achieved in 2002 ITC Licence Requirement % ITV Channel 4 Five 25% 86% Five 25% 66% Channel 4 25% 30% ITV 0 10 20 30 40 50 60 70 80 90 100 199719981999200020012002

24. 24 …and for programme production outside London Source: ITC Annual Report 2002 ITV1, Channel 4 and Five are required to spend a proportion of their programming budget on production outside London. The requirements for 2002 for each channel are listed below. ITV1 = 50% Channel 4 = 30% Five = 10% 2001 2002 50.3% 56.0% ITV1 29.0% 30.0% Channel 4 12.8% 11.2% Five

25. 25 UK multichannel television: most popular channels * Share figures are for multichannel homes in August 2003 † UKTV is a 50:50 joint venture between Flextech‡ and BBC Worldwide ‡ Flextech is owned by Telewest ChannelOwnerShare*Logo Sky Sports 1BSkyB2.1%ITV2Carlton (44%); Granada (56%)1.8%CBeebiesBBC1.2%UK StyleUKTV † 1.2%UK GoldUKTV † 2.5%Sky OneBSkyB2.8%Sky Premier 1Sky0.9%Sky Sports 2BSkyB1.0% Source: ITC NickelodeonBSkyB (50%); Viacom (50%)1.0% Source: ITC and BARB HallmarkCrown Entertainment Ltd0.9%

26. 26 Contents Industry revenues and expenditure Multichannel platforms and digital TV Broadcasters and channels Programming and audiences

27. 27 Audience share in all homes by channel, 2000-2003 Source: BARB

28. 28 % Audience share in multichannel homes by channel, 2000-2003 Source: BARB (CAGR) BBC1 (-0.6%)(1.4%) BBC2 (-6.0%) ITV1 (0.1%) C4 (3.9%) Five (2.7%) Other * CAGR = Compound Annual Growth Rate 0 5 10 15 20 25 30 35 40 45 50 Q2 2000 Q3Q4Q1 2001 Q2Q3Q4Q1 2002 Q2Q3Q4Q1 2003 Q2 %

29. 29 Audience share in analogue terrestrial homes by channel, 2001-2003 Source: BARB % BBC1 BBC2 ITV CH4 Five 0 5 10 15 20 25 30 35 40 Q2 2001 Q3Q4Q1 2002 Q2Q3Q4Q1 2003 Q2

30. 30 Average weekly audience reach (3 minutes consecutive) by channel, all homes, 2000-2003 Source: BARB

31. 31 Viewer profiles by type of television received Profile of viewers by type of service and age, Q2 2003 Profile of viewers by type of service and social class, Q2 2003 Source: BARB Children 16-34 35-54 55+ ABC1C2DE Analogue terrestrial homes 62% 38% Multi- channel homes 55% 45% All homes 59% 41% Analogue terrestrial homes 52% 25% 17% 6% Multi- channel homes 23% 37% 27% 13% All homes 35% 31% 22% 11%

32. 32 Hours viewed per household per day by age, social class and platform, Q2 2003 Source: BARB All homes Multichannel homes No of hours 0 1 2 3 4 5 All Individuals ABC1C2DEChildren16-3435-5455+

33. 33 Source: BARB Audience share by region, ITV1 compared with BBC1, Q2 2003 ITV1 BBC1 % 0 5 10 15 20 25 30 35 Border Ulster North East Yorkshire Midlands North West Wales Scotland East of England West South East London South West

34. 34 Source: BARB Audience share for regional news programmes by region, ITV1 compared with BBC1, Q2 2003 ITV1 BBC1 % 0 5 10 15 20 25 30 35 40 45 Ulster North East Border South East Scotland Midlands London Yorkshire West North West East of England Wales South West

35. 35 Number of TV sets Total (%) Three 27 One 19 Five +6 Two 36 Four 12 Number of television sets in the home No. of daysTotal (%) 54 785 1 or 22 64 3 or 44 Less than once a week < 0.5% Number of days watching television in an average week Note that the figures presented are for individuals, not households e.g 19% of individuals live in a household with only one TV set The number of television sets per household and the number of days spent watching television in an average week Source: The Public’s View 2002