Analysis of the UK Television Industry - Case Study Example

CONTENT List of Figure 2 Executive Summary 3 Introduction 4 Statistical Data 4 Cable Providers 4 PESTEL Analysis 6 Porter five force model 7 Findings 9 Future 9 References 10 List of figures Figure1. Share of revenue 4 Figure2. Broadcast on TV 5 Figure3. Combined share of channel 5 Figure4. Porters five force model 7 Executive Summary The UK television industry is faring well. The number of people watching channels has increased and the revenues are also increasing. This has also been contributed by the fact that consumers are willing to spend money for their leisure. This is adding to the UK reserves as this sector is also rapidly contributing. There has been a surge in way the number of channels has increased but this hasn’t impacted the consumer as they are ready to watch it. Even the PESTEL and Porters five force theory say that in spite of the various macro and micro factors this industry has been able to grow. There has been competition but that has been healthy and the model followed here is the Bertrand Model. The future looks good as with newer improvement techniques which make watching programmes more pleasurable are acting as a remedy to this industry. Introduction The UK television industry is on an upswing and is growing. There are millions who watch more than 600 channels. UK has a mixture of “free and paid channels over a variety of distribution channel “. (Wikipedia) These channels are controlled by a handful of owners and they constitute a total of 6 in number. This form of entertainment is gaining popularity which is seen by the fact that “average British viewer still watches television for twenty hours or more per week”. (Cymraeg, about the television industry) Statistical Data An analysis of the type of channels consumer prefer shows that customers are ready to pay for channels as it adds to their recreational value. It is seen that “50.4% of the consumer prefer free to air channel and 49.6% paid channel”. (Television industry, 2006) Fig.1 Share of revenue “The total revenue has grown manifold and is increasing at 9% in 2003. This is creating a positive impact on advertisers as there expenditure has also grown by 3% in 2003”. (Television industry, 2006) Now, when we look at the channels we see that “BBC received 28 percent of the total television industry channel revenue. Sky channels, on the other hand, earned 20 percent of total channel revenue and the rest earned 52 percent which comprises of hundreds of channel”. (Television industry, 2006) It shows that BBC is one of the most watched channels and has a high rating. Cable Providers There are a few cable providers suggesting that the structure of the market is oligopolistic. There are a few suppliers so they have a good bargaining power. The main providers are “Small world media, Wright Cable and Virgin Media”. They all differ in the products provided and also in the prices charged thus leading to flexibility in the market. When we try to have a better glimpse of the type of broadcast people receive it gives the following look. Figure 2.Broadcast on TV To have a better understanding and to see the type of channels different companies provide will help to better understand the type of market which is oligopolistic. The market structure for the different channel looks something as in the following graph. Figure 3.Combined share of channel “Shows that BBC is the most watched and there are a many channels for the viewers which stresses the fact that customers have a wide variety to choose from”. This helps them as there are a lot of paid channels so a mixture of both i.e. paid and free helps the customer to decide the bouquet of service they would want. We see that here ITV (independent television) is giving a good fight and is gradually growing. A better look at the graph shows that BBC and ITV capture more than half the market suggesting further that the market works on the oligopolistic model. PESTEL Analysis A manager’s decision gets affected by various factors some of which are beyond his grasp. So, it is important that managers identify all the factors that could affect the daily course of action and have an effect on the growth of the organization. This analysis will help managers as it will help them to take better decisions. Political: The industry is affected by the political situation prevalent.” In case the government is unstable it causes changes in the policy which has affected the television industry”. (Analysis of TV industry in UK, 2004) A stable government has also led to draft of good accounting policies. This is shown by the fact that “an in-depth report into the rules which govern financial reporting for UK television and film companies and the findings confirm progress has been made since their last report in 2002”. (Grant T, 2007) Economic: The economic situation has an effect on out bearing of the industry. “With interest rates hovering around 4.5% and continuously fluctuating is making it difficult for advertisers to measure how much they would like to invest”. (Analysis of TV industry in UK, 2004) This is making the income of the channel providers’ also uncertain giving rise to ambiguity. Tax also plays its role. “With income of the individual being taxed affects the amount they would like to spend on recreational activity”. (Analysis of TV industry in UK, 2004) Social: With people from diverse culture coming at a single place has raised the income for channel providers. “This has also led to increase in channels with the number now reaching 600”. This has given audience a vast array to choose from. Technological: This has affected the television industry badly. “With technological advancement and new techniques being devised is affecting the business prospects for cable TV viewers”. “Like the rapid growth of the internet and interactive media is competing strongly for audiences and revenues”. (Cymraeg, about the television industry) The technological advancement has caused “increase in the number of channels, video on demand (VOD), high-definition (HD), television and coverage across the UK”. (Cymraeg, about the television industry) This has made consumers to choose from a variety of option. Environmental: The environmental factor is helping to show programmes that the consumer wants to see. There have been many channels which just concentrate on the natural habitat and the wild life. This is gaining prominence among the consumer as the temperature around the world is increasing rapidly. Legal: It’s very important that the industry does things in a legal way. As we see that transparency has improved in the television industry and having good and better accounting policies are also warranted. At the same time we see that cable television also air the programmes on the basis of the viewers they will attract at a particular time. They see that they don’t telecast something which their channel is not authorized and see that it is legal. Porters Five Force Model This model is very important as it helps to understand how lucrative an industry is. This helps a manager to devise strategies to tackle these problems as it arises due to micro economic factors. This model looks like the following and helps to tackle various important factors. Figure 4.Porter Five force model Now having a more detailed look helps to better identify how it’s affecting the television industry. Rivalry among firms: With television channels increasing every day there is intense competition. This has led to lowering the price. “Most channels follow suit the pricing of other thus intensifying the competition and thus lowering profits”. Another factor affecting the television industry is the availability of a variety of television sets. “In the past television companies offered maximum one year warranty but now due to the tough competition in the media market that’s the reason customers are getting more services in the form of extended warranty periods”. (Adam, 2009) Substitute: Customers have a variety of option to choose from. Apart from the television they have different ways in which they can spend their leisure. “With the advancement of technology consumers can watch a movie on the net and also have a many other lucrative things which they can spend time on”. On the other hand “the substitutability of different types of TV transmission: local station transmission to home TV antennas via the airways versus transmission via cable, satellite, and telephone lines. (Porter five forces, 2007) Buyer Power: The customers have a good buying power as their base is very high. They come from various background further puts a demand for a variety of channels. “The bargaining power of consumers is more as products are undifferentiated and widely available”. (Adam, 2009) Suppliers Power: There are “a few major providers thus they have a good control of the market. They have the power to influence the decision and thus have a higher bargaining power”. (Adam, 2009) Barriers to entry: There are no barriers to it. Companies are free to enter just that the entering cost is high as they need the required infrastructure for cable viewing. This is shown by the fact that "the film and television industries already make a very important contribution to the UK economy. These companies are coming with the changes which have made results favourable and we want to devise newer methods so that the industry grows”. (Williams O, 2009) Findings The UK television industry is faring well. They are moving upward and the numbers of subscriber are also increasing. Another important fact is that “consumers are willing to pay extra for the service providers who provide a bouquet of services”. With the income of people increasing they are ready to spend an extra for their leisure. The newer methods available to consumer are gaining relevance. With the availability of different features in the set top boxes are luring the customer towards it. The market is dominated by a few providers thus the concentration of power lies is a few hands. Still, with a large customer base these providers have a different segment to cater as a result they are able to concentrate on the specific market. With good accounting polices the television industry has been able to give transparency. This had led to support from all quarters especially from the government. This is as shown “that the government wants to find out how this has affected the television industry and ways in which we can develop further so that it continues to add to the coffers”. (Williams O, 2009) Future The UK television industry is heading for a bright future. With newer and better techniques to telecast the programme it has attracted the attention of millions. People want better ways to spend their leisure and though they are facing threat from some products like internet, computer games but still the growth is good. With different sops being telecast which eyes different set of customers the market is able to hold on its customer base and it will tend to move in the upward direction. Even statistical data points out towards the bright future the industry is going to combat in the coming future. This had added to the economy of UK and is experiencing a good contribution from the entertainment industry. This predicts a bright future and a steady growth path. References Adam, 2009, Porters five force model competitive analysis Analysis of TV industry in UK, 2004, Gradua Networks Cymraeg, about the television industry, London Grant T, 2007, “UK television and film industry makes good progress towards greater financial reporting transparency” Porter five forces, 2007, a model for industry analysis Television industry, 2006, report sure ltd, London Wikipedia Williams O, 2009, UK film and television industry, Lords press notice Read More