Creative Industries: Television: Small screen stars - but only at home

Creative industry outlook: we're big on local heroes, but the challenge for sectors from film to software is to become a force on the global stage
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UK revenues: pounds 5.8bn

UK employment: 60,000

Forecast annual UK growth to 2007: 6 per cent

THE UK television industry is more than twice as large as the music industry, yet TV exports are valued at only pounds 234m compared with pounds 1.5bn for music. Is television uniquely local - that is, national - or can we exploit the growing world market in commercial, pay and digital services?

In 1985 the UK imported pounds 86m worth of television programmes. By 1996 imports were worth pounds 516m, resulting in a pounds 282m trade deficit. Growth in multi-channel television (43 per cent a year between 1990 and 1996) is bringing more and more American imports into the UK, and appears to be excluding British content creators from the lucrative pay-TV market.

The UK's production and broadcasting companies need to exploit the growth of export markets to offset television cost inflation and pressures on profits at home.

As entertainment goes digital, consumers worldwide will spend more on quality, branded and well-recognised programmes and talent. This represents an important opportunity for Britain and the independent programme-making sector to excel, creating a world-beating "content" or "software" sector.

UK terrestrial broadcasters already invest significantly more in original programming than other European channels. It is a pity that the same cannot be said of our satellite and cable industry.

In 1996 the BBC spent pounds 870m, ITV pounds 730m and Channel 4 pounds 250m, while BSkyB's investment in original programming was estimated at only pounds 100m.

The BBC is the nation's greatest television exporter, accounting for 53 per cent of the pounds 234m of exports in 1996. An acid test for the Government will be to find a formula for the BBC to retain its licence fee while increasing overseas sales. One possibility is to divide overseas income, with half to be reinvested in further commercial ventures and half to be used to keep down the licence fee. In this way, the BBC could make the most of its strength as a creator of content and owner of intellectual copyright.

The ITV system has focused much more on local and regional production. Furthermore, as a result of the franchise auction system set up by the previous government, the owners of ITV and Channel 5 have been forced to pay a "super-tax" in excess of pounds 400m a year to the government for their franchises - money that might otherwise have been better spent on original programming, exports and a faster terrestrial transition to digital television. As it stands, Britain lags behind France, Italy, Germany and the US in offering digital channels and internet-based services on TV sets.

Another by-product of the "super-tax" system on the very broadcasters that invest in British talent has been a continuing squeeze on margins, with pressures passed on down into the independent sector.

The independent production sector, which is the envy of Europe, is made up of very small companies. Although the 1,000 independent production companies generate pounds 700m in sales, most make only one or two programmes a year, leaving them no chance to build capital reserves.

Moreover, they enjoy little if any control over the foreign rights of their programmes. Yet they now underpin British television.

The risk is that the independents, who represent a source of dynamism in export markets, are simply overwhelmed and undermined by their low level "cost plus" producer fees.

The challenge facing the industry is to redress the tax imbalances, open up more opportunities to the independent programme makers, and exploit the UK's strong programme assets abroad.