Greg Dyke on Broadcasting

Freeview's growth and lure of ad sales poses threat to BSkyB

Logically, the runaway success of Freeview - more than half-a-million boxes were sold in November alone - should result in a series of digital-television channels giving up their current pay status and instead taking their chance with the advertising market.

Logically, the runaway success of Freeview - more than half-a-million boxes were sold in November alone - should result in a series of digital-television channels giving up their current pay status and instead taking their chance with the advertising market.

Switching from "pay" to "free to air" would mean an immediate financial penalty for a digital channel as it would lose the subscription income it receives from BSkyB and the cable companies although the channel would still be available in all "pay" homes. However, to counter this the channel would immediately be available in an additional six million homes - five million with Freeview and another million former BSkyB homes where people still have satellite dishes and boxes but have rejected the pay services. Logic says such a move should bring a significant increase in advertising revenue.

So the financial calculation for a channel owner is a simple one. Once the projected increase in ad revenue is higher than the known loss in subscription income, the channel would switch to "free to air".

Given the rate at which Freeview is growing it would seem odds-on that a number of channels would be considering switching this year. But with two major exceptions this is not likely to happen; the possible exceptions being E4 and ITV2. To understand why requires knowing how the British television advertising market works, and that's far from easy.

Buying and selling television advertising in Britain has always been a black art which both buyers and sellers have made ridiculously complicated. Trying to understand it, let alone explain it to others, has always been difficult. Years ago when I worked for the long-departed TVS - the ITV franchisee for the South of England - it was always impossible to explain why we did so well in advertising revenue given that we had the lowest ratings on the network. Nobody believed us when we told them that the lower your ratings the higher your advertising income. It was all about being the ITV franchisee in a comparatively rich area where people disproportionately watched the BBC and, as a result, saw fewer adverts on television. It was classic supply-and-demand economics with demand for eyeballs who watched advertiser-funded television outstripping the supply.

When I was director general of the BBC, I always doubted whether Charles Allen, ITV's chief executive, fully understood the system when he kept complaining about the BBC's share of viewing going up compared with ITV's. These days ITV is losing audience share to other commercial channels. What Charles has discovered is that that is a far worse story for ITV than losing share to the BBC, which of course carries no ads.

What is certain is that for a minority channel, increasing your ratings by 50 per cent doesn't necessarily mean your revenue goes up by the same amount, and that's the problem many small channels would face if they switched to becoming "free to air". Logically, increasing the number of homes receiving a channel by nearly 60 per cent should mean increasing your revenue by the same sort of amount, but the advertising market doesn't work like that.

First of all, the people buying Freeview boxes tend to be older and less attractive to advertisers, but the real issue is that the advertising market is about clout, which is why the big boys can charge so much more for their ads than those without size or a unique selling proposition. It's why ITV and Channel 4 sell at such a large premium compared to Five, UK Gold or Sky One.

This explains why only two channels are even considering giving up being pay channels and becoming funded by advertising only - ITV2 and E4. The reason they might do it is that both are linked to bigger channels and sold by sales forces with real clout in the advertising market place.

Eight weeks ago ITV postponed taking the crucial decision of whether or not to follow the lead set by the BBC 18 months ago and take all its services unencrypted and away from the BSkyB system, but it now looks like ITV is going to do it. Its complaint last week to Ofcom that BSkyB was trying to overcharge it for the same regionalisation service the BBC uses suggests it is ready to bite the bullet. If it does, then ITV2 will almost inevitably become a free-to-air channel just as the recently launched ITV3 already is. If this happens BSkyB's basic package will look increasingly flimsy.

Why is Germaine sleeping with 'Big Brother'?

I am not a great fan of Big Brother, although I must admit my kids still watch it. I enjoyed the first series but year by year feel it has got increasingly seedy in a desperate effort to maintain viewers' interest. By complete chance I watched the fight on the last series, which I felt was manipulative television at its very worst. So I was surprised to read in the Daily Star last week that I had been lined up as a possible contestant for Celebrity Big Brother. When the article was drawn to my attention - I am not a regular Star reader - my first thought was how desperate are the producers if they are having to get down to my level? But as I knew I hadn't been approached, I quickly dismissed the article as something made up by the Star, not an unknown occurrence I'm sure. However, it did get me thinking; who in their right mind would want to be a contestant? I can't think of anything I would like to do less. Why would anyone want to suffer such ritual humiliation? I admire Germaine Greer for taking part to raise money for her rainforest, but rather her than me.

News
Russia Today’s new UK channel began broadcasting yesterday. Discussions so far have included why Britons see Russia as ‘the bad guy’
news

New UK station Russia Today gives a very bizarre view of Britain

Voices
Left: An illustration of the original Jim Crowe, played by TD Rice Right: A Couple dressed as Ray and Janay Rice
voices

By performing as African Americans or Indians, white people get to play act a kind of 'imaginary liberation', writes Michael Mark Cohen

Arts and Entertainment
music
Life and Style
fashion
PROMOTED VIDEO
Have you tried new the Independent Digital Edition apps?
News
ebooksAn unforgettable anthology of contemporary reportage
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Media

Trainee Recruitment Consultant

£20000 - £45000 per annum + uncapped: SThree: Key featuresA highly motivated ...

Trainee Recruitment Consultant

£18000 - £30000 per annum + uncapped: SThree: Do you feel your sales role is l...

Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE £100,000: SThree: If you would like to work fo...

Trainee Recruitment Consultant

£20000 - £25000 per annum + Uncapped Commission £100k +: SThree: Trainee Recru...

Day In a Page

The drugs revolution starts now as MPs agree its high time for change

The drugs revolution starts now as MPs agree its high time for change

Commons debate highlights growing cross-party consensus on softening UK drugs legislation, unchanged for 43 years
The camera is turned on tabloid editors in Richard Peppiatt's 'One Rogue Reporter'

Gotcha! The camera is turned on tabloid editors

Hugh Grant says Richard Peppiatt's 'One Rogue Reporter' documentary will highlight issues raised by Leveson
Fall of the Berlin Wall: It was thanks to Mikhail Gorbachev that this symbol of division fell

Fall of the Berlin Wall

It was thanks to Gorbachev that this symbol of division fell
Halloween 2014: What makes Ouija boards, demon dolls, and evil clowns so frightening?

What makes ouija boards and demon dolls scary?

Ouija boards, demon dolls, evil children and clowns are all classic tropes of horror, and this year’s Halloween releases feature them all. What makes them so frightening, decade after decade?
A safari in modern Britain: Rose Rouse reveals how her four-year tour of Harlesden taught her as much about the UK as it did about NW10

Rose Rouse's safari in modern Britain

Rouse decided to walk and talk with as many different people as possible in her neighbourhood of Harlesden and her experiences have been published in a new book
Welcome to my world of no smell and odd tastes: How a bike accident left one woman living with unwanted food mash-ups

'My world of no smell and odd tastes'

A head injury from a bicycle accident had the surprising effect of robbing Nell Frizzell of two of her senses

Matt Parker is proud of his square roots

The "stand-up mathematician" is using comedy nights to preach maths to big audiences
Paul Scholes column: Beating Manchester City is vital part of life at Manchester United. This is first major test for Luke Shaw, Angel Di Maria and Radamel Falcao – it’s not a game to lose

Paul Scholes column

Beating City is vital part of life at United. This is first major test for Shaw, Di Maria and Falcao – it’s not a game to lose
Frank Warren: Call me an old git, but I just can't see that there's a place for women’s boxing

Frank Warren column

Call me an old git, but I just can't see that there's a place for women’s boxing
Adrian Heath interview: Former Everton striker prepares his Orlando City side for the MLS - and having Kaka in the dressing room

Adrian Heath's American dream...

Former Everton striker prepares his Orlando City side for the MLS - and having Kaka in the dressing room
Simon Hart: Manchester City will rise again but they need to change their attitude

Manchester City will rise again but they need to change their attitude

Manuel Pellegrini’s side are too good to fail and derby allows them to start again, says Simon Hart
Isis in Syria: A general reveals the lack of communication with the US - and his country's awkward relationship with their allies-by-default

A Syrian general speaks

A senior officer of Bashar al-Assad’s regime talks to Robert Fisk about his army’s brutal struggle with Isis, in a dirty war whose challenges include widespread atrocities
‘A bit of a shock...’ Cambridge economist with Glasgow roots becomes Zambia’s acting President

‘A bit of a shock...’ Economist with Glasgow roots becomes Zambia’s acting President

Guy Scott's predecessor, Michael Sata, died in a London hospital this week after a lengthy illness
Fall of the Berlin Wall: History catches up with Erich Honecker - the East German leader who praised the Iron Curtain and claimed it prevented a Third World War

Fall of the Berlin Wall

History catches up with Erich Honecker - the East German leader who praised the Iron Curtain and claimed it prevented a Third World War
How to turn your mobile phone into easy money

Turn your mobile phone into easy money

There are 90 million unused mobiles in the UK, which would be worth £7bn if we cashed them in, says David Crookes