Market Insight

BBC3 starts its transition to an online-only future

February 16, 2016  | Subscribers Only

Tim Westcott Tim Westcott Director – Research and Analysis, Programming, IHS Markit

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BBC3’s new life as an online-only channel will begin this evening, with the terrestrial signal being switched off by the end of February. The nascent channel’s first programme will be episode one of a new series of sitcom Cuckoo followed by the documentary film Life on Death Row. The terrestrial BBC3 will run for some time alongside in order to push audiences both to the online-only portal and also to help audiences find content shifted to other channels.

First mooted by the public broadcaster in March 2014, the move is intended to save costs and to reach a younger adult age group which consumes more programming online than on linear TV channels more effectively. The BBC Trust, the broadcaster’s governing body, approved proposals to move BBC3 online in November 2015 after two rounds of consultation. BBC3, aimed at the 16 to 24 age group, began its broadcast life as BBC Choice in February 2003, one of six new digital terrestrial television channels launched by the public broadcaster. CBBC, which currently shares broadcast space with BBC3, will expand its schedule from 7pm to 9pm.

Our analysis

The move – which is expected to save £30 million a year for the BBC has proved controversial among some viewers and writers concerned at the loss of a service which has been a breeding ground for new talent and adventurous programme formats. The owners of comedy producers Avalon and Hat Trick launched a counter proposal to buy the channel from the BBC. However the BBC Trust itself noted that BBC3 was ‘perceived primarily as a “flicking channel” where viewers stumbled across content’, with acquisitions like Family Guy and American Dad featuring heavily.

The Trust also highlighted another potential downside in that the move will disadvantage those without a reliable broadband connection or with no access at all. The BBC3 audience also has a higher proportion of lower income and ethnic minority viewers than other BBC services. Furthermore, the Trust’s research indicated that some viewers would be lost to the BBC altogether – estimated to be 1.3-1.5% in terms of overall reach and 3-3.5% of the 16-24 age group.

The Trust rejected a parallel move to launch a +1 time shifted channel for BBC1. This was blocked after communications regulator Ofcom raised concerns over the impact that increased viewing would have on advertising revenues for commercial broadcast channels. The Trust also felt that the budget spent on a +1 channel would also not address a current lack of diversity.

Coupled with the transition of the BBC’s first online-only channel will be an increased investment in the iPlayer platform. This will take the service beyond its original remit to include both original BBC productions and select third party content.

BBC 3’s transition to online-only clearly runs the risk of losing much of its current audience, even given the large proportion of younger viewers more used to using online video platforms. The average daily viewing of broadcast content in the UK totals 217 minutes per person per day in 2015 (our estimates, using audience data from the BARB panel). In the same year, online viewing of long form content accounted for an estimated 9.5 minutes per person per day or around 4% compared to broadcast. Currently BBC 3 draws daily viewing of around 2.5 minutes per person averaged across the population. In context, this is roughly double all on demand viewing on iPlayer.  

Although BBC 3 developed a slate of original and occasionally critically acclaimed content such as Bad EducationMongrels, and Gavin and Stacey, much of the schedule was filled with repeats of other BBC content including EastEnders and Top Gear. These shows also consistently rank as the most watched on-demand content for iPlayer, and BBC 3’s reliance on these programmes has been exposed as catch-up viewing trends shift away from linear, towards on-demand content. BBC 3 has experienced a decline in viewing of more than 30% since 2010.

Another concern highlighted by the Trust is that viewers tend not to browse the iPlayer for content, but go to seek a specific programme. Despite declines in live linear viewing, a scheduled TV channel still has a valuable function in showcasing and publicising new programming. The BBC3 switch to online could be a case of a linear broadcaster depriving itself of one of the key weapons in its armoury against online competitors. 

The timing of the move to online comes amid uncertainty over the future funding of the BBC. The Corporation is facing two separate but closely-linked processes which will determine its future: its funding settlement, and the new Charter that will run from 2017 to 2026. As part of the deal negotiated in the summer of 2015, the BBC will bear the cost of subsidising the cost of free TV licences for the over-75s from 2018/19 (or persuade them to pay). Since this measure was introduced by the then Labour government in 2001, the programme has been funded by the Department of Work and Pensions. In 2014/15, the cost was just over £600 million ($852 million).

Partly in mitigation, the government will introduce legislation which will extend the requirement to buy a TV licence to homes watching TV only on catch-up or on-demand (which the BBC estimates to be around 400,000 households). The licence fee, which has been fixed at £145.50 since 2010, will be linked to the retail price index (IHS currently forecasts this will rise from 0.9% this year to 3% in 2019). Licence fee evasion will remain a criminal offence.

IHS has analysed the worldwide  public broadcast sector in a forthcoming report which includes a comparison of the BBC with its counterparts in 44 other countries. UK public broadcasting ranked as the seventh most costly worldwide in our research, working out at €69.87 per capita. Norway, with €136 per capita, was the most expensive.

IHS TV Intelligence forecasts a 5% local currency increase in BBC funding from the licence fee between 2015 and 2020. This is not only lower than the increases the BBC has enjoyed in the past (licence fee revenues increased 58% in the ten years to 2014) but is also covering increased costs including licence fees to over-75s, the BBC World Service and Welsh-language S4C.

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