RTÉ is suffering ongoing shock waves from the Brexit vote and may see a decline in its advertising revenue in 2017 as a result, says group commercial director Willie O'Reilly.
The weakness of sterling since the referendum result is costing the broadcaster between €5 million and €6 million in a full year, while the uncertain economic outlook has prompted key television advertisers to rethink their marketing plans.
“2017 has been tough. Why? It’s Brexit,” says O’Reilly. “I think we could be back a little bit. We could be down year-on-year.”
Brexit has come at a bad time. Notwithstanding the €107.5 million paid this week for almost nine acres of RTÉ land by Cairn Homes, this is a rocky financial period for the deficit-laden broadcaster.
The public service organisation, which is soon to launch a voluntary redundancy scheme, might have hoped that sustained pressure on public funding could be alleviated by buoyancy on the commercial side. But by September 2016, the effects of the UK’s unexpected “leave” vote were clear enough for director-general Dee Forbes to publicly flag RTÉ’s Brexit blues.
More than €20 million of RTÉ television advertising revenues (which exceeded €80 million in 2015) is booked by companies that make their decisions in London.
“When the euro and sterling exchange rate changes, they don’t change their amount of sterling they have allocated to this market, so the net effect to us is a loss of up to 15-17 per cent,” says O’Reilly.
In the second half of 2016 this drained RTÉ’s commercial coffers by about €2.5 million, while big household goods companies became more cautious about spending.
British election
“Most people thought this effect would last a year and would start to wash out in June 2017, and we would at least have some kind of uptick relative to the weak second half of 2016. Unfortunately, this doesn’t seem to be the case, and the British election has thrown another spanner in the works,” he says.
Instead of “healing” the sterling-euro differential, it has “deepened the wound”, taking another €2.5 million off RTÉ’s expected revenues in the first half.
Uncertainty has lingered, with a slowdown by food sector advertisers "particularly concerning". Unilever, the maker of Dove soap and Magnum ice-creams, encapsulated the mood in April when it said it would cut global marketing spend by 30 per cent.
“There’s a lot of profit protection in play. If you’re worried about your profit and the effect of Brexit, the first thing you do is you cut your marketing spend,” says O’Reilly.
“All in all, it has been a tricky 12 months, and any growth we might have expected for 2017 has been wiped out.”
In 2007, RTÉ’s commercial revenue peaked at €245.5 million. Although there were a few years of relative respite, the general trajectory since then has been one of steep decline. The latest published figure for its total commercial revenue – €155.4 million for 2015 – is a full €100 million below peak.
But from 2014 to the mid-point of 2016, television advertising – the biggest single source of RTÉ’s commercial income – had been back in growth, which is what makes this Brexit-prompted setback so regrettable.
It has also come right on top of a high-cost year for RTÉ – a deficit of more than €20 million is expected to be confirmed soon in its 2016 annual report.
This year its costs are lower, but the absence of a major football tournament does not help O'Reilly in his money-generating task, and neither does RTÉ's loss of Six Nations rugby rights to TV3 from next spring.
Six Nations
“That will be a problem for us. Next year we have the [FIFA]World Cup, but, yes, the fact that we don’t have the Six Nations could cost us a couple of million. We will miss it. There’s no point in saying otherwise.”
It will need "smart programming" to counter the impact. Earlier this month O'Reilly's RTÉ Media Sales and RTÉ One and RTÉ2 controller Adrian Lynch held a series of industry briefings in Dublin's Fade Street Social restaurant, at which advertising agencies were teased with autumn season titles such as six-part pharma thriller Acceptable Risk and Alison Spittle comedy Nowhere Fast.
Spittle, alongside Ray D'Arcy, Brendan O'Connor, Can't Cope Won't Cope writer Stefanie Preissner, Room to Improve architect Dermot Bannon and others were on hand to outline their part in RTÉ's pitch – that it is in the business of "telling big stories brilliantly".
But there is little RTÉ can do to mitigate the effects of the Brexit story. It can increase the prices it charges to advertisers, which it did by 7-10 per cent earlier this year, and try to win more market share. But a good market share is only as good as the market itself, says O’Reilly.
“The other thing that has changed is we have seen some fall in the consumption of television. We would be very happy with RTÉ’s share, but unfortunately the actual volume of viewing has come back a little bit this year.”
Viewers today have an “unbelievable” amount of choice, he says. The good news is this also helps justify the premium RTÉ charges advertisers.
“It’s harder than ever for advertisers to get a message through, but our audiences are big. They’re not 150,000. They’re 450,000. By putting an ad in our commercial breaks you get to a sizeable proportion of the population very quickly. That is what our premium is about.”
RTÉ has also “pushed its premium” on Radio 1, which is by far the single biggest station in Ireland with a peak-time listening share of 23.8 per cent.
Radio is also “doing quite well”, he says, because RTÉ has changed the way it sells advertising on it.
Bundle inventory
“There has been a tendency to bundle inventory – you put your good spots with your weaker spots and sell them together. But this has led to enormous discounting.” A move to cost-per-thousand (CPT) trading reduces discounting, increases transparency and means Radio 1 can capitalise on “a fantastic year”.
Music station 2fm, meanwhile, is “doing okay... it’s fine”, while after “a bit of a fall-off” video-on-demand advertising is picking up again.
But Irish media companies aren't exactly profiting from the surge in digital advertising. "Google and Facebook continue to hoover up any growth in the marketplace, and they have become more proficient at it over the last 12 months."
Deep discounting is rife in Irish display advertising, with some operators charging as little as 60 cent per thousand views. RTÉ charges €6-€14 CPT (and about €30 CPT for video-on-demand spots).
“The reason is, and it’s no great surprise, that there is a lot of inventory out there.”
Discounting, whatever the medium, has a habit of pulling down the whole market as agencies play one rate off against the other. Understandably he’s not a fan.
O'Reilly, a former Today FM chief executive who joined RTÉ in 2012, has 105 people reporting to him on the commercial side of RTÉ, with his responsibilities including international programme sales, the RTÉ Guide and a dwindling merchandising business.
A €2 million a year revenue stream comes from external bookings for its studios, mostly from independent producers, but also from rivals like TV3, which recently used the Montrose facilities to film docudrama The Bailout.
Might there be more independent producers driving past security in the future?
Commissioned
“Like outsourcing? The DG has been very clear on this: RTÉ is not going to become a publisher-broadcaster. But it is quite likely that other areas might be outsourced or commissioned.
“We have seen that with young people’s programming. We continue to spend on the programmes, but where they are made, and how they are made, is up for grabs. There will be different companies pitching for that business, and some of it will be made on RTÉ premises.”
It is not easy for RTÉ to conjure up new revenue streams out of nowhere.
“RTÉ is first and foremost a public service broadcaster. I’m charged with exploiting the commercial opportunities from that. It is not the other way round.”
He gives an example of how this can sometimes hamper its revenues.
“Dermot Bannon, that kind of house thing, it’s really popular. We do six or eight episodes, then we talk to a New Zealand channel, and they say they want 22 of them. We say there’s six, and they go ‘oh’.
“For me that encapsulates the difference between commercial and public service. We have a mixed schedule with lots of elements in it, and we do a broad range of programmes. If we were doing it commercially we would do longer runs but with less range.”
The tail can’t wag the dog, in other words.
“No. And if you don’t like that, then don’t work in RTÉ.”
