European broadcasters may not be doing enough to protect their core businesses in the wake of "a step-change in activity from US content players" in western Europe, according to a blunt new report on the sector by investment bank UBS.
Analysts at UBS imply that some broadcasters, including ITV, may have acquired the wrong assets when they bought television production companies that specialise in non-scripted entertainment, “a genre which is either declining or likely to enter decline”, rather than those that concentrate on making “super-premium drama”.
The 46-page report notes industry-shifting landmarks such as Netflix's decision to commission the British royal family epic The Crown, which is on track to become the most expensive series made by the streaming company to date and is also the first Netflix original production to be made in the UK.
The first 10-part run of a planned six seasons of The Crown will be added to Netflix later this year and will show the ascendancy of Princess Elizabeth (Claire Foy) to the throne. Its writer and creator, Peter Morgan, revealed last year that the BBC wanted to make the series but "could not compete" financially with Netflix.
UBS also cites Netflix's commissioning of the series Marseille, primarily for the French market, and Subarra in Italy, as well as Amazon's $250 million deal to sign up the former hosts of Top Gear for a new motoring series and Google's plans to extend subscription service YouTube Red in Europe.
Although European broadcasting giants have always faced competition from across the Atlantic, there has been "extraordinary growth" in the number of scripted series emerging from the US in recent years, with 409 series produced in 2015. Some 44 of these were from video-on-demand streaming services such as Amazon and Netflix, which is thought to have more than 200,000 subscribers in Ireland.
UBS began publishing research notes on publicly quoted European media stocks earlier this year. It currently has a “sell” recommendation on the stock of British broadcaster ITV, the FTSE 100-listed owner of UTV and UTV Ireland, believing it to be priced too high.
Audiences for formats such as The Voice, made by the ITV-acquired studio Talpa, are in decline in core markets, "putting future revenue growth at risk", UBS notes.
Its media analysts forecast that, by 2020, Netflix’s budget for local content production in the UK alone will exceed $400 million, which it estimates will be more than one-third of the content budget of a traditional broadcaster like ITV. Netflix’s international content budget, which arrived at $1.5 billion in 2015, is likely to reach $5.5 billion by 2020.
“The risk is that European broadcasters lose premium drama to video-on-demand services, in the same way that they have lost premium sport to telcos,” the report states.
The "privileged position at the top of the TV guide" enjoyed by traditional broadcasters may soon be lost, UBS warns, as tech companies such as Amazon, Apple and Google "seek to shift TV to an app-based world".
This means broadcasters may lose their current “structural advantage” in how their content is discovered.
UBS cites deals such as Google's partnership with Sony, Philips and Sharp to run the Android operating system on their TV sets, as well as Apple chief executive Tim Cook's assertion on the launch of the second-generation Apple TV box that "the future of TV is apps".
Its analysts also believe that viewing drama on traditional broadcasters is “less attractive” than it is on video-on-demand “as ad breaks interrupt flow of the story and audiences must wait for the next episode to air”.
