The US and UK TV markets: the differences and why they’re important

By Nigel Walley – @nwalley –

Sept 2011 - New NW BW Head & Shoulders (thumbnail)Late last year, HBO and CBS in the US announced web streaming services that sent the US trade press into paroxysms of ‘cord-cutting’ hyperbole.   ‘HBO Go’ and ‘CBS All Access’ were feted as marking ‘the end of TV’.   At the time we thought it was strange that their launch was also reported breathlessly by the UK trade press, as though it had some strategic relevance to us.  In Decipher, we barely gave it a nod.  The main reason is that we have had both the equivalent launches here already without the world caving in (for HBO read Sky’s NOW TV [left, below], and for CBS read ITV Pay).  They have had only limited impact on our market.

It made us pause and reflect on why this is the case.  We have to continually fight the temptation to get sucked in to the PR hysteria created in the US market. UK television execs seem to hang on every word that Reed Hastings of Netflix utters about the death of TV, without ever reflecting on the fundamental differences between the UK and the US. Most of his prognostications are meaningless in a UK context.  We thought it was important to finally lay out why the UK television market is not like the US one. So here are our thoughts:

  • Firstly, we are a single timezone. This means that the live, linear broadcasters are still able to create national moments around scheduled programming. The social media impact of the recent Eastenders ‘live’ episode is witness to that fact.  It would have been almost impossible to repeat that trick in the US with anything other than live sport. Everything in the US is broadcast on a rolling release schedule across the day, as the timezones roll east.  In the UK, everyone watches Eastenders at the same time.  Channels with live scheduled programmes are able to whip up media storms on social media and drive people to view in a way that is impossible in a country with multiple time-zones. This means that the network channels have retained a pre-eminence in UK life that they have lost in the US.
  • This difference is compounded by differing role of the electronic programme guide (EPG) in each country.  In the US there are no rules on where the channels are situated, and the position of the major networks differs on every EPG in the country.   In the UK, the Public Sector Broadcaster (PSB) channels are guaranteed the first five slots of every EPG in the country, in the same order.  ITV is number three in every device and platform that can receive broadcast.  Platforms that own non-PSB channels in the UK (like Sky) have to work around the PSBs in where they put their own channels.  This positioning is hugely important as the process of finding channels and programmes is part of a national ritual. Even in the multi-channel era, everyone understands the phrase ‘channel 3’ to mean ITV.
  • The shift from linear to VOD.  In the US, the pervasiveness of poor quality, but high volume TV advertising means that channels are often their own worst enemy in preventing the flight to VOD.  The strict rules on volume and placement of commercial messages in UK broadcast, and the high-quality advertising culture, has meant we haven’t had such a strong imperative to get away from linear.   In this, the role of the BBC is also hugely important. Being freed from having to include advertising has meant that they have set a broadcast benchmark that the commercial channels move away from at their peril.  They keep the others ‘honest’, and provide an ad free ‘base-camp’ that keeps the UK consumer in the habit of using linear.
  • Pay vs Free: one of the major differences between the two markets, and the reason that we are not so concerned about ‘cord-cutting’ (a US phrase describing people giving up a subscription to a pay TV operator to rely on web services only*) is that the UK market is ‘pre-cut’. By this we mean that most of the people who are likely to ‘cord cut’ in the UK, have probably never had pay TV start with. In the US, 86% of households pay for a full TV service* vs 54% in the UK.  So the US could suffer a 32% drop in subscribers and still only get back to the situation that the UK currently finds itself in.
  • Once again, the situation above is compounded by a second factor in the UK market – the strength of the free-to-air (FTA) platform offering.  US TV execs are often astounded by the quality of the UK FTA boxes and services they see when they visit iBurbia.  They just don’t have an equivalent set of free TV boxes or services in the US.  The latest UK crop in particular (YouView, Freesat Freetime, and the new EE TV, above) deliver an integrated set of services and functionality that is better than many US pay boxes. It is very hard to recreate this kind of service in the US because their DTT equivalent is under-powered and is not really usable outside of the major conurbations.  This explains why the US manufacturers sniffing around the TV industry never think about launching a Freeview style box (an Apple TV Freeview box for example).   The major US tech giants – Apple, Google etc – always want to create a single product or service that can roll out across multiple markets in the same form.  Unfortunately they make product decisions based on the dynamics of the US market, which is why they have not created the equivalent of YouView and why there is no Apple Freeview box in the UK.
  • Platforms are national in the UK and fragmented in the US.  In America the predominant pay TV distribution mechanism is cable TV (which is why US execs often use the word ‘cable’ to mean ‘pay’ TV).  As with the UK, when cable was launched in the US, they divided the licences up into hundreds of small territories that small providers could buy a licence to serve. Unlike the UK, the process of consolidation of cable has only happened patchily, with a few big providers emerging (Comcast, TimeWarner etc) but with lots of smaller, under-funded ones still operating. This is why so many of them have terribly poor quality boxes. They can’t afford to innovate, and don’t have the economies of scale to buy in quality tech for things like EPG, PVR and VOD functionality.  Nor do they have the scale to secure quality content deals.  For many people in the US, moving from cable to Netflix (and therefore from linear to VOD) is a quality improvement.
  • Poor Quality SD Signal In The US – Not only are the majority of cable boxes delivering a poor proposition in the US, the underlying  poor quality of the standard definition (NTSC) linear channel signal means that consumers also drift from linear to VOD in search of better picture quality.  A good Netflix stream backed up by their quality CDN looks much better than most network broadcasts. The UK standard definition (PAL) signals have always been comparatively good, with the leap to digital only improving it further. It is why the leap to HD has had more impact in the US than in the UK.
  • Let us not forget that Netflix in the UK is a shadow of Netflix in the US.  For a number of reasons, primarily to do with rights and windowing arrangements on both sides of the pond, the size and quality of the US Netflix catalogue is far superior to that of its British counterpart.  In a different but related vein, the newest film and television content often debuts first on the US Netflix – leaving British subscribers with a wait, sometimes substantial, for particular content to reach our shores.  As a consumer proposition, the UK version is very much the poor relation of its American cousin – diminishing its appeal as a substitute to alternative UK pay movie offerings such as Sky Movies (via a Sky subscription or via the Now TV “movies pass”) or Amazon’s Prime Instant Video SVOD streaming service.  Not only this, but – staying with Sky – the fact that Sky have locked down first pay TV window deals with major studios including Disney, Warner Bros, NBC Universal and Sony means, as Sky’s marketing is very enthusiastic to point out, the latest film releases often reach Sky before they reach anyone else.
  • Netflix on BT YouViewUK boxes co-opt the enemy and as a result, free and pay are beginning to co-exist.  A recent phenomenon is for notionally free-to-air households to pay for OTT services like Now TV and Netflix but access them via their STB. As these services become integrated into supposedly FTA set top boxes in the UK (Netflix, for example) arrived on the TalkTalk and BT flavours of the YouView platform in the autumn), it initially calls into question how accurate it is to define these platforms as truly “free” any more.  As an example, in a YouView box, depending on whether a person takes the BT or TalkTalk version, you can now get Netflix, Now TV, BT TV (pictured above right) and TalkTalk TV “light” pay options.  This presents free-to-air consumers with the option to layer pay options on top of their chosen free-to-air offerings – the chance to scale up, rather than scale down, their pay television consumption.  Linear and non-linear can sit side-by-side without one cannibalising the other.  Not only do free-to-air offerings of a UK quality not really exist in the States, there few innovative American examples of pay and free co-mingling in such a way on the nation’s set-top boxes.

It won’t surprise you to learn that, as we said at the outset, much of the industry commentary we hear and read at Decipher about UK Television is coloured by lazy, often misleading, glances over the shoulder of our American cousins: what’s true for the US surely holds true in the UK.  It doesn’t.  What we hope you’ll take away from this is that – for a myriad of historical, commercial and structural reasons – there are some fundamental differences between the US and UK TV markets. In any sensible, informed conversation about where the television and content industries are heading, these facts matter and need to be acknowledged.

*Leichtman Research Group (LRG) 2013.

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