Sectoral Impact Assessment of Extended Hours for RTÉ One +1 and the Launch of RTÉ2+1
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Robert Kenny (on behalf of the BAI) Sectoral Impact Assessment of extended hours for RTÉ One +1 and the launch of RTÉ2+1 10th October 2018 Redacted version Contents 1. Executive Summary ................................................................................. 2 2. Introduction ............................................................................................ 4 3. Sectoral impact assessments .................................................................. 5 4. The RTÉ proposal .................................................................................... 7 Extension of hours of RTÉ One +1 ................................................ 7 Launch of new RTE2+1 channel .................................................... 7 5. The market context ................................................................................. 8 A dynamic market ......................................................................... 8 TV viewing .................................................................................... 8 The TV advertising market ............................................................ 9 6. Impact of the change in service ............................................................ 10 Consumption of +1 services ....................................................... 10 Capture of viewing share ............................................................ 11 Static impact on broadcasters .................................................... 16 Dynamic impact on broadcasters ............................................... 19 Impact on non-broadcasters ...................................................... 20 7. Conclusions ........................................................................................... 22 [1] 1. Executive Summary RTÉ proposes to: • Extend RTÉ One +1’s hours from 19:00 - 02:00 to 06:00 - 02:00 • Launch a new RTÉ 2+1, on air from 19:00 - 02:00 Such changes require approval from the Minister for Communications, Climate Action and Environment, who considers the balance between their public value and sectoral impact (if any). The latter is assessed by the BAI. To this end, the BAI has commissioned this sectoral impact assessment of RTÉ’s proposed changes. Impact on viewing share The most significant impact of the services is driven by the share of viewing they will capture. To forecast this, we have used the ratio of current RTÉ One +1 viewing to RTÉ One viewing (in the hours when the +1 channel is on air). We assume that – with certain adjustments – this ratio will carry over to the additional daytime hours for RTÉ One + 1, and will also apply to RTÉ2 and its +1. The adjustments we make address issues such as: the demographic mix of consumption; the greater relative importance of +1 channels for smaller parent channels; and the EPG positions of the various channels. Based on our analysis we estimate that RTÉ will gain approximately 0.3 percentage points of viewing share from each of the two proposed changes. These figures are net of cannibalisation – that is, the proportion of RTÉ2+1’s share (for example) that is captured from other RTÉ channels. Because the gained viewing will skew younger than RTÉ’s existing viewership, it will moderately increase the share of RTÉ’s viewing from those aged 15-34 – from 11.6% to 11.8%. Impact on revenues RTÉ’s aggregate gain of 0.6 percentage points of viewing share is at the expense of other channels – Irish, international ‘opt’ channels carrying Irish advertising, and those without Irish advertising. Our mid-point estimate of the impact on advertising revenues is a gain of €1.7m for RTÉ (roughly evenly split between the benefit of the RTÉ One +1 and RTÉ2+1 changes) and a loss of a €0.7m for Virgin Media, €30,000 for TG4 and €0.7m for the opts channels. For the Irish channels there is an offsetting benefit. The cost of DTT (Saorview) transmission is, put simply, shared pro-rata to the use of capacity on the DTT muxes. Because the +1 changes will result in RTÉ services taking a greater share of mux capacity, there will be a [2] consequent reduction in the amounts charged to Virgin Media and TG4. We estimate these saving as €300,000 and €100,000 respectively. (As with any forecasts, the projections above are subject to considerable uncertainty, and the reality could vary materially from these figures). Impact on services and investment These loss of ad revenues are not particularly significant for either the opt channels or TG4 – under 0.1% of their total revenue in both cases. This is because the opts derive the bulk of their revenues internationally, and TG4 is primarily publicly funded. Further, TG4 may in fact see a net benefit once reductions in mux charges are taken into account. Thus for the opts and TG4 we do not anticipate material negative impact on their services or investment. For the Virgin channels the RTÉ changes would be more significant. The revenue loss would represent a little over 1% of their advertising revenues, though roughly half of this loss might be offset by mux cost reductions (for a net loss of around €0.4m). This loss may well flow through to reduced content spend by the Virgin channels. Conclusion Given the above, we conclude that RTÉ’s proposed changes may have some impact on the quality of services, primarily from the risk of reduced Virgin Media content spend. However, given the scale of the impacts, we judge there is unlikely to be material impact on the current or future availability, choice or accessibility of services. Nor do we anticipate an impact on sectoral development, innovation and investment more generally, in broadcasting or related markets. [3] 2. Introduction RTÉ has made a proposal to extend the hours of the existing RTÉ One +1 service, and launch a new RTÉ2+1 service. This proposal is subject to approval by the Department of Communications, Climate Action and Environment. In this context, the Minister has asked the Broadcasting Authority of Ireland to provide a sectoral impact assessment (SIA) of RTÉ’s proposal. The BAI has in turn requested Communications Chambers to provide this report on the issue. In RTÉ’s view: • There is clear demand for these services from audiences • They will contribute to public value by increasing the opportunity to access public service content (particularly for those without access to online catch-up services) • They will contribute to the future success of Saorview • They will contribute financially to RTÉ, allowing investment in Irish free-to-air content1 However, whatever the value of the proposal, it must not create disproportionate negative sectoral impact, the focus of this paper. In it we set out: • An outline of public value tests and SIAs’ role therein • A summary of RTÉ’s proposal • The market context • The likely impact of the proposal • Our conclusions on sectoral impact Our analysis is based on the specification of the proposed services as set out in RTÉ’s proposal and subsequent clarifications2 (notably regarding the limited circumstances in which broadcast hours might be extended). It has been supported by a consultation of relevant stakeholders. We are grateful for the input of those parties who chose to make submissions. 1 RTÉ, Proposal to enhance RTE' s Portfolio of Services, June 2018 2 RTÉ, RTÉ +1 services SIA – clarifications, 13 September 2018 [4] 3. Sectoral impact assessments Public service broadcasting must balance the value of services delivered against the risk of harming the provision of services by commercial players. This includes both existing players (who may be crowded out by state-subsidised offers), and potential entrants (whose entry might be foreclosed). It also includes both direct competitors and those in related markets. To this end, the Communication from the European Commission on the application of state aid rules to Public Service Broadcasting states3: “[T]o ensure that the public funding of significant new audiovisual services does not distort trade and competition to an extent contrary to the common interest, Member States shall assess … [the] impact of a new service on the market …. In assessing the impact on the market, relevant aspects include, for example, the existence of similar or substitutable offers, editorial competition, market structure, market position of the public service broadcaster, level of competition and potential impact on private initiatives.” In the Irish context, the Minister forms a view on the public value of the service, and balances this against its sectoral impact, as assessed by the BAI. The Broadcasting Act of 2009 requires4 that the BAI “[I]n advising the Minister on the sectoral impact of a proposal … shall consider the following matters— (a) the extent to which the proposal impacts on— (i) the availability, choice, quality and accessibility of services for audiences, and (ii) existing sectoral services, (b) the impact of the proposal on sectoral development, innovation and investment, (c) the impact of the proposal on related markets, and (d) such matters as the Authority may decide” Thus the BAI is required to consider the static and the dynamic impact of the proposed service. The static impact is the short-term, first order impact of a new service, for instance the loss of market share suffered by competing services, and any associated loss of revenue. Dynamic impact is the longer term, second order impact of the new services, 3 Para 88. EC, Communication from the European Commission on the application of state aid rules to Public Service Broadcasting, October 2009 4