Report for the Broadcasting Authority of Ireland Annual Review of Funding for Public Service Broadcasters, 2017 15 January 2019 Redacted version Disclaimer This is an independent report funded by the Broadcasting Authority of Ireland. The opinions offered herein are purely those of Communications Chambers. They do not necessarily represent the views of the BAI. Contents 1 Executive Summary ................................................................................................................................................. 2 1.1 Market context 2 1.2 TG4 commitments and compliance 2 1.3 RTÉ commitments and compliance 3 1.4 Adequacy of funding 4 1.5 Audience yield 5 1.6 Recommendations 6 2 Introduction ................................................................................................................................................................ 8 2.1 Statutory context 8 2.2 Audience Yield 8 2.3 Funding 9 2.4 Structure of report 9 2.5 Acknowledgements 9 3 Review of Market Trends ................................................................................................................................... 10 3.1 The Irish macro environment 10 3.2 Television 12 3.3 Radio 16 3.4 Internet 17 3.5 Conclusion 18 4 TG4 Commitments & Compliance ................................................................................................................... 19 4.1 Performance against 2017 commitments 19 4.2 Adequacy of 2018 Commitments 25 4.3 Commercial revenue maximisation and overcompensation 31 5 RTÉ Commitments & Compliance ................................................................................................................... 32 5.1 Performance against 2017 commitments 32 5.2 Adequacy of 2018 Commitments 35 5.3 Commercial Revenue maximisation and overcompensation 39 6 Adequacy of Funding ............................................................................................................................................ 41 6.1 The current review and the Five-Year Review of Public Funding 41 6.2 Recent market developments 42 6.3 RTÉ’s funding 43 6.4 TG4’s funding 47 7 Audience Yield ......................................................................................................................................................... 50 7.1 About the Audience Yield approach 50 7.2 Methodology 53 7.3 RTÉ 55 7.4 TG4 62 7.5 Considerations for the BAI 66 7.6 Developing the approach 68 7.7 Conclusions 70 8 Conclusions & Recommendations .................................................................................................................. 71 8.1 Conclusions re TG4 71 8.2 Recommendations re TG4 71 8.3 Conclusions re RTÉ 73 8.4 Recommendations re RTÉ 73 8.5 Conclusions re the Annual Review process 74 Annex. Audience Yield method ................................................................................................................................... 77 A.1 RTÉ 77 A.2 TG4 78 [1] 1 Executive Summary 1.1 Market context 2017 was a challenging year for broadcasters and PSBs in particular. TV viewing per capita fell by 7%, and younger audiences saw an even sharper drop. (Within this declining market, RTÉ saw a small loss of share, while TG4 saw a gain.) Despite a robust economy, TV advertising fell in line with TV consumption, and was down 8%. Radio listenership (and RTÉ’s share) were roughly flat, but the radio advertising market declined 5%. Online video consumption continued to grow, but the broadcasters (PSB and commercial) captured just 18% of this viewing. RTÉ saw a fall in Player streams, and while TG4 grew its streams overall, it saw []. 1.2 TG4 commitments and compliance Performance against 2017 commitments TG4 had highly detailed 2017 commitments, with 18 commitments, 116 quantified targets and 59 qualitative targets. In TG4’s view it ‘fully achieved’ 13 of its commitments, ‘almost fully achieved’ one, and ‘substantially achieved’ four. While we broadly we agree with TG4’s self-assessment, we note that for some of the ‘fully achieved’ commitments, some associated targets have not been met. Key areas of challenge for TG4 were: • For TG4’s ‘twin pole’ commitment, it met its targets for the core Irish language audience. However, for the national audience it missed several targets related to reach, notwithstanding a strong share performance. A good share of a market with declining viewing is not necessarily enough to sustain reach • TG4 also faced reach challenges under its commitment to engage with younger audiences. Its target for reach amongst adults 15-34 was to stay flat at 22%, but the result was a drop of a seventh to 18.8% • Under its non-linear audience engagement commitment, TG4 had a target to grow both national and international Player streams. [] • Against its broadcast schedule targets, TG4 overdelivered in hours for the national audience, perhaps supporting its [2] strong viewing share. However, it missed its targets for content for the core Irish language audience. Adequacy of 2018 commitments TG4 has again set out highly detailed commitments for 2018. We believe these meet the relevant statutory requirements (including alignment with TG4’s strategy). Further we believe they are in general appropriately ambitious. For example, for the national audience TG4 is seeking to sustain share and increase reach. Overall, TG4 has increased roughly half its targets. (One third have been reduced). For the core Irish language audience it has set itself lower reach and satisfaction targets, though this is due to a change in how these metrics are measured. TG4 is also anticipating another fall in reach amongst those aged 15-34, and [] growth in Player hours. While such targets may reflect underlying market trends, they highlight the risk that PSBs may end up simply ‘managing decline’. Commercial revenue maximisation and overcompensation We have no concerns in these areas. 1.3 RTÉ commitments and compliance Performance against 2017 commitments RTÉ had 18 commitments and 74 associated targets (almost entirely quantitative). The great majority of these were met. Areas of challenge for RTÉ were primarily under its ‘comprehensive portfolio of media services’ commitment. RTÉ missed RTÉjr’s reach target (amongst 4-7s) and Radio 1’s share and reach targets. While most other targets were met, this did include some that anticipated material declines. For instance, RTÉ2’s share in peak amongst 15-34s came in at 8.1%, ahead of a target of 7.7%. But this compares to a 2016 actual of 9.1%. Similarly, under its ‘reshape TV services’ commitment, RTÉ’s Player streams were down but nonetheless ahead of target. There were a number of misses for targets based on surveys of audience perception. RTÉ believes this may have been due to a change in survey methodology. Other misses included a 4% shortfall in commercial revenue, primarily due to a decline in television spot revenue. [3] Overall, RTÉ had a solid performance against its targets, but in part because those targets anticipated declines in some important areas. Adequacy of 2018 commitments We believe RTÉ’s commitments for 2018 substantially meet the statutory requirements. They are a significantly simplified set of just six commitments with 34 targets, with a shift of focus from the performance of individual services to the level of engagement with audiences (a welcome change). For those targets where comparison to the prior year target is possible, roughly two-thirds are unchanged, one sixth have been raised and one sixth have been lowered. RTÉ’s targets suggest a moderate deemphasising of older audiences, which we believe is appropriate given the importance and challenge of retaining younger audiences. RTÉ plans to grow streams, but only moderately so (up by 6%). Certainly, this will not compensate for falling linear viewing. RTÉ is also budgeting a deficit of €[]m in 2018. While much of this is due to special event costs, there is no reason to expect that this loss will be covered by a robust surplus in 2019. In other words, RTÉ continues to operate with structural deficits. Commercial revenue maximisation and overcompensation We have no concerns in these areas. We note that the sale of the Donnybrook site means that RTÉ had a substantial surplus in 2017, but we do not believe that this represents overcompensation.1 1.4 Adequacy of funding Our assessment of the adequacy of funding for the PSBs is based on ‘triangulation’ from the conclusions of the recent Five Year Review (2018-2022). That Review (concluded in April 2018) involved detailed strategy and forecasting by the PSBs, and extensive analysis of their financials. We therefore believe the best approach for funding recommendations in the current Annual Review is to start from the recommendations made by the Authority as a result of the Five Year Review, and adjust for material recent developments or new data. The Authority’s previous recommendation arising from the 2018- 2022 Five Year Review was for a minimum increase in funding per annum of €30m for RTÉ, and €6m for TG4. 1 See page 50 [4] RTÉ Since this recommendation, key developments for RTÉ include: • A sharper than expected decline in TV advertising, resulting in a €7m shortfall in commercial revenue for RTÉ in 2017 • A €1.5m step up in public funding for RTÉ in 2018, and €8.8m for 2019 • The VEP (Voluntary Exit Plan) has [] • RTÉ’s costs are developing in line with its ‘preferred scenario’ from the Five-Year Plan. This was based on a €21m increment in public funding, which has not come to pass. Of the Authority’s recommended