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500 TV Network Models: Transatlantic Public, Commercial, Pay TV Trends

The following post comes from Kagan, a media research group within S&P Global Market Intelligence. To learn more about this research, please request a call.

S&P Global Market Intelligence media research and content teams responsible for Kagan's TV Network Economics have reached a major milestone: 500 U.S. and European TV network models spanning 11 markets (Denmark, Finland, France, Germany, Italy, the Netherlands, Norway, Spain, Sweden, the United Kingdom, and the U.S.). The multiyear expansion effort to build out international network coverage kicked off with Europe in 2015 and continues with Asia in 2017.

A key difference between the United States' and Europe's TV markets is the regulatory environment. Europe maintains a strong tradition of public broadcasting that represents almost all of the most-watched networks in each country. These public channels act as "the voice of the nation," a critical pillar of European democracy, funded by either a public TV license or a means-tested levy.

Public service broadcasters do not serve purely commercial interests, and programming strategy is designed to meet local and original content obligations that cover topics such as education, news, and religious and social issues. Funding can be significant: for example, British Broadcasting Corp. raises £3.74 billion each year from its compulsory £145.50 a year subscription fee. Europe's highest fee can be found in Switzerland, at an annual 451.10 Swiss francs ($447.48) because the broadcaster serves all four national languages.

The public broadcasting system in the U.K. enables the BBC to spend £1.7 billion on its television programming, and £2.32 billion across television, radio and interactive services. In comparison, the total content spend is similar to that of any of the big four U.S. broadcasters — CBS, NBC, ABC, and FOX — in a country more than four times smaller in terms of TV households.

The United States federal government supports The Corporation for Public Broadcasting (CPB), a private, non-profit created by Congress in 1967. Annual funding is the equivalent to only $1.35 per U.S. citizen, which provides grants to public radio and television stations. The current administration’s budget blueprint for 2018 proposes to eliminate federal funding for public media; however, the Public Broadcasting Service (PSB) television network is not 100% reliant on public funding like some European services, so it should stay on air.

Greece’s public broadcaster was set for closure in 2013 as part of the government’s austerity cuts. The move was a consequence of the 2010 banking bailout from The European Central Bank and International Monetary Fund, but the service was unofficially kept on-air by dismissed employees for over 18 months until a new coalition government restored a new service in the summer of 2015.

Most viewed networks by country

Another difference is the delivery of advertising. The European directive allows up to 12 minutes of advertising per hour, similar to levels in the United States; however, most European countries enforce stricter guidance at a local level. The U.K.'s legacy broadcasters such as ITV, Channel 4 and Channel 5 can only show eight minutes per hour on average during peak time, while the BBC does not run any advertisements. Across Europe, public service broadcasters' advertising minutes are restricted to maintain a fair level of competition.

The extent of the reliance on advertising revenue and affiliate income is also apparent. Advertising accounts for a smaller share of total revenue on the biggest broadcast networks in the U.S. than it does in Europe. For instance, advertising accounts for around 70% to 80% of revenue on the big four U.S. broadcast networks because they receive additional pay TV retransmission income.

Conversely, in Europe, which has a limited retransmission legacy, although broadcasters are beginning to pursue compensation for the redistribution of content from their free original broadcast signals, advertising revenue comprises more than 90% of revenue at each of the leading commercial networks in Germany, France, the U.K., Italy, Spain, and the Netherlands. Accordingly, European networks have diversified toward online, OTT, and content distribution, future-proofing them from a volatile TV advertising market. In Germany, however, both ProSiebenSat.1 Media SE and RTL Group are starting to generate an increasing amount of additional platform revenue from the high-definition versions of their free channels.

Significant differences also exist in the pay TV landscape. The U.S. is a huge market with 121.0 million TV households and high pay TV penetration of 81.4% estimated for 2016, meaning that popular channels can be extremely lucrative. In Europe the influence of strong public broadcasting and free-to-air commercial channels represents a challenge for international TV brands.

This is illustrated by the History network, owned by Walt Disney Co. and Hearst Corp. joint venture A&E Networks, reaching over 90 million subscribers in the U.S., and generating a healthy fee per subscriber per month from both cable and satellite operators. By contrast, History in the U.K. commands a lower fee than its U.S. equivalent, as it has stronger local competition from the history output of the BBC and local free-to-air factual programming from Channel 4 and UKTV, even before competing with U.S. conglomerates such as Discovery.

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A&E's U.K. operations (a joint-venture with Sky) consists of five channel brands, with a substantial proportion of its programming coming directly from the U.S., meaning that they can easily obtain profitable international operations.

U.S. and European variances are similarly present in sports broadcasting, both in terms of popularity and distribution. The most coveted sports rights contracts in the U.S. are the NFL, MLB, NBA, and NHL. Meanwhile, in Europe, local soccer competitions such as the Premier League in the U.K., or La Liga in Spain are more valuable per TV household than the NFL in the U.S. Rights for the Champions League, Europe's most prestigious pan-European club soccer competition, are also fiercely contested.

Historically Europe's most popular sports events could be found on free-to-air or public broadcast channels until the multichannel pay TV explosion of the 1990s. Today European cable and satellite operators dominate the market by acquiring sports rights for their own sports channels, which drives subscriptions to multiple services across TV, mobile and broadband. Moreover, competitive and macroeconomic pressures on public broadcasters have left them largely unable to justify acquiring inflated sports rights with public money, especially when the public purse is under strain, and government funding cuts become more commonplace.

European platform competition is fierce, meaning sports carriage deals are often fragmented across rival networks. This forces customers to buy separate retail subscriptions, albeit for reception via a single platform. U.S. sports networks such as ESPN and FOX Sports are still packaged as basic pay TV channels by all providers.

For all the differences between Europe and the U.S., both markets benefit from what is currently deemed a golden age for TV. Europe has been a long-standing importer of U.S. media and popular culture. Yet as a result of globalization and the Internet revolution, content distribution across the Atlantic is more reciprocal regardless of language or cultural barriers. This has allowed global content partnerships to develop and blossom in both TV and video-on-demand markets.

Global Multichannel is a service of Kagan, a group within S&P Global Market Intelligence's TMT offering.