(PRWeb UK) February 3, 2011
Summary
Boosted by the economic recovery and the World Cup, UK advertising budgets have begun to increase after two years of rapid decline, with ?traditional media? benefiting alongside ?new media? platforms. Improved corporate and consumer spending is also likely to have lifted some of the pressure in subscription and circulation rates of publishing houses.
However, survey data suggest that economic uncertainty continues to weigh on advertising, with only modest growth in advertising expenditure forecast for 2010-11.
Despite a small rise in revenue from music sales (the first for five years), the music industry remains under pressure.
Unit sales are up but digital distribution continues to drive down prices. allied to the continued loss of revenue due to piracy, this is likely to continue to constrain revenues.
Advertising
The sector has benefited from a pick up in consumer and corporate spending, which declined during 2008-09, resulting in falling subscription and circulation rates for many media companies and a slump in advertising expenditure. This increased by 7.3% in real terms in the second quarter of 2010, boosted by favourable base effects and the football World Cup. Nevertheless, the latest Institute of Practitioners in Advertising Bellwether Report suggests that firms remain cautious. Expectations of a relatively slow recovery in both consumer spending and the wider economy are likely to result in only modest real growth in advertising expenditure during 2010 -11. Government spending on advertising, a key source of revenue during the recession, has also been scaled back and is expected to remain subdued. Furthermore, despite the recent rebound in television and national press advertising, firms are likely to continue to focus the lion?s share of any additional spending on internet marketing over the medium-long term. This reflects an increasingly fragmented market structure.
Publishing
The slump in publishing output has moderated in recent quarters, although the sector continued to contract at an annual rate of 3.5% in the second quarter of 2010. This broadly reflects the slower rate of decline in real consumer spending on publications and improved advertising expenditure in the national press. Nevertheless, a protracted economic recovery and the continued shift to online media suggest that pressure on publishing firms will persist, with further consolidation amongst the major news and publishing groups likely, particularly in the regional news market, which continues to see dwindling circulation and declining advertising revenues. However, news agencies are likely to continue to benefit as newspapers buy in content, rather than producing it in-house, to reduce costs. This is likely to lead to a ?sameness? feel to print newspapers, itself likely to contribute further to the decline in circulations. Increasingly newspapers are moving towards a digital presence, notably The Guardian, Telegraph and Times ? only the latter has so far erected a pay wall. The longer-term consequences of this are as yet unclear.
Broadcasting
Commercial radio and, in particular, television broadcasters have benefited from a significant improvement in advertising revenues
(albeit from a low base following a sharp contraction in 2008-09). Nevertheless, the growing number of new, ?freeview? channels and digital and online radio stations has resulted in growing audience fragmentation and downward pressure on advertising rates. Allied to competition from other new media, this has seen commercial broadcasting advertising income (which has declined by around 10% in real terms since its 2005 peak), spread increasingly thinly across a larger number of operators. This has, in turn, increased reliance on subscription revenues. However, while still growing, pressure on subscription income is likely to persist due to a relatively high unemployment rate and constrained consumer spending, as well as competition from free content and a wider choice of other leisure pursuits. Although demand for 3D, high definition, video-on-demand and other high-premium services should continue to offset this, providing these services requires significant investment. (However BSkyB?s recent results of a PBT of ?477m for six months shows that the investment can pay off seriously well.)The freeze in the licence fee and effective cuts of ?340 million to the BBC budget announced as part of the comprehensive spending review will perhaps make the BBC appear less attractive than its main commercial broadcasting rivals in terms of content. Production companies providing content and other services to the BBC are likely to be negatively impacted and more repeats can be expected.
Music Industry
The pick-up in advertising will have boosted music publishers? royalties. BPI data also indicate that, following five years of decline
(and despite a drop in overall sales volumes), recorded music sales in the UK rose by 1.4% to ?928.8m in 2009, bolstered by strong growth in the fourth quarter of the year and the continuing shift to digital formats. Total digital income increased by 47.8% to ?188.9m, offsetting a 6.1% fall in physical sales to ?739.9m. The switch to digital formats has been positive for the industry in some respects, notably in terms of reducing both production and distribution costs and boosting unit sales. However, this has been more than offset by the negative impact of piracy (which is likely to have increased during the recession, and notwithstanding legislation is unlikely to go away) and lower unit prices. It remains to be seen how successful recent government initiatives to combat piracy via file-sharing will be. The fragmentation of the digital segment into multiple platforms and formats also poses a challenge. With growth in consumers? expenditure expected to remain relatively subdued and further downward pressure on the unit price of music products likely, as digital delivery increases, pressure on revenues is likely to persist.
The ability of certain suppliers to sell their music CDs (and DVDs) from the Channel Islands and avoid VAT due to a loophole in the law which the government seems indifferent about plugging, is of course a further hurdle for High Street sales of music. (This can only be exacerbated by the recent increase in VAT.)
Conclusions
Following the sharp decline in activity in 2009, the UK economy showed signs of recovery in the first half of 2010, but fell back into unexpected negative growth in the last quarter (some of which no doubt due to the adverse weather). Growth forecasts for 2011 have been revised downwards ? 1.8% is now being suggested as realistic.
Employment has shown signs of picking up recently while unemployment has reached a plateau, although all forecasts predict a serious impact from the government cuts, both in civil servants and local authority staff.
London is predicted to lead the UK?s economic recovery, with total employment by 2020 predicted to grow by over half a million jobs. This is likely to be mainly in managerial and professional positions, with some growth in technical and sales occupations. Basic service occupations will see very little ? if any ? growth, being already saturated and likely to be impacted by the coming economic squeeze.
The outlook for the Media & Technology sector, in a survey by Baker Tilly (a Business Advisory company) has indicated both positive and negative aspects which could gain ascendancy depending on the sector particular businesses operated in. (See sections above.) The results of their survey showed that 61% of businesses in this sector were either ?positive? or ?very positive? about their prospects for the next 12 months. However, as a note of caution, only 44% could say the same about the sector as a whole and only 23% were optimistic about their region.
Inflation, currently at over 3%, has been persistently above the target of 2%. So far this has been seen as a temporary phenomenon but with the increase in VAT and the relentless rise in fuel and energy costs, this is expected to remain above target for some while.
The Bank of England has kept the base interest rate at the historic low of 0.5% throughout the last year, but there is increasing pressure for this to be raised. As and when it is, many tracker mortgages will increase, putting further pressure on consumer spending.
A further headache facing the economy as we head into 2011 is the potential impact on growth of the severe fiscal tightening that was announced in the June budget and in subsequent clarifications. This is aimed at cutting the government?s budget deficit from around 11% of GDP currently to about 2.0% in 2014/15, with expenditure cuts of ?81 billion and tax increases of ?29 billion planned. These plans have been successful in the respect that they have restored investor confidence in the UK government bond market. The wider question remains as to what extent they could threaten the economic recovery and many questions remain over the government?s ability to push through the cuts.
It is difficult to see that consumer demand will be the driver behind any recovery given that households are still heavily indebted and that the housing market remains fragile and sickly, especially outside of London and the southeast.
Instead, much is likely to rest on the business sector.
Some economists believe that the UK needs a new balance between sectors, with a greater emphasis on manufacturing and technology, and less reliance on the financial and professional services. Even in times of austerity, the government has an important role to play in stimulating growth, business enterprise and innovation to meet the current economic challenges. As far as electronics is concerned, the aim should be to change the profile of, and to grow manufacturing in the UK as part of a balanced recovery for the economy. The technology industry ? and electronics in particular ? is a key enabler to the competitiveness of other sectors.
This report has been compiled with the assistance of a variety of sources:
Office of National Statistics
Bank of England
The Times & The Guardian
Barclays Bank Ltd
And other sources
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