The big multiple supermarket chains are a powerful bunch. In many areas of food and drink retailing they control three quarters of all items sold. Their success is based on the solid marketing principle of supplying products that their customers want, at prices they can afford.
This good value pricing policy is possible partly to the economies of scale created by buying in bulk. The competitive nature of retailing means that most of these savings are passed onto the consumer. However since the retailers have so much power they can exert a great deal of excessive pressure on the smaller suppliers.
Now the Competition Commission is demanding access to hundreds of e-mails sent by Tesco and Asda, purportedly demanding further retrospective discounts to fuel a price war between these two groups over the summer.
Why should such practices cause such surprise?
Supermarkets have been doing this for years. Suppliers have been asked to contribute to deals such as “Buy one, get one free”, and provide specially deep price cuts from time to time. Some supermarket groups insist that their own procurement experts advise suppliers how to remain solvent whilst discounting to a greater extent.
Supermarkets also demand contributions to their own marketing campaigns and many smaller companies forego their own branding needs in order to pay these levies.
This is always a mistake.
Do not let supermarkets do your marketing for you. All they are interested in is increased store traffic. They will use your money to increase footfalls but don’t care if customers buy your product as long as they buy something.
In the travel industry, tour operators acted just like supermarkets till the internet weakened the packaged holiday sector. Like supermarkets they offer customers a range of options and don’t really care if the customers choose your country or another, provided it’s bought from them. It still occurs today when overseas operators with strong airline links can offer the Tourist Boards of smaller countries the prospect of increased tourists.
But be warned, once you agree to this demand, you will have to offer all tour operators and airlines similar levels of support.
And when you stop, many will fold their tents and steal away.
Monday, 3 September 2007
Tuesday, 28 August 2007
Can we stop the fat lady singing?
We have stopped laughing at the Germans. They used to be the fattest people in Europe. Now we are.
23% of women and 22% of men in Britain are now defined as clinically obese, according to the European Union’s statistical office. Obesity is defined by a formula called the Body Mass Index (BMI) composed of two simple factors - height and weight.
The formula is:
Ideal weight in kilograms divided by height in metres squared = 20% to 25%.
You are regarded as overweight if the BMI score is in excess of 25% and obese if it exceeds 30%.
Very fit weight lifters will fail this test, so perhaps a simpler measure would be waist size and its relation with the chest measurement for men and hips for women. The waist should be at least 8 inches less than their chest for men and for women about 8 inches less than their hips.
The British Government’s figures suggest that two out of three men are overweight and the figure for women is only slightly less.
This is a very worrying situation, since it means a greater incidence of heart disease, diabetes, high blood pressure, raised cholesterol levels and cancers of the prostate and womb.
One of the actions taken by the government body OFCOM is to ban the advertising of processed foods that are high in fat, sugar and salt in TV programmes where the majority of the audience is 14 years or younger. The reaction of the advertising industry has been less than considered. After all, we invented, or at least promoted, tasty products that were loaded with the most dangerous elements such as transfats, simple sugars and excessive salts.
And now it seems that some advertisers are trying to compensate from the absence from TV by using the internet to sell their unhealthy foods to children.
Skittles, the sweet brand has apparently spent more than £100,000 to set up a profile on the social networking site “Bebo” seeking young ambassadors for their brand. Other advertisers on the internet are McDonalds, Starburst and Haribo. They do this partly because the internet is outside OFCOM’s remit.
Obesity is linked with poverty and poor education. We cannot compel people to eat sensibly or exercise regularly, but neither should we give carte blanche to parts of the food industry who are concerned with the hitherto easy profits in unhealthy products.
23% of women and 22% of men in Britain are now defined as clinically obese, according to the European Union’s statistical office. Obesity is defined by a formula called the Body Mass Index (BMI) composed of two simple factors - height and weight.
The formula is:
Ideal weight in kilograms divided by height in metres squared = 20% to 25%.
You are regarded as overweight if the BMI score is in excess of 25% and obese if it exceeds 30%.
Very fit weight lifters will fail this test, so perhaps a simpler measure would be waist size and its relation with the chest measurement for men and hips for women. The waist should be at least 8 inches less than their chest for men and for women about 8 inches less than their hips.
The British Government’s figures suggest that two out of three men are overweight and the figure for women is only slightly less.
This is a very worrying situation, since it means a greater incidence of heart disease, diabetes, high blood pressure, raised cholesterol levels and cancers of the prostate and womb.
One of the actions taken by the government body OFCOM is to ban the advertising of processed foods that are high in fat, sugar and salt in TV programmes where the majority of the audience is 14 years or younger. The reaction of the advertising industry has been less than considered. After all, we invented, or at least promoted, tasty products that were loaded with the most dangerous elements such as transfats, simple sugars and excessive salts.
And now it seems that some advertisers are trying to compensate from the absence from TV by using the internet to sell their unhealthy foods to children.
Skittles, the sweet brand has apparently spent more than £100,000 to set up a profile on the social networking site “Bebo” seeking young ambassadors for their brand. Other advertisers on the internet are McDonalds, Starburst and Haribo. They do this partly because the internet is outside OFCOM’s remit.
Obesity is linked with poverty and poor education. We cannot compel people to eat sensibly or exercise regularly, but neither should we give carte blanche to parts of the food industry who are concerned with the hitherto easy profits in unhealthy products.
Tuesday, 31 July 2007
The property factor and the effects on tourism
Financial analysts are worried about the property sector and how a collapse here could trigger a mudslide affecting the economies of many European countries.
Take Ireland for instance which showed the greatest increase in house prices in the E.U. since 1995. Domestic property prices fell in April, the first decrease in five years.
In France, housing starts have declined for the first time in six years and in Spain where unfettered development over the years is being challenged by a crash in the value of shares in developers and builders.
The European Central bank, preoccupied with Germany’s depressed economy reduced interest rates overall to 2%, far too low for the bubbling economies of France and Ireland. As a result, their property prices soared. Bank interest has since risen in seven rapid steps to 3.75% and expected to reach 4.25% soon. This has meant a doubling of mortgage payments with its inevitable consequences.
In Britain, the Chancellor has been more aware of the impact of low interest rates on inflation, and here a wholesale crash is unlikely. A number of factors will affect house prices in the next twelve months. One is the dampening effect of stamp duty. According to the Centre of Economic and Business Research, stamp duty will generate £7 billion for the Exchequer in this fiscal year. This has affected sales and currently only 7% of the housing stock is in transaction compared to 9% in the 1980s. Demand is been generated also by overseas buyers from Russia and India who see London as a particularly desirable place to live. In other areas it’s the “buy to let” market sector that has restricted house availability.
The new Prime Minister, Mr Gordon Brown, recognises the shortage in supply and promises to build 200,000 new “affordable” homes each year, but some of the land available is flood plains and the hazards they pose have been evident in recent days.
Britain will therefore avert an all out property crash but by 2008, prices will stagnate. The British and more seriously affected citizens of Ireland, France, Spain and Poland will feel less rich and that should affect their spending on other things such as retail goods and possibly travel. Home improvement may do well, because house owners who postpone a move to more expensive properties may choose to invest in their current homes with conservatories and the like.
However for countries that depend on tourism one way of boosting visitors is to make it easier for them to buy a home in your country. They will then visit more often, stay longer, spend more and encourage friends and relations to come too. Some enterprising owners will let their property to other people from their own country. All this will raise tourist numbers.
Since 1998, British visitors to Portugal have risen by 48%. Spain has enjoyed the same level of success, whilst trips to Italy have grown by 66%.
Much of this happened because of more cheaper flights by bargain airlines, an older and affluent UK population and a feeling of greater wealth caused by rapidly rising UK property prices. Your house is worth more, so you feel wealthier, save less and even borrow against your growing house assets.
Apparently more than 300,000 properties abroad are owned by the British. Political stability, warm climate, lots of inexpensive flights to convenient airports and affordable property have made Southern Europe so popular.
Judging by the advertisements on television and in the press, countries like Bulgaria, Egypt’s Red Sea Riviera and Dubai are also seeking the British house buyer.
However property abroad will have to grow in value and generate income from lets to offset initial purchase prices. With so many countries jumping the bandwagon there is an oversupply of such homes.
Selling houses to foreigners may help boost tourist numbers, but the basic laws of economics still apply.
Demand must match supply or there will be tears at suppertime.
Take Ireland for instance which showed the greatest increase in house prices in the E.U. since 1995. Domestic property prices fell in April, the first decrease in five years.
In France, housing starts have declined for the first time in six years and in Spain where unfettered development over the years is being challenged by a crash in the value of shares in developers and builders.
The European Central bank, preoccupied with Germany’s depressed economy reduced interest rates overall to 2%, far too low for the bubbling economies of France and Ireland. As a result, their property prices soared. Bank interest has since risen in seven rapid steps to 3.75% and expected to reach 4.25% soon. This has meant a doubling of mortgage payments with its inevitable consequences.
In Britain, the Chancellor has been more aware of the impact of low interest rates on inflation, and here a wholesale crash is unlikely. A number of factors will affect house prices in the next twelve months. One is the dampening effect of stamp duty. According to the Centre of Economic and Business Research, stamp duty will generate £7 billion for the Exchequer in this fiscal year. This has affected sales and currently only 7% of the housing stock is in transaction compared to 9% in the 1980s. Demand is been generated also by overseas buyers from Russia and India who see London as a particularly desirable place to live. In other areas it’s the “buy to let” market sector that has restricted house availability.
The new Prime Minister, Mr Gordon Brown, recognises the shortage in supply and promises to build 200,000 new “affordable” homes each year, but some of the land available is flood plains and the hazards they pose have been evident in recent days.
Britain will therefore avert an all out property crash but by 2008, prices will stagnate. The British and more seriously affected citizens of Ireland, France, Spain and Poland will feel less rich and that should affect their spending on other things such as retail goods and possibly travel. Home improvement may do well, because house owners who postpone a move to more expensive properties may choose to invest in their current homes with conservatories and the like.
However for countries that depend on tourism one way of boosting visitors is to make it easier for them to buy a home in your country. They will then visit more often, stay longer, spend more and encourage friends and relations to come too. Some enterprising owners will let their property to other people from their own country. All this will raise tourist numbers.
Since 1998, British visitors to Portugal have risen by 48%. Spain has enjoyed the same level of success, whilst trips to Italy have grown by 66%.
Much of this happened because of more cheaper flights by bargain airlines, an older and affluent UK population and a feeling of greater wealth caused by rapidly rising UK property prices. Your house is worth more, so you feel wealthier, save less and even borrow against your growing house assets.
Apparently more than 300,000 properties abroad are owned by the British. Political stability, warm climate, lots of inexpensive flights to convenient airports and affordable property have made Southern Europe so popular.
Judging by the advertisements on television and in the press, countries like Bulgaria, Egypt’s Red Sea Riviera and Dubai are also seeking the British house buyer.
However property abroad will have to grow in value and generate income from lets to offset initial purchase prices. With so many countries jumping the bandwagon there is an oversupply of such homes.
Selling houses to foreigners may help boost tourist numbers, but the basic laws of economics still apply.
Demand must match supply or there will be tears at suppertime.
Friday, 6 July 2007
Advertising on the Internet - a threat to conventional advertising agencies?
The Internet as an advertising medium has been an amazing success. Last year it took over two billion pounds in advertising revenue in the UK and accounted for 10.6 % of all advertising spends.
Even more impressive was its relative speed of growth. In 2001 Internet ad spend was £166 million accounting for just 1 % of the total. Between 2005 and 2006 alone, Internet advertising grew by 48%.
This has panicked traditional service providers into jumping on the bandwagon without much understanding of how and where future returns on this new and large investment was to come from.
Consider where the Internet gets its advertising revenue.
77% of total revenue is classified advertising. Two-thirds of this is for search, an electronic and creatively more exciting version of the old directory advertising. Google dominates the search industry in the UK and elsewhere. None of its rivals have been anywhere near as successful.
Much of search advertising reaches people researchers describe as “engaged”. The distinction is between people who need to be “interrupted” from their usual preoccupations as when, seeing an advertisement for a chocolate bar, you stop at the local newsagent and buy the brand on impulse.
Engaged people are seeking, actively or casually, information about a specific category, product or service.
Advertising is not the only way to reach these people. Brands can raise their internet profile by clever web site design using more relevant copy, careful repetition and providing more information so that Googles web crawlers find it and push it higher up the rankings.
Advertisers can then also use search optimisation by buying specific keywords in an auction bid system. Actual keyword choices become important. Some advertisers use their competitors’ brand names to redirect their traffic. Knowing what price to bid is also very important.
Other than search, of the rest of classified internet advertising, £202 million is accounted for by the online recruitment sector. That slice of the cake is dominated by online specialist operators who account for two-thirds of this spend. Newspapers are making a strong bid to retain their minority share.
Which brings us to the area of traditional “interruptive “and brand advertising. In the internet online display field, banners, buttons, skyscrapers and interstitials rule.
Few advertising agencies regard this as mainstream.
After all it is difficult to be creative in such a limited format. Yet many advertisers think that all advertising on the internet is waste free. I wonder if John Wanamaker who first said: "I know that half my advertising is wasteful, I just don’t know which half " would agree with this view of the internet
Even more impressive was its relative speed of growth. In 2001 Internet ad spend was £166 million accounting for just 1 % of the total. Between 2005 and 2006 alone, Internet advertising grew by 48%.
This has panicked traditional service providers into jumping on the bandwagon without much understanding of how and where future returns on this new and large investment was to come from.
Consider where the Internet gets its advertising revenue.
77% of total revenue is classified advertising. Two-thirds of this is for search, an electronic and creatively more exciting version of the old directory advertising. Google dominates the search industry in the UK and elsewhere. None of its rivals have been anywhere near as successful.
Much of search advertising reaches people researchers describe as “engaged”. The distinction is between people who need to be “interrupted” from their usual preoccupations as when, seeing an advertisement for a chocolate bar, you stop at the local newsagent and buy the brand on impulse.
Engaged people are seeking, actively or casually, information about a specific category, product or service.
Advertising is not the only way to reach these people. Brands can raise their internet profile by clever web site design using more relevant copy, careful repetition and providing more information so that Googles web crawlers find it and push it higher up the rankings.
Advertisers can then also use search optimisation by buying specific keywords in an auction bid system. Actual keyword choices become important. Some advertisers use their competitors’ brand names to redirect their traffic. Knowing what price to bid is also very important.
Other than search, of the rest of classified internet advertising, £202 million is accounted for by the online recruitment sector. That slice of the cake is dominated by online specialist operators who account for two-thirds of this spend. Newspapers are making a strong bid to retain their minority share.
Which brings us to the area of traditional “interruptive “and brand advertising. In the internet online display field, banners, buttons, skyscrapers and interstitials rule.
Few advertising agencies regard this as mainstream.
After all it is difficult to be creative in such a limited format. Yet many advertisers think that all advertising on the internet is waste free. I wonder if John Wanamaker who first said: "I know that half my advertising is wasteful, I just don’t know which half " would agree with this view of the internet
Monday, 23 April 2007
Is Innovation potentially as destructive as planned obsolescence?
Brand obsolescence was a bogeyman word to describe the alleged strategy adopted by manufacturers of consumer durables who built a failure feature into the design of their product. That way, products with new features would be bought earlier than needed, keeping the factories busy and the retailer’s tills ringing.
In reality manufacturers were not that clever or consumers that stupid. David Ogilvy over forty years ago said it best:”The consumer is not a moron. She is your wife.”
Now competition and market saturation has spawned a new type of innovation that is destroying markets and brands. Take the digital camera business for instance.
The market is large, worth about £800 million and still growing. The problems however are quite serious. The technology allows new companies not previously in the field of cameras to enter. Companies like Hewlett Packard, Sony, Fuji and Kodak are all major players. These new players have been very innovative, but as far as the customer is concerned, no manufacturer appears to have a competitive edge in terms of technological features, pixel capacity, ease of use or price.
And as pixel capacity, anti shake and red eye features are introduced, prices are falling. In 2003, the average digital camera offered 2 million pixels and cost £160. Now 4 million pixels with newer features will cost £120.
So, why would you buy a camera which will be outdated very quickly and when the newer models with greater capacity and more features will be cheaper tomorrow?
Any why then will the manufacturer invest in large runs of specific models when a high number of unsold cameras will fill up depot space? Small runs generate low promotional budgets, further exacerbating the long term health of the brand.
Part of the pressure on prices is also accounted for by the increase in distribution points. Sales in specialist shops like Jessops have declined, while Boots, Tesco and Asda now are significant in terms of sales. These generalist retailers are not interested in offering a range of products or indeed of brands. The internet however can provide both.
Grey importers now offer products at prices cheaper than the official ones given to the managers of the very brands in the UK.
Convergence of technologies mean that quality digital cameras can also offer ipod music, downloaded TV and video, and mobile phone services too.
More likely it will be the other way around with mobile phones taking the lead. Will Ericsson and Nokia become the new leaders in the converged market?
Analysts have warned that falling prices have affected the profitability of all brands. This year will be a test of resolve. For some famous brands it’s already too late as Minolta’s exit from the digital market indicates.
In reality manufacturers were not that clever or consumers that stupid. David Ogilvy over forty years ago said it best:”The consumer is not a moron. She is your wife.”
Now competition and market saturation has spawned a new type of innovation that is destroying markets and brands. Take the digital camera business for instance.
The market is large, worth about £800 million and still growing. The problems however are quite serious. The technology allows new companies not previously in the field of cameras to enter. Companies like Hewlett Packard, Sony, Fuji and Kodak are all major players. These new players have been very innovative, but as far as the customer is concerned, no manufacturer appears to have a competitive edge in terms of technological features, pixel capacity, ease of use or price.
And as pixel capacity, anti shake and red eye features are introduced, prices are falling. In 2003, the average digital camera offered 2 million pixels and cost £160. Now 4 million pixels with newer features will cost £120.
So, why would you buy a camera which will be outdated very quickly and when the newer models with greater capacity and more features will be cheaper tomorrow?
Any why then will the manufacturer invest in large runs of specific models when a high number of unsold cameras will fill up depot space? Small runs generate low promotional budgets, further exacerbating the long term health of the brand.
Part of the pressure on prices is also accounted for by the increase in distribution points. Sales in specialist shops like Jessops have declined, while Boots, Tesco and Asda now are significant in terms of sales. These generalist retailers are not interested in offering a range of products or indeed of brands. The internet however can provide both.
Grey importers now offer products at prices cheaper than the official ones given to the managers of the very brands in the UK.
Convergence of technologies mean that quality digital cameras can also offer ipod music, downloaded TV and video, and mobile phone services too.
More likely it will be the other way around with mobile phones taking the lead. Will Ericsson and Nokia become the new leaders in the converged market?
Analysts have warned that falling prices have affected the profitability of all brands. This year will be a test of resolve. For some famous brands it’s already too late as Minolta’s exit from the digital market indicates.
Friday, 13 April 2007
Brand Equity: Is it not worth thinking about?
Brands are not what they used to be. Once a brand was a symbol of reassurance. If a manufacturer put his brand on a product it indicated his confidence in the item to deliver if not quality at least consistency. The product delivered what it said on the package..
This appears not to be so as far as Ribena is concerned. Two Kiwi school girls discovered in their chemistry lab that Ribena, despite claims in its advertising contained virtually no Vitamin C. They took their findings to the company and were allegedly given short shrift. The New Zealand government took them more seriously and when their own tests revealed a similar lack of the vital vitamin, banned the said advertisement and imposed a hefty fine on top. The story was then reported on television stations and newspapers worldwide. You would have thought that adding some Vitamin C would have been inexpensive. I don’t know if Ribena in the rest of the world has the requisite amount of the vitamin but it should. That would be at least honest. Now much of the advertising investment of £5.7million in the UK in 2006 appears to be wasted and we‘ve played into the hands of those who think that advertisers and their agency advisers are all a bunch of charlatans. And grocery multiples, who take their own image seriously may refuse to stock the brand too.
Sadly its not only grocery brands that mismanage their brands franchise.
The Sunday Times reported the case of Charlotte Maltese. a young woman murdered in 2005.She had an insurance policy with the Norwich Union. who refused to pay out because she failed to disclose in her application form that she had had a smear test. Prior to this excuse they had claimed the beneficiary should be her boyfriend, but dropped this pathetic excuse when it was pointed out that as her murderer, he could not benefit from a criminal act. Incidentally, the smear test showed some abnormal cells, but nothing wrong with her health. Close friend Agostina Murgia said: ”Norwich Union seems to be trying every cynical trick to avoid paying up “
Last night on BBC1s Watchdog programme, its millions of viewers were warned that critical illness policies were the worst in paying up. Insurers apparently trawl through medical records, not just of the insured person but also of other family members. Over 1 in 5 claims are rejected. The programme warned that people who think they are covered against the onset of a dread disease should check their policies carefully
Imagine on top of the bad news about your health you are told that the money you were counting on to pay the mortgage and keep the family while you were treated will not be forthcoming.
Now no intelligent Marketing Director responsible for marketing and advertising budgets of several million pounds will deliberately let his brand equity be damaged by such callous behaviour. It follows therefore that company policy may be dictated to a greater degree by the financial people.
Some of them don’t appreciate the fragile nature of brands.
This appears not to be so as far as Ribena is concerned. Two Kiwi school girls discovered in their chemistry lab that Ribena, despite claims in its advertising contained virtually no Vitamin C. They took their findings to the company and were allegedly given short shrift. The New Zealand government took them more seriously and when their own tests revealed a similar lack of the vital vitamin, banned the said advertisement and imposed a hefty fine on top. The story was then reported on television stations and newspapers worldwide. You would have thought that adding some Vitamin C would have been inexpensive. I don’t know if Ribena in the rest of the world has the requisite amount of the vitamin but it should. That would be at least honest. Now much of the advertising investment of £5.7million in the UK in 2006 appears to be wasted and we‘ve played into the hands of those who think that advertisers and their agency advisers are all a bunch of charlatans. And grocery multiples, who take their own image seriously may refuse to stock the brand too.
Sadly its not only grocery brands that mismanage their brands franchise.
The Sunday Times reported the case of Charlotte Maltese. a young woman murdered in 2005.She had an insurance policy with the Norwich Union. who refused to pay out because she failed to disclose in her application form that she had had a smear test. Prior to this excuse they had claimed the beneficiary should be her boyfriend, but dropped this pathetic excuse when it was pointed out that as her murderer, he could not benefit from a criminal act. Incidentally, the smear test showed some abnormal cells, but nothing wrong with her health. Close friend Agostina Murgia said: ”Norwich Union seems to be trying every cynical trick to avoid paying up “
Last night on BBC1s Watchdog programme, its millions of viewers were warned that critical illness policies were the worst in paying up. Insurers apparently trawl through medical records, not just of the insured person but also of other family members. Over 1 in 5 claims are rejected. The programme warned that people who think they are covered against the onset of a dread disease should check their policies carefully
Imagine on top of the bad news about your health you are told that the money you were counting on to pay the mortgage and keep the family while you were treated will not be forthcoming.
Now no intelligent Marketing Director responsible for marketing and advertising budgets of several million pounds will deliberately let his brand equity be damaged by such callous behaviour. It follows therefore that company policy may be dictated to a greater degree by the financial people.
Some of them don’t appreciate the fragile nature of brands.
Friday, 9 March 2007
The Television Wars
Television is once again hot stuff. Two media barons are fighting a very public war for dominance of the airwaves.
Richard Branson, the people’s champion, is contesting big, bad Rupert Murdoch’s right to a swingeing increase in costs for Virgin Media, a cable operator, to carry Sky TV programmes. Sky apparently want a 75% increase and Virgin are allegedly prepared to pay 30% more. The result, an impasse, and Virgin now do not offer popular programmes like 'The Simpsons'.
Sky will lose up to £60 million a year income which it stood to earn from Virgin who now have a diminished portfolio of channels and programmes to offer its customer base. Both have taken their case to the public via press and television advertising.
Virgin, playing little David, complains of bullying, and Goliath in the form of young James Murdoch offers Virgin customers an opportunity to switch.
In reality the battle is much more than a negotiation hurdle. It is about control of the biggest commercial broadcaster in the country. ITV is the real prize. Branson wanted a stake in ITV but a surprise move by Sky resulted in them owning 17.9% of ITV. Mr Murdoch is now the biggest media owner in Britain with significant interests in newspapers in the form of the Times/Sunday Times and at the Sun/News of the World. His ownership of Fox in the States provides programme material and he also has rights to broadcast a number of key sporting events in the UK. So could it be a battle fought at Mr Murdoch’s convenience?
In the past his opponents have been complacent and underestimated the skill and energy this Australian outsider brought to the battlefield. Richard Branson will not make this mistake. His longer term objective now must be to acquire Channel 5 and invest in programme production and in the acquisition of broadcasting rights for sporting programmes, all of which will be very expensive.
The interesting thing is the money that funds Sky and Virgin Media as apart from the terrestrial broadcasters like ITV comes from different sources. Sky and Virgin get 90% of their income from customer subscription whilst ITV get almost all their income from advertisers. The advent of Freeview, set top boxes, satellite transmissions and cable delivery mean that viewers have more choice than ever before. The result is smaller audiences per channel. ITV has suffered particularly.
Despite what they think, ITV is not a strong brand. Popular programmes are the strong brands and these are increasingly being showcased on a variety of channels. If ITV is to regain some of its lost ground, it has to go back to its strong programming heritage. Michael Grade knows this. He may carp about the government’s lack of support and be rightly apprehensive of Mr Murdoch’s ambitions, but he knows that the glory days of monopoly and captive audiences have gone forever. Survival will depend on a strong franchise of popular programmes created by his own team of producers.
Like the Chinese curse: these are interesting times for the companies involved. However, when the dust has settled and digital television sets are in every home, will the prize be worth the effort?
Richard Branson, the people’s champion, is contesting big, bad Rupert Murdoch’s right to a swingeing increase in costs for Virgin Media, a cable operator, to carry Sky TV programmes. Sky apparently want a 75% increase and Virgin are allegedly prepared to pay 30% more. The result, an impasse, and Virgin now do not offer popular programmes like 'The Simpsons'.
Sky will lose up to £60 million a year income which it stood to earn from Virgin who now have a diminished portfolio of channels and programmes to offer its customer base. Both have taken their case to the public via press and television advertising.
Virgin, playing little David, complains of bullying, and Goliath in the form of young James Murdoch offers Virgin customers an opportunity to switch.
In reality the battle is much more than a negotiation hurdle. It is about control of the biggest commercial broadcaster in the country. ITV is the real prize. Branson wanted a stake in ITV but a surprise move by Sky resulted in them owning 17.9% of ITV. Mr Murdoch is now the biggest media owner in Britain with significant interests in newspapers in the form of the Times/Sunday Times and at the Sun/News of the World. His ownership of Fox in the States provides programme material and he also has rights to broadcast a number of key sporting events in the UK. So could it be a battle fought at Mr Murdoch’s convenience?
In the past his opponents have been complacent and underestimated the skill and energy this Australian outsider brought to the battlefield. Richard Branson will not make this mistake. His longer term objective now must be to acquire Channel 5 and invest in programme production and in the acquisition of broadcasting rights for sporting programmes, all of which will be very expensive.
The interesting thing is the money that funds Sky and Virgin Media as apart from the terrestrial broadcasters like ITV comes from different sources. Sky and Virgin get 90% of their income from customer subscription whilst ITV get almost all their income from advertisers. The advent of Freeview, set top boxes, satellite transmissions and cable delivery mean that viewers have more choice than ever before. The result is smaller audiences per channel. ITV has suffered particularly.
Despite what they think, ITV is not a strong brand. Popular programmes are the strong brands and these are increasingly being showcased on a variety of channels. If ITV is to regain some of its lost ground, it has to go back to its strong programming heritage. Michael Grade knows this. He may carp about the government’s lack of support and be rightly apprehensive of Mr Murdoch’s ambitions, but he knows that the glory days of monopoly and captive audiences have gone forever. Survival will depend on a strong franchise of popular programmes created by his own team of producers.
Like the Chinese curse: these are interesting times for the companies involved. However, when the dust has settled and digital television sets are in every home, will the prize be worth the effort?
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