The UK Media Sector: How are Key Industries Performing?

Film, Video & Television Production

What’s driving current industry performance?

The world of film and television production took a major hit in 2020-21 from the pandemic:

• As the world went into lockdown and social distancing measures were imposed, film and TV programme production companies saw demand for their services plummet. This led to delays in film releases, production halts and revenue losses across the industry. Even major international productions like Mission: Impossible – Dead Reckoning Part One and Indiana Jones and the Dial of Destiny were put on hold. As if that wasn't enough, travel restrictions made it difficult for talent and staff to even get to the UK to film.
• Content shortages became an issue in 2020-21, as actors and directors committed to filming multiple projects with schedules that overlapped.
• In 2021-22, the long-awaited re-opening of cinemas across the globe (on 17 May 2021 in the UK) facilitated a recovery in demand for film producers.

The sector rebounded significantly in 2021-22:

• According to the British Film Institute (BFI), the UK film and high-end television (HETV) production sector delivered a blockbuster performance in 2021, generating £5.6 billion, the highest amount ever reported (£1.3 billion more than pre-pandemic, 2019).
• The quality of UK productions jumped in 2021, with inward investment and co-production films and HETV shows accounting for a whopping 84% of production spend, with HETV shows alone contributing a monstruous £3.4 billion, according to the BFI. On the other hand, feature films brought in £1.3 billion.
• According to the BFI, UK cinema admissions jumped 68% in over the year through 2021, to 74 million. The top 20 films grossed £441 million, representing 73% of the total box office, with No Time to Die leading the way. The culture secretary, Nadine Dorries, praised the sector’s rebound, highlighting its importance the UK economy.

UK video, film and TV production has boomed over the past decade:

• The film and TV production sector has been a box-office hit for the UK economy, doubling in size in the decade through 2021.
• The thriving intersection of tax incentives, skilled professionals and streaming has catalysed Glasgow's meteoric rise as a hub for production. This is exemplified by the impressive £42 million in revenue generated in 2021 from filming, which attracted high-profile projects such as Indiana Jones.
• Netflix spends nearly US$1 billion (£808.1 million) annually on UK-made content, making it the streaming company's second-biggest production market globally after the US.
• UK's TV and film production boom has spread beyond London's mega-studios to locations nationwide. Game of Thrones was filmed in Northern Ireland and Bridgerton in Bath during a "Golden Age" of TV, showcasing the sector's versatility and potential for future growth.

There are concerns about the sustainability of rising demand for UK production has been reliant on streaming giants

• Some of the UK’s largest film and TV studios have almost been monopolised by US streaming giants, in an effort to boost content production as streaming providers have competed to attract subscribers. No longer mere aggregators of content, these streaming platforms have become significant producers themselves, with several earning top accolades (such as Apple TV’s 2022 Best Picture Oscar winner, CODA).
• Shepperton Studios, based in Surrey, will double its capacity following Netflix's announcement of a new long-term contract in 2021, while the site of many James Bond and Star Wars movies, Pinewood Studios, will be largely taken over by Disney under a long-term agreement.
• Ravenous demand for streaming content has been a major source of revenue for UK TV and film production companies, but this may begin to wane as households return to pre-pandemic lifestyles, potentially leading to a decline in subscriptions and viewing figures.
• In the first quarter of 2022, Netflix reported its first ever drop in subscriptions and cautioned that more could follow as households across the globe reassess their expenses amid the cost-of-living crisis, which could ultimately dampen demand for UK TV and film production.

What’s driving the industry outlook?

The sector will have less funding moving forward:

• Following Brexit, UK studios lost access to the European funding programme Creative Europe, which previously supported studios with a €1.5 billion (£1.3 billion) budget programme that supported creative endeavours across the EU.
• The UK government has attempted to replace this loss by creating the UK Global Screen Fund, which has awarded £7.4 million since 2021, but this falls short of the previous funding available through Creative Europe.

A weak pound could act favourably towards UK production:

• Recent Hollywood productions filmed in the UK include Barbie, The Crown, The Witcher and Loki.
• According to The Guardian, the UK film and TV production sector could receive almost £3 billion in additional investment by Hollywood studios and streaming platforms annually by 2025. This is due a weak pound against the US dollar, making Britain an attractive and cost-effective location for filming big-budget movies and TV series.
• The British Film Commission believes that a weak pound could lead to as much as £7.5 billion of inward investment in the UK's film and TV production industry by 2025.

Despite an upcoming boom, the UK needs the infrastructure to facilitate demand:

• Property consultancy Lambert Smith Hampton stated that despite the boom, the UK will still need another 2.3 million square feet of studio space by 2033 to support the upcoming demand.
• While some worry that the sector may not find productions to fill the space, the BFI states that studios across the UK are running at 95% capacity, putting pressure on the already underpowered film and TV industry workforce.
• The BFI estimates that the sector will need 27,000 new full-time recruits by 2025 to keep pace with the current level of growth in productions being made in the UK.
• Extra studio space is being built, but the UK production sector could still face a skills shortage, according to some trade bodies.

Film, Video & Television Distribution

What’s driving current industry performance?

Streaming platform use surged during the COVID-19 lockdowns:

• During the COVID-19 lockdowns, UK customers spent more time at home, leading to increased subscriptions to entertainment services.
• According to Ampere Analysis Ltd, Netflix's subscription figures grew by 29.3% over the two years through December 2020, reaching 12.8 million, while Prime Video UK's subscription figures soared by 48.1%.
• With the easing of restrictions, growth in streaming platforms has slowed in 2022-23 as much of the subscription growth was brought forward by lockdowns.

Cinemas were closed during the heights of COVID-19:

• UK cinema admissions were zero between the months of April and June 2020 and again between January and April 2021, as the government imposed lockdowns.
• Enforced closures tanked UK cinema revenue by 82% in 2020-21.
• Despite the reopening of cinemas in July 2021, cinema admissions have yet to rebound to pre-pandemic levels, due to the dramatic drop in the number of films released in the UK, despite the good performance of major blockbusters.
• The UK's largest cinema chain, Cineworld, was forced to file for bankruptcy in the US and, as of writing, is seeking to sell off all its assets.
• Other major cinema chains have been forced to refinance debt or seek new ownerships as pandemic closures halted revenue and cinemas could not pay debts and rents.

Technological developments have improved demand for film and TV content mobility:

• Technology (such as mobile devices) has boosted the popularity of streaming services while lowering demand for DVDs and Blu-ray Discs.
• According to Ofcom, consumer spending on video on-demand services overtook pay TV for the first time in July 2018. Many traditional TV distributors have attempted to adapt to these new consumer trends. For example, the BBC and ITV launched a joint streaming service, BritBox, in November 2019.
• A major event in recent years was when Walt Disney Company launched Disney+, a subscription video on-demand streaming service. Within its first day of operation, Disney+ signed up over 10 million subscribers. With the company's slate of blockbuster creative properties, Disney was able to leverage a massive content library for the streaming service.

What’s driving the industry outlook?

Online services will continue to threaten traditional distribution methods:

• Films released directly to download or streaming sites have disrupted the monopoly cinemas usually enjoy over newly released blockbusters.
• During the COVID-19 lockdowns, with cinemas forced to close, some distributors experimented with foregoing cinemas and releasing online instead. For example, in September 2020, Disney's Mulan was released digitally on Disney+ rather than the cinema.
• Shortly after Mulan’s release, Warner Bros Pictures sent a shockwave through the sector with the announcement that all of its 2021 movies would be released on its streaming service, HBO Max, at the same time as in cinemas.
• The release of blockbusters to streaming platforms caused a standoff between cinemas and distributors, forcing cinemas to accept shorter exclusivity periods.
• The financial success of The Batman for Warner Bros Discovery may suggest that releasing huge blockbusters to the big screen before hitting the streaming platforms will be financially beneficial to distributors.
• If the release of movies straight to streaming platforms continues moving forward, it will dampen demand for traditional distribution methods, such as TV and cinema.

An abundance of quality content, rapid technological advancements and intensified competition:

• As of December 2021, IBISWorld estimated there was 101,000 hours of content available on the UK’s top four streaming platforms. Improved product offerings have also been a major factor in boosting demand for streaming services with titles like House of the Dragon, The Rings of Power and Wednesday.
• The number of smartphones, tablets, smart TVs and the growing proportion of homes with internet access have rapidly increased online streaming platforms.
• Technological development will continue to raise demand for content mobility, boosting the popularity of streaming, while lowering demand for traditional distribution methods DVDs and Blu-ray Discs.

Newspaper, Magazine & Book Publishing

What’s driving current industry performance?

COVID-19 accelerated the fall of newspapers and magazines, while the outcome for book publishing was mixed:

• The pandemic had a significant impact on the newspaper and magazine sector in 2020-21 due to lockdowns, social distancing measures and forced closures of businesses worldwide.
• Printed sales for the UK's largest national newspapers slumped by 39% in April 2020, according to the Audit Bureau of Circulations. The Financial Times and The i reported the biggest declines in circulation over the month, at 39% and 38%, respectively. The decline in circulation of The i was exacerbated by the cessation of free copies in locations like airports, gyms and railway stations.
• The Financial Times was the hardest hit among the UK's paid-for national newspapers with a 35% fall in print circulation over 2020.
• Metro and the Evening Standard's print circulations were down by 45% and 38%, respectively, in 2020 due to their free commuter distribution models being hit by national lockdowns.
• Contradicting the trend of newspapers and magazines, book publishing income jumped by 2% in 2020 in the UK, according to the Publishers Association, with sales of printed books down 6% and digital copies up 12%. Book publishing proved resilient throughout the pandemic as the world relied on it as a form of escapism. However, due to the closure of physical stores, struggling small book publishers and a notable fall in education content, the Book Publishing industry’s revenue tumbled in 2020-21.

Dwindling newspaper and magazine circulations combined has created a tough environment for the sector:

• Advertising generates significant revenue for magazine and newspaper publishers. Traditionally, magazine and newspapers generated the majority of their advertising revenue by selling advertising space in printed papers. However, digital platforms have led to a long-term decline in sales of print magazines and newspapers.
• The evolution of internet services has altered the way people consume media. The availability of up-to-date and free news stories online has led to consumers becoming increasingly reluctant to pay for news content.
• As newspaper circulation figures have tanked, advertising revenue has followed suit, with advertisers increasingly redirecting expenditure to digital platforms. Sales of digital advertising space on news websites have not been enough to stem the decline in revenue for newspaper and magazine publishers.

What’s driving the industry outlook?

Advertising revenue from traditional methods is set to dwindle:

• In recent years, total ad spend in newspapers and magazines has contracted as print circulation has declined, limiting the reach of advertisements.
• A dwindling trend of advertising revenue for newspaper and magazine publishing is set to continue, with the Advertising Association (AA) projecting that advertising expenditures for national newspaper, regional newspaper and magazine brands will fall by 2.5%, 7.1% and 5.9% respectively in 2023.
• Tumbling traditional advertising revenue is a result of dwindling circulation and heightened competition from online advertising expenditure avenues (such as social media). This trend is set to dampen the performance for the sector moving forward.
• With regards to advertising expenditure from online sources, the AA is forecasting that online advertising expenditure will jump by 3.7% for national newspaper brands, while falling for both regional newspaper and magazine brands in 2023.

Self-publishing is set to alter the landscape for book publishers:

• Book publishers are set to evolve as digital books and online sales become more established. Increasingly, many authors are opting to self-publish and sell their books at lower costs than traditionally published e-books, which is drawing revenue away from major book publishers.
• The self-publishing market is currently dominated by Amazon, which is estimated to sell 85% of self-published titles. Penguin Random House previously exited the market for self-publishing; however, other traditional publishers may look to expand into the self-publishing and aim to capture a share of Amazon's success by branching out into self-publishing.

Digital media is set to continue expansion, while demand for e-books will diminish:

• Despite digital media gaining momentum, e-book sales are set to dwindle moving forward.
• While electronic devices offer consumers greater convenience, e-book sales have generally trended downwards, with many consumers continuing to prefer physical books.
• E-books can be easily acquired illegally through piracy websites, allowing consumers to circumvent intellectual property restrictions.

Advertising agencies

What’s driving current industry performance?

The UK is one of the world's largest online advertising powerhouses, alongside the USA and China:

• According to the 2019 Advertising Pays report published by advertising thinktanks Credos and Enders Analysis, online advertising spending in the UK relative to the size of the economy was the highest in the world, at 0.63% of GDP in 2018.
• In many ways, online advertising has been replacing traditional advertising methods, with many traditional agencies developing digital arms or acquiring digital agencies.
• Relative to traditional print and TV ads, online advertising techniques such as Search Engine Optimisation (SEO) can effectively raise awareness of an organisation's products and services among its target markets.

Advertising agencies were stunned amid the COVID-19 downturn:

• Advertising expenditure tanked after COVID-19 hit as business confidence plummeted and businesses cut costs on advertising services. Consumers were equally affected, cutting spending, further discouraging businesses from advertising heavily.
• According to the Institute of Practitioners in Advertising, UK advertising budgets fell to record lows over the three months through June 2020.
• Traditional advertising plunged while digital advertising performed surprisingly well, showing its resilience.
• Total UK advertising tanked by 7.2%, while digital ad spending rose by 5.1% in 2020, according to the Advertising Association (AA) and World Advertising Research Centre’s (WARC) 2021 Expenditure Report.
• Internet usage and online sales surged during the COVID-19 lockdowns, supporting digital advertising businesses’ attempts to reach consumers via online channels.

While ad spend recovered in 2021-22, macroeconomic headwinds are constraining growth:

• Business and consumer confidence recovered in 2021-22, leading to a surge in advertising expenditure among UK businesses.
• According to the AA, total advertising spending in the UK increased by 8.8% in 2022, reflecting increased business confidence during this period.
• Ongoing challenges related to the cost-of-living crisis, high inflation rates and geopolitical instability arising from the Russia-Ukraine conflict have limited advertising spending by businesses in the current year.
• Despite current macroeconomic headwinds, the UK witnessed a record level of investment in advertising during the Christmas season and the FIFA World Cup, which helped to drive demand for advertising services.

What’s driving the industry outlook?

Mobile and digital display advertising is set to continue expanding:

• Given the increasing reliance of consumers on mobile devices for internet access, businesses are expected to turn to advertising agencies for assistance. WARC's 2019 report suggests that 75% of internet users will exclusively use their smartphones to access the internet by 2025.
• Digital advertising agencies are likely to benefit from this trend, with greater demand from businesses to transmit advertising campaigns through new hardware, such as wearable technology like smartwatches and virtual reality (VR) headsets.
• Digital ad agencies can anticipate downstream companies seeking their support in creating VR ads that can be integrated during natural breaks within VR content consumption. For example, between levels for VR games.

Heightened uncertainty in the short term will pressure advertising:

• UK recession fears combined with a high level of inflation and the Russia-Ukraine conflict will dampen UK advertising expenditure in the short term as weak business confidence keeps marketing budgets subdued.
• According to the AA and WARC, paid search and online display spend will grow moderately in 2023 – by 6.2% and 5.9% respectively. Online classified spend is forecast to decline by 4.5%, highlighting unfavourable macroeconomic conditions. However, total ad spending in the UK is projected to rise by 3.9% in 2023.
• Demand for print media advertising is set to continue to falling, with spending on online advertising set to rise at a faster pace than other forms of advertising. Advertising agencies that adapt to the digital advertising environment are expected to perform well.

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