A decade after the launch of digital television in the United Kingdom, Channel 4 is to end ‘red button’ interactive advertising at the end of the year, saying that there has been a decline in demand. The channel ended interactivity associated with programmes three years ago. It will also give up selling adverts around its mobile programming. There’s no money in interactive advertising, apparently, but don’t tell Google.
Channel 4 is making more than 20 of its commercial team redundant, across airtime, sponsorship and new media. It is part of a cost-cutting drive that will see 150 job losses over the next two years.
“Over the past 12 months we have seen a steep decline in demand for interactive TV advertising and it is with regret that we are closing this area of business,” said a Channel 4 representative.
Andy Barnes, the sales director of Channel 4 is quoted as saying: “There will be no big changes to our strategy, apart from shutting down mobile and interactive, as we simply don’t think we can make money out of those areas. Every remaining section of the division is vital to Channel 4’s commercial future.”
Channel 4 claims that it is facing a shortfall in funding. The public service commercial channel with a remit to provide distinctive programming is largely depending on advertising for its revenue. Rather than investing in new ways to interest advertisers, the broadcaster has simply expanded its operations to offer increased advertising opportunities.
It has launched Channel 4+1, E4, E4+1, More4, More4+1, Film4, Film4+1, Channel 4 HD and has attempted to move into radio. Last year Channel 4 received £825 million in television advertising revenue, of which around 18% was from its portfolio of secondary channels, generating £18 million in profit.
As far as informitv is aware, nothing in the broadcasting or communications acts under which Channel 4 was established obliged this programme of exponential expansion. Indeed, its primary function under the Communications Act of 2003 is specifically securing the continued provision of Channel 4 the fulfilment of the public service remit.
While Channel 4 continues to provide programmes of great merit, some might argue that its original distinctiveness has been eroded. Its most popular programmes are now dominated by The Simpsons and the game show Deal or No Deal.
Back in 1984, for its first full year of operation, Channel 4 received revenues of £105 million from the Independent Broadcasting Authority, derived from a levy on the ITV commercial television companies.
In 1994, Channel 4 was self sufficient in advertising revenue, with a turnover of £408 million, to the extent that it was actually subsidising ITV by £57 million and still making a profit of £22 million.
By the year 2000, the turnover of Channel 4 had risen to £716 million, producing a profit of nearly £34 million.
In 2004, the year in which the current chief executive Andy Duncan joined from the BBC, Channel 4 had a turnover of £841 million and made a profit of £46 million. Turnover and profits rose the following year. By 2006, revenues had risen to £940 million, but profits had dropped to £14.5 million. Last year, Channel 4 managed to make an operating loss of £8.8 million on a turnover of £934 million.
Given that its primary revenue stream is selling commercial airtime, one might expect that a broadcaster like Channel 4 would all this time have been investing heavily in developing new forms of advertising to offer brands, agencies and media planners more sophisticated targeting, lead generation, transaction, and interaction.
These, one might imagine, would be the skills that a modern marketer like Andy Duncan, who started out marketing margarine for Unilever, would be keen to exploit.
Instead, like many other broadcasters, Channel 4 has been investing in commissioning and acquiring more programmes to fill more channels, to provide more advertising inventory, spreading the audience ever thinner. As a result it is now cheaper than ever in real terms for advertisers to reach television viewers, but harder than ever to make an impact.
While the net advertising revenue for television in the United Kingdom has remained relatively static over the last five years, at around £4 billion, the value of online advertising has risen five times to £2.8 billion and looks likely to surpass that for television.
Google alone had advertising revenue of £1.3 billion last year and it is on course to overtake the entire advertising revenue of ITV this year.
The response from broadcasters like Channel 4 and ITV is to say it isn’t fair. Rather than attempting to apply some of the methods that Google has used to enable advertising to be more targeted, more accountable, and more transactional, legacy broadcasters have largely rejected the application of new technology to advertising, although selling adverts is effectively their core business.
There is little doubt that the forms of interactive television advertising that have been seen over the last eight years have left a lot to be desired in terms of creativity, execution and user experience. This is largely a function of the lack of investment made by broadcasters in the medium. The same can be said for mobile media.
Yet there seems to be little doubt about the growing importance of interactivity, as we move from passive television viewing to active multimedia engagement.
The average British household spends significantly more on their mobile phones than they pay directly for television. In the next few years they will pay more for online services, through advertising and subscription, than they do for television.
Despite the economic downturn, there is a real danger of failing to invest in the new opportunities enabled by digital media, besides simply adding more channels.