The BBC and ITV are preparing to announce an online video service similar to their BritBox joint venture in the United States and Canada. They will be hoping for a smoother regulatory ride than Project Kangaroo received, blocked by the Competition Commission a decade ago. Plans by the BBC to take back control of UKTV, its joint venture with Discovery, may simplify the rights arrangements around its back catalogue.
The BBC and ITV joint venture BritBox has over half a million subscribers in North America. BritBox provides a selection of British programming, with many episodes available within hours of their broadcast in the United Kingdom, including popular drama serials and series.
It costs $6.99 a month, or $69.99 per year, in the United States, or $8.99 a month, $89.99 a year, in Canada.
That is a comparable cost to Netflix, which has 58 million subscribers in the United States alone.
The planned online service could be priced similarly in the United Kingdom, where approaching 10 million households have Netflix subscriptions, which equates to over 27 million individuals with access.
The BBC and ITV are reported to be planning to launch their online subscription service in the United Kingdom by the end of 2019.
Both broadcasters have popular online video services that require a user account. The BBC iPlayer and ITV Hub provide live and on-demand access to programming free of charge to users within the United Kingdom.
Users of the BBC iPlayer are legally required to be covered by a television licence, which currently costs £150.50 a year per premises.
The BBC previously launched its BBC Store in November 2015 as an online retail offering. This was quietly closed two years later, offering a full refund to anyone that had paid to download a programme.
ITV has an existing subscription service, ITV Hub+, which enables viewers to view and download programmes without commercials. At the end of June 2018, ITV Hub+ had 286,000 subscribers, compared to 25 million registered users for the free ITV Hub service.
Direct to consumer revenues for ITV amounted to £41 million in the first six months of the year, compared to £29 million the previous year. That includes competitions, voting, live events, pay per view and the ITV Hub+. That represents about 4% of total broadcast and online revenue for ITV.
ITV will announce its annual results on 27 February and chief executive Carolyn McCall will be keen to show progress in protracted negotiations with the BBC.
Any proposed joint venture between the two dominant broadcasters in the United Kingdom will require regulatory clearance. While the broadcasting regulator Ofcom has recently indicated support for such initiatives, ten years previously the Competition Commission blocked a previous joint venture between the BBC, ITV and Channel 4, known as Project Kangaroo.
Since then, the likes of Netflix and Amazon have changed the game, initially supported by broadcasters that were happy to licence their libraries to them but which now face competitors with substantially greater financial resources.
Meanwhile, the BBC is understood to be seeking to take back control of the majority of UKTV channels, currently part of joint venture between BBC Studios and Discovery. Darren Childs will leave the multichannel broadcaster, where he has been chief executive for eight years.
The UKTV portfolio includes a suite of channels, including Dave, Drama, and Really. Together they produce annual revenues of £344 million and a profit of £91 million. The online service, UKTV Play, has 2 million registered users.
Part of the price the BBC may have to pay to gain control of UKTV may be allowing Discovery to exploit the international on demand rights to prime programming, such as its natural history series.
The question is whether pooling the resources of the BBC, UKTV and ITV could create an online video service with sufficient scale to justify a monthly subscription and raise significant revenue in the domestic market.
If a BBC and ITV venture could attract, say, 10 million subscribers in the United Kingdom, each paying £5.99 a month, it could generate annual revenues of over £700 million. That is a big assumption, given the performance of BritBox in North America and the uptake of ITV Hub+ to date.
Since the majority of their programming is broadcast free to air and is available free of charge online, it would require a major audience shift to make a significant contribution to annual revenues.
The risk for the BBC is that offering a domestic subscription service further undermines the justification for the compulsory television licence fee. The corporation is already facing the loss of licence fee subsidies for viewers aged over 75, worth around £745 million a year.