Advertising Pays 3 - Advertising Association

Advertising
Pays 3:
The value of
advertising
to the UK’s
culture, media
and sport.
In association with:
WS
NE
2
Sport
Advertising Pays 3:
The value of advertising
to the UK’s culture, media
and sport
Report by Deloitte LLP commissioned by the Advertising Association
Published by the Advertising Association, 7th Floor North, Artillery House, 11-19 Artillery Row, London SW1P 1RT
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In association with:
Advertising Pays 3
3
Contents
Foreword by Andy Duncan, Chief Executive, Camelot UK
and President of the Advertising Association
5
The value of advertising to the UK’s culture, media and sport
6
Executive Summary
8
1 Scope of this Report
10
2 Advertising and Sponsorship in the UK
14
3 Free-to-air TV and Radio
16
4 Online Services
28
5 Newspapers and Magazines
38
6 Arts, Culture, Music and Cinema
48
7Sport
56
8Bibliography
64
Appendices
Appendix A The consumer survey methodology
70
Appendix B Estimating individual value
72
Acknowledgements and Contacts
4
69
Contents
74
Foreword
Andy Duncan, Chief Executive, Camelot UK
and President of the Advertising Association
People are choosing to watch,
read, or listen to more media
than ever; they are going to
more events, artistic or sporting,
than ever; they are absorbed in
online resources, from search to
social, every single day. Without
advertising, they just wouldn’t be
able to do all this, and certainly
not do so much of it for free.
In other words, there is more
advertising in people’s lives simply
because advertising is paying for the
things they most like doing. Take it
away, and in one fell swoop you would
also take away, or make unaffordable,
an enormous slice of all the TV,
magazines, newspapers, radio, social
networks, movies, search engines and
video that people so enjoy, as well as
reduce the quality of the sports and
arts they love.
The advertising-funded media not only
give individuals what they want; they
also enhance the country as a whole.
All the various news media keep
people informed and strengthen our
democracy. The many media channels
open up precious opportunities for new
talent. They give minorities a voice
and the opportunity to influence public
debate. The resulting rich culture
breeds worldwide admiration, and
boosts tourism to the UK.
People may often overlook these
very real personal and social benefits.
But how much do the same people
value those services that advertising
helps to fund? Can we put a figure
on this value? That is what this
report explores.
What we learned was that taking
away advertising would most likely
mean the introduction of subscription
fees beyond the means of millions,
denying them so much of what they
now enjoy. Even more strikingly,
many of the services we now take for
granted would simply cease to exist in
their current form without the revenue
that advertising brings.
Such revealing answers can help our
industry clearly demonstrate its place
in the lives of real people, over and
above its vital contribution to the UK
economy. I hope you agree.
Andy Duncan
Advertising Pays 3
5
The value of advertising to the
Total £17.5bn on adspend made up of:
£14.337bn
Source: AA/Warc Expenditure Report
£5.5bn Online Services/Internet
Subtotal
£4.6bn Television
£2.74bn Newspapers
£3.075bn
Source: AA/Warc Expenditure Report
£1.0bn Magazines
£537m Radio
£1.9bn Direct Mail
Subtotal
£990m Out-of-home
£185m Cinema
Sponsorship:
£866m Sponsorship (Arts/Sport)
Source: Deloitte analysis
6
Infographic
UK’s culture, media and sport
Advertising finances media
content, which people value by
almost £10 billion a year1
S p o n s o r s hi p
Annual brand
sponsorship provides a
further £866 million2
O th
er
me
M
ed
di a
ch
an
ne
ls
ia
ch
an
ne
ls
o
in
s ur
vey
£10bn
value
ur
Almost
to people in
the UK
1
2
igures are based on Deloitte analysis of Deloitte Survey/Ipsos (August 2014) survey results.
F
Figures are based on Deloitte analysis of Key Note (2013), Sports Sponsorship: Market Update 2013; Arts and Business (2012); Deloitte Survey/IPSOS (August 2014)
Advertising Pays 3
7
Executive Summary
Advertising’s primary role in
society is economic. It helps to
fuel growth, competition and
innovation, while enabling firms
to bring people better, more
affordable products and services.
Its £100 billion contribution to the UK
economy, as analysed in Deloitte’s
first report for the Advertising
Association, Advertising Pays (2013),3
comprises the many ways in which
UK citizens and companies benefit
economically from advertising activity.
But there is another way in
which advertising, in its broadest
sense, enhances the quality of
people’s lives. It funds the media,
culture and sport people love
and enjoy. Without the funding
that advertising provides, much
of what people value could face
a significant decline in quality;
much else would require fees and
charges beyond what millions
would be able to pay. Some things
might even become unviable in
their current form.
The bulk of the £17.5 billion spent
on advertising in 2013,4 and the
further £866 million in related brand
sponsorship,5 reaches its audiences
through the media people consume,
the sports they are passionate about,
and the arts they appreciate. This
may be an unintended effect of
advertising’s commercial objective of
3
4
5
dvertising Association/Deloitte (2013), Advertising Pays: How advertising fuels the UK economy.
A
Advertising Association/Warc (2014), Expenditure Report. http://expenditurereport.warc.com/FreeContent/Q2_2014.pdf
Based on Deloitte analysis of Key Note (2013), Sports Sponsorship: Market Update 2013 and Arts and Business (2012),
Private Investment in Culture Survey 2010/11.
8
Executive Summary
engaging an audience, but it is hugely
significant nonetheless.
This report examines the impact of
advertising on the media, and on the
activities that people enjoy in their
everyday lives. We estimate the
“individual value” that this amounts
to. This is the value, translated into
monetary terms, of the perceived
benefits people get from using
services that are free or subsidised
by advertising. We focus on
television and radio, online services,
newspapers and magazines, cinema
and the arts, and sport. Each of
these is integral to society, and each
also relies heavily on funding from
advertising and sponsorship.
We asked 1,000 people a series of
structured questions to discover how
important these services were to
them, calculate individual value, and
understand what might happen in the
absence of advertising.
The survey clearly shows that while
people greatly value access to these
services, they are not able (or willing,
when set against their other
financial constraints) to meet the
full costs themselves.
£17.5 billion spent on
advertising, and £866
million in brand sponsorship,
reaches its audiences
through the media people
consume, the sports they
are passionate about, and
the arts they appreciate.
Our findings reveal that advertising
and sponsorship are vital to the
continued quality, range and
availability of these services to the
general public. They also play
an important social function –
ensuring valuable services are
available to all and promoting
plurality in media provision.
For example, free-to-air broadcasting
could not exist in its current form
without the financial support of
advertising. Our research and analysis
shows that TV broadcasting in the
UK would lose much of its original
content, and subscription costs would
be prohibitively expensive for many.
The impact on commercial radio
would be even more far-reaching: it
is doubtful whether the industry could
continue at anything approaching its
current scale. Our study reached a
similar conclusion for the other sectors
we looked at. Advertising reduces the
cost of access to services, allowing
for much wider participation and
choice as a result. News services, for
instance, would be radically reduced
without it.
Our estimate of total individual
value suggests that people greatly
appreciate these benefits in their
everyday lives. In monetary terms,
we estimate the total individual
value attributed to advertising
and sponsorship across television
and radio, online services, and
newspapers and magazines, at
almost £10 billion.6 In comparison,
the current Department for Culture,
Media and Sport (DCMS) budget is
just £1.4 billion.7
Furthermore, the figure of almost
£10 billion does not include the
broader benefits that these media
provide. For example, with the
development of advertising-funded
platforms, such as YouTube, Vevo and
Facebook, it has never been easier or
cheaper for ordinary people to create
videos and make them available to
millions around the world. This has
given us all the opportunity to express
our creativity in a way that, until
recently, was simply not possible.
participation in these fields, boosting
many people’s quality of life. The
wider culture and wellbeing of the UK
are richer as a result.
Advertising and sponsorship are
funding an increasingly diverse range
of media, social activities and arts that
people enjoy in their everyday lives.
While some services might be able
to replace advertising/sponsorship
finance through subscription charges,
the levies would be prohibitive for
many and would lead to widespread
reductions in choice and quality.
Some services might cease to exist in
their current form.
Sport, cinema and the arts in the
UK have also benefited greatly from
the funds provided by sponsorships.
Such funds have promoted
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7
his individual value is separate from the £100 billion figure from Advertising Pays 1, which refers to the economic contribution of advertising.
T
HM Treasury (2013), Spending Round 2013.
NEW
S
Advertising Pays 3
9
The value of advertising
to the UK’s culture,
media and sport
1
Scope of
this Report
Scope of this Report
This is the third report in a series
of Deloitte studies looking at
the contribution that advertising
makes to the UK. The economic
story of advertising has been
increasingly well documented in
recent years.
• In the first Advertising Pays report,8
we investigated the broad economic
impact of advertising, estimating
that its overall contribution to
the economy is worth more than
£100 billion in GDP. This impact is
produced in a number of ways –
through the economic activity that
advertising generates, the price
competition it strengthens, and the
innovation it helps to encourage.
•C
ommercial direct mail has
assisted with the efficiency of the
mail network, helping to reduce
stamp prices and improve delivery
times for personal letters and
parcels.12 The UK is still one of the
cheapest countries in the world in
which to send these items.13
• In the second report,9 we focused
on the benefits to smaller
businesses, investigating how
advertising can help unlock
their growth potential, stimulate
innovation, and boost exports.
In this report, we focus on services
that people choose to enjoy in their
everyday lives. We examine the role of
advertising in providing these services,
and seek to quantify the value of its
contribution to people’s lives.
an estimated 10,000 jobs10 and over
50,000 bus shelters in the UK.11
• Research into the role of outdoor
advertising has found that it has
enhanced public transport services
through providing and maintaining
dvertising Association/Deloitte (2013), Advertising Pays: How Advertising Fuels the UK Economy.
A
Advertising Association/Deloitte (2014), Advertising Pays 2: How Advertising Can Unlock UK Growth Potential.
10
Outdoor Media Centre, Creativity with Responsibility: Introducing Outdoor Advertising, http://www.outdoormediacentre.org.uk/resources/OMC%20Brochure%20Final.pdf
11
Outdoor Media Centre (2012), ‘Legal, Professional, Creative, Responsible.’
12
In 2013/14 marketing mail generated £1.1 billion for Royal Mail, representing 12% of its total revenue. Royal Mail plc (2014), Annual Report and Financial Statements 2013-14.
13
Ofcom, UK communications deals cheaper than in other major countries, http://stakeholders.ofcom.org.uk/market-data-research/market-data/communications-market-reports/cmr13/
international/
8
9
10
Scope of this Report
Almost
£10bn
value
The report illustrates these effects
across the following three sectors:
TV and radio
Online services
Newspapers and
magazines
The report also considers the role
sponsorship plays in:
Arts, culture, music,
cinema and sports.
14
15
For these latter areas, we examine
the importance of sponsorship as
a source of funding and its wider
social and cultural impact. We look
at several specific examples, such as
outdoor cinema, art exhibitions, and
grassroots initiatives.
The report uses the same definition
of advertising as the previous two
Advertising Pays reports, namely “any
paid-for communication intended to
inform and/or influence one or more
people”.14 For the purpose of this
report, we also define sponsorship
as the funding of various activities
by commercial organisations for the
express purpose of fulfilling their
broader communication objectives,
relating to the promotion of the
organisation’s overall brand and
name.15 Although there is often some
overlap in people’s understanding
of these terms, the main difference
is that advertising is usually more
focused on promoting specific
product information.
In this report, we
focus on services that
people choose to enjoy
in their everyday
lives. We examine
the role of advertising
in providing these
services, and seek to
quantify the value
of its contribution to
people’s lives.
J. J. D. Bullmore in Bullmore, J. J. D. and Waterson, M. J. (eds) (1983), Advertising Association Handbook
Adapted from KeyNote (2013), Sports Sponsorship: Market Update 2013
Advertising Pays 3
11
The value of advertising
to the UK’s culture,
media and sport
1.1
Surveying
perceptions
of value
Surveying perceptions
of value
We commissioned a survey of
1,000 individuals, examining their
attitudes to determine the value
that people place on the services
considered in this report.16 For
example, we asked how often
people use the services, what they
use them for, and the extent to
which the presence of advertising
and sponsorship influences their
enjoyment of them. The results
of these questions are used
throughout the report to provide
context to the main findings,
and offer insights into the
broader social impact of
advertising and sponsorship.
The results of our survey feed
directly into our estimates of
how people’s lives are enriched.
Economists typically calculate the
value that consumers gain from the
consumption of a good or service
by first estimating how much they
would be willing to pay for it and
then subtracting from that the cost of
purchasing it. For example, someone
who would pay at most £5 for a
magazine that retails for £2 will gain
a value of £3 when she buys it. In the
economics literature, this is known as
consumer surplus. A more detailed
explanation of this concept is given
in Appendix B. In this report, we use
consumer surplus as our key measure
of value, but for the sake of clarity we
refer to it in terms of the value to the
individual (in this report expressed
simply as individual value).
To estimate the individual value
that advertising delivers, our
survey examined how much each
consumer would be willing to pay
for free services (TV, radio, email,
internet search engines and social
media) and gauged the changes in
their demand for newspapers and
magazines in response to changes
in price. The methodology adopted in
our survey is based on best practice
drawn from a large body of academic
literature. A more detailed discussion
of this methodology is contained in
16
Deloitte Survey/Ipsos (August 2014)
12
Surveying individuals to understand what they value
Appendix A, but an illustration of the
general approach is presented in
Figure 2. The results of this analysis
are then used to calculate individual
value. A full explanation of how this
is done is contained in Appendix B.
The survey asked all 1,000 respondents
to imagine they had to pay for access
to services such as commercial
free-to-air TV, commercial radio and
email. For each service, respondents
were asked whether they would be
willing to pay a given monthly
subscription or whether they would
forgo access to the service instead.
A number of different prices were set
for each service and respondents
were presented with these prices in a
random order.
Based on their answers, it is possible
to calculate how much people value
these services. For example, if a
respondent says she would pay £1 a
month for commercial radio but would
not pay £2, then we can conclude that
her valuation of commercial radio is
somewhere between £1 and £2.
The fact that a consumer values the
service by more than the price she has
to pay for it represents a quantifiable
benefit to the consumer. Adding up
all the gaps between value and price
for each individual across the whole
population allows us to determine a
total benefit from the service.
Figure 1: Some highlights from the survey
60%
79%
Say their
favourite
shows are on
commercial
free-to-air TV
86%
Use online
search tools
every day
54%
Use email
every day
Use social
media
every day
Figure 2: Calculating individual value
£4
Respondent A
Q1. Would you be willing to pay £4?
£3
Q2. Would you be willing to pay £3?
£2
Q3. Would you be willing to pay £2?
£1
Q4. Would you be willing to pay £1?
Respondent B
Q3. Would you be willing to pay £4?
NO
Q2. Would you be willing to pay £3?
NO
Q1. Would you be willing to pay £2?
NO
Q4. Would you be willing to pay £1?
YES
Respondent C
Q1. Would you be willing to pay £4?
NO
Q2. Would you be willing to pay £3?
NO
YES
YES
Q3. Would you be willing to pay £2?
Q4. Would you be willing to pay £1?
NO
YES
YES
YES
£0
Individual Value
£7
£6
£5
£4
£3
£2
£1
£0
Respondent A
Respondent B
Respondent C
Total Individual Value
£7
£6
£5
£4
£3
£2
£1
£0
Respondent C
Respondent B
Respondent A
Total Individual Value
Source: Deloitte analysis
Advertising Pays 3
13
The value of advertising
to the UK’s culture,
media and sport
2
Advertising and
Sponsorship in
the UK
Advertising and
Sponsorship in the UK
In 2013, advertising spend
in the UK amounted to £17.5
billion.17 The largest recipients
were the online, broadcasting
(TV and radio), and publishing
(newspapers and magazines)
channels, accounting for 82%
of advertising spend in the UK
overall. A mutually beneficial
relationship between advertisers
and individuals operates in these
sectors. Individuals benefit from
the services that advertising
funds, while advertisers benefit
from being able to reach an
audience. In many cases,
such as in broadcasting and
online services, the revenues
generated by advertising spend
allow people to receive valuable
services for free.
17
18
In addition to advertising spend,
annual sponsorship spend is around
£866 million.18 The large majority
of this – around 80% – is sports
sponsorship, with a further £80
million spent in support of the arts.
Sponsorship also benefits individuals
by providing funds to help cover the
costs of these activities.
Advertising Association/Warc (2014), Expenditure Report
Based on Deloitte analysis of Key Note (2013), Sports Sponsorship: Market Update 2013 and Arts and Business (2012), Private Investment in Culture Survey 2010/11.
14
Advertising and sponsorship in the UK
Individuals benefit from the
services that advertising funds,
while advertisers benefit from
being able to reach an audience.
In many cases, the revenues
generated by advertising spend
allow people to receive valuable
services for free.
Figure 3: Breakdown of advertising spend and sponsorship
£17.5 billion in advertising spend
Direct Mail,
£1.9 billion
£866 million in brand
sponsorship
Main FTA TV channels,
£2.6 billion
Other TV channels,
£2.0 billion
Online
(Internet),
£5.5 billion
Radio,
£537 million
Out of home,
£990 million
Cinema,
£185 million
Magazines,
£1.0 billion
Other,
£94 million
+
Arts,
£81 million
Sports,
£691 million
Newspapers,
£2.7 billion
Source: Deloitte analysis on Advertising Association/Warc (2014), Arts & Business (2012),
Key Note (2013)
Advertising Pays 3
15
The value of advertising
to the UK’s culture,
media and sport
Free-to-air
TV and Radio
Television and radio are heavily
reliant on advertising revenues as
a source of income, and continue
to be a valuable source of
entertainment and information for
people in the UK. Our estimates
suggest that by enabling free-to-air
TV and radio content, advertising
benefits individuals by a total of
£2.8 billion each year. Without
advertising, commercial free-to-air
TV would not be able to continue
in its current form. A subscription
fee, beyond the means of large
sections of society, would need
to be introduced. However, even
this would not compensate for the
absence of advertising, and the
resulting loss in revenue would
inevitably bring down the quality
of TV programming. Commercial
radio would be hit even harder.
3
The value of advertising
to the UK’s culture,
media and sport
3.1
Television
Television
Most television that is watched
is free-to-air.19 However, while
the BBC channels are funded by
the proceeds of the licence fee
(approximately £12 per month
per household, totalling £3.7
billion for the BBC’s 2013/14
financial year),20 the commercial
free-to-air channels, such as ITV,
Channel 4 and Channel 5, receive
no such financial support.
These channels are almost
totally reliant on revenues from
advertising and sponsorship to
fund their operations. In 2013 the
combined value of advertising
revenue received by ITV,
Channel 4 and Channel 5 was £2.6
billion, accounting for 66% of their
total revenues.21 This is equivalent
to just over £100 per household.
Figure 4: Share of viewing audience in 201322
32%
40%
BBC
BSkyB
Other multichannel
8%
20%
Main free-to-air
(ITV, Channel 4, Channel 5)
Source: BARB (2014)
Figure 5: Revenues of major free-to-air TV broadcasters in 2013
(in £ millions)
Channel 5 259 67
Channel 4
ITV
62
846
1,542
Advertising Revenue
1,211
Other Revenue
Source: Company reports (2013)
In 2013 the BBC and the commercial free-to-air channels accounted for 79.1% of audiences. BARB (2014), Trends in Television Viewing 2013.
BBC (2014), BBC Full Financial Statements 2013/14.
Estimates based on ITV (2014) annual report 2013, Channel Four (2014) annual report 2013, Northern and Shell (2013) trading update and Ofcom (2013) Communications Market Report.
While ITV have sought to diversify their revenue sources and are aiming for an even split of advertising revenues and programme sales, this understates their reliance on advertising as their
ability to make programme sales depends on the advertising revenues they receive. ITV (2014), ITV plc Annual Report and Accounts for the year ended 31 December 2013.
22
Figure 4 reports annual percentage shares of total viewing by individuals of selected broadcasters and broadcaster groups. BARB (2014), Trends in Television Viewing 2013.
19
20
21
18
Television
Approximately 97% of UK
households own a television,23
and the average person watches
around four hours of TV a day.24 As
well as being an important source
of entertainment for individuals,
the survey found evidence of an
important social contribution – more
than half like to watch it with friends
and family.25 TV is also a vital source
of information, providing people with
direct access to news, sport and
analysis.26 TV is especially central to
the lives of those over 65. Compared
to the population average, over-65s
watch 1.8 more hours of television
each day.27
4
The number of hours of TV
viewed by the average person
every day
Compared to the population
average, over-65s watch 1.8
more hours of television
each day
9.5 million
The number of people who
tuned in to the 2013 UK
season premiere of
Downton Abbey
Thinkbox (2014), Thinkbox H1 Review 2014.
Ofcom (2014a), Communications Market Report 2014.
25
Deloitte Survey/Ipsos (August 2014)
26
According to a recent Ofcom report 54% of people consider TV as their most important source of news, while in our survey 47% of respondents said TV gives them information and
entertainment they cannot get elsewhere: Ofcom (2014b), News Consumption in the UK: 2014 Report
27
Ofcom (2014a), Communications Market Report 2014
23
24
Advertising Pays 3
19
The value of advertising
to the UK’s culture,
media and sport
3.1
Television continued...
Television continued...
season premiere of Downton Abbey
on ITV, which amounted to a 39.5%
viewing share for the timeslot that
it was broadcast in,30 while 6 out
of the 10 most tweeted about TV
moments in 2013 were broadcast on
free-to-air channels.31
Commercial free-to-air TV is central
to the variety and quality of television
in the UK. At the 2014 Television
BAFTA awards, 15 out of the 24
competitive awards were given to
shows broadcast on commercial
free-to-air TV, including awards for
Drama, News, Comedy and Current
Affairs. In addition, commercial
free-to-air channels have been
essential for media plurality,28
especially in news sources. The BBC
currently dominates news source
penetration in the UK, with 65%
of all adults using BBC One as a
source of news. However, the very
existence of commercial free-toair channels has helped contribute
to a greater plurality, with ITV and
Channel 4 achieving 37% and 12%
penetration respectively.29
Meanwhile, Channel 4 has been
behind some of the most innovative
and exciting programming on British
television since its founding in
1982, as well as producing many
successful independent films, such
as 12 Years a Slave and Slumdog
Millionaire. The channel is also
responsible for helping establish the
careers of many household names in
entertainment, such as Sacha Baron
Cohen, Ricky Gervais, Jonathan
Ross and Graham Norton.
Free-to-air channels host some of
the most important television events
in the country. For example, 9.5
million people watched the 2013
The presence of advertising breaks
is one key way that the experience
of watching commercial free-to-air
channels differs from watching the
“There’s no doubt
Channel 4 has given
talent more breaks
than any other
broadcaster.”
Stephen Lambert, television
producer and executive32
here is no formal definition of media plurality, but the DCMS view it as a means towards ensuring that the public are exposed to different opinions and information derived from a range of
T
sources. DCMS (2013a), Media Ownership and Plurality: Consultation
DCMS (2013a), Media Ownership and Plurality: Consultation.
30
The Guardian (23 Sept. 2013), ‘Downton Abbey lords it over rivals with more than 9.5 million viewers’, http://www.theguardian.com/media/2013/sep/23/downton-abbey-fourth-series-viewers
31
Freeview (12 Dec. 2013), ‘1.5m tweets bag Jessie J top TV moment of 2013’, http://www.freeview.co.uk/articles/about-us/press-releases/1-5-million-tweets-bag-jessie-j-top-tv-momentof-2013.html
32
Oliver and Ohlbaum, (2014) “Channel 4: Taking risks, Challenging the mainstream”
28
29
20
Television continued...
Our survey suggests that
advertisements do not
have a significant effect
on the quality of the
viewing experience.
BBC channels, which are funded by
the licence fee. These advertisements
allow people to watch without being
charged. Essentially, there is a
trade-off between viewing
programmes for free and watching
advertisements, which is central to
the commercial free-to-air TV viewing
experience. Figure 4 demonstrates
that despite the presence of
advertising breaks, large numbers
of people continue to tune in to
commercial free-to-air channels.
Our survey suggests that while
most viewers might prefer to avoid
them, advertisements do not have
a significant effect on the quality of
the viewing experience. Many would
prefer to view these programmes with
advertisements than pay a significant
amount to remove them. For example,
when free-to-air TV viewers were
asked how much they would be willing
to pay to remove advertisements from
TV content, only 50% say they would
pay £1 a month to do so.
Advertising Pays 3
21
The value of advertising
to the UK’s culture,
media and sport
3.1.1
Quantifying the
benefits of
TV advertising
Quantifying the benefits
of TV advertising
The results of our survey suggest
that there is some variety in how
much people value free-to-air TV.
While most households value freeto-air TV at up to £50 a year, almost
1 in 5 value it at more than £200 a
year. By ensuring that the service
can be made free-to-air, advertising
benefits both the most avid viewers
and those who have a more casual
interest in free-to-air TV. When
added together, we estimate
that commercial free-to-air TV
generates a total household value
of £2.2 billion per year, equivalent
to £83 for every household.33
Figure 6: The average household value from free-to-air commercial TV
6 million
households
£115
16 million
households
£30
£300
£83
£2.2
billion
Average annual
household value
Total
household value
Source: Deloitte Survey/Ipsos (August 2014)
33
As TV subscriptions are typically paid per household rather than individual, we consider the household value of the service, rather than individual value.
22
Quantifying the benefits of TV advertising
3.5 million
households
A more detailed analysis of the data
suggests that while households
with younger adults typically value
commercial free-to-air TV the most,
the value that people place on the
service does not vary greatly with
income, as Figure 7 illustrates. This
emphasises its importance across
the social spectrum.
We based the estimates of household
value on how the survey respondents
reported their willingness to pay for
commercial free-to-air TV. However,
respondents’ answers to other
questions in the survey, for example
the amount of time spent watching
television, suggests that this may
understate their true valuation.
Households with
people earning
more than
£45,000 a year
Households with
people earning
less than
£20,000 a year
£11
per 1
ye
ar
£76
£83
per
year
£83 per household each year
Figure 7: How income affects the household value from free-to-air
commercial TV
The ability of commercial free-to-air
TV to provide this household value
depends very largely on funding from
advertising revenues. Without these
revenues, commercial free-to-air TV
would not be able to continue in its
current form.
Broadcaster interviews suggest
that a subscription model would
be the most likely alternative
funding model if it were no longer
possible to source revenues from
advertising. However, the results
of our consumer survey indicate
that the loss of viewers could be so
great that it would not be possible
to replace advertising revenues with
subscription revenues.34 This loss
of revenue could also undermine
the ability of broadcasters to fund
original UK productions, resulting in
an increased reliance on purchases
of imported shows and of repeats.
Source: Deloitte analysis on Deloitte Survey/Ipsos (August 2014)
34
he higher the charge for the service, the greater would be the reduction in demand and so the smaller the base of customers from which revenues can be recouped. According to our
T
analysis, the demand for television is such that the advertising revenues could not be recouped through a subscription charge.
Advertising Pays 3
23
The value of advertising
to the UK’s culture,
media and sport
3.2
Radio
Radio
Radio is part of most people’s
daily routine. In any given week,
almost 90% of people in the UK
listen to some radio, while the
average adult listens to around
three hours a day.35 This comes
as no surprise, given the sheer
variety and amount of content
aired and produced by radio
stations in the UK. Every week,
37,000 hours of music are
broadcast, and on average, over
10 hours of public service content,
including weather reports, news
and travel events, are aired from a
UK commercial radio station.36
Almost all radio can be accessed
free in the UK. The market is shared
between the BBC and commercial
radio stations, with just under
half of all listening hours in the
UK accounted for by commercial
radio. However, unlike BBC radio
stations, which are funded by the
BBC TV licence, commercial radio
is funded entirely by advertising and
sponsorship revenues, amounting to
£537 million in 2013.37
Radio allows people to access news,
sport and entertainment in a variety
In any given week, almost 90%
of us listen to some radio, while
the average adult listens to
around three hours a day.
Rajar (2014a), Rajar Data Release: Quarter 1 2014
Radio Centre (2014), Action Stations: The Output and Impact of Commercial Radio
37
This revenue includes spot advertising and branded content, which has given the industry a financial
boost since it was permitted in 2010: presenters, celebrities and brand ambassadors are now able to
endorse and promote brands/products live on air. Advertising Association/Warc (2014), ‘About the AA/
Warc data’, http://expenditurereport.warc.com/AboutTheData.aspx
35
36
24
Radio
of settings – at work, at home and on
the road – and it remains the most
popular method for listening to music
for people in the UK, especially for
those over 55.
75%
The proportion of
people who listen to
the radio at home39
24%
The proportion of
people who listen to
the radio at work40
While commercial radio stations are
enjoyed by listeners throughout the
UK, local commercial radio stations
often provide valuable services to
communities, reporting on regional
news items, traffic information, events
and activities that would otherwise
be difficult to follow. For some
communities, commercial local radio
plays a particularly important role in
community life. Recent developments
in digital radio mean that people are
now increasingly able to access their
favourite stations for free and with
fewer geographical limitations.42
79%
Commercial radio’s
share of local radio
listeners41
Rajar (2014a), Rajar Data Release: Quarter 1 2014
Ibid.
41
Deloitte analysis on Rajar (2014b), Rajar Data Release: Quarter 1, 2014 – May 15th 2014
42
51% of adults now use a digital radio platform. Rajar (2014a), Rajar Data Release: Quarter 1 2014
39
40
Advertising Pays 3
25
The value of advertising
to the UK’s culture,
media and sport
3.2.1
Quantifying
the benefits of
advertising to
individuals
Quantifying the benefits of
advertising to individuals
Around 2 in 3 listeners would not
be willing to pay a substantial fee
for radio if it were not free to use,
a much lower proportion than
for TV. However, 1 in 3 value the
service highly. In particular we
estimate that for around 4.5 million
adults, commercial radio delivers
an average of £87 in individual
value a year. As Figure 8 shows,
this group includes both young
and old, illustrating the broad
appeal of commercial radio.
As with TV, these results highlight
the dual role that advertising plays
in providing benefits for both an avid
minority of radio listeners and a large
population of occasional listeners.
Figure 8: The individual value of commercial radio
£21
25.8 million
adults
16–34
£17
55–75
42%
26%
£633
million
Total individual value
Source: Deloitte analysis on Deloitte Survey/Ipsos (August 2014)
Quantifying the benefits of advertising to individuals
32%
4.5 million 35–54
adults
£3
Average individual
value per adult listener
26
Age
7.8 million
adults
£87
Local radio is
important in a
community.
Our analysis indicates that people
benefit by £633 million per year, or
£17 per adult listener.
While commercial radio listeners
still experience a trade-off between
advertisements and content, our
survey suggests that it is minimal with
most listeners generally ambivalent
towards them: 55% of respondents
say that they have little or no effect on
their listening experience.
Our analysis indicates that people
benefit by £633 million per year, or
£17 per adult listener.
People listen to radio in a variety of
ways, with the result that introducing
a subscription service would be
more challenging than for TV. Given
the challenges of finding alternative
sources of funding, it would be hard to
imagine how commercial radio would
be able to continue in its current form
and deliver its benefits if advertising
revenues were not available.
Advertising Pays 3
27
The value of advertising
to the UK’s culture,
media and sport
Online
Services
Advertising plays a central role
in ensuring that popular online
services are free to use. Our survey
suggests that advertising, by
making these services so readily
accessible, brings £4.3 billion of
value to individuals in the UK.
Many search engines, social media
sites and email services which we
take for granted would simply be
unable to function in the same way
without advertising.
28
Sport
4
Advertising Pays 3
29
The value of advertising
to the UK’s culture,
media and sport
4
Online Services
Online Services
The internet has rapidly become part
of the everyday lives of most adults
in the UK. In 2013, an estimated 36
million adults accessed the internet
every day, more than double the
number in 2006.43 People spend on
average 35.4 hours a month browsing
on a computer, and 5.2 hours
per month on their mobile phone.44
Technological advances in
advertising and outdoor media
have allowed online service
campaigns like ‘Google Outside’
(involving large display screens that
provide information on local tourist
attractions and businesses) to extend
the internet’s reach to people’s
surroundings, like the London
Underground and bus shelters.45
Advertising is pivotal to the continued
development of the most popular
online services, such as search,
email and social media. Through the
revenues it generates, advertising
provides incentives for leading
online service providers, such as
Google and Facebook, to develop
their offerings and ensure that their
services remain free to use.
Our survey suggests that advertising,
by making these services so readily
accessible, brings value amounting to
£4.3 billion to individuals in the UK.
Office for National Statistics (2013), Statistical Bulletin: Internet Access – Households and Individuals, 2013.
Ofcom (2013), Communications Market Report 2013.
45
Clear Channel (2014), ‘Rewarding Excellence in Outdoor Planning’, http://www.clearchannel.co.uk/
press-centre/events/2014/outdoor-planning-awards-2014/2014-winners/best-use-of-digital-in-outdoor
46
Google Inc. (2014), Annual Report 2013.
47
Facebook Inc. (2014), Annual Report 2013.
48
Twitter Inc. (2014), Annual Report 2013.
49
This figure includes the advertising revenues for the digital components of the TV, newspaper
and magazine sectors. Advertising Association/Warc (2014), Expenditure Report
43
44
30
Online Services
Many of the most popular websites
in the UK are almost entirely funded
by advertising. The overwhelming
proportion of the revenues generated
by Google,46 Facebook,47 and
Twitter48 comes from advertising. In
total, advertising revenue is worth
£6.2 billion to online services in the
UK each year.49
Figure 9: The role of advertising revenue in funding the 10 most popular
websites in the UK50
Google
1
Facebook
2
YouTube
3
BBC
4
eBay
5
Amazon
6
Yahoo!
7
Wikipedia
8
Twitter
9
LinkedIn
91%
89%
95%
0%
Our survey finds that 79% of people
polled use search engines, and
86% use email every day.52 The
development of such free online
services has had a major impact on
the lives of most people in the UK,
with 79% of people using email for
their social life, and 81% using it for
leisure activities.53
Funded by the licence fee in the UK*
14%
Funded primarily by transaction revenues
Funded primarily by transaction revenues
<1%
79%
0%
Funded by donations
89%
10
0%
24%
20%
Funded primarily by selling data access to recruiters
40%
60%
80%
100%
Proportion of total revenue accounted
for by advertising revenues
*The BBC collects revenue from advertisements that feature when its website is viewed
outside the UK.51
Source: Company accounts (2013), eMarketer (2013), Lexiconnect (Sept. 2014)
Website rank as of September 2014
BBC (2014), ‘What’s changing on the BBC website?’, http://www.bbc.co.uk/bbc.com/faq/
52
Deloitte Survey/Ipsos (August 2014)
53
Ibid.
50
51
Advertising Pays 3
31
The value of advertising
to the UK’s culture,
media and sport
4.1
Search, email
and other online
services
Search, email and other
online services
Internet search is the most
common form of web-based activity
in the UK, with almost every user
visiting a search engine at some
point in their internet session. In
2013, Google Search alone was
visited by 88% of web users.
As well as saving people time
when they look for things online,
search engines help increase
consumer awareness and improve
price transparency. The main
search engines, such as Google,
Yahoo! and Bing, do not charge
for use. They can offer this free
service because they are funded by
advertising revenues. It is estimated
that internet search generated £3.49
billion in advertising revenues in the
UK in 2013, more than half of the
online total.54
Search providers are also the main
providers of free email services. In
2013, there were approximately 41
million email accounts registered
with Hotmail, Yahoo! and Google,
all of which operate search facilities.
In addition, the major online service
providers typically offer a range of
other services, such as maps, news,
chat and games, all generally free to
use. We estimate that these services
generate an additional £300 million
of advertising revenues in the UK.55
Search engines help
increase consumer
awareness and improve
price transparency.
The main search
engines can offer this
free service because
they are funded by
advertising revenues.
54
55
Advertising Association/Warc (2015), Expenditure Report.
Internet Advertising Bureau (2014a), Digital Adspend Report.
32
Search, email and other online services
http://
Search
email
chat
maps
games
news
We estimate that these
services generate an
additional £300 million
of advertising revenues
in the UK.
Advertising Pays 3
33
The value of advertising
to the UK’s culture,
media and sport
4.2
Social media
Social media
Social media allow people to
create, share and discuss content
such as written posts, pictures,
videos and audio. Over two-thirds
of adults, and 97% of 16–24-yearolds, now access social media and
networking services at least once a
week, while 78% of 16–24-year-olds
say they access them every day.56
24 million
The number of people in the
UK who log into Facebook
every day57
15 million
The number of Twitter users
registered in the UK58
640%
The growth in the number
of Tumblr blogs over the last
three years59
Internet Advertising Bureau (2014a), Digital Adspend Report.
The Guardian (14 Aug. 2013), ‘Facebook: four out of five daily users log on via smartphone or tablet’, http://www.theguardian.com/technology/2013/aug/14/facebook-users-smartphone-tablet
58
Tweeted by Twitter (Sept. 2013)
59
Statista, ‘Cumulative total of Tumblr blogs between May 2011 and October 2014 (in millions)’, http://www.statista.com/statistics/256235/total-cumulative-number-of-tumblr-blogs/
56
57
34
Social media
Facebook, Twitter and Google+
are among the most popular social
networking sites in the UK. These
sites are all free to use and are
almost entirely funded by advertising
revenues. Many other popular
social media services are owned by
these organisations. For example,
Instagram is owned by Facebook,
YouTube is owned by Google, and
Vine is owned by Twitter. In 2013,
advertising contributed an estimated
£589 million worth of funding to
social media sites.
Industry research
estimated that during
a single month in
2012, UK users spent
close to 16 billion
minutes watching
YouTube videos.
Case study
YouTube and creative talent
YouTube is at the forefront of the
rapid growth in popularity of online
videos. According to the website’s
own statistics, users upload 100 hours
of video to the site every minute, while
other industry research estimated that
during a single month in 2012, UK
users spent close to 16 billion minutes
watching YouTube videos. This works
out as an average of 8.8 hours for
each of the 30 million users.60
YouTube has been a key contributor
to what has been labelled the
democratisation of creativity.61
This is where ordinary people have
the opportunity to showcase their
creative talent to audiences around
the world with minimal cost or
technical requirements. As it is free
to use, almost anyone can upload
a video of their work on YouTube,
and tap onto the huge worldwide
audience. All that is needed to upload
or view content is a working internet
connection, with no requirements
placed on an artist’s expertise or
experience as a content creator.
For many, therefore, YouTube offers
an unprecedented opportunity to
pursue a creative interest and to gain
some recognition for their talent. For a
few, this exposure may even develop
into much more. Some of the world’s
most famous pop stars – artists such
as Justin Bieber, Lana Del Rey and
Soulja Boy – were discovered on
YouTube.
YouTube’s role in the democratisation
of creativity also benefits the arts.
In both 2008 and 2010, the site
launched a competition inviting people
to audition for a part in an orchestra
made up entirely of YouTube
uploaders. In 2008, more than 3,000
individuals entered the competition
and were scrutinised by YouTube
viewers and a panel of expert
musicians.62 Successful individuals
were given the unique opportunity of
performing in Carnegie Hall and the
Sydney Opera House.
omScore (7 Mar. 2012), ’64 percent of UK online video audience exposed to video ads in January’, http://www.comscore.com/Insights/Press-Releases/2012/3/64-Percent-of-UK-OnlineC
Video-Audience-Exposed-to-Video-Ads-in-January
The Guardian (23 Feb. 2012), ‘the future of video: democratisation of creativity and production’ http://www.theguardian.com/media-network/2012/feb/23/democratisation-creativity-production
62
The Telegraph (6 Apr. 2009), ‘YouTube Symphony Orchestra – Carnegie Hall, review’ http://www.telegraph.co.uk/culture/music/classicalmusic/5163420/YouTube-Symphony-OrchestraCarnegie-Hall-review.html
60
61
Advertising Pays 3
35
The value of advertising
to the UK’s culture,
media and sport
4.3
Quantifying
the benefits to
individuals of
online advertising
Quantifying the benefits to
individuals of online advertising
Figure 10: Average individual value from internet search, email and
associated services
£68
Average individual
value per adult user
16.6
million
14.3
million
Number of adults
As with the other sectors
considered in this report, our
survey reveals a range of opinions
among the population about the
value of online services. Email,
search and social media occupy
a large part of people’s lives,
and many therefore benefit from
having these services provided
free of charge. For around 1 in 4
adults the individual value enjoyed
from email and search alone is
worth at least £100 a year, while
1 in 10 value free social media at
more than £200 a year. There are
also many who appreciate the
benefits of online services, but do
not value them quite as highly.
£3.1 billion
Total individual value
7.4
million
5
million
2.8
million
£6
£36
£90 £180 £340
Average individual value per year
The individual value that adults enjoy from internet search and email varies significantly.
Around 1 in 3 adults value it at an average of £6 a year, but 1 in 10 value it at more than
£200 a year. Across all adults, the individual value averages £68 a year.
Source: Deloitte Survey/Ipsos (August 2014)
Online services, particularly social
media, are generally valued more
highly by young adults. For example,
we estimate that approximately 2.2
million adults value advertisingfunded social media at £120 a year,
36
Quantifying the benefits to individuals of online advertising
and that over half of these people
are between 16 and 24 years old.
By helping to make the services free to
use, advertising helps them to attract
new and casual users. This generates
A recent report estimated
that the price transparency
brought about by search
engines makes online prices
10% lower on average than
offline prices.
important network benefits to all
users of the system – Facebook is
only useful to someone if they can
engage with other people through it.
The more users there are, the more
likely it is that a person will be able
to engage with a wide range of their
friends, family and colleagues.
Overall, our analysis suggests that
through its support of search, email
and social media alone, advertising
provides approximately £4.3 billion
of perceived benefit to people in the
UK each year. This is equivalent to
roughly £90 per adult each year.
However, a large proportion of
Adult users
under the
age of 25
£51
per
year
£28
Average all adults
£1.1 billion
£28 per user per year
Figure 11: Individual value provided by free, advertising-funded
social media
individuals value these services
much higher.
Respondents may well have
understated their true valuations in
this area. For example, although more
than a third of respondents claimed
they would be unwilling to pay £1
a month for email services, 78% of
this group said they use email every
day. Moreover, the individual value
estimated here does not account for
the broader positive impact that these
services have on people’s lives. A
recent report estimated that the price
transparency brought about by search
engines makes online prices 10%
lower on average than offline prices.63
Total individual value per year
The individual value that adults enjoy from social media is worth,
on average, £28 per year. However, for young adults the individual
value is particularly high – it is worth £51 per year for adults under
the age of 25.
Source: Deloitte analysis on Deloitte Survey/Ipsos (August 2014)
63
McKinsey (2011), The Impact of Internet Technologies: Search.
Advertising Pays 3
37
The value of advertising
to the UK’s culture,
media and sport
Newspapers
and Magazines
By providing a key source of
funding for the newspaper and
magazine industries, advertising
allows millions of UK consumers
to read a variety of print and digital
content at subsidised cost. Our
analysis suggests that this funding
is worth approximately £2.3 billion
to consumers each year. In the
absence of advertising, prices
would increase to a point that
would make reading newspapers
and magazines unaffordable and
inaccessible to many.
38
Sport
5
Advertising Pays 3
39
The value of advertising
to the UK’s culture,
media and sport
5.1
Newspapers
Newspapers
The newspaper industry remains
an important part of British
society. Approximately 91 million
local and national newspapers are
sold each week,64 and 41 million
people read newsbrands across
print and digital each month.65
A crucial source of funding for
newspapers is advertising revenue.
In 2013, the industry received a total
of £2.74 billion from advertising,
equating to approximately 50% of
industry revenue.66 These advertising
revenues take the funding burden
away from consumers and allow
newspapers to set lower prices than
they otherwise would.
Advertising forms part of a virtuous
circle in the newspaper industry.
By keeping prices low, it increases
circulation, which in turn makes
newspapers more appealing
to advertisers. In some cases,
advertising allows consumers to
access print newspapers free of
charge. For example, the Metro,
which has an estimated daily
readership of over 3 million people
across 15 different cities,67 and the
London Evening Standard, which has
an estimated daily readership of 1.8
million,68 are both free and funded
primarily by advertising revenue.
Figure 12: The virtuous circle of advertising in the newspaper industry
In 2013, the industry
received a total
of £2.74bn from
advertising, equating
to approximately
60% of the revenue
from sales.
Advertisers are willing
to pay more for ad spaces
Newspapers are able
to lower their prices
Consumers buy
more newspapers
Deloitte analysis based on ABC (2014), ‘ABC Market Summary Report – July-December 2013’.
National Readership Survey (2014), ‘Print and Digital: Consumption of Newsbrands’, http://www.nrs.co.uk/training-2/helpful-tools/useful-chart/
66
Deloitte analysis based on data from IBISWorld (2014), ‘Newspaper Publishing in the UK: Market Research Report’.
67
Metro (2013), https://metrouk2.files.wordpress.com/2013/09/metro-platforms-print-august.pdf
68
Newsworks (2014), http://www.newsworks.org.uk/London-Evening-Standard
64
65
40
Newspapers and magazines
NEWS TODAY
7
91
million
out of
£2.74
billion
Number of the most
popular news websites
that are free to use
and supported by
advertising revenue
The value of
advertising revenue
received by the
newspaper industry
in 2013
10
The number of
local and national
newspapers sold
each week
In an age when UK consumers have
never had more choice, newspapers
are still a trusted source of news.69
63% of newspaper readers say that
newspapers form part of their daily
ritual, while 61% enjoy discussing
what they read in the paper with
friends and family.
As print sales have fallen in recent
years, newspapers have developed
an increasing online presence, with
many offering a free-to-use digital
service. Even without the BBC,
free online news sites dominate the
market for online news.
Figure 13: Active reach of news websites in the UK (unique audience in
millions via laptop or desktop computer)
16
13.5
14
12
11.3
As they do not have the same space
constraints as the print editions,
newspaper websites often have more
content. For example, of the 600
articles The Telegraph produces every
day, only a third make it to print.70
News websites for British titles have
become highly popular internationally,
and place the UK as a key exporter of
online news services. The Daily Mail
and The Guardian are among the top
10 most popular news websites in the
world,71 with the large majority of their
content free to access.
10.6
10
8.3
7.4
8
6
5
4.7
4.6
4
4.2
3.5
2
Mi
rro
Jo
r
hn
sto
n
Pr
es
s
BB
C
Ne
ws
Th
eG
ua
rd
ian
Da
ily
Ma
Th
il
eT
ele
gr
ap
h*
Ya
ho
oN
Th
ew
eI
s
nd
ep
en
de
nt
Me New
dia sq
Gr uest
ou
p
Th
eS
un
*
0
In an age when UK
consumers have never
had more choice,
newspapers are still a
trusted source of news.
* denotes subscription based, all others free to use
Source: Ofcom (2013)
Newspaper Society (2011), ‘Loving Local Survey’, http://www.newspapersoc.org.uk/sites/default/files/lovinglocal/quant.html#!prettyPhoto[quant]/8/
Internet Advertising Bureau (2014b), The Data Deal: How Data Driven Digital Advertising Benefits UK Citizens.
71
eBiz MBA (2014), ‘Top 15 Most Popular News Websites – September 2014’, previously available at: http://www.ebizmba.com/articles/news-websites
69
70
Advertising Pays 3
41
The value of advertising
to the UK’s culture,
media and sport
5.1.1
Quantifying the
benefits of newspaper
advertising to
consumers
Quantifying the benefits
of newspaper advertising
to consumers
Given the size of advertising
revenues in relation to total
revenues, consumers would
be likely to face higher prices
if advertising revenues were
unavailable to newspaper providers.
The extent of the price rise will
depend on both the cost structure
and the demand for newspapers.
Nevertheless, any price rise would
lead to reductions in the number of
people buying newspapers. Without
advertising, many consumers would
no longer be able to afford the
higher price, while those who could
afford it would have to pay more for
their newspapers.
The results of our survey suggest
that compared to many consumer
goods, there is a relatively high
tolerance for newspaper price rises,
particularly among broadsheet
readers.72 However, it is likely that
the price rise required to replace
the funds from advertising would
be significant enough to lead to
a considerable fall in sales – we
estimate that if prices rose by 70%,
there would be 56 million fewer sales
of newspapers each week. Many
people would not be able to read
NEWS
67%
The reduction in
tabloid newspaper
sales caused by
an absence of
advertising revenues
72
their favourite newspapers, while
others would have to pay significantly
more to do so.
The way advertising generates
individual value differs by newspaper
types. For tabloid newspaper readers
and, to a lesser extent, midmarket
newspaper readers, it is making
content affordable that principally
drives individual value – 54% of
tabloid readers surveyed have an
income of less than £25,000, and
the results of our survey suggest
NEWS
56
million
The number of
newspaper sales that
could be lost if prices
rose by 70%
The demand for newspapers appears to be what economists call “inelastic”, whereby the fall in sales is proportionally less than the rise in price.
42
Quantifying the benefits of newspaper advertising to consumers
that tabloid newspaper sales could
fall by two-thirds without advertising
revenues. In contrast, it appears that
readers of broadsheet newspapers
would be more tolerant of any
potential price adjustment. These
readers, most of whom have an
income above £35,000, benefit more
from the fact that they are paying
less for their favourite newspapers.
In total, we estimate that, by
providing financial support to
newspapers, advertising generates
approximately £1.6 billion in
individual value each year.
These estimates quantify the direct
benefits to consumers. In addition
to these benefits, society as a
whole also benefits from having a
healthy press. Newspapers have
traditionally played a key role in
supporting the health of a democracy
by disseminating information and
providing quality investigative
journalism.73 Recognising this
contribution, the House of Lords
recently urged the government to
“think creatively” about tax breaks
and financial incentives to support
the industry.74
Figure 14: How advertising benefits consumers by supporting the
newspaper industry
Subsidising the 35 million
purchases of newspapers that
would take place each week
anyway
Allowing 56 million more
newspapers to be bought each
week as a result of the lower
price
Worth £960 million a year in
individual value
Worth £660 million a year in
individual value
Total individual value of
£1.6 billion
Without advertising,
many consumers
would no longer
be able to afford
the higher price,
while those who
could afford it would
have to pay more
for their newspapers.
each year
Source: Deloitte analysis on Deloitte Survey/Ipsos (August 2014)
See, for example, Schulhofer-Wohl, S. and Garrido, M. (2009), ’Do Newspapers Matter? Evidence from the Closure of The Cincinnati Post’, Working Papers 1140, Woodrow Wilson School of
Public and International Affairs, Discussion Papers in Economics, Princeton University.
House of Lords, Select Committee on Communications (2012), The Future of Investigative Journalism.
73
74
Advertising Pays 3
43
The value of advertising
to the UK’s culture,
media and sport
5.2
Magazines
Magazines
The UK remains a nation of
magazine-lovers. There are
an estimated 2,543 consumer
magazines in regular print
production in the UK,75 and
there were 893 million issue
sales in 2013.76
Advertising plays a central role in the
financing of the magazine industry. In
2013, consumer magazines received
£597 million of advertising revenues,
accounting for more than one-third of
the magazine industry’s total revenues.
These revenues allow magazine
publishers to keep prices down without
compromising on content.
There are an estimated 2,543
consumer magazines in regular
print production in the UK, and
there were 893 million issue sales
in 2013.
75
76
PPA, ‘Industry Scale: The UK is a nation of magazine brand fans’, http://www.ppa.co.uk/marketing/insightanddata/one-minute-pitch/industry-scale/
ABC (2014), ‘ABC Market Summary Report – July-December 2013’
44
Magazines
In 2013, consumer magazines
received £597 million of
advertising revenues, accounting
for more than one-third of the
magazine industry’s total revenues.
40 million
The number of people
in the UK who read a
magazine each year77
85%
The variety and specialisation
of magazines lend themselves
well to advertising as it allows
businesses to reach the intended
audience in a more targeted way.
For some readers, targeted adverts
in specialised magazines can even
enhance the consumer’s experience
– a recent study found that magazine
advertising is consistently referred
to as the most useful and relevant
relative to other advertising media.80
The growth rate of
digital magazine sales
in 201378
£597
million
The advertising
revenues consumer
magazines received
in 201379
PPA, ‘Top-line facts and figures of UK magazines’, http://www.ppa.co.uk/marketing/insightanddata/stats/
ABC (2014), ABC Market Summary Report – July-December 2013
79
Advertising Association/Warc (2015), Expenditure Report.
80
FIPP (2012), ‘Proof of Performance: Making the Case for Magazine Media’
77
78
Advertising Pays 3
45
The value of advertising
to the UK’s culture,
media and sport
5.2.1
Quantifying the benefits
of magazine advertising
to individuals
If magazines were not able to
use advertising revenues to fund
their operations, many would be
unlikely to be able to continue,
leading to a reduction in choice.
For those that could continue,
there would be an increase in
price and, possibly, a reduction
in quality.
46
As with newspapers, the results of
our survey suggest that readers have
a relatively high tolerance towards
price increases, but the actual price
rise required to make up the huge
loss in advertising revenue is such
that there would inevitably be a large
reduction in sales of magazines.
Our analysis suggests there could
be 378 million fewer magazine
sales each year. Clearly this would
Quantifying the benefits of magazine advertising to individuals
Quantifying the benefits
of magazine advertising
to individuals
If magazines were not able to use advertising
revenues to fund their operations, many
would be unlikely to be able to continue,
leading to a reduction in choice.
have an impact on those who
are no longer able to afford their
favourite magazines, but it would
also affect those who continue to buy
magazines, as they would have to
pay more.
Our estimates of the individual value
derived from magazines indicate that,
by enabling magazines to keep prices
low, advertising benefits individuals by
£704 million each year.
Figure 15: How advertising benefits individuals by providing income for
the magazine industry
Subsidising purchases of the
515 million magazines that
would take place each year
anyway
Allowing 378 million more
magazines to be bought each
year as a result of the lower
price
Worth £498 million a year in
individual value
Worth £206 million a year in
individual value
Total of
£704 million
a year in individual value
Source: Deloitte analysis on Deloitte Survey/Ipsos (August 2014)
Advertising Pays 3
47
The value of advertising
to the UK’s culture,
media and sport
Arts, Culture,
Music and
Cinema
Commercial sponsorship of the
arts makes a large contribution
towards the cost of access to a
range of events and activities.
This directly benefits over 80% of
the population, but it also brings
further benefits through the
broader social effects of public
engagement in the arts. With
public funding tightening in recent
years, sponsorship will be likely
to play an increasingly important
role in maintaining the quality of
Britain’s arts and culture, and in
keeping prices low.
48
Sport
6
Advertising Pays 3
49
The value of advertising
to the UK’s culture,
media and sport
6
Arts, Culture,
Music and
Cinema
Arts, Culture, Music
and Cinema
Arts, culture, music and cinema enrich
the lives of millions of people in the
UK. 29% of people watch a film at the
cinema at least once a month81 and,
according to our survey, around 83%
of adults attend an activity (whether a
play, a festival, a musical performance,
a gallery or a museum) at least once
a year.82 Similarly, an estimated 5.9
million people are members of an
amateur or voluntary arts group, with
an additional 3.5 million participants
involved in another capacity, such as
helpers or volunteers.83
The arts provide a range of benefits
on both an individual and a societal
level. For example, a number of
studies have found that participation in
the arts can have a positive impact on
health, providing therapy for a variety
of conditions, including dementia and
depression.84 Additionally, research
has shown that society can benefit
from high levels of engagement in the
arts through reduced re-offending by
prisoners and improvements in their
job prospects.85
29% of people watch a film at the cinema
at least once a month and, according to
our survey, around 83% of adults attend
an activity at least once a year.
83%
Proportion of adults in
the UK who attend an
arts event, museum
or gallery at least once
a year
BFI/Northern Alliance and Ipsos MediaCT (2011), Opening Our Eyes: How Film Contributes to the Culture
of the UK., http://www.bfi.org.uk/sites/bfi.org.uk/files/downloads/bfi-opening-our-eyes-2011-07.pdf
82
Deloitte Survey/Ipsos (August 2014).
83
Department for Culture, Media and Sport (2008), Our Creative Talent: The Voluntary and Amateur Arts in England.
84
Arts Council England (2014), The Value of Arts and Culture to People and Society: An Evidence Review.
85
New Philanthropy Capital (2011), Unlocking Value: The Economic Benefit of the Arts in Criminal Justice.
81
50
Arts, culture, music, and cinema
With public funding falling in recent years, sponsorship
will play an increasingly important role in maintaining the
quality of Britain’s arts and culture, and in keeping prices
low enough for the mass of the population.
£80
million
166
million
25%
£185
million
Corporate sponsorship
of the arts in the UK
The fall in government
funding to Arts
Council England in
real terms since 2010
86
87
UK cinema admissions
in 201386
The contribution of
advertising revenues
to both independent
and chain cinemas87
he Cinema Exhibitors’ Association Limited, ‘UK cinema – annual admissions 1935-2013’, http://www.cinemauk.org.uk/facts-and-figures/admissions/annual-uk-cinemaT
admissions-1935-2013/
The £185 million refers to all types of cinemas. No separate estimate is available for either independent cinemas or chain cinemas individually but – for context – the former make up less
than 18% of the market in terms of total cinema screens. Advertising Association/Warc (2015), Expenditure Report; BFI (2014), Statistical Yearbook 2014.
Advertising Pays 3
51
The value of advertising
to the UK’s culture,
media and sport
6
Arts continued...
Arts continued...
Case study
BP and the British Museum
Founded in 1753, the British Museum
is the oldest national public museum
in the world. Since its inception, it has
granted free admission to visitors, who
now total almost 6 million each year.
The British Museum obtains most
of its funding from grants from the
Department for Culture, Media and
Sport (£45.4m in 2012/13), and income
from fundraising (£39.5m), which
includes commercial sponsorship.88
Recent DCMS budget cuts, which
have led to a planned reduction of
grant-in-aid by 5% year-on-year to
£41.9 million for the 2015/16 financial
year,89 mean that the British Museum
is set to become more reliant on its
commercial income.
The British Museum’s longest-standing
corporate partner is BP, which has
helped to fund the museum’s public
programme since 1996. In this time,
BP has supported a number of special
exhibitions as title sponsor, attracting
over 1 million visitors. BP has also
contributed to public events that the
British Museum has hosted, such as
Chinese New Year, and the Mexican
Day of the Dead90 which more than
70,000 people attended.91
In 2000, BP funded the BP Lecture
Theatre, part of the Great Court
development at the British Museum.
The theatre has helped the museum to
generate additional revenue, as well as
enhance its public programme.92
“Curator Paul Roberts has done a
superb job in bringing these objects
to life, using them in such a way
that each work in the show adds
something new to our understanding
of the classical world.”
– The Telegraph on the
“Life and Death in Pompeii and
Herculaneum” exhibition, 201393
British Museum (2013), Report and Accounts for the year ended 31 March 2013.
Department for Culture, Media and Sport (2013c), British Museum Spending Round Letter July 2013.
90
The British Museum, ‘Your support: success stories – BP’, http://www.britishmuseum.org/support_us/your_support/success_stories/bp.aspx
91
BP, ‘Connecting through culture’, http://www.bp.com/en/global/corporate/about-bp/bp-worldwide/bp-united-kingdom/bp-in-the-community/arts-and-culture.html
92
Ibid.
93
The Telegraph (26 Mar. 2013), ‘Pompeii exhibition: Life and Death in Pompeii and Herculaneum, British Museum, Review’, http://www.telegraph.co.uk/culture/art/art-reviews/9952882/
Pompeii-exhibition-Life-and-Death-in-Pompeii-and-Herculaneum-British-Museum-review.html
88
89
52
Arts continued...
Corporate sponsorship of
the arts in the UK is worth
approximately £80 million
a year, of which around
£24 million is in the
voluntary arts sector.
The arts have traditionally been
heavily subsidised in the UK. In
2012 only 37% of total funding to
the arts came from earned income,
with 41% from public funds, and
22% from private investment, such
as donations and sponsorship.94
Such subsidies increase access to
the arts and allow many of the top
visitor attractions, such as the British
Museum and the National Gallery, to
remain free.
Corporate sponsorship of the arts in
the UK is worth approximately £80
million a year,95 of which around £24
million is in the voluntary arts sector.96
In addition, sponsorship of live music
events, branded tours and venue
naming provide a significant source of
income, estimated at £33.1 million in
2012.97 These revenues help to keep
ticket prices down, even enable many
free events, and increase the quality
and provision of the arts. For instance,
the National Theatre’s longstanding
partnership with Travelex has provided
100,000 reduced-price tickets
for a range of critically acclaimed
performances in 2014.98
T
E
K
C
I
T
T
E
K
C
TI
Arts and Business (2013), Private Investment in Culture Survey 2011/12.
This figure is exclusive of donations. Arts and Business (2012), Private Investment in Culture Survey 2010/11.
96
Department for Culture, Media, and Sport (2008), Our Creative Talent: The Voluntary and Amateur Arts in England.
97
PRS for Music/FRUKT (2013), UK Brand Spend in Music.
98
National Theatre (2014), ‘Travelex £15 tickets 2014’, http://www.nationaltheatre.org.uk/series/travelex-%C2%A315-tickets-2014
94
95
Advertising Pays 3
53
The value of advertising
to the UK’s culture,
media and sport
6
Arts continued...
Arts continued...
Case study
Outdoor cinema
In 2013, there were 756 cinemas
that catered to over 160 million
admissions generating box office
revenues in excess of £1 billion.99
To put this into context, these
revenues were the highest in Europe
and accounted for 5% of the global
box office.100
Recent years have seen the
appearance of new outdoor cinemas,
providing unique experiences for
the British public. These cinemas
combine entertainment with social
enterprise and atmosphere. Some
organisers utilise locations such as
rooftops and parks, while others
choose venues that can match the
theme of a particular film.101
Outdoor cinemas have grown in
popularity and size. Over the last
four years, 150,000 people have
attended one or more screenings
hosted by the Rooftop Film Club.102
The Nomad pop-up cinema,
meanwhile, has gone from just one
screening per year to 85 in its fourth
year of operation, with all of its profits
being donated to charity.103
Sponsors and advertising revenues
have assisted the development
and growth of these cinemas,
as companies work together
with organisers to enhance the
experience of cinema-goers. The
Rooftop Film Club’s partnership with
British Airways has led to the airline’s
cabin crew and chefs concocting and
serving themed dining experiences
at film screenings. Other cinemas
rely heavily on volunteers, and the
funding provided by advertisers and
sponsors, to run screenings.
According to its founder, the
Nomad owes its very existence to
the contribution of sponsors and
advertising revenues.
BFI (2014), Statistical Yearbook 2014.
MPAA (2014), Theatrical Market Statistics 2013.
101
The Telegraph (27 June 2011), ‘The Nomad: bringing London to life with cinema’, http://www.
telegraph.co.uk/promotions/best-deals-of-the-day/8601965/The-Nomad-bringing-London-to-lifewith-cinema.html
102
Rooftop Film Club (2014), The Ultimate Film Experience.
103
Lexicinema, ‘The Nomad’, http://thelexicinema.co.uk/hire-us/51; The Telegraph (27 June 2011),
The Telegraph (27 June 2011), ‘The Nomad: bringing London to life with cinema’.
99
100
54
Sport
“Advertising supported the birth
and development of pop-up cinema
– without sponsorship this new and
fun way of bringing cinema to new
audiences would never have
been possible.”
– Sally Wilton, CEO of The
Lexi Cinema
While commercial sponsorship
represents a relatively small
proportion of the overall
funding for many institutions,
these funds are absolutely
critical for institutions that
barely break even.
While commercial sponsorship
represents a relatively small
proportion of the overall funding for
many institutions, these funds are
absolutely critical for institutions that
barely break even. Moreover, public
funding for arts, national museums
and galleries has been tightening in
recent years. In real terms, DCMS
grants to Arts Council England104
have already been cut by a quarter
since 2010, while further cuts mean
that DCMS’s budget will reduce by
another £62 million in real terms
in 2015–16.105 This means that
sponsorship will be likely to play
an increasing role in ensuring the
continued quality and low price
of arts and culture provision.
Case study
The Yahoo! Wireless Festival
In recent years, Yahoo! has shifted
its marketing strategy to align the
brand more closely with music.106
2013 marked a significant year for
this strategy, as the company
created the Yahoo! ‘On The Road’
tour and took over as headline
sponsors of the Wireless Festival,
in what was estimated to be a ‘high
six-figure deal’.107
The Yahoo! On The Road tour was
the world’s first mobile entertainment
and innovation festival, bringing
bands, musicians and comedians
to major cities across the USA and
Europe. In 2013, the tour culminated
with the Wireless Festival in London,
which featured artists such as Jay-Z,
Snoop Dogg and Justin Timberlake.108
Three days of world-class urban
music, the performance of the
headline acts, and the reaction of
the crowd prompted Digital Spy
to “wonder how they will top such
a blockbuster performance next
year”,109 while reviewers from both
The Guardian and The Telegraph
were equally impressed.
“A formidable three-day lineup drawn
from urban music’s top table is worth
risking heatstroke for.”
– The Guardian review of the
Yahoo! Wireless Festival, 2013110
Based on DCMS grant data and ONS inflation statistics.
Department for Culture, Media and Sport (2013b), Arts Council England Spending Round Letter July 2013.
106
The Drum (24 June 2013), ‘Yahoo! is repositioning its business to attract younger audiences, says marketing chief’, http://www.thedrum.com/news/2013/06/24/yahoo-repositioning-itsbusiness-attract-younger-audiences-says-marketing-chief
107
Campaign (12 Mar. 2013), ‘Yahoo to sponsor Wireless Festival as part of new positioning’, http://www.campaignlive.co.uk/news/1174142/
108
Complex (12 Mar. 2013), ‘Yahoo! Announces “On the Road” Tour with Jay-Z, Kendrick Lamar, Justin Timberlake, Frank Ocean and More, http://uk.complex.com/music/2013/03/yahooannounces-on-the-road-tour-with-jay-z-kendrick-lamar-justin-timberlake-frank-ocean-and-more
109
Digital Spy (15 July 2013), ‘Wireless Festival, London – Review’, http://www.digitalspy.co.uk/music/news/a498539/wireless-festival-london-review.html#~oSHaXM7nnLCp0x
110
The Guardian (15 July 2013), ‘Jay-Z/Justin Timberlake at Wireless – Review’, http://www.theguardian.com/music/2013/jul/15/jay-z-justin-timberlake-review
104
105
Advertising Pays 3
55
The value of advertising
to the UK’s culture,
media and sport
Sport
UK sport receives approximately
£700 million in annual sponsorship
revenues. These funds help to
improve the quality of spectator
sports and provide much-needed
funds for grassroots sports,
bringing a wide range of benefits
to adults, children and society as
a whole.
7
The value of advertising
to the UK’s culture,
media and sport
7
Sport
Sport
In 2011, a third of UK adults attended a
live sporting event,111 and according to
our survey, 26% of adults are members
of either a gym or a sports club.112
Sponsorship revenue is a vital
component of income for professional
sports clubs, associations and
bodies. For example, in the
2013/14 financial year, Manchester
United received £135.8 million in
sponsorship revenue, accounting for
31.3% of its total revenue.113
of such sponsorship, and by the fact
that many organisations do not report
their revenue in detail.114 However,
some industry estimates suggest that
the total value of sports sponsorship
in the UK will be around £700 million
in 2014.115
As a source of funding, sponsorship
is often crucial to the staging of
high-profile sporting events, as
demonstrated by the London 2012
Olympic Games.
Getting an accurate picture of the
total value of sports sponsorship is
complicated by the changing nature
Sponsorship revenue is a
vital component of income
for professional sports clubs,
associations and bodies.
Mintel (2011), ‘Spectator Sports – UK – April 2011’
Deloitte (2014a), Economic Impact Assessment of the Proposed European Data Protection Regulation.
Manchester United plc (2014), Manchester United plc 2014 Fourth Quarter and Full Year Results.
114
Deloitte (2014b), Annual Review of Football Finance 2014.
115
In 2009, it was estimated that the total value of sponsorship to sport in the UK was approximately £946 million. This fell to
around £540 million in 2011, but estimates show an upward trend in the market with predictions of the total value amounting
to £691.3 million in 2014 and surpassing £800 million in 2016. Key Note (2013), Sports Sponsorship: Market Update 2013.
111
112
113
58
Sport
Some industry
estimates suggest
that the total value of
sports sponsorship in
the UK will be around
£700 million in 2014.
The London Games attracted
more than £739 million of revenue
from domestic sponsors, and
an additional £232 million from
worldwide partners in cash and
payments in kind. These funds are
roughly equivalent to the entire
building costs incurred from
constructing the venues in the
Olympic park.
Case study
The London Olympic Games, 2012
The Olympic Games are among the
most watched events in the world,
and the London 2012 Olympics
were no exception. Nearly 900
million people from around the
world, including 27 million in the UK,
watched the opening ceremony.116
This was over 2 million more than
the number of British people who
watched the wedding of the Duke
and Duchess of Cambridge.117
The London Olympic Games caught
the imagination of the country and
also generated substantial economic
and social benefits. The government
has set a target of £13 billion worth of
economic benefits to be generated by
2016, and has estimated that 618,000
to 893,000 years-worth of employment
will be added to the economy by 2020
as a result of the Games.118 From a
social perspective, UK communities
experienced an increase in formal and
informal volunteering from 2012 to 2013
for the first time since 2005, and saw
massive investment in new, sustainable
and improved infrastructure.119
Sponsorship provided a major
source of funding for the London
2012 Olympic Games, and reduced
the financial burden that would
otherwise have been placed on UK
taxpayers. As of 30 September 2012,
the London Games attracted more
than £739 million of revenue from
domestic sponsors, and an additional
£232 million from worldwide
partners in cash and payments
in kind. These funds are roughly
equivalent to the entire building
costs incurred from constructing the
venues in the Olympic park.120 In
addition to providing funds to help
stage the Games, some sponsors
used the association with the
Olympic brand to promote their own
causes.121 Campaigns to promote
sustainability or sports participation
among disadvantaged youth gained
additional exposure through their
co-branding with the Olympic Games.
International Olympic Committee (27 July 2012), http://www.olympic.org/news/london-2012-the-opening-ceremony/204829
BBC (1 May 2011), ‘Royal wedding: In numbers’, http://www.bbc.com/news/uk-13248642
118
UK Government and Mayor of London (2013), Inspired by 2012: The Legacy from the London 2012 Olympic and Paralympic Games.
119
Ibid.
120
Olympic Delivery Authority (2012), Setting New Standards for Construction.
121
International Olympic Committee (2012), IOC Marketing: Media Guide London 2012.
116
117
Advertising Pays 3
59
The value of advertising
to the UK’s culture,
media and sport
7
Sport continued...
Sport continued...
Commercial sponsorship is worth
on average £1,200 to each of the
estimated 150,000 grassroots sports
clubs in the UK, representing 3%
of total income.122 Sponsorship
revenues are usually used for
specific purposes such as new kit
or equipment, or events such as
regional competitions. Many of the
major sports sponsorship deals
often include separate funding for
grassroots-level sports,123 with one
estimate valuing this funding at 15%
of total sponsorship.124
Grassroots sport also receives
advertising revenues indirectly.
A pledge was made by major sporting
bodies for football (the FA), athletics
(UK Athletics), cricket (ECB),
tennis (LTA), and others, to pass
on 30% of their net broadcasting
income to grassroots sports. As of
2010, all signatories except one
met or exceeded this threshold,125
amounting to approximately £250
million a year.126
The financial support offered by
sponsorship and advertising helps
grassroots sports clubs to provide
health benefits for their members
and a focal point for social activity,
offering opportunities for meeting
people and committing to a cause.
The findings from our survey
suggest they make people feel both
healthier and happier,127 while studies
have found that sport contributes
to increased identification and
commitment to school values, in
turn having a positive influence on
academic performance.128 One study
even estimates that having a more
intensive participation in athletics
increases the years of education
attained by an individual.129
“It is of profound importance for
the happiness and success of this
country that we have more sport
in schools.”
Boris Johnson, Mayor of London130
Sport and Recreation Alliance (2011), Survey of Sports Clubs 2011: A Review of Clubs, Facility Access, Finances, Challenges and Opportunities.
For example, in April 2012 BMW signed a new four-year agreement with the Rugby Football Union (RFU) to become its official partner until September 2014. The deal included investment in
various age levels of elite rugby teams and other grassroots schemes: BBC (12 Apr. 2012), ‘RFU and BMW sign four-year sponsorship deal’, http://www.bbc.co.uk/news/business-17688668;
Key Note (2013), Sports Sponsorship: Market Update 2013.
124
Carter, P. (2005), Review of National Sport Effort & Resources (Carter Report).
125
Sport and Recreation Alliance (22 Dec. 2010), ‘Major sports commit to putting 30% of broadcast revenues into grassroots’, http://www.sportandrecreation.org.uk/news/22-12-2010/majorsports-commit-putting-30-broadcast-revenues-grassroots
126
Eurostrategies (2011), Study on the Funding of Grassroots Sports in the EU: Volume II of the Final Report.
127
75% said they do more exercise as a result of attending their club, while 82% reported feeling happier. Deloitte (2014a). Economic Impact Assessment of the Proposed European Data
Protection Regulation.
128
Marsh, H. W. and Kleitman, S. (2002), ‘Extracurricular school activities: The good, the bad, and the non-linear’, Harvard Educational Review, 72, 464-514.
129
Barron, J. M., Ewing B. T. and Waddell, G. R. (2000), ‘The effects of high school athletic participation on education and labor market outcomes’, The Review of Economics and Statistics,
82(3), 409–421.
130
BBC News website (9 August 2012), ‘Boris Johnson urges two hours of PE a day”, http://www.bbc.co.uk/news/uk-politics-19192153
122
123
60
Sport
Commercial sponsorship is
worth on average £1,200 to
each of the estimated 150,000
grassroots sports clubs in the UK,
representing 3% of total income.
26%
The proportion
of adults who are
members of either a
gym or a sports club131
131
69%
The proportion
of people who think
that the government
should ensure that
all children have
access to adequate
sports facilities
c. £700
million
The estimated value of
sports sponsorship in
the UK in 2014
Deloitte Survey/Ipsos (August 2014).
Advertising Pays 3
61
The value of advertising
to the UK’s culture,
media and sport
7
Sport continued...
Sport continued...
If grassroots sports clubs were
not able to draw on funds from
sponsorship and advertising, the
loss of funding could pass through
to membership fees and events
charges, or result in a reduction in
equipment. This could lead to many
being unable to afford the costs of
sports participation, with children and
young people likely to lose out the
most. For low-income clubs (those
receiving less than £10,000 a year)
commercial sponsorship represents
4% of income.132 On average, these
clubs are running at an annual loss,
so any loss of sponsorship funding
would affect their continued operation.
Results from our survey reveal that
the majority of individuals are aware
of the benefits that sponsorship and
advertising provide for society. 55%
of people believe it is important that
people should be able to attend
sports clubs, while 69% think the
government should ensure that all
children have access to adequate
sports facilities.133 These findings
demonstrate the essential need for
continued funding of sports through
sponsorship and advertising.
Case study
The Football Association
The Football Association (FA),
the governing body of football in
England, organises football events
from grassroots leagues all the way
to the professional FA Cup. The FA
also manages the sponsorships and
licensing revenue from partners,
which it then distributes among its
various operations. In the 2012/13
season, the £63 million of
sponsorship and licensing deals
were the second-largest contributor
to the FA’s turnover.134
Sponsorship income is divided
among both amateur and
professional football initiatives. For
the 2012/13 season, 44% of the
FA’s investment in football was
apportioned to grassroots initiatives,
while 40% was given to the
professional game. This translates
to £48 million and £43 million
respectively.135
These funds help to supply
grassroots schemes with cash and
equipment to enhance both quality
and participation. For example, the
FA acts as a major funding partner
for the Football Foundation, which
in turn channels £30 million into
grassroots sport annually. The FA’s
funds are used by the Football
Foundation for schemes such as
Grow the Game, which saw 19,784
new players and 3,215 coaching
qualifications in 2012/13.136
On average, these clubs are running at an
annual loss, so any loss of sponsorship funding
would affect their continued operation.
Sport and Recreation Alliance (2011), Survey of Sports Clubs 2011: A Review of Clubs, Facility Access, Finances, Challenges and Opportunities.
Deloitte Survey/Ipsos (August 2014).
134
Revenue from broadcasting is the biggest contributor to the FA’s turnover, earning £106 million for the 2012/13 season. Football Association (2013), Report and Financial Statements: Seven
Month Period Ended 31 July 2013.
135
Football Association (2013), Report and Financial Statements: Seven Month Period Ended 31 July 2013.
136
Football Foundation (2013), Onside issue 33.
132
133
62
Sport
For sport, as with the other areas
examined in this report, advertising
and sponsorship provide a crucial form
of funding that enables high-quality
affordable services to thrive. Without
advertising and sponsorship, many
of the things which people enjoy in
their everyday lives would no longer
be accessible in their current form,
while others would face a serious
deterioration in quality.
Taken together these findings illustrate
the important role of advertising in
making the UK the exciting, diverse
and culturally rich place it is today.
Advertising Pays 3
63
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68
Appendices
Appendix A: The consumer survey methodology
70
A.1 Description of the survey
70
A.2 Eliciting consumers’ willingness to pay
70
A.2.1Background on how surveys are used in
consumer valuation studies
70
A.2.2How consumers’ valuations are elicited
using the survey
71
Appendix B: Estimating individual value
72
B.1 The concept of individual value
72
B.2 Calculating the individual value attributable to advertising
72
Advertising Pays 3
69
Appendix A
The consumer
survey methodology
A.1 Description of the survey
Deloitte designed a consumer survey
asking a number of questions about
attitudes to, and valuation of, the
goods and services discussed in this
study. Ipsos MORI fielded the survey
to 1,000 adults using an online format.
The results were weighted according
to the profiles of the respondents to
ensure that they are representative of
the UK adult population.
The survey contains a mix of
questions about:
• consumers’ attitudes to the goods
and services considered in this
study (e.g. how often they use them
and for what purpose)
• consumers’ willingness to pay for
these goods and services.
Questions about consumer attitudes
were asked for each sector considered
in this study, while willingness to pay
questions were asked for each sector
apart from sport.
A.2 Eliciting consumers’
willingness to pay
One of the key methodological issues
to be addressed in designing the
survey was what format to use to elicit
consumers’ willingness to pay. This
section discusses how this issue is
typically approached in practice, and
explains how the lessons have been
implemented for the current study.
70
Appendix A The Consumer Survey Methodology
A.2.1 Background on how
surveys are used in consumer
valuation studies
In 1993 a panel of academic
economists, including two Nobel
Prize winners (Kenneth Arrow and
Robert Solow), came up with a set of
best practices on how to use surveys
to obtain the most accurate estimates
of people’s willingness to pay. The
results of their seminal work have
informed survey design on questions
of environmental and cultural
evaluation for the last two decades.
One of the panel’s recommendations
involved eliciting willingness to pay.
The panel considered both the “openended format” and the “referendum
format”. To illustrate the difference
between these types of questions,
it is helpful to consider a simple
example involving a local library:
• An open-ended format question
could ask: “The local library needs
more income, otherwise it will
have to close. It is considering the
introduction of an annual subscription
fee for its users. What is the most
that you would be willing to pay to
keep the library open?” In this case
the respondents get to choose the
amount themselves, either directly
inputting their value or choosing from
a set number of ranges.
• A referendum format question could
ask: “The local library needs more
income, otherwise it will have to
close. It is considering introducing
an annual subscription fee of £15
for each of its users. Would you
be willing to pay this fee to keep
the library open?” In this case,
respondents only choose between
Yes and No.
The conclusion of the panel was
that willingness to pay should be
elicited using a referendum format
rather than an open-ended format.
The main reasons were that the
referendum format makes for a more
realistic scenario and does not invite
strategic under- or over-statement of
valuation in the way that an openended format can.
A number of surveys seeking to value
environmental and cultural assets
(which are not priced by the market)
have applied the referendum format
methodology. Examples include:
•e
stimate of damages following the
Exxon Valdez oil spill (1992)
• the National Library of New
Zealand’s economic valuation of
its National Bibliographic Database
(NBD) and National Union
Catalogue (NUC). (McDermott
Miller Ltd, 2002)
•B
ritish Library economic impact
study undertaken in 2003. (Pung,
Clarke and Patten, 2004)
• investigation of the public library
system in Norway. (Aabo, 2005)
a referendum format. For the
broadcasting, online and publishing
sectors, respondents were asked
whether or not they would be willing
to pay for the good or service (or
in the case of newspapers and
magazines, how often they would
buy them) for a range of prices.
Respondents were asked for their
responses to the same set of
prices, but the order in which the
prices were presented to them was
randomised. This randomisation was
there to ensure that, in aggregate,
respondents’ answers were not
anchored to particular prices. The
• South African arts festivals.
(Snowball, 2008)
• valuing the Queensland museum.
(2008)
•entry charges to museums in
Sweden. (Lampi and Orth, 2009)
A.2.2 How consumers’
valuations are elicited using
the survey
The survey’s willingness-to-pay
questions were posed using
following diagram (Figure 2 in the
main report) provides a graphical
illustration of how this is done.
The results of the survey provide
estimates of the proportion of
consumers who would purchase the
good or service at a range of different
prices. Using data on current levels
of use and consumption, these
estimates were extrapolated to obtain
absolute numbers of consumers and
thus generate a demand schedule.
These demand curves provide the
input to the analysis described in
Appendix B.
Scenario: suppose the commercial free-to-air TV channels (e.g. ITV, Channel 4, Channel 5) were no longer able to receive advertising revenue. In order to cover the cost of
programme production, they introduced a monthly subscription. The quality of output would remain the same, and the subscription would include access to all services
provided by the channels. How much would you pay for this monthly subscription?
£4
Respondent A
Q1. Would you be willing to pay £4?
£3
Q2. Would you be willing to pay £3?
£2
Q3. Would you be willing to pay £2?
£1
Q4. Would you be willing to pay £1?
Respondent B
Q3. Would you be willing to pay £4?
NO
Q2. Would you be willing to pay £3?
NO
Q1. Would you be willing to pay £2?
NO
Q4. Would you be willing to pay £1?
YES
Respondent C
Q1. Would you be willing to pay £4?
NO
Q2. Would you be willing to pay £3?
NO
YES
YES
Q3. Would you be willing to pay £2?
Q4. Would you be willing to pay £1?
NO
YES
YES
YES
£0
Individual Value
£7
£6
£5
£4
£3
£2
£1
£0
Respondent A
Respondent B
Respondent C
Total Individual Value
£7
£6
£5
£4
£3
£2
£1
£0
Respondent C
Respondent B
Respondent A
Total Individual Value
The survey gives each respondent a scenario and a series of multiple questions, each asking if the respondent would pay a randomised price for the good or service (yes/
no). The highest price that the respondent says yes to is taken as the amount he or she would be willing to pay for the good or service. Consumer value is then calculated by
subtracting the actual retail price of the good or service from this amount. Total consumer value is the sum of all the respondents’ individual consumer values.
Advertising Pays 3
71
Appendix B
Estimating individual value
B.1 The concept of
individual value
The concept used to measure
individual value in this report is
known as “consumer surplus”.
Consumer surplus is the difference
between the maximum amount that
a consumer would be willing to pay
for a good, and the amount that she
actually has to pay to have it. The
total consumer surplus attributable
to a good is the sum of the individual
values over everyone who consumes
the good. Graphically it can be
represented as the area under the
demand curve and above the price of
the good.
Consumer surplus
Price
Quantity demanded
72
Appendix A continued...
B.2 Calculating the
individual value attributable
to advertising
To estimate how much consumer
surplus is due to advertising, one has
to consider what the market price of
the good would be in the absence
of advertising and compare it with
what the consumer surplus is with
advertising present. The difference
between the two is the amount
of consumer surplus that can be
attributed to advertising.
In order to make this estimation, it is
necessary to form a hypothesis about
the counterfactual – namely, what
would happen if the industries under
consideration were not able to draw
on advertising revenues to fund their
activities. The hypothesis adopted
in this study is that in the absence
of advertising revenue, the funding
responsibility would be passed over
to consumers through an increase in
the price of the good. For TV, radio
and online services, we assume
that this takes the form of a monthly
subscription fee.
As the price of the good rises, some
consumers will no longer want to
pay for it. As these consumers no
longer consume the good, they
no longer receive any consumer
surplus. For those that do continue
to consume the good, the surplus
is lower because they now have
to pay a higher price. The overall
loss in consumer surplus is equal
to the sum of these changes: the
loss in consumer surplus from those
consumers who no longer consume
the good, and the loss in consumer
surplus from those who do still
consume the good but have to pay
more for it.
In some cases, advertising is so
central to the funding model of the
industry that it may not be feasible to
recoup the necessary revenue from
sales alone. Whether this is the case
will depend on the characteristics
of the demand for the good. Where
it is the case, there may not
necessarily be a natural alternative
counterfactual, and it is possible that
the industry would cease to function
altogether. In this case, the loss in
consumer surplus would be equal to
the initial consumer surplus.
A: Change in consumer surplus due to consumers paying more
B: Change in consumer surplus due to consumers no longer consuming
A + B: Total change in consumer surplus
Price
A
B
Quantity demanded
Advertising Pays 3
73
Report layout and design by Mark Terry/Gabriella Mai at Etcx3. etcx3.com
In association with:
The Advertising Association and Credos would like to thank the following for their support in
producing this report:
James Best, Chairman, Credos
Credos Advisory Board
Our member organisations
The Advertising Association’s Front Foot group
Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited (“DTTL”), a UK private company
limited by guarantee, and its network of member firms, each of which is a legally separate and
independent entity. Please see www.deloitte.co.uk/about for a detailed description of the legal structure
of DTTL and its member firms.
Deloitte LLP is the United Kingdom member firm of DTTL.
Deloitte LLP is a limited liability partnership registered in England and Wales with registered number
OC303675 and its registered office at 2 New Street Square, London, EC4A 3BZ, United Kingdom.
Tel: +44 (0) 20 7936 3000 Fax: +44 (0) 20 7583 1198.
© 2015 Deloitte LLP. All rights reserved.
Member of Deloitte Touche Tohmatsu Limited
74
Advertising Pays 3
75
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Promoting the role, rights and responsibilities of advertising.
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